The Comeback Kid.

     After years of swinging from losses to profits and back again, Max India may have finally emerged. Max, which is essentially a holding company, operates in a wide variety of business segments ranging from insurance to healthcare through a cluster of subsidiary companies. And now, for the very first time, with all its businesses in the green, the company may finally be on the trajectory towards a long and sustainable period of growth and outperformance. For now, the market might still be skeptical of Max’s apparent turnaround but a myriad of factors do seem to indicate that the good times have indeed started for the Analjit Singh – led company.

     As far as Max’s business diversifications are concerned, insurance is the company’s mainstay. Max Life is the company’s life insurance subsidiary, which broke even in the past fiscal for the very first time and declared its maiden dividend. The division, which was founded several years ago in partnership with New York Life, saw its foreign partner exiting over a year ago. On the heels of this exit, Japan’s Mitsui Sumitomo (the world’s seventh largest insurer) arrived on the scene and picked up a 26% stake in the company for a sum of Rs. 2800 crores. Max Life reportedly commands a 10% market share in its industry, even as it battles the likes of Bharti AXA, Bajaj Allianz and Tata AIA, besides a large number of public sector biggies. In the health insurance space, Max seems to have an equally significant presence with its subsidiary, Max Health. Bupa, the British behemoth, holds a large stake in this subsidiary. While its insurance businesses may have just entered the black, Max is certainly running a marathon and not a sprint. Insurance, after all, is a business that mandates a long gestation period but promises great returns once the losses are covered. For now, it would indeed appear as if Max has successfully incubated its fledgling insurance subsidiaries and nursed them to the pink of health.

     In what would perfectly complement Max’s health and life insurance businesses, the company happens to be a major player in the country’s healthcare business. Max Health, another subsidiary of the holding company, owns a network of around 15 hospitals in North India. While it may not be an Apollo or a Fortis in terms of size just yet, the company is expanding rapidly and adding to its string of pearls. And when it comes to a foreign investor, this subsidiary is no laggard either. South Africa’s Life Healthcare (LHC) corners a 26% stake in the company. Healthcare is another business that Max is investing into in a massive way for the long haul and considering that the parent company has a war chest of funds from its stake sales, liquidity certainly shouldn’t be an immediate concern for the company. Max also operates a speciality films division, which happens to be the largest supplier to the cigarette manufacturers in India. It also manufactures labels, polypaper and metallic films. Treofan, a German company, was rumoured to be in the running to pick up a stake in the division but so far, no deal has materialized. And just like its other subsidiaries, Max’s speciality films arm is all set to speed ahead. Tobacco, without a shadow of a doubt, is a business that would see tremendous growth going forward.

     When it’s all said and done, would Max India really deserve to feature among the stars of the Indian bourses? Well, in terms of stock performance, that would be a negative. Max doesn’t even seem to feature in the market’s list of favoured stocks. It rises in tandem with the market and then falls as sharply, displaying not even the remotest sign of outperformance. But ugly ducklings have turned into swans in the past and in Max’s case, that might happen in the near future. And in case you’re wondering why I happen to be so bullish about this particular company, I beg you to consider the following points.

     Max’s core business broke even very recently and paid its maiden dividend but the company is not certain to have stabilized just yet, whence the market’s pessimism. That is perfectly understandable but looking at the situation from a valuation perspective, Max does appear undervalued. Considering that Mitsui Sumitomo paid Rs. 2800 crores for a 26% stake, the current market capitalization of the company (the number of outstanding shares multiplied by the ruling share price) does seem to point to a glaring gap. At the current market cap, a couple of Max India’s (the holding company) subsidiaries do not even seem to have their values captured and factored in to the stock price, making the company a great value pick. Max India has also announced its intent to split its business verticals into standalone companies and that exercise will surely result in a lot of shareholder value being unlocked. Furthermore, the company’s chairman, Analjit Singh, happens to be the chairman of Vodafone India. Vodafone recently announced its intent to buy out all its Indian shareholders and take complete control of its Indian subsidiary. So where does Max feature in all this? Well, Analjit Singh, besides being the chairman of Vodafone India, holds a sub 10% stake in the company, valued in the region of Rs. 9000 crores. When Vodafone buys him out, all that money will find its way back to Max India in one form or another, adding to its swelling cash balance. The aforementioned possibilities might result in Max India being re-rated on the upside in a big way. But that’s not all. As far As Max is concerned, there’s another trigger in store for the stock. And here it is. The big one.

     In the wake of the recent crash of the Rupee and the souring of investor sentiment and confidence in the Indian economy, foreign capital has been widely held to be the panacea that would pull India back from the brink. While the outcome may not be as rosy as everyone pictures, it is nevertheless the trouble-shooter and the solution du jour. And this foreign capital has another name to it - Foreign Direct Investment (FDI). As far as the insurance sector is concerned, the FDI limit is capped at 26% for now. However, during the winter session of the Indian Parliament, a bill to enhance the FDI limit in the insurance sector to 49% at least is likely to be tabled and given the assent. This in turn would result in Max’s stock price spurting as a result of a knee-jerk reaction or better yet, Mitsui may even capitalize and increase its shareholding in Max from its current 26%. If... no, not if... when that happens, there’s only one place the company’s share price is headed in future. To the Max. 



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