Max Financial Services Limited (MFSL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Max Financial Services Limited investor and analyst update conference call to discuss the joint venture with Axis Bank. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Talwar, MD, Max Financial Services. Thank you, and over to you, sir.

Thank you, Marie. Good afternoon, ladies and gentlemen, and thank you for joining us on this call at this very short notice. These are unusual times, and I just hope that you and your -- all your family and your close ones are well and healthy and safe. Before proceeding with today's or last night's developments, I would like to introduce my other colleagues who are with me on this call. So let me start with Prashant Tripathy, Managing Director and CEO of Max Life; Amrit Singh, who is the Head of Strategy for Max Life; and Jatin Khanna, Chief Financial Officer for Max Financial Services. It is indeed a landmark day for us. This call really is to discuss the notable developments, which we think will reshape the future prospects of Max Life with Max Financial Services and our incoming JV partners, Axis Bank, who have been partners with us for almost a decade. But this is a partnership which has been stitched together, and it always will for the company, and it is going to be a long-term joint venture relationship. Max Life, as we've all seen through the years, has been the best-performing life insurer when we see it on a holistic level, whether it is in terms of the balance towards growth, its profitability and the sustainability of being product agnostic. However, it is well known and we have kind of discussed this in the past that if there was one weakness in the company, and that was to do with the fact that there was an overdependence on Axis Bank and the relationship, even though it is currently on, comes in for a renewal in '21, '22. And so the question in the minds of investors, analysts was, what happens then? I think with this deal, those questions are now to be left behind. We believe that the JV, which we have stitched together, it's one which is going to be long term. It takes away the fact that there was a lacuna in terms of our distribution and there was and there will be. All that is behind us now. So as you all would have read, Axis Bank proposes to take 30% stake in Max Life, which is going to be a secondary transaction. Now this transaction, it brings together the third-largest private bank and the fourth-largest private life insurer in the company. This joint venture should be mutually beneficial and endure a relationship between both our organizations. Like I mentioned, this addresses the uncertainty and brings in the needed stability through a long-term strategic partnership. It should significantly improve Max Life's competitive position vis-à-vis its competitors, including the other large banks, which I might tell you are owned -- these are owned by -- the private life insurance companies are owned by large banks. We should unlock value for MFS shareholders given our long-standing high-performing business and the partnership with Axis. Some features on the deal. The name remains the same, which is Max Life Insurance. However, there would be a tagline, which will include the Axis Bank logo. And this will further enhance the customer trust in the brand and highlight the strength of the partnership. Axis Bank and Max Life have had a successful business relationship since over a decade, providing long-term savings and protection to over 19 lakh customers. The total premium generated through this relationship has aggregated over INR 38,000 crores. Both have invested extensively in product and need-based sales training, thereby leading to consistent increase in productivity so much so that Axis Bank are the best-performing bank insurance player from amongst the large banks in a month that is marked by significant headwinds. All things being equal, we expect the transaction to be completed within the current calendar year. This is, however, subject to all the regulatory approvals. The definitive agreements provide for certain rights, and these are follows. There are governance rights with 4 directors for Max Financial Services in existing Max Life and 3 for Axis. Some of that will readjust as the eventual shareholding gets changed once the contemplated merger is implemented. The endeavor will be to initiate the merger process by middle of next year, where we have around 5 years to implement the same. Axis Bank has an alternative liquidity option through the swap up to Max Financial Services if for some unforeseen reason, budget is not implemented. There is also a put option in several years if both do not happen. However, that's a remote probability that we will address some of your questions around the same as we go through the call. Before I hand over the call to the moderator, I would like to thank the entire Axis team and welcome them into our JV. I want to thank the team, which has worked relentlessly, and I tell you they have been -- not been short of being absolutely professional. I also want to thank our existing joint venture partner, which is Mitsui Sumitomo, who have always been very, very supportive of the transactions we do. And lastly, my team in Max corporate, who have worked tirelessly to make this thing happen. So to sum up, Max Life will continue on its trajectory of driving strong shareholder outcomes with Axis as the new JV partner. This partnership with Axis having been strengthened and the YES Bank bancassurance being renewed for another 5 years, significant investments in proprietary and digital channels, razor-sharp focus on cost and significant improvement in protection mix, we are progressing well despite the current challenges. On that note, I would like to hand it over back to the moderator and open the floor for questions and answers.

[Operator Instructions] The first question is from the line of Manoj Bahety from Carnelian Capital.

First of all, let me congratulate the entire management team of Max as well as Axis for moving ahead a long-pending strategic deal. So my first question is like, if you can elaborate a little bit on the put option. In fact, this INR 295 per share into INR 55 crores, give some -- like INR 16,000 crore kind of number. So it means what I'm -- am I reading wrong here?

If I can just start on this, yes, there is a put option. But if you see the waterfall, this is an event which is absolutely somewhat remote because the first thing we are planning to do is a merger. There is a swap which has been contemplated, and thereafter, there is a put option. Now this is -- you must look at it as an event. This is a low probability. But if you want to know the details of the numbers, maybe, Jatin, if you could field that question, please.

