Date of Research – 18 January 2016

Price – Rs. 480.40

About the Company

Max India Limited (“Max India” or “Company“) is engaged in various diversified businesses, such as healthcare, life insurance, health insurance, clinical research, etc. The Company operates through different subsidiaries for its businesses:

Life Insurance: Max Life Insurance Company Limited (formerly Max New York Life Insurance, a joint venture (JV) between Max India and New York Life)

Healthcare: Max Healthcare, a subsidiary of Max India, in partnership with Life Healthcare of South Africa.

Health Insurance: Max Bupa Health Insurance, a JV between Max India and Bupa Finance Plc, UK.

Clinical Research: Max Neeman Medical International, a fully owned subsidiary of Max India.

In addition, Max India is engaged in the manufacturing of a wide range of sophisticated bi-axially oriented polypropylene films (used in packaging, label & print finishing applications) and packaging films through its wholly owned subsidiary, Max Speciality Films (MSF). The Company’s manufacturing facility is located at Railmajra, near Chandigarh. The Company caters to the needs of diverse packaging industries including food packaging, overwrapping, consumer products, labels and textile industries.

Key Financial Figures

Consolidated	(Rs. Cr)
Particulars	FY 2013	FY 2014	FY 2015	FY 2016	FY 2017
Total Income from Operations	10,561.99	11,626.33	14,815.35	11,696.14	15,227.89
Expenses	9,411.00	11,177.66	14,127.74	11,178.72	14,475.68
Earnings Before Other Income, Interest, Tax and Depreciation (Operating Profit)	1,150.99	448.67	687.61	517.42	752.21
Depreciation	136.79	137.91	153.80	60.47	62.53
Finance Costs	84.45	93.21	82.59	7.66	8.93
Other income	61.63	56.93	61.24	15.73	20.81
PBT	991.38	274.48	512.46	465.02	701.56
Tax	141.85	65.00	147.55	71.83	108.29
PAT (before Minority Interest and share of Associates)	849.53	209.48	364.91	393.19	593.27
Profit/ (loss) attributable to Minority Interest	65.41	70.03	85.29	140.45	197.91
Other Related Items	–	–	–	–	–
Consolidated Profit / (Loss) for the year	784.12	139.45	279.62	252.74	395.36

Profitability Analysis

Consolidated	(%)
Particulars	FY 2013	FY 2014	FY 2015	FY 2016	FY 2017
Operating Profit Margin Ratio	10.90	3.86	4.64	4.42	4.94
Net Profit Margin Ratio	8.04	1.80	1.89	3.36	3.90

Operating profit margin is a measurement of the proportion of a company’s revenue that is left over after paying for production costs such as raw materials, salaries and administrative costs. Net profit margin is arrived at by deducting non operating expenses such as depreciation, finance costs and taxes out of operating profit and shows what is left for the shareholders as a percentage of net sales. Together these ratios help in understanding the cost and profit structure of the firm and analysing business inefficiencies.

• Profitability Ratios

Key Balance Sheet Figures

Sources of Funds / Liabilities	(Rs. Cr)
Particulars	FY 2012	FY 2013	FY 2014	FY 2015	FY 2016
Share Capital	46.50	53.10	53.25	53.30	53.40
Share Capital (Other than Equity)	125.00	125.00	65.47	–	–
Warrants issued by subsidiary	–	–	–	–	–
Reserves & Surplus	2,459.84	2,849.75	2,930.87	3,248.72	1,911.62
Net worth (shareholders funds)	2,512.75	3,027.85	3,049.59	3,302.02	1,965.02
Minority Interest	709.82	734.97	820.53	617.06	702.57
Long term borrowings	397.52	378.20	435.35	403.05	–
Policyholders’ Fund	13,555.90	15,796.77	18,980.59	25,018.29	29,478.21
Current liabilities	2,749.42	3,719.54	4,600.07	4,607.51	4,418.06
Other long term liabilities and provisions	288.60	422.64	217.85	221.84	126.10
Fund for Future Appropriations	424.41	678.72	998.64	1,327.86	1,456.28
Deferred Tax Liabilities	12.66	19.02	14.78	5.34	–
Total Liabilities	20,776.09	24,777.71	29,117.38	35,502.96	38,146.24

 

