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Mid-cap scanner: Max India

After forming a base at around Rs150, Max India shares have begun a tentative rise. Could the rise sustain? A look at this not so widely tracked stock

Max India's share price took a hit due to the changes in insurance rules when the Insurance Regulatory and Development Authority put a cap on both entry load and fees that are charged to customers. From a high of Rs220 in April, the shares dropped to Rs150 levels. However, of late, the stock has broken out above its 50-day moving average but it is yet to break out above its 200-day moving average. In June, its promoters, led by Analjit Singh, increased their stake in the company to about 35% through market purchases. A near-term trigger for the stock could be the Max Healthcare IPO. A look at the company:

COMPANY SNAPSHOT

Market cap: Rs37 billion
Face value: Rs2
52 week H/L: Rs245 (15 January 2010) /Rs149 (17 August 2010)

Max India consists of:

-Max New York Life Insurance, a 74:26 JV with New York Life
-Max Healthcare, 75.6% ownership; 8 facilities with 1,100 beds
-Max Bupa, health insurance, 74:26 JV with BUPA Finance Plc, UK (new business)
-Max Neeman, contract and clinical research, 100% owned; 180 active sites
-Max Specialty Films, high barrier polymer films and leather finishing foils

As of now, the two most important businesses for Max India are Max New York Life and Max Healthcare. Max Bupa and Max Neeman have high potential.

Max New York Life's distribution agreement with Axis Bank became effective in Q1FY11 - the tie-up with Axis Bank is seen as a big positive for the company as it will expand its reach and reduce dependency on the agency channel. Other perceived positives are its high conservation ratio at 79% (which is the renewal premium for the current year divided by the first year plus the renewal premium for the previous year; basically, it measures the commitment of the consumer to pay premiums regularly over a long period of time). However, it must be said that its conservation ratio has slipped from 85% in June 2009. A negative in the short term could be that ULIPs contribute 73% to new sales. However, its average case size per agent grew 5% y-o-y to Rs23,400 in Q1FY11. Its AUM stands at around Rs110 billion at the end of Q1FY11, up 55% y-o-y. As of the June quarter, it had 8% share of new business premium.

( click to see chart. Source: IRDA, Max India)

Goldman Sachs has invested Rs5.22 billion through FCDs (Fully Convertible Debentures) in Max Healthcare representing 9% equity stake and promoters have subscribed to warrants convertible into 3% equity stake at an investment of Rs1.73 billion of which they have already infused 50%. The arm plans to add 800 additional beds by 2012 and has entered into a JV with Nova Medical Centres, which specialises in day-care surgical centres. The 26% JV is to initially set up two centres in Delhi/NCR. Max Healthcare is looking at approaching the capital markets towards the end of 2010 for raising funds - this could result in value unlocking for shareholders.

Max Bupa has launched itself in nine cities including Delhi/NCR, Mumbai, Hyderabad, Chennai, Pune, Bengaluru, Jaipur, Surat and Ludhiana and plans to breakeven and achieve a market share of 5% in five years. It has a tie-up with Karvy Insurance Broking, which has 500 branches, to augment its third-party distribution.

Max Neeman has a confirmed order book of Rs370 million as of June. Its business development pipeline is around Rs760 million. It added five new clients in Q1FY11 taking its client base to 62. It currently has 92 studies being executed across 180 sites.

Q1FY11 analysis

In Q1FY11 Max India's consolidated net loss narrowed to Rs230 million versus a loss of Rs750 million in Q1FY10. But total revenues fell by 19% y-o-y to Rs18.6 billion due to a 64% fall in investment revenues. Operating revenues did rise by 17% y-o-y.

The life insurance business maintained its profitability, recording a statutory profit of Rs190 million versus a loss of Rs790 million in Q1FY2010 - this despite a flat annual premium of Rs3.8 billion. Max Healthcare reported quarterly revenues of Rs1.6 billion, up 35% y-o-y. Max Speciality's revenues rose 16% y-o-y to Rs920 million.

Retail focused brokerage firm Sharekhan has a 'Buy' recommendation on the stock with a target price of Rs231 (current market price is Rs160). The stock is not very widely tracked.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).
 

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CV sales may actually falter due to emission norms

Commercial Vehicle (CV) sales may be hit in the coming months due to the phenomenon of 'pre-buying' before changing emission norms make trucks more expensive next month

Emission changes from October will mean trucks will move to Euro 3 standards from Euro 2 - already reports of 2%-4% hikes across CV makers are surfacing. Anticipation has already resulted in advance buying to avoid the price hike, and this could hit CV sales over the next few months. Citi Investment Research & Analysis wrote in a recent report, "If history is a guide, then medium and heavy commercial vehicle demand could be fairly stable in 2HFY11 with a modest negative impact in 3Q."

When norms last changed in FY06, MHCV sales, particularly buses, were volatile while LCV volumes experienced fairly even growth rates. Citi expects the situation to be pretty much the same this time around too.

Stocks of most CV producers are at all-time highs - levels where most analysts believe that they are no longer in the 'value zone'. If indeed CV sales falter a bit, we could see a short-term dip in these stocks. However, over the longer term, consensus opinion is very positive for these stocks based on GDP growth and robust monsoons this year.

Tata Motors' share price has flattened out since August at around current levels. Most of its recent rise came about due to the phenomenal performance by its international operations -Jaguar Land Rover. The biggest risk to its performance, therefore, would be any faltering in this direction. The other risk is of course, the rollback in excise norms and slowing sales due to higher prices and tighter financing conditions.

Ashok Leyland has gained a bit, but it seems to be facing resistance at Rs70+ levels. The price has shot up with its latest order win for 2,850 buses from the Tamil Nadu government.

Mahindra & Mahindra has given some kind of a breakout. It has the comfortable hedge of farm equipment growth.

In a recent analyst meet, Ashok Leyland had said that CV demand was strong and that it has multiple new launches lined up, which should boost volumes. However, it had said that its Pantnagar plant ramp-up was proceeding a little slower than expected and tax benefits from the plant would come in by FY12 rather than in FY11. The management reiterated its guidance of total sales of 90,000 vehicles in FY11 and hinted that upsides to this were likely. It plans include launching the U-Truck platform by October, 10 models (on this platform) to be introduced before November, and around 25 models over the next 18 months. It plans to raise around Rs6 billion in debt this year, of which it has already mobilised Rs3.6 billion.

Citi said in its report that feedback on M&M's Maxximo was mixed - "Maxximo is a better product than Tata's ACE at less than peak loads. At peak, apparently, the ACE outscores the Maxximo on account of the former's better pulling power. Dealer feedback on the new Tata Prima (the world truck) was negative - sales are flagging due to its significant price premium over the 4923." Citi also said that the positive perception that AMW enjoyed 12-18 months ago appears to be faltering, as AMW's after-sales service network isn't as robust as that of competitors.

(This article is based on secondary research. The report is for information only. None of the stock information, data and company information presented herein constitutes a recommendation or solicitation of any offer to buy or sell any securities. Investors must do their own research and due diligence before acting on any security. Some of the opinions expressed in this article are the author's own and may not necessarily represent those of Moneylife).

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