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Max India (BUY; Cmp: Rs 140; Tgt: Rs. 234)


Max India’s life insurance business– Max New York Life (MNYL)- accounts for ~85% of the company’s revenues and is growing at a steady pace. MNYL’s annual premium equivalent (APE) has grown 10.8% year till date (YTD) compared to a degrowth in the industry of 2.2% for the corresponding period.
In order to contain cost overruns, the company has entered into a long term tie up with Axis Bank for distribution of its products. As a result the company has rationalized its agency force and branch network, leading to a sharp reduction in operating costs.
Max India is aggressively expanding its healthcare business and plans to add 1,000 beds in FY2011. The healthcare business has turned positive at the earnings before interest, tax, depreciation and amortization (EBITDA) level.
We believe that post correction the stock has turned attractive and we reiterate our Buy recommendation with a price target of Rs234. In our view, a turnaround in the insurance business and a possible easing of the foreign direct investment limits in the life insurance sector could lead to a re-rating of the stock.