With more than Rs 800 crore in its pocket following the deal with Japanese insurer, Mitsui Sumitomo, Max India is looking to tap newer growth opportunities, both organic and inorganic. Rahul Khosla, managing director, tells Niladri Bhattacharya, the deal augurs well for the group, as it means substantial gains without diluting stake in the company. Edited excerpts:
Talk us through how this deal worked out. What’s the rationale behind the deal?
New York Life (NYL), as a part of its global strategy was looking to exit some markets like India and China, to concentrate on its core markets in the US and Mexico. There was an unsolicited offer from Mitsui to New York Life, which fetched an attractive valuation (more than Rs 10,500 crore).
This gave NYL a good return for their investments and an exit route from India since they are focusing more on their core markets. For Max India, it meant a substantial gain for the group without diluting the stake in the company while gaining a partner whose strategy and outlook are aligned with ours. Max New York Life is the most profitable business in Max India’s portfolio and forms about 80 per cent of the Group’s revenue. Given this, the deal provides the right signal for the intrinsic value of Max India.
Max India had received a net cash flow of Rs 802 crore. How do you plan to use the proceeds of the deal?
We have several options to evaluate for utilisation of net proceeds, which we will discuss with the Board. Firstly, shareholders of the group who have waited patiently could be rewarded though dividends, subject to board approval. Secondly, since this arrangement considerably improves the liquidity position of the group, we will consider organic growth opportunities as well as partnerships in the businesses we do, such as healthcare. Additionally, after this net inflow, we would be well positioned to make the most out of any inorganic opportunities if and when they arise.
You had a stable partner in New York Life for more than a decade. How will this deal affect the business practices of the company?
We are a home-grown company and there was no one in the management team from NYL. We would continue to function in the same manner. From a consumer and partner standpoint, the transition will be seamless and we remain strongly committed to our strategy of serving the long term savings and protection needs of our customers through a high quality agency and multi-channel distribution.
The brand will change to Max Life Insurance; the joint relationship with Mitsui Sumitomo will also be highlighted in all the communications including the tag line indicating the JV partnership.
In addition, Mitsui Sumitomo is a financially sound and respected player with a strong international business and strategic aspirations to participate in the growth of life insurance business in India. They are aligned with our existing strategy and would bring in synergies and experiences of having footprints across the Asian markets.
NYL had right of first right of refusal to go upto 49 per cent if regulations allowed 49 per cent Foreign Direct Investment (FDI) in insurance. Does MS have same rights?
No. Mitsui Sumitomo does not have the same rights. However, though there are no binding conditions, we would definitely discuss with the new partner whenever the FDI norms are relaxed.
Are you planning initial public offer (IPO) in the near future?
Many things determine an IPO like FDI cap, sectorial cap and market conditions. We are not expecting these to change right now. Whenever the FDI cap is relaxed, we would definitely take a call on it.
MNYL had a very successful bancassurance deal with Axis Bank. Is Axis Bank keen to increase the stake?
Both Max India and Axis Bank are extremely happy with the arrangement and the results of the deal. But right now I do not see Axis Bank increasing their stake.