The board of Max India, the flagship of serial entrepreneur Analjit Singh, has approved splitting the company into three verticals that would be listed to unlock the value of these businesses. The demerger is expected to be completed in six to nine months. The leadership would remain unchanged upon the demerger.
After the split, Max India will be renamed Max Financial Services and will solely focus on the group's flagship life insurance activity, through 72.1 per cent stake in Max Life, making it the first Indian listed company solely focused on life insurance.
The second vertical would be Max India which would continue to manage investment in the high-potential health and allied business comprised of Max Healthcare, Max Bupa, Antara Senior Living and supported by a corporate management service team.
The third vertical will be named Max Ventures and Industries and it will house the investment in the group's manufacturing subsidiary Max Speciality Films - one of the leaders in the speciality packaging films business (it recorded revenues of Rs 746 crore with a profit of Rs 14 crore in FY14). Max Ventures would look into exploring new businesses which would primarily be focused on providing affordable solutions but Singh did not divulge further details on that.
Following the announcement, Max India shares soared to hit a 52-week high of Rs 505 per share on the BSE on Tuesday.
In one day, the company added over Rs 1,000 crore in market capitalisation to take it up to Rs 13,100 crore. The shares closed at Rs 492.75 apiece on the BSE, up 8.40 per cent.
Terming the demerger as structural clarity, Analjit Singh, non-executive chairman of Max India, said the plan to split the business was undertaken about a year back but this was the right time to act on it given the pro-business sentiment created by the government.
Max India had a top line of almost Rs 996 crore at the end of FY14, with a profit of Rs 185.16 crore during the year. Analjit Singh and his family own 40.5 per cent, with the remaining 59.5 per cent held by Goldman Sachs, Temasek, IFC (Washington), Fidelity and other public shareholders.
Once the demerger is effective, after due regulatory approvals, Max India's shareholders will retain one equity share of Rs 2 in Max Financial Services and additionally get one equity share of Rs 2 of Max India for every one share of Rs 2 held in Max Financial Services, and one equity share of Rs 10 of Max Ventures and Industries for every five equity shares of Rs 2 each held in Max Financial Services.
Max India had cash reserves of Rs 605 crore as of December 31, 2014 and it is proposed that the cash be split between the three companies such that Max Financial Services will hold Rs 150 crore, Max Ventures Rs 10 crore and the rest, likely to be over Rs 400 crore, held by the newly formed Max India. There is a plan to make a voluntary open offer for buying up to an additional 34.5 per cent stake in Max Ventures and Industries, which will be listed after the demerger.
Singh, who was the founding promoter of Hutchison Max (now Vodafone India), has 74 per cent stake in each of the two insurance ventures Max Life Insurance and Max Bupa Health Insurance. He holds 46 per cent in Max Healthcare, which runs hospitals. Earlier, in April 2012, Japanese insurance company Mitsui Sumitomo Insurance (MSI) had bought the US-based New York Life's 26 per cent stake in Max New York Life Insurance for Rs 2,731 crore. The valuation at that price was learnt to be around Rs 10,000 crore.
Bupa Plc, the international health care group, has already proposed to increase its stake in Max Bupa from 26 per cent to 49 per cent, after Parliament gives its formal assent in the forthcoming Budget session to the Insurance Laws Amendment Ordinance, 2014.