While Rs 1,000 crore is parked in Max Life’s shareholders’ account, Rs 500 crore forms part of its participating funds and another Rs 500 crore in its unit-linked insurance plan (ULIP), which as per the company, is vulnerable to a write-down as these are categorised as investments held-to-maturity. Unless there is a default in the coupon payment and credit rating is downgraded to default rating (D), Max Life need not take further mark down on its participating funds and shareholders’ account.
While the mark-down so far may not materially impact Max Financial’s numbers just yet, analysts at Kotak Institutional Equities caution investors to brace for 3 – 4 per cent reduction in value of new business, generated through YES Bank.
“Risk to persistency of the back (investment) book from YES Bank is there,” analysts at Sharekhan add.
Alongside these developments, investors also need to be wary of shared pledged by promoters, who hold over 28 per cent stake in the bank. Based on December quarter exchange filing, promoter pledge stood at 71.54 per cent of their shares.
With so many overhangs for Max Financial, the Street is unanimously of the view that the deal with Axis Bank
becomes more critical than before. “A deal with Axis Bank
becomes even more important and can potentially offset/replace YES Bank in the long term,” analysts at Sharekhan note while mentioning that Max Financial may need to invest more in its proprietary channel in the near-term due to the recent developments.
Hence, even if valuations at 1.6x FY21 embedded value appear attractive, investors should thread carefully.