Max Financial Services (MFS) and Max Life have entered into an agreement for a potential merger with HDFC Life. Under this arrangement, Max Life will first merge with MFS, which will in turn merge with HDFC Life. This arrangement will ensure an automatic listing for HDFC Life.
We assign 75% probability to the proposed merger going through, resulting in significantly better growth prospects for Max Life (addition of several bancassurance partners). While the swap ratio remains unannounced, we believe eventually HDFC Life would trade at 2.5x+FY18E EV, given the strong growth and return profile of the combined entity.