Yes, sure. So I think Mohit has made some very important sort of comments. I'll sort of drill a little deeper into that. And so firstly, the idea from a Max Financial and Axis Bank partnership standpoint there that we have to go through this merger. Now we've had the structure for precisely the reason why we are here today. Now having sort of accomplished that, now I think it's a matter of time, which is, I would say, maybe at best, maybe next 12 months or so -- or maybe 12 to 18 months, I would rather say, because this transaction may -- itself may take about 12 months to complete. So I think we are looking at in the next 12 to 18 months to progress with that merger. So therefore, the genesis and the basis of this transaction is merger. So that's one thing which I want to just say for that to be very clear. And we are not looking at getting into any other option but the merger. Now there have been questions in the past around merger and this whole uncertainty because I know some people have spoken about this telecom liability as people keep bringing up, how will this get sorted and what's your certainty around mergers? So I wanted to use the opportunity at this forum to say that we have decided to sort out the telecom liability in the tax amnesty scheme, which is on. But practically, what that means is that the only roadblock which could have potentially come in the way of the merger, that's clear. So at this stage, we do not anticipate any challenges with the merger. Now obviously, a merger is a regulatory process. So nobody can say with 100% certainty it will go through. Therefore -- but however, if you were to look at it from an Axis Bank standpoint, from their standpoint, obviously, if they're coming in as a JV partner, it's also important that, that JV has liquidity event at some stage. Now in the liquidity event, if the merger doesn't go through for whatever reason, which we obviously do not anticipate at this stage, but otherwise, one wouldn't have gone through the structure. So there is an alternative provided: to do the share swap like we have done for Mitsui. Now -- or we are in the process of doing for Mitsui. So therefore, frankly, we don't see anything beyond these 2 steps, is point number one. Therefore, this whole put option is a very remote liability event from our perspective. So that is one thing which you must take away from this call. The second thing which you should also take away from this call is that when somebody walks into a joint venture relationship and if you were to look at our press release, you will see that there is some 5, 7-year approximately time line to the put option. And that's really the period of time which we have with us to either deliver the merger or the share swap. And normally of these 7 years, first 5 years are for the merger. But practically, we don't see a reason why the merger cannot be done in 5 years because when I said that we can be filing for the merger in 12 to 18 months from now. Now you have to look at it from a different perspective to say that Axis Bank has come in here as a joint venture partner. Obviously, they haven't come in here as a partner seeking an exit in 7 years because no partner will walk into a relationship and want a midway exit because this company has done well, continues to do well. And now you think about where this company can be with the current management team, which has done a spectacular job, also supplemented by both Amitabh Chaudhry as well as Naveen Tahilyani, who both have been in the life insurance industry and have seen this business closely, this combination will put this company in a different orbit. Now if we are in that situation and from an Axis Bank standpoint, okay, liquidity event as they desired has not happened, but the company is doing well, and there is long growth still left from a joint venture partnership standpoint, and so we see no reason for them to exercise this put option itself from that standpoint as well. Because practically, I'm sure you'll all value this relationship and Axis Bank's stock, which then will pretty much take away any reason for them to even think of a midway liquidity event. However, at the same time, when you get into any partnership, you obviously have a liquidity desire at some stage, not to exit but to be in a liquid position. So to that extent, you will always put those conditions to say that, okay, what if it doesn't happen, what if I don't want to continue. And therefore, to protect those what-if scenarios, you will put several events. So it is that one of those what-if scenarios. But again, like I said, an extremely remote probability event. So my sort of -- on behalf of both Max Financial and Axis Bank, our mission is that this partnership is with the intent to merge these companies, and therefore, merger is really the option we will be working towards. And frankly, you should be focused on that and nothing else.

If I may add 2 more things. One is the fact that you're -- they're coming at a 30% stake. I'll leave it to the best judgment of people on the call and refer you to how long this arrangement is going to continue. There will be future announcements, which we will make periodically. So that's point number one. And the second is the amnesty scheme that Jatin spoke about. Last night, we also took an enabling resolution from our Board. So we've got that there as well. And as soon as the lockdown gets over, we want to be the first company in the jurisdiction of Punjab to go in for the amnesty scheme.

And just to add to what Mohit just said, the certainty of the tax amnesty scheme is so much so that we have actually already filed the formal application with the department, which is the online filing and our liability crystallization, everything has happened. Now the only thing is that the day they open up, we will pretty much -- they should be approving it, and we should be sort of getting on with it. So therefore, practically, before committing for this merger, we've also made sure that we've cleared all the roadblocks to the merger. I mean so that's our position at this stage.

Okay, okay. I have like a couple of more questions. First one is, initial part of the call, I might have missed, but have you mentioned that what is the money which Axis Bank is paying for this 30% stake? Has that been firmed up or still it is open?

Yes, sure. So well, it's -- okay. So now whether the money is firmed up, answer is no. Whether the mechanism of formula for this money has been firmed up, answer is yes. So what that means is that there is a -- under the income tax side, there is a valuation methodology called Rule 11UA. Now that Rule 11UA practically is a tax-adjusted book value, and that's the basis of our transaction. And to that extent, the reason why that number is missing at this stage is because tax -- the tax book value has to be ascertained at the time of closing and not today. So it was pointless, frankly, to put a number there because that number is subject to change. And that's why we haven't, at this stage, put the number, but the methodology for ascertaining that number is pretty crystal clear.

Okay, okay, okay. And Mitsui payout will be close to INR 800 crores for residual 5% stake which you might have to buy out at a future date, right?

Yes. It's about, I think, INR 840 crores if -- to be precise. And so that -- you are seeing some numbers and all that being floated around in the press. But obviously, I can't confirm or deny those numbers because I don't know what the number will be at that stage. But practically, this number is nothing as compared to the number which we will get on the stake sale. So to that extent, Mitsui Sumitomo acquisition liability is fully provisioned for in our assessment when we actually went ahead with this transaction.

And this transaction will be at holdco level, right? Max Financial will receive money from Axis, and they will pay to Mitsui, right?

Absolutely right. The secondary transaction which will be taking place.

Okay. And lastly, the final stake in Life, once all these things get concluded, will be around 69% to 70% will be held by the listed company and 30% by Axis, right?

Yes, it is 70% and 30%. So it's not around, it's exact 70-30.

Okay. Some stake is there with employees and all also. So that also will get subsumed, right?

No, the employees have [ tandem ] stock. They don't have ESOPs. So to that extent, there could be some few thousand shares from the past employees. But other than that, practically, it's a 70% ownership.

[Operator Instructions] The next question is from the line of Avinash Singh from SBICAP Securities.

Yes. I have a few questions. I believe that all the merger -- if I misunderstood the formula. The merger you are mentioning is basically collapsible to an operating company structure. And subsequent to that, I mean whatever amount you will be receiving that is not ascertained from Axis Bank, but I assume that to be sufficient to sort of a Mitsui stake buyout as well as kind of your assessment of the tax amnesty payment you may have to make. And then finally, what kind of cost side efficiency you expect post this deal because I mean in the past, you had certain mechanisms to pay the commission and other benefits you actually spent. But at that time, Axis Bank did not have a direct equity in this, barring the very small stake. Now they are becoming a strategic owner in Max Life. So does that mean that, okay, the cost structure also will be subsequently improved meaningfully? Some color on that.

I don't know what you mean by other mechanisms because practically, we never had a mechanism other than the regulatory possible compensation to be paid to Axis Bank. So I don't know what other mechanisms are being referred, and I'd rather refrain from commenting on something like that because we are in a regulated industry. And what we pay and what we can pay is what's within the bounds of the regulatory compliance. Prashant, you may want to add something if anything.

I think it's best to kind of sequence out. I mean I didn't hear the question very well, but I think he probably wanted to know what the sequence would be. So the first part of it, as you know, we've already embarked upon the swapping of the Mitsui stake. So that process is currently on. And then there will be a residual stock, which is about 5-odd percent, on which we have about 12 months to assess that from the time that we get the approvals. Hopefully, in this interim period, the Axis transaction would have closed, at which time the money would have come in. As Jatin mentioned, the money would be more than significant for us to buy out the 5% stake. And the amnesty scheme we've talked about, that's a cleanup job which is happening, and the process for the merger will embark 12 months from now. And at that point in time, really, there is no other gremlin, I would say, at the holding company, which should preclude the whole process of the merger. And I think the last part of your question was around compensation and remuneration, which Jatin has adequately addressed.

