Buy Max India target of Rs 231

Sharekhan is bullish on Max India and has recommended buy rating on the stock with a target of Rs 231, in its August 26, 2010 research report.

“Max India reported a consolidated loss after tax of Rs 23 crore during Q1FY2011 as compared to a loss of Rs 75 crore in Q1FY2010. The total revenues contracted by 19% year on year (yoy) to Rs 1860 crore due to a 64% year-on-year (y-o-y) contraction in investment revenues. The operating revenues however expanded by 17% yoy. We remain convinced about the long-term growth prospects of the life insurance industry in spite of the regulatory concerns plaguing the insurance sales in the near term. Although the changes are positive for life insurers in the long run (as they will improve persistency and allow for a more sustainable growth), they would be negative from a short term perspective leading to a compression in margins as well as a slowdown in new business premium sales. However MNYL with its bancassurance tie up with Axis bank coupled with its high conservation ratio and balanced portfolio mix is at an advantage over other players to weather the current regulatory turmoil. Further the other subsidiaries of Max India such as Max Bupa and Max Healthcare, which also put up a strong show during the quarter, would aid in boosting the bottom line in the future.”

“We continue to maintain our optimistic take on the stock based on the bright prospects of the life insurance sector in the long run, while alerting investors with a short-term horizon to exercise caution as the stock may witness increased volatility post the implementation of the regulatory changes from September. We maintain our Buy recommendation on the stock while revising our target price downward to Rs 231 to factor in the impact of the regulatory changes,” says Sharekhan research report.