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Microsec Research

5th June 2014

We rate Max India Limited a BUY. Max India is a multi-business company focused on people and service oriented businesses. It has seven segments: specialty plastic products, healthcare business, business investment, life insurance, healthcare staffing services, clinical research services and others. The company serves over 7 million customers through over 310 offices across 216 locations in the India. The company has employee strength of 70000 persons as on March 31, 2014. The Max India Group has a strong history of entrepreneurship and successful business partnerships, and leading global players such as Mutsui Sumitomo Insurance Company (part of MA&AD group), Life Healthcare, South Africa and BUPA plc have entered into Joint Ventures with Max India.

Investment Rationale

Key beneficiary of any hike in FDI ceiling in insurance sector: The finance ministry is likely to increased Foreign Direct Investment (FDI) limit in insurance sector without voting rights. According to the sources, the ministry may increase FDI limit in insurance to 49% from current 26%. We believe the move is very much positive for the sector as a whole. Max India seems to be a key beneficiary, as the company has a strong presence in the sector.

High Sector Growth Visibility: Max India is primarily engaged in health care and life insurance business. It has carved a niche for itself by more than a decade of dominant presence in health care and insurance business which enabled the company to deep understanding in its business field. We believe, rising awareness of the benefits of insurance along with financial literacy will add the company business growth going forward.

Robust business growth: Despite challenging environment coupled with slowdown in the economy and high inflation, the company has reported a strong set of number better than the industry in Q4FY14. The company’s total income increased by 52% YoY to INR3740 crores whereas, Profit After Tax (PAT) increased by 80% YoY to INR52 crores. The key contributing factors to this robust performance have been Max Life’s 10% YoY growth in premium income and Max Healthcare turning cash positive, reporting a 22% YoY increase in net revenue.

Max India Ltd.

Sector- Banking

BUY

Analyst: Sanjeev Jain Phone: +91-33-6651-2121 Email Id: sjain@microsec.in

Source: Bloomberg, ACE Equity, Microsec Research

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Microsec Research

5th June 2014

Max Enterprise Description

Valuation

The company’s well understanding and in-depth knowledge of the insurance and healthcare sector coupled with strong corporate governance positioned it to maintain its business growth. Moreover, hike in FDI limit in insurance which seems to be likely may also help in the company’ business growth going forward and boosts our confidence on the company.

At the CMP of INR305, the stock is trading at TTM P/BV of 2.72x. The current valuation of 2.51x FY15E and 2.41x FY16E Book Value looks attractive. We recommend a BUY on the stock with a target price of INR368 (2.91x FY16E BV) with an upside of ~21% from the current level with an investment horizon of 12-18 months.

Key Concern

Max Life Insurance: - The company is a 74:26 joint venture (JV) with MS&AD, Japan. It is engaged in life insurance business venture. As on 31st March 2014, it has over 3.6 million policies in force and AUM at INR24716 crores.

Max Bupa: - The company is a 74:26 joint venture (JV) with Bupa Finance Plc.

(UK). It is engaged in the health insurance business venture. As on 31st March 2014, urban lives-in-force cross over 662000 and its overall enrolled lives cross over 1.7 million.

Max Healthcare: - Max Healthcare is a 74:26 joint venture (JV) with Life Healthcare, South Africa. The company is engaged in standardized, seamless and world class healthcare services. As on 31st March 2014, its registered patient base crosses over 2 million marks.

Max Antara: - Antara is a 100% subsidiary of Max India. The company is mainly focused on people over the age of 60. Antara provides resident to the senior people for their healthy and enjoyable life.

Max specialty films: - The company is a fully owned division of Max India. It is a quality leader in manufacturing of a wide range of sophisticated bi-axial polypropylene barrier and packaging films.

Max Neeman: - Max Neeman is a 100% subsidiary of Max India. It is a full service Clinical Research organization. As on 31st March 2014, its total client base stood at 118.

The profitability of the company could be affected, if Direct Tax Code (DTC) introduce.

Competition in the industry may increase, if banks are permitted to act as an insurance broker.

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Microsec Research

5th June 2014

Microsec Research: Phone No.: 91 33 66512121 Email: microsec_research@microsec.in

Ajay Jaiswal: President, Investment Strategies, Head of Research: ajaiswal@microsec.in

Fundamental Research

Name Sectors Designation Email ID

Nitin Prakash Daga IT, Telecom & Entertainment VP-Research npdaga@microsec.in

Sutapa Roy Economy Research Analyst s-roy@microsec.in

Sanjeev Jain BFSI Research Analyst sjain@microsec.in

Soumyadip Raha Oil & Gas Executive Research sraha@microsec.in

Anik Das Capital Goods, Power Research Analyst adas4@microsec.in

Neha Majithia Metal, Mineral, mining Research Analyst nmajithia@microsec.in

Ajoy Mukherjee Pharma & Agri Inputs Research Analyst amukherjee@microsec.in

Saroj Singh Auto , Cement Executive Research ssingh2@microsec.in

Khusboo Jaiswal Mid Cap Research Executive kjaiswal1@microsec.in

Technical & Derivative Research

Vinit Pagaria Derivatives & Technical Sr.VP vpagaria@microsec.in

Ranajit Saha Technical Research Sr. Manager rksaha@microsec.in

Institutional Desk

Abhishek Sharma Institutional Desk Dealer dmittal@microsec.in

PMS Division

Siddharth Sedani PMS Research VP ssedani@microsec.in

Research-Support

Subhabrata Boral Research Support Asst. Manager Technology sboral@microsec.in

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Microsec Research

5th June 2014

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Microsec Research

5th June 2014