The next question is from the line of Dhaval Gada from DSP Mutual Funds.

Congrats on the transaction, at least the announcement. And I'm sorry I joined a little late. A couple of questions from my side. First is, what's the cost of the telecom liability settlement that you expect? And second is, what is the sort of medium-term plan of the promoter and Mitsui? Given that combination, both of them together will hold more than 50%. And we know that Mr. Singh's pledge of share is one of the sort of agenda that he wants to sort of reduce the pledge, et cetera. So what's the medium-term plan? Is there a strategic -- over a period of time, any thoughts what is...

Yes. So whilst we have approached the tax department formally, and the number really hasn't been crystallized, but we've got indications. And it's looking that it could be in the range about INR 120-odd crores. We have the adequate liquidity available with us at the holding company to do that transaction. So that's your first question. With regards to the second question, really, it's a question for the family, for the promoters. However, from what I know and coming wearing my public hat, I think Analjit has made this disclosure in previous occasions that he is relentlessly targeting to reduce the pledge. And really, there are 2 events. One which you all may or may not know is that we are almost at the cusp of completing our health care transaction. Unfortunately, because of a lockdown in Bombay, we haven't got our written order from NCLT, so that's expected shortly. And then there is a process of listing the health care company. The stake of Analjit in that company will be up for monetization. A mandate is already out. So that's the first step in terms of reducing his debt burden and thereby his pledge levels. He's also been fairly vocal about the fact that he would like to monetize some portion of his 28% currently held with him in Max Financial Services, and that is very much on the anvil. There has been a lot of interest, which has been robust in terms of picking up that stake. But obviously, we have to -- he has to really look at the right time and the right opportunity and maximize as much as he can. But that's very much on the part that there would be some small portion which would be monetized. And with a combination of both these events plus some assets which will be -- which is already started in terms of his Axis share reduction, the debt levels for him and consequently, the pledge levels will improve significantly. And this deal really is a sign of a [ palette ] and augurs very well directionally in terms of what he's contemplated doing. I hope that's kind of answered both of your questions.

Right. And just lastly, I mean we had this sort of transaction in the past with HDFC Life where you explored the collapse of the structure. And even at that point, I remember we had looked to sort of pass the telecom liability in one of the other listed entities. So what has changed from then to now that makes you believe that we'll be able to collapse the structure given that the amendment to the IRDAI has also not played out. So just trying to understand what has changed from then to now to -- just to understand.

So one is -- it's a good question. One is time. I think as time goes by, there are a lot of things which we need to kind of reflect upon, and that's something which has happened. The second significant item, what you just spoke about, which is this particular gremlin which is sitting there, right? It is not a clean holding company. And at that point in time, there was -- if you recall, there was another structure which was being contemplated in order to cauterize this particular liability. So we are fairly confident that going through this amnesty scheme, cleaning up the holding company with nothing else in there, this is a step in the right direction. Obviously, I can't give you 100% guarantee on it, but directionally, I think this is the right approach.

Yes, understood.

I just -- if I may add to what Mohit just said, I think there is a significant difference between what we were trying to do earlier and what we -- one would do in this situation. And let me state what the difference is. Earlier, Max Life was merging into Max Financial and then demerging into HDFC Life. Now rightly or wrongly, the concern at that stage the regulator had was that an insurance company merging into an NBFC. And the comfort was that the insurance company merging into an NBFC is not something which regulators can approve. They were at best amenable to looking at something what RBI does, which is on, let's say, the reverse of it. So that is, I think, point number one, which is to say a bank can merge with an NBFC, but an NBFC -- I'm sorry, an NBFC can merge in a bank, but a bank cannot merge into an NBFC. So I think that is one big difference between the last situation and this situation. The second sort of big difference is that when you strip away all the assets and liabilities of Max Financial and when you collapse Max Financial into Max Life through a reverse merger mechanism, then practically, there is nothing which is changing in the insurance company because neither the license goes anywhere nor there's any asset/liability comes in the insurance company. All what happen is there is a change of shareholding which happens. So therefore, practically, the regulator is approving only change of shareholding and nothing else when they are approving this transaction. So therefore, there are material differences between the 2 structures, which gave us far more confidence that this is doable. And like I said in the previous, I think, the first question and then Mohit also sort of mentioned in his remarks, that it's not that our life is only dependent on the merger. We obviously have a swap option also, at least from a transaction standpoint. But of course, from investor standpoint who've been invested in Max Financial, from their perspective, obviously, the merger is desired. And as you can see, there is seriousness and steps being taken in that direction because otherwise, we've discussed this in the past that this tax liability is a frivolous case. However, despite all of that, one is going for a tax amnesty scheme to really clean up the liability. So therefore, all the right steps are being taken in that direction.

I think there's also -- if I may comment there, there's also -- we need to kind of stand back a bit and take a more holistic view of why this marriage is really happening. I just want to remind all of you that not very long ago, there were aspirations from Axis Bank in terms of wanting to get into the insurance business. Whether it was greenfield or brownfield, these discussions obviously were had a couple of years ago. So that aspiration of getting into the insurance space has been germinated well before. Now there is a clean path by which you have a bank who has aspirations of playing in the insurance space, coming in as equal partners, jointly running the business and with a CEO who has a wealth of experience in life insurance business together with his COO who also has a wealth of experience with life insurance business. So if you only really look at it, I think there is growth for the long haul. And like we mentioned that you need to have a few mitigants in place because they are a Board-governed company, listed company. And it is but obvious that you need to have what's called an exit option. And that's really what has been contemplated here with an exit option, not that it is necessarily going to be exercised by them.

[Operator Instructions] The next question is from the line of Nitin Aggarwal from Motilal Oswal Financial Services.

My first question is, what is the valuation that MFS shareholders will see as MSI moves to the [ level ] and the loss in Max Life shareholding [indiscernible] across all categories of shareholder, specifically [ these 2 ]?

Yes. So I think your question is coming from the fact that is Mitsui Sumitomo participating in this dilution.

Yes.

If that's your question, so the answer to that is Mitsui Sumitomo swaps up is a precondition for this transaction to happen. And therefore, until such time that precondition is achieved, there is practically no -- I mean this transaction won't progress. So to that extent, as they swap up, they automatically participate in the dilution. Now obviously -- sorry, just one more comment. Obviously, this COVID has impacted the stock price, and from a INR 600 level, it's now down to more like INR 470 level. But the shares which we are acquiring from Mitsui Sumitomo, we are practically acquiring at, let's say, a INR 440 of Max Financial share price. So to that extent, when you look at it from relative to INR 600, even if you look at it from relative to INR 550, INR 525, the INR 440 already factors in that cost of dilution. Now I mean -- now INR 600 becoming INR 470 today is obviously an unpredictable event. So to that extent, what we are buying from them may or may not fully price their participation to that extent. However, when the deal was structured and it was conceived, the cost of dilution was part of both what we are buying out as well as what's being sought.

Okay. So only the shares will be issued at the now MFS level to MSI. So that is the only dilution to look at.

Correct. And therefore, as they come up, become shareholders of MFS, they automatically participate in the stake sale to Axis Bank.

Right, okay. And secondly, I suppose in a rare scenario, for some reason that you [ go to ] and Axis exits at a predetermined price of INR 294 per share. Will Axis stay on as a bank partner after such a long time? Because if it doesn't, then buying share at that price may be really expensive. I understand that there's a big outlier given all the explanation that was given, so that's still a big factor to understand.

Like I said, whilst there is a put option at the end of 7 years and things like that, but I think I mentioned it and clarified it clearly that the way we look at it is that it's not -- it's sort of a joint venture is like a marriage. Now -- and Mohit also mentioned this point to say that they have come in here after the stated intent of getting into life insurance business for almost 2.5 years we have been engaged with them to sort of make this work. So practically, I mean -- and like it's like to say that a worst-case scenario is not what a deal is predicated or premised on. So to that extent, I mean we should not expect or assume a scenario where in the middle of this relationship -- practically and also, I think you should -- you have to look at it in a different way also, right? I mean if the merger happened or the swap happened, Axis Bank will be the largest shareholder of Max Financial. So -- and the shareholding will be disproportionately higher than anyone else. Now when you are wanting to be in that position and when you come into a JV with all of that, and we don't walk in to sort of terminate that relationship.

And if I may add, let me also add another dimension to this. Today, as we speak, right, if we were to aggregate the quantum of deals, which Axis would have done from inception, we are talking about somewhere close to $1 billion, right? As we speak and with current business levels, right, the numbers are between INR 800 crores to INR 900 crores per year and growing. Now you tell me if there is this steady stream of fee income where you don't need to maintain capital in a scenario where banks are always looking for the fact that your risk-weighted averages and balance sheet management is a key focus. And if it is growing, right, why would one want to go and shake that beehive? You got to look at it from that respect as well.

Because you have to also think about the magnitude of the performance of the bank at that stage. I mean at that level of business volume and at that level of...

Prashant, maybe you can come in here to kind of just give a feel or an indication in terms of what's sort of cumulative sales number that we're talking about, 5 years hence or 10 years hence or even 15 years hence.

Yes. Thank you, Mohit. Really without COVID, we were hoping that we would conclude with Axis Bank and individual adjusted sales of about INR 2,700 crores. And my -- I have seen them grow close to about 20% kind of many years, so I will hope that they will continue to grow in that range for at least next 5, 6 years, which will take with a 20% growth. things double up every 3 years, so in 6 years' time, maybe 4x of this. We'll be talking about close to about INR 10,000 crores of sales number at a very high level. Also, coming back to some of these -- Mohit, some of the issues which are being discussed with respect to the possibilities. I'd just like to highlight that by then, we could have a precedent in terms of Mitsui Sumitomo getting -- going up, the swaps taking place, right? And swap is a short thing. So when one constructs the deal, there are all kind of possibilities which get discussed. We all have done deals, which will -- what if this doesn't happen, what if that doesn't happen. But one needs to be focused about the probability of an event taking place. In my mind, as to the possibility of either a merger or a swap taking place, it's close to 100% really. So I don't see the third event play out. However, there is always -- in deals, you have these scenarios which are created. Now on INR 10,000 crore of sales numbers, it will be very, very large relationship. And the income stream that will have -- will very -- will be very significant. At that point in time, it is -- these are exit barriers. So I will say some of these scenarios are quite theoretical in nature, and I'll request all the investors and analysts to apply judgment in terms of assessing their estimates.

Sure. And one little one question, like if you can provide some color on the tax liability that will arise, the taxes for the swap that's holding for Max Financial as that liability is planned to be borne equally by both the parties. So how much can be the approximate range of that tax liability?

I think we reported that in our disclosure, didn't we?

No. So we -- the concept is that we are sharing half-half. So it will be a factor of the share price then. And I must say, so that the incentives are aligned there, so obviously, if the price at that point in time -- depending on the price at that point in time, one would want to sort of time it such that the liability for both the parties are minimized. Now -- and while constructing this transaction, we've actually sort of talked through that and the mechanism how we could possibly defray that liability over a period of time. For example, I mean there is a part which obviously from the residual proceeds of this transaction, which can be taken care of, and the other part could be really very small. And it could potentially be deferred over many, many years if you could just get it financed or something like that. So I don't anticipate at this stage that being a significant number. 6 years out, it will be sort of to -- I mean significantly lower relative to the overall value of Max Life or the business just to complete.

What Jatin is saying, the objective, while there is a 6 or 7 years, which has been kept for the transaction or the first event to take place, this is like the outermost time. As I have repeated a few times, as soon as this is actually consummated, we are going to begin with the first [ 6 types ] of the merger. We'll know in some period of time if the merger is happening or not, post which, of course, there'll be the event of swaps. So in all expectations, we'll be able to conclude 1 of the first 2 much before the 6 years, and the liability in terms of what you share, 50, 60, is actually time-dependent. So it will be, in my expectation, much lower than how it will be 6 years from now.

The next question is from the line of Ajox Frederick from B&K Securities.

So my question is reinterpretation of an earlier question. The cost of running Max Financial, so basically, how does that change from here?

That is an insignificant cost. I mean frankly, we've, like every corporate, sort of gone through cost rationalization through a reengineering exercise over the past 12 months or so. And now the costs which we are looking at, for example, for this year, will be a sub-INR 50 crore cost. And then on top of it, given the proceeds which we'll get from this transaction, if they come in sometime during the year, the interest income itself will outweigh -- sort of take care of those costs. So I think, at least in our mind, we have moved away from that cost being an area of concern for us because frankly, in a company which is delivering about, say, INR 1,000 crores ENB of thereabout, INR 40 crore, INR 50 crore cost is nothing. And as we look at it from a long-term perspective and overall scheme of things, it will be insignificant. I mean today, it's less than 5% of ENB. And value also comes from the embedded value of the business, as you all know. So to that extent, if it's low single-digit number, if at all, in terms of the overall valuation mathematics as one would put out and will become even insignificant over a period of time because if costs are going to go up, whereas ENB keeps multiplying over the business growth and the margin improvement which we keep delivering.

And as Jatin mentioned, there's, of course, the desire to merge both businesses. So once the merger case gets over, anyway there won't be a separate entity. That is #1 for us as we work trough.

Until that -- I mean over the first 2 years, if anything, it's the JV which will be the focus, and after that, it's the merger process. So until that merger is processed as well, I think that the same kind of run rate will continue. That's what you're expecting, right, at least on the cost side -- very mild cost, but yes.

Yes, yes, yes. I mean the sub-INR 50 crore I can say for sure unless it comes down even further. And like I said, you have to look at it on a net basis because obviously, on a net basis, with the corporate you'll have with the other income flows which happen there because practically, this number could be a 0 or maybe a INR 10 crore, INR 20 crore negative number. So it's not a number which you need to really worry about now for the future or in the foreseeable future.

Got it. Sir, my next question is on the Board. So how is the Board -- like I've just read somewhere that one will be nominated by Axis and -- but will be part of Max Life's Board. So how does it work?

The way it works is that there are 4 directors which Max Financial will have on the Max Life Board and 3 directors Axis Bank will have on the Max Life Board. Obviously, Board composition being what it is, it's a joint venture, and therefore, we will want to -- we will run it, and we will always want to run a JV in the spirit of equal partnership. So obviously, we will sort of cocreate and practically sort of jointly drive Max Life. I don't say like a performance or an operating level or a governance. I wouldn't even say performance or operating because that is really for the team to manage, but to think more of a governance and...

What is contemplated is that whilst we may have this configuration of 4 and 3, in the spirit of partnership, as we have done with all our JVs, whether it was New York Life or our health care business, we are known for basically operating in the spirit of equal partnership. Part of the overall construct, there will be what's called a shareholder forum. And in this particular forum, there will be representatives from Axis Bank and MFS. And all key decisions, whether it is to do with people, business plan, CapEx, capital, capital management, all of that, this shall all be well discussed in that particular forum and brought to the Board. So that's how we are planning to collaboratively work on the JV.

And one just bookkeeping question. So after everything is settled, like after the Mitsui swap and after Axis coming in, the current MFI -- sorry, Max Financial shareholders, so they will be holding about 54.7% of Max Life?

Yes.

The next question is from the line of Madhukar Ladha from HDFC Securities.

Congratulation on this deal. I just had a couple of questions. Number one, you mentioned that the book value is tax adjusted. Can you give us what is the tax-adjusted book value as of December '19?

Okay. So I'll tell you the tax-adjusted book value as of November -- whatever, December or March. It's in the range of INR 28, INR 29. Now that tax-adjusted book value typically moves up with profits. However, could fluctuate outside of the profits because of mark-to-market of your bonds because -- and that's the biggest sort of driver, which can swing it this way or that way because I recollect having discussed the number of -- I mean in this number. So yes, so I mean forget the past, but practically, that's the number today, and it could move depending on how the profits accrue and how the mark-to-market of the bonds will -- bond will happen.

Got it. Second, I'm assuming then the current buyback arrangement with Axis is suspended.

Yes, absolutely. I mean there is -- I mean the current arrangement will get suspended after this transaction comes in play. Obviously, there is another 1% put, for example, which will in a way materialize before this transaction is done. So to that extent, that 1% will get bought, but after which there is a 29% which will go. And so the last 1% will get canceled.

Understood.

And we have the cash reserves for the 1%, which we have to do.

Yes, okay. Then you clearly stated what one of the promoters, Mr. Analjit Singh and family, were kind of trying to do with their stake. But I don't think you really elaborated on what Sumitomo's intentions are. Now they have a stake in the holding company, and they will also be selling 5% stake to the holding company. So what are their plans? Any...

I don't know how familiar you are with Japanese companies. But to give you a short answer to this question, Mitsui Sumitomo is there for the long term.

Okay, okay.

And also, I want to just say one more thing, which was not said and so that we are all clear, when we talk about monetization of the family stake and part monetization actually, we are not talking about the stake coming into the markets. We've got deals and all of that. It will be a private transaction. So to that extent, I mean I just want to sort of clarify, you should not have a liquidity overhang in your mind somewhere that the stock will come in the market or something like that. And Mohit had said there is a long queue waiting to get in as soon as we announce this transaction. So we will obviously have to start engaging with our potential partners who will want to look at this stake and participate in the future growth.

Yes. So from what we know, I think a lot of guys have kind of circled the wagons in the past, and the wagon would actually come and stop on just one item. And that one item is this particular item, which we have now eradicated hopefully and not going to be discussed for future negotiations.

Great, great. Then just on what sort of regulatory approvals are still pending on this? I understand that we are pretty close to getting RBI's approval. Can you like to throw some color on there?

I don't...

All regulatory approvals are pending, but we have not even applied for the transaction. But for the Mitsui Sumitomo transaction, those we've already applied to Department of Economic Affairs. I think CCI has to go now to the fast track methodology, which they have, where they can do that. We have applied to IRDAI. Questions have come. Questions have been addressed. So that's moving along fine. As far as the merger transaction is concerned, which is the active one, we just closed it. Well, we are in the morning today. And we -- in the course of a week or so, we would be applying to CCI, IRDAI, Reserve Bank of India. And so early days to say how long these are going to take. But we are hopeful that end to end, we should be completing this towards year-end -- calendar year-end.

When should the share swap with Mitsui get done? And then...

So that's a prerequisite of the transaction. So that should happen earlier than the crystallization or the closing of the activity.

So what is the indicative time line on that?

Now COVID has come into the picture. We were hoping that this should be done by June, but give or take, a couple of months, I suppose.

Yes. I think -- Mohit, if I may. I think the Department of Economic Affairs is the only approval which particularly should take time because frankly, like Mohit said, with IRDAI, we are done. With CCI, we are in a fast track. So it's maybe about a week, 10 days or so. If our application under the fast track is admitted, which I believe the meeting was to happen soon. So if they admit that application, then I think it's about a week, 10-day process. So that will go down pretty soon. Now Department of Economic Affairs also, they've had the query list sent to us. We responded to all the queries and I haven't heard after that. So practically, it could be -- whilst we all anticipate it to be a June event, it could surprise us on the other side also. Mohit said that it could get delayed, but it could actually -- could be a situation wherein you may get all the approvals by May itself. So we don't know at this stage.

Right. Help me understand the number which was sort of floating in the press. It's about INR 1,600 crores, and for a 30% stake, so that values the company at INR 5,700 crores-odd Max Life, whereas Max Financial, that 93% stake with current market price would be at roughly like INR 16,000 crores, INR 17,000-odd crores of market cap. So isn't this a sweet deal for Axis? And how -- am I thinking -- what am I not missing? Or what is -- yes, what is the catch? Or...

I don't think there is a catch. And practically, you have to look at value, not in terms of rupees crores. And you have to not look at value in terms of what's being paid. What you have to also look at is that when the third-largest private bank comes as a partner, it's a different ballgame. That is one thing. Second is that if that partnership removes the overhang in terms of the gap which has been sort of perceived in the minds of the investors in terms of only one sort of missing piece in the overall Max Life strategy, which is to say that we don't -- we are not owned by a bank like many of our other competitors. Otherwise, if you look at any vector, Max Life has outperformed pretty much practically every player in the industry. I mean just to give you a little bit of a -- I mean whatever recency in terms of performance, I mean for example, in the month of March, you saw this whole COVID situation playing out, and we've all seen the numbers for March coming out. Max Life was pretty much second to none except for one. And there also -- and that player had a slow March last year. So it's more of a base effect. So practically, in all difficult times, we've seen Max Life performing better than the others, it has the most balanced product mix. It has the least amount of risk when it comes to sustainability of their profitability because a lot of players have a very heavy focus on some of these products, which are susceptible to regulatory actions. And Max Life doesn't have any of that. Despite all of that, rather than trading at pretty much the top multiples, if I was to just say, it has traded at the lowest multiples. You know what I mean? So now having sorted this partnership and having given -- having sorted this uncertainty, and we then are looking at Max Life being looked upon as a life insurance player, which is second to none in terms of the quality of business which Prashant and team run. And in fact, we were having a little bit of scenario and having conversation and maybe Prashant can throw a little bit more light on it, that we have done exceptionally well in COVID. Our agency has -- has been the least [indiscernible] growth and the [indiscernible] part of it all on the [indiscernible] sale of the [indiscernible] in growing very sharply [indiscernible]. So on [indiscernible] growth. But Prashant, talked a little about it [indiscernible] resulting in the value which it should result for our shareholders. Now how -- having sorted this lacuna gap in the overall piece of -- in the overall strategic piece for Max Life, we see a significant amount of value being created and unlocked for our shareholders. So -- so I don't really want to compare with what price we are today trading at or what price at which we are selling. I think the value in this partnership and relationship is far more than the value being possibly put on the table to cement this relationship.

Actually, if I could just give you a small, little -- a summary of this. Assume for a minute, assume for a minute that we did not do a deal with Axis. And assume that you have reached 2021, '22, right? And the banca arrangement is now kind of nebulous. What do you think would have happened to the company? That's one scenario, right? Where more than 50% of our sales is coming from one distribution channel, which is Axis. And now you extrapolate that scenario to the current scenario. And I'm sure you will get your answers in terms of whether it's sweet deal or a little bit it of sweet deal for all. So I'll leave it to you to decide that. But Prashant, over to you if you have anything further to add on this question.

Thank you, Mohit. I think the way to see this is it creates winding in for everybody. I, first of all, speak for Max Life is a platform, really all the good senses that we talked about, we are distinguished. We are a very differentiated and historic company. However, the place for a large distributor has to be understood in the context of financial services. And with this relationship, hopefully we have cemented partnership over a long period of time and which will continue to accrue value to us as a franchise, and it will build a platform for our future growth. Now we also must keep in mind that having a robust platform like this creates far more avenues and opportunities for the management team to focus on different areas and better growth from other elements. We have mentioned multiple times that we are focused on driving our own channels. Now having cemented this partnership and relationship over a long period of time and having the discussion with YES Bank extended and 5-years of extension, the management team and the company is well set out to focus on expanding our own channels and going beyond what was possible earlier. And of course, that will start to show up the number. On Axis Bank specifically, of course, they get shares in one of the good -- one of the distinguished companies or differentiated companies and it is to accrue value to them. So if you look at it, it's a sweet deal for just about everybody. As the shareholders of Max Financial, it is a sweet deal and we've just managed to -- we hopefully will manage to unlock the value, which is lying in the franchise, which will get passed on to all the participants. So it is going to just benefit from -- I think, from having Jatin talked a lot, but suffice it to say that we continue to operate with a lot of confidence under the COVID situation. Also, there's a well-laid plan that we're executing to. We have seen reasonable growth, reasonable performance under the current circumstances. And there is very well-laid strategy for a short period of time, then the [indiscernible] number [ reduce ]. And of course, there is a long-term strategy that we have to remain focused on. At a very high level, of course, COVID is causing a bit of stress, but we're managing that by completely digitizing over a record period, digitizing the entire sales mission, the entire sales process by driving significant amount of protection. Hopefully, that will yield a positive impact on our margins. Being extremely focused on our cost with a roadmap on how we will manage the expenses over a short and long period of time because it's structural cost reduction as well as focusing on reimagining how our fulfillment will look like in the current context. So there is a lot of work currently happening, which I'm sure will position Max Life to remain one of the market leaders and will -- will benefit over a long period of time. So overall, the performance is intact. We just go from very hard to make sure that we remain in green market share. We'll remain one of the market leaders.

I would request Mr. Ladha to come back in queue for follow-up questions. [Operator Instructions] The next question is from the line of Udit Kariwala from AMBIT Capital.

Hello, am I audible?

Yes.

Yes.

So the question I had was that we have discussed enough about the merger. One thing which I wanted to know is if this deal goes through, operationally, how does things change with Axis? Up till now, they were a partner and a large part of their business was coming from Max. So in terms of some numbers or some sense as to how operationally things would change if this deal goes through? Any increase in commitment of business? Or something around those parameters, if you could give any color, that will be helpful.

So what I can tell you is that, look, just assume that they are also a promoter, right? Just like we are. And I had kind of talked a little bit in terms of our governance, how we plan to work together, with shareholder, forum, et cetera. And my belief is having interacted with their very professional team, that they would be quite actively involved in the business. And all critical key decisions will be cocreated, discussed and initially agreed upon and disseminated to management. So that is how I perceive this -- the joint venture to operate going forward. But Prashant, do you want to add some color? We have no numbers to give you right now, but if there's anything else you want to add to what I just said?

Very healthy relationship. I mean, as you know, the bank currently follows the model of open architecture, however, Max Life continues to have upwards of 90% share, 90% to 92%, 93% share of the total counter. And once the bank becomes a promoter, I will have no reasons to believe that it will go down. So I'll continue to remain optimistic that Max Life Insurance will be the target beneficiary -- very substantial beneficiary of the bancassurance sales from Axis Bank.

So I mean where I'm coming from is that we saw that Axis had done another deal and you rightly mentioned about the open architecture where they've partnered with all of the other private insurers. So I mean, it's just kind of trying to get some sense around that, right? Because if -- because most of the banks, once they become -- they are promoted, they typically kind of push their subsidiary kind of products. So that's what I was alluding to.

Actually, that's a question you should actually ask Axis. I mean our belief is that intuitively, if you are a promoter, you own [ 30% ] in a company, then yes, you're not here to selling us under a truck there, right? So -- but best to ask that question of Axis and see what they have to say.

The next question is from the line of [indiscernible] from [ L&T Infrastructure Finance ].

Congratulations on the deal. I just wanted to ask more on the lines of utilization of the money that's going to come in from Axis. I know you've mentioned about the Mitsui buyout as well as the -- their tax scheme. But over and above that, can you shed some light on how the funds are going to be utilized?

Mohit, if I may. I think from now...

Yes. Yes. Go ahead.

Yes. So for now, at this stage, we have no plans to sort of -- in terms of -- if your question is that is there a dividend in foresight and all of that. At this stage, we have no plans for any of that. But obviously, at the right time, we will think through some of these, think through what our requirements are and then take a call because we are still, given the regulatory process, maybe 6 months away, maybe 9 months away from closure. So I think it's a very premature question at this stage. One hasn't -- one has had sleepless nights to get to this point. So at this stage, we'll enjoy the moment and then think through what we need to do with the cash 9 months from now.

The next question is from the line of Devang Patel from Crest Wealth.

Sir, are there any covenants in the deal structure that put a cap on how much Axis bank can hold in either Max Life or Max Financial? So if they want to increase their stake to majority, is there a roadmap?

So under the Banking Act, there is a section called Section 19.2, and this is our understanding of the Banking Act, of course, we don't run a bank. There is a cap of 30% for a bank to own in a life insurance company. So yes, in a simple way. Now in the past -- now your question obviously will be to say what happened when, I'll say, if they started or when, for that matter, let's say, SBI started. At that stage, this interpretation was not very clear because the carve-out to go beyond 30% is only in an indemnity-based business. Whereas life insurance is not an indemnity-based business. Now what I'm hearing lately is that the review in RBI is almost certain that, that interpretation was not the right interpretation at that point in time. And the interpretation is that a bank cannot own more than 30% of the life insurance company under the Banking Act. So to that extent, that's the maximum at this stage, given what I just said, what Axis Bank can own. What happens in the future or not? We don't know. I mean, frankly, how will regulator look at this issue 5 years down the line, 10 years down the line, nobody knows.

Sir, and the Board sharing of 4 and 3 seats, for how long does that continue because Max -- will Axis Bank will have the largest stake after the merger?

Correct. So once the merger happens, and I think Mohit mentioned in his opening remarks that the Board will get readjusted days on the shareholding. Why is the JV still continues and -- sorry, why is the merge entity still continues as a joint venture in terms of, Mr. Singh, depending on the family shareholding, being the joint venture partner for Axis Bank, and directly as opposed to Max Financial being the partner. But obviously, since its shareholding on a diluted basis will be much lower than what Axis Bank shareholding is. So given that, in that construct, clearly, Axis Bank will have a significantly higher number of directors relative to what the family will have in the merged entity, given their shareholding.

The next question is from the line of [ Dixit Joshi ] from [ Milestone ] Financial.

Just one question. Is there a clarity regarding the merger ratio? I mean how much Axis Bank will be holding post the merger?

Well, there is -- I don't think so there's any sort of clarity required here or any confusion because practically, what one said is that whatever assets and liabilities are there and the holding companies will have to be pulled out. So it has to be something called a composite scheme where you demerge the asset liabilities into another, like a group entity and have a Max Financial as a shell company. And that shell will merge into Max Life. So practically, only the Max Financial shareholders will get the shares in the merge Co. There is nothing which changes for Axis Bank. They will continue to hold their 30%. So the effect of that merger will be that the shareholders of Max Financial will become direct shareholders of Max Life.

Okay. Okay. So Axis will continue to hold 30% in Max Life or Max Financial?

No, in Max Life, the merged entity.

Yes, sorry, merged entity. Okay. Okay.

The next question is from the line of [ Harish Toshniwal ] from [ Trinity Invest ].

This is [ Harshit ] here. One question. So in the current structure, since Axis becomes the majority owner, the largest owner. And simultaneously, they will be having seats on the Board. You think that this can form as a control and the point where RBI might have some -- might need more clarity or might need to think about? So is the line of thought relevant?

Well, at this stage, it's not conceived as a control like we discussed because Max Financial will have one Board more seat more than Axis Bank. And it's a 70-30 partnership. So now what happens in the future post the merger is not something which anybody can sort of, at this stage, I mean, sort of say what RBI will take a view at that point in time or not. So at this stage, this transaction is not structured as a control transaction. So there is no control, passing on. And therefore, we don't anticipate any, any such issues arising with RBI.

Okay. Okay. And another question, sir. So since practically because of the RBI regulations, 30% becomes a maximum which Axis Bank will be able to hold. You think that the structure will be a very competitive open architecture? Despite being the promoters, the structure is -- will always be more skewed towards a very stiff and competitive outlook at Axis Bank channel?

Let me put it in a very simple fashion. When it comes to, let's say, open architecture or having different partners in terms of -- as part of their overall distribution network, practically, what is there is compensation, right? Because they are commissioned under the law, which get paid and when you sell the policy. However, here, they will be 30% owner. And possibly the single largest owners in the future of this businesses. So now there is that much more value, which is accruing to you as a bank, being a shareholder. So to that extent, I mean, so reasonably, one wouldn't expect any meaningful or, let's say, I mean, whatever -- notable share to go to any other partner but to Max Life of that business, is how I would sort of put it.

The next question is from the line of [ H. R. Gala ] from [ Finvest Advisors ].

Yes, I just wanted to know, have you filed this merger document with the authorities?

No. We said in the opening remarks, it's a 12 to 18 months event. Not now.

Okay. Within 12 to 18 months.

Yes, because we have to first close the transaction, then we have to close the Mitsui buyout and then we get on with the merger. So it's a 12 to 18 months event.

So what will happen post-merger is that entire Max Financial Services will get merged into the Max Life. Correct?

Right. Correct.

[indiscernible]. Now as a result of it, somewhere in some answer, you said that the Axis Bank stake will go up. Will it go up beyond 30% after merger?

No, it cannot. So I just clarified that about 2 questions back, that all the Max Financial shareholders will participate in the 70% shareholding of Max Life and Axis Bank ownership will remain at 30%.

