Investor's Eye: Update - Max India (Limited impact of revisions in bancassurance norms), Real Estate (Woes of the sector have increased; cautious stance retained)

 

Investor's Eye [September 04, 2013]  Sharekhan www.sharekhan.com

Summary of Contents     STOCK UPDATE Max India Recommendation: Buy Price target: Rs296 Current market price: Rs151 Limited impact of revisions in bancassurance norms We met the management of Max India to discuss the outlook on the life insurance business and the prospects of other business verticals (namely healthcare). Max Life Insurance (MLI) expects to grow its annualised premium equivalent (APE) at ~10% in FY2014 (higher than industry rate) with focus on long-term instruments and affluent customers. With the guidelines on traditional insurance products, the regulatory cycle has completed a full circle and the impact of revisions in the bancassurance norms would have limited impact on its arrangement with Axis Bank, the growth in business should improve going ahead. The healthcare business has shown a strong growth in revenues led by an increase in the operational beds and realisations, and is expected to report a strong EBITDA growth in FY2014. While the company has largely completed capital expenditure (capex) in the healthcare business (some investments to be made in Max Bupa Health Insurance [Max Bupa] and Max Specialty Films [MSF]), the treasury corpus of Rs430 crore should be sufficient to fund its other businesses. Currently, the stock is trading at 1.1x FY2013 embedded value. We maintain our Buy rating on Max India with a sum-of-the-part (SOTP)-based price target of Rs296.   SECTOR UPDATE Real Estate  Woes of the sector have increased; cautious stance retained The real estate sector has been currently facing dwindling sales booking coupled with a higher cost of capital (with limited avenues of funding). Adding to the woes, the government has introduced the controversial Land Acquisition, Rehabilitation and Resettlement Bill (LAAR), 2012 (which is expected to make it a lot more time consuming to acquire sizeable parcel of land) while the Reserve Bank of India (RBI) cautioned banks from participating in innovative schemes (20:80/25:75 mortgage schemes that are in form of tripartite agreement between the buyers, builder and lending bank) and funding the real estate projects upfront. The recent developments are expected to delay the recovery of the real estate sector as a whole instead questioning the viability of large projects. Consequently, we retain our cautious view on the sector. We believe cash rich companies (like Oberoi Realty) and companies with annuity model (like Phoenix Mills) are better positioned in difficult times and would outperform over the next 12-18 months. In addition to a healthy balance sheet and annuity-based business model, the preference could also be based on geographical considerations. Given the positive impact of the rupee on certain export-driven sectors, like information technology services, we expect Bangalore-focused realty companies to witness a better demand environment. Among the Bangalore-based companies, the financial performance (track record) of Puravankara and Prestige has been relatively better than the peers. Click here to read report: Investor's Eye   Sharekhan Limited, its analyst or dependant(s) of the analyst might be holding or having a position in the companies mentioned in the article.

Regards, The Sharekhan Research Team

 

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