24 February 2020
Company Update | Sector: Financials
Axis Bank
Buy
BSE SENSEX
41,170
S&P CNX
12,081
CMP: INR744
TP: INR860 (+16%)
Enters into exclusive arrangement with Max Financial
Win-win for both; AXSB to further spruce up its SOTP story
Axis Bank (AXSB), Max Financial Services Limited (MAXF) and Max Life Insurance
have entered into an exclusive arrangement to explore a long-term strategic
partnership, subject to all regulatory approvals.
Axis Bank and Max Life already have a successful bancassurance (banca)
arrangement for nearly a decade. AXSB has accounted for 55%-60% of total
individual APE for Max Life over the past several years. This has enabled Max Life to
emerge as a leading life insurance company in a space dominated by insurers
promoted either by banks or NBFCs.
AXSB has been looking to enter the life insurance business as a manufacturer for
Financials & Valuation (INR b)
some time and consummation of this deal will boost symbiotic relationship between
FY19 FY20E FY21E FY22E
Y/E MARCH
the two entities. AXSB’s MD & CEO – Mr Amitabh Chaudhry – has a long and proven
217.1 247.4 291.7 346.8
NII
track record in building insurance business and his experience will come useful in
190.1 228.4 271.6 327.0
OP
scaling up the insurance franchise.
46.8 48.8 121.9 174.5
NP
3.2
3.2
3.3
3.4
While the deal contours are yet to be finalized, the long term tie-up with AXSB as a
NIM (%)
banca partner will remove an important overhang on MAXF and help it close the
18.2 18.1 43.3 62.0
EPS (INR)
valuation gap with peers. AXSB will also benefit as it gets a large stake in a strong
EPS Gr. (%) 1,538.1 -0.6 139.2 43.1
insurance franchise and benefits from the potential business rerating.
259.3 304.5 344.4 402.3
BV/Sh. (INR)
ABV/Sh. (INR) 219.7 264.5 306.0 364.6
MAXF is already a strong insurance franchise but trading at a meaningful discount to
peers. The clarity on distribution and promoter shareholding can help rerate the
Ratios
stock significantly. AXSB, on the other hand, will look to strengthen its subs profile
7.2
6.4 13.3 16.6
RoE (%)
with a stake in the life insurance venture. While overall value creation for AXSB is
0.6
0.6
1.3
1.6
RoA (%)
contingent on the performance of core bank, the SOTP story is evolving well as it can
0.0 12.7
8.0
6.5
Payout (%)
potentially contribute 8%-10% of total valuation. Maintain Buy with a TP of INR860.
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
AXSB IN
2,820
2098.3 / 29.3
827 / 623
4/0/-9
7232
84.3
Valuations
P/E (X)
P/BV (X)
P/ABV (X)
Div. Yield (%)
38.2
2.7
3.2
0.0
38.4
2.3
2.6
0.3
16.1
2.0
2.3
0.5
11.2
1.7
1.9
0.5
A step toward venturing into life insurance – as close as it gets!
AXSB has been looking to enter the life insurance business as a manufacturer for
some time and consummation of this deal will allow it to expand its footprint into
life insurance wherein it will own a significant stake v/s 2% currently. This will
boost symbiotic relationship between the two entities. AXSB’s MD & CEO – Mr
Amitabh Chaudhry – has a long and proven track record in running life insurance
business as he successfully headed HDFCLIFE for almost a decade. We believe that
the strategic partnership, AXSB’s vast distribution potential and management
capability will come useful in further scaling up the insurance franchise.
Shareholding pattern (%)
As On
Dec-19 Sep-19
Promoter
15.7
16.2
DII
22.6
22.2
FII
49.6
49.3
Others
12.2
12.2
FII Includes depository receipts
Stock Performance (1-year)
Dec-18
23.1
19.0
48.7
9.3
AXSB accounts for 55%-60% of individual APE for Max Life; life insurance
contributes ~7% of total fees (lower than other private peers)
AXSB and Max Life have a successful banca arrangement for nearly a decade with
the former accounting for 55%-60% of total individual APE for Max Life over past
several years. This has enabled Max Life to emerge as a leading life insurance
company in a space completely dominated by insurers promoted by banks/NBFCs.
For AXSB, sale of life insurance forms 52.7% of total banca income. This
corresponds to 7.2% of total fee and 3.4% of operating profits and stands slightly
lower than other major banks which have fee income from sale of life insurance in
the range of 10%-11%. This deal thus bodes well in further increasing the fee
income profile for AXSB, supporting profitability.
Research Analyst: Nitin Aggarwal
(Nitin.Aggarwal@MotilalOswal.com); +91 22 6129 1542 |
Himanshu Taluja
(Himanshu.Taluja@motilaloswal.com)
Alpesh Mehta
(Alpesh.Mehta@MotilalOswal.com);
Yash Agarwal
(Yash.Agarwal@motilaloswal.com)
Investors are advised to refer through important disclosures made at the last page of the Research Report.
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.