Application of Funds / Assets	(Rs. Cr)
Particulars	FY 2012	FY 2013	FY 2014	FY 2015	FY 2016
Fixed Assets	1,255.84	1,360.97	1,494.49	866.96	176.25
Noncurrent Investments	15,212.83	18,880.56	23,110.59	29,164.11	33,693.84
Current assets	3,806.07	3,791.99	3,752.06	4,731.95	3,926.18
Long term advances and other noncurrent assets	310.98	415.52	446.05	368.06	140.52
Deferred Tax Assets	0.81	–	–	–	–
Goodwill on consolidation (net)	189.57	328.67	314.19	371.88	209.45
Total assets	20,776.09	24,777.71	29,117.38	35,502.96	38,146.24

Efficiency Analysis

Particulars	FY 2012	FY 2013	FY 2014	FY 2015	FY 2016
ROCE	(12.93)	27.79	10.42	15.91	19.40
ROE / RONW	6.17	25.90	4.57	8.47	20.01

Return on Capital Employed (ROCE) measures a company’s profitability from its overall operations by calculating the return generated on the total capital invested in the business (i.e. equity + debt). Return on Equity (ROE) or Return on Net worth (RONW) measures the amount of profit which the company generates on money invested by the equity shareholders. In short, ROE draws attention to the return generated by the shareholders on their investment in the business. Together these ratios can be used in comparing the profitability of the company with other companies in the same industry.

• Efficiency Ratios

Valuation Analysis

Consolidated
Particulars	FY 2013	FY 2014	FY 2015	FY 2016	FY 2017
Total Income from Operations (Rs. Cr.)	10,561.99	11,626.33	14,815.35	11,696.14	15,227.89
Growth (%)	38.09 %	10.08 %	27.43 %	(21.05 %)	30.20 %
PAT (Rs. Cr.)	784.12	139.45	364.91	393.19	593.27
Growth (%)	405.98 %	(82.22 %)	74.20 %	7.75 %	50.89 %
Earnings Per Share – Basic (Rs. )	29.48	5.21	10.50	9.47	14.80
Earning Per Share – Diluted (Rs. )	29.29	5.18	10.43	9.38	14.67
Price to Earnings	7.64	51.07	45.20	36.74	40.91

• Price Earnings Ratio

Dividend History

The Company has maintained an average dividend yield of 1.04 % over the last five financial years.

Liquidity and Credit Analysis

Current Ratio

Higher current ratio implies healthier short term liquidity comfort level. A current ratio below 1 indicates that the company may not be able to meet its obligations in the short run. However, it is not always a matter of worry if this ratio temporarily falls below 1 as many times companies squeeze out short term cash sources to achieve a capital intensive plan with a longer term outlook. Max India’s average current ratio over the last 5 financial years has been 1.15 times which indicates that the Company has been maintaining sufficient cash to meet its short term obligations.

Long Term Debt to Equity Ratio

Companies operating with high debt to equity on their balance sheets are vulnerable to economic cycles. In times of slowdown in economy, companies with high levels of debt find it increasingly difficult to service the interest on their borrowings as profit margins decline. We believe that long term debt to equity ratio higher than 0.6 – 0.8 could affect the business of a company and its results of operations.

Max India’s average long term debt to equity ratio over the last 5 financial years has been 0.31 which indicate that the Company is operating with a low level of debt.

Interest Coverage ratio

Interest coverage ratio indicates the comfort with which the company may be able to service the interest expense (i.e. finance charges) on its outstanding debt. Higher interest coverage ratio indicates that the company can easily meet the interest expense pertaining to its debt obligations. In our view, interest coverage ratio of below 1.5 should raise doubts about the company’s ability to meet the expenses on its borrowings. Interest coverage ratio below 1 indicates that the company is just not generating enough to service its debt obligations.

Max India’s average interest coverage ratio over the last 5 financial years has been -0.11 times which indicates that the Company has not been generating enough for the shareholders after servicing its debt obligations.

• Liquidity & Credit Ratios

Ownership pattern

In its latest stock exchange filing dated 31 March 2017, Max India reported a promoter holding of 30.42 %. Large promoter holding indicates conviction and sincerity of the promoters. We believe that a greater than 35 % promoter holding offers safety to the retail investors.

At the same time, institutional holding in the Company stood at 50.72 % (FII+DII). Large institutional holding indicates the confidence of seasoned investors. At the same time, it can also lead to high volatility in the stock price as institutions buy and sell larger stakes than retail participants.