Max Financial extends rally on Axis Bank deal, up 15% in two days

Axis Bank, Max Financial, and Max Life signed a confidentiality and exclusivity arrangement to explore the possibility of Axis Bank entering into a long-term strategic partnership with Max Life

Shares of Max Financial Services rallied 5 per cent to Rs 595 on the BSE on Monday after the company on Thursday entered into an exclusivity deal with Axis Bank, wherein the lender will have a long-term bancassurance partnership with Max Life Insurance Company.

The stock has surged 15 per cent in the past two trading days. It was trading higher for the fifth straight day and touched its 52-week high level of Rs 598 on Thursday, February 20, 2020.

“Axis Bank, Max Financial Services and its subsidiary Max Life Insurance Company Limited (Max Life) signed a confidentiality and exclusivity arrangement to explore the possibility of Axis Bank entering into a long-term strategic partnership with Max Life,” Max Financial said in an exchange filing.

The transaction is subject to inter alia receipt of applicable regulatory approvals and corporate authorisations, satisfactory completion of due diligence, and execution of definitive documentations, it said.

Max Life is currently the largest non-bank owned private life insurer in India. Max Financial Services presently holds a 72.5 per cent stake in Max Life while Mitsui Sumitomo Insurance and Axis Bank hold 25.5 per cent and 2.0 per cent stake respectively.

Axis Bank and Max Life have had a successful bancassurace (banca) arrangement for nearly a decade. The new premium generated through this banca arrangement has aggregated to over Rs 12,000 crore over this period, while maintaining high persistency. Both companies have invested extensively in product and need-based sales training, thereby leading to consistent increase in productivity.

"While the deal contours are yet to be finalized, the long term tie-up with Axis Bank as a banca partner will remove an important overhang on MAX Fin, and help it close the valuation gap with peers. Axis Bank will also benefit as it gets a large stake in a strong insurance franchise and benefits from the potential business rerating," said analysts at Motilal Oswal Financial Services Ltd (MOFSL).

The analysts, who maintain 'buy' rating on Axis Bank with a target price of Rs 860, further added that MAX Fin was already a strong insurance franchise but was trading at a meaningful discount to peers. The clarity on distribution and promoter shareholding can help re-rate the stock significantly.

"Axis Bank, on the other hand, will look to strengthen its subs profile with a stake in the life insurance venture. While overall value creation for Axis Bank is contingent on the performance of core bank, the target price story is evolving well as it can potentially contribute 8-10 per cent of total valuation," they said.

At 10:19 am, Max Financial was trading 3.5 per cent higher at Rs 585, as compared to 0.99 per cent decline in the S&P BSE Sensex. A combined 5.7 million shares have changed hands on the counter on the NSE and BSE so far. Shares of Axis Bank were trading 1.8 per cent lower on the BSE.