As private lender Axis Bank enters into a revised agreement with Max Financial to acquire the remaining 7 percent stake in Max Life Insurance, there could be two possible scenarios to determine the fair value of the life insurance company.
On Monday, Axis Bank agreed that the valuation for the right to acquire the remaining stake of Max Life will be through fair market value derived through discounted cash flow mechanism instead of valuation as per Rule 11UA of the Income Tax Rules, 1962.
Let us take a look at the two possible scenarios:
Out of the total 192 crore equity shares of Max Life, a 7 percent equity base would comprise of 13.4 crore shares. The private sector lender has paid an average of Rs 32 per share for the acquisition of the earlier 12.99 percent stake.
The last assessed value for Max Life Insurance was Rs 166 per share. Based on this calculation, Axis Bank may have to shell out an additional Rs 134 per share or an additional Rs 1,800 crore to acquire the 7 percent stake.
Under this scenario, Axis Bank may have to shell out an extra Rs 50 per share worth nearly Rs 700 crore. This stems from the fact that Max Financial had acquired a more than 5 percent stake in Max Life at Rs 85 per share from Mitsui Sumitomo. For its earlier acquisition, Axis Bank had paid Rs 32 per share.
Analysts have given a thumbs-up to this deal, calling it a positive for Max Financial in particular. Jefferies said that the revised deal offers visibility on the bancassurance business from Axis Bank and Max Financial can also offer dividend to investors from additional funds, which can help its promoters deleverage.
Jefferies also said that one should watch out for the merger between Max Financial and Max Life and the listing of the latter going forward.
Kotak Instututional Equities has a price target of Rs 1,000 on Max Financial, implying a potential upside of 30 percent. The brokerage said that the deal stamps certainty on the partnership and the focus now shifts to Max Life's listing.
Investec has the highest potential upside for Max Financial. Its price target of Rs 1,200 implies a 56 percent potential upside. The brokerage said that there is no reason for Max Financial to trade at a discount to HDFC Life and SBI Life. The deal not only simplifies the corporate structure but also ends the uncertainty around Axis Bank's contribution to Max Life's annual premium.
Axis Bank shares were trading 0.81 percent lower at Rs 944.15 per piece at 2.10 PM on BSE on Wednesday.
First Published: Jan 11, 2023 2:42 PM IST