The next question is from the line of Sumeet Kariwala from Morgan Stanley.

Congrats on the deal. I just wanted to understand the partnership is like almost 10 years old, and we have attracted a lot of synergies. But now that the tariff becomes much more strategic and of a long-term nature, are there something additional synergies that you can generate from a 3, 5-year perspective, which was missing so far and can now be [ deducted softly ].

Prashant? I don't remember -- we have lost Prashant. Amrit, are you there?

Sumeet, yes. Can you please repeat your questions?

Prashant, the question is that what is your expectation of synergies over the next 3 to 5 years now that Axis Bank becomes the shareholder?

Oh absolutely, not a synergy that's -- so far, our relationship, while we always called it strategic, it was more tactical value of share year-on-year, giving stake in time back. Now from there, it converts into them becoming solid set of shareholders who are vested, participating in governance, participating -- locking of business plans as well as their value actually accruing out of the business growth. So from that perspective, I think definitely going to help also some bit of maneuverability with respect to how do we adjust the product mix, how do we deploy resources, what strategies do we deploy, the overall leverage that I will hope Max Life Insurance have to work with the management team of Axis Bank shoulder to shoulder now being -- as shareholders that have made us simply being distributors, will definitely accrue synergies, Sumeet. So I remain very optimistic about how future will unfold. So that's what I am told.

At the governance level, I think, which is something which I alluded it to, to say that there are 2 more people who have come on the Board in a way. They have been a part of the life insurance industry in the past. So obviously that expertise will -- also comes in play, maybe somewhere.

The next question is from the line of Nidhesh Jain from Investec.

Congratulations for the deal. Firstly, sir, from a distribution strategy and Max Life, do you foresee any difference? Because in last 2 years, we have been investing quite a bit on propriety channels and which have an impact on our margins. Going forward since we have high certainty on the Axis Bank channel, do you foresee any change in our distribution strategy?

No. So Nidhesh, very good question and thank you for asking. I think we are -- I mean, leave COVID aside. COVID is a problem that is impacting it. This strategy of ramping up our own channels is very well thought through strategy and we will remain steadfast about it. And as a part of the strategy, when we push the fiddle on expansion, there's definitely a pressure on your profitability margin, et cetera. So you noticed that our margins have remained the same level having quite grown drastically. But once you make the investment, it -- that's why you get very strong. And hopefully, that leverage will start to accrue, which will start to show up on our maneuverability. We firmly believe that agency or own proprietary channels are very integral part of our overall channel strategy. So that focus will remain there. And I'm sure our shareholders and even Axis Bank when they become the shareholders, will want to supercede them. There are enough, in many examples, which we have seen in the marketplace, all the large bancassurance or bank-owning life insurance companies have been pushing the agencies hard. So that will remain there. I think what -- it will also give us, Nidhesh, is having settled 2 of our large relationships quite sturdy. It will give management more bandwidth to focus not just on our own plan, but also to grow, acquire more partnerships, et cetera. So from that perspective, there might be a change, a little bit of change in the product mix -- sorry in the distribution mix, but we remain steadfast. As we finish the [indiscernible], I was looking at some of the numbers, the mix of our own channels is growing the way we had envisaged. So it has gone up from 30%, 32% as we finish the market. And that trajectory, we continue to maintain.

Secondly, on the dividend payout policy, will there be a change because now historically, Max Life has been [indiscernible], but that probably will not be required going forward. So in that context, will there be a change in dividend payout policy and the solvency requirement and capital requirement for Max Life?

Yes, we are going to review that. Actually, and you actually rightly pointed out that the difference is aligned to our requirement to buy back from Axis Bank. When that compulsion actually goes away, we will redo our dividend policy. But I will also like to highlight that Max Life is a growing organization. And we are touching our solvency ratio -- we're close to about 207%. So if we continue to grow to the pace that we are growing anyway, our ability to actually distribute the [indiscernible] for next 2 to 3 years, is going to be limited, we may end up requiring more capital, which we know to -- over the next 2 to 3 years, we'll do it either by raising it or our own profits. But suffice us to say that level of dividends that we are saying earlier is basically [indiscernible]

Question on the reverse merger, will then there be any tax implication on the shareholders of reverse merger? Of the merger of Max Financial and the Max Life?

It's a tax neutral merger. It is designed to be tax neutral.

The next question is from the line of Prateek Poddar from Nippon India [indiscernible]

Sir, all my questions are answered.

The next question is from the line of [ Ritesh Vohra ] from [ Mission Holdings ].

So sir, is the 30% buyout, does it mean you have to give any open offer?

And it is in the unlisted company.

Unlisted company. So there's no acquisition of shares in the listed company. So there is no openings.

But it is getting merged, right? That is happening afterwards, is it?

Yes, that will happen from 12 to 18 months from now. Not at this stage.

The next question is from the line of [indiscernible] from [indiscernible] Securities.

I just have one question. Does the shareholder of MFSL, post the merger, will get the share of Axis Bank. Hello?

We can't hear you. Please, go ahead.

Hello.

Yes. Go ahead, please.

Just wanted to ask that whether shareholder of MFSL, post the merger, will get the share of Axis Bank?

No, the shareholder of MFSL will get shares of Max Life, not Axis Bank.

Okay.. Max Life?

Yes.

The next question is from the line of [indiscernible] from Trust Investment.

Congratulations on the deal. I just wanted to ask that here, it appears that Axis has 2 options. One is the swap-up option and one is the put option. So first question for swap-up option. What are the -- I mean, what kind of valuation does it happen? Is it like just 30% from Max Life [indiscernible] and Max Financial?

There is practically nothing in the roll call, like I said. So therefore, whether merger happens or swap happens, it's straight sort of the shareholding moving up.

Okay. So instead of holding 30% in Max Life, they will hold 30% in Max Financial.

30% [indiscernible] may not be because they still want to hold something in Max Life. So whatever the swap up, they could swap up to that percent.

Okay. And second question is if like said they refuse to exercise the first option, and obviously, this is a hypothetical scenario. But with the first option, if they refuse, they can still exercise the second one, which is the put option? Or is the second option...

There's no concept of refusing. We have to practically file for the merger. Now you have to understand also the fact that what is in the best interest of Axis Bank, what's in the best interest of Axis Bank is what's in the best interest of Max Financial shareholding because practically, if the merger happens, they become their single largest shareholder of a directly listed life insurance company, which is what the desire of the Max Financial Services shareholders also is. So to that extent, they will always want to merge. And swap is really that backup option because practically, if you really think about it, in the life insurance business, your shares get logged in for 5 years. So when you come in as a promoter. So the swap option possibly, unless or until we