Here's how Max Financial deal with Axis Bank will benefit both companies
- Axis Bank will exclusively sell on Max Life Insurance policies and marquee brokerages expect a 24% surge in Max Financial's share price in the next one year.
- The shares of Max Financial, part of the $2 billion Max Group, surged over 4% in early trade on Monday.
- While the fund flow will help Max reduce debt, Axis Bank's market share in insurance has nearly doubled, according to one estimate.
Axis Bank has agreed to exclusively sell Max Life Insurance policies and this is expected to be a big boost for both companies. Reports also suggest that Axis is looking to buy 30% stake in Max Financial Services. The share price reflected the optimism shared by many marquee brokerages.
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However, the share price had started surging on Wednesday afternoon, long before the agreement had been made public. The shares of Axis Bank however slipped 2% in trade on Monday (Feb 24).
Brokerages cheered the move. Both UBS and Nomura have reportedly raised the target price to ₹700 — an implied 24% jump in Max Financial's share price in the next one year.
According to UBS, the deal offers Max Financial a long-term certainty in distribution as well as giving the promoters money to repay debt and get their pledged shares back from lenders. A little over half, about 54%, of all Max Life policies are sold via Axis Bank and if the pact were to end, it would have hurt the $2 billion Max Group immensely.
About ₹2,640 crore worth shares held by the promoters of Max Financial Services were pledged, according to a broking firm, Prabhudas Lilladher, report released earlier this month.
For Axis Bank, the deal has raised market share in insurance to more than 9% from 5% a decade ago, according to Normura.
The amount of Indian insurance stocks foreign investors hold has grown ten-fold in just about a year
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