Max India Demerger saga finishes

Last week the final (3rd) company from Max India demerger exercise got listed on bourses, we started tracking this story in Jan 2016. A lot has happened over last six months and it’s time to take stock and understand how this spin off / demeger has played out.

In Jan’ 2016 we conservatively estimated that then market cap was a 5% premium to our calculated value of 3 sub-divisions. Let me do a memory jog for you

Max India - 7

On date of spin off the insurance business was valued at about ~INR 10,500 crores even lower than our conservatively calculated value.

Was this expected ?

This is what Joel Greenblatt has to say on Spin offs in his book “You can be a stock market Genius”

spinoff-8

Investors who didn’t want Life insurance simply dumped the stock. However our conclusion in Jan 2016 was a bit different

life insurance business is not directly listed in India so may see some traction with investors.

And hey ! what happened in June 2016

max india part 2 -1
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One of largest merger in Indian Insurance industry was announced .

Again was this expected ? I will go back our Guru Joel Greenblatt this is what he had to say in “You can be a stock market Genius”

spinoff-4

With Hospital, Real estate and Max venture business operations all tied in original company the above transaction was not possible. However post spin off the bride got a suitable suitor 🙂

Value unlocking happened with this spin off in spite of #Brexit 😉 The Nifty returns between this period was 7%

max india part 2 -2

What have we learned ?

Next time you see a demerger announced open Joel Greenblatt’s “You can be a stock market Genius” and start analysing using his simple checklist /framework and/or read our learnings here and here

 

7 comments

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  2. Advait says:

    Hi Vivek, Really appreciate your posts. The post are informative, involves a lot of number crunching, and the best part, without any recommendation you just left the decision (buy/sell) to reader with a logical conclusion. I also follow your posts on Valuepickr.
    Wish to ask you an important Q on Max India pls, regarding Axis Bank deciding to sell insurance policies of LIC.
    http://www.business-standard.com/article/finance/lic-axis-bank-tie-up-for-bank-to-sell-insurance-products-116072900668_1.html
    How do you view this development? Will it be negative for Max and to what extent? Pls help me analyse this.
    Rgds,
    Advait.

    • Vivek Bothra says:

      Hi Advait,

      Thanks for kind words.

      On your specific question, this was expected as Max is now going to merge with their (Axis) rival. Axis can’t sit on their laurels, however More importantly partnering HDFC is a big boost for max and would expand their foot print.

      Regards,
      Vivek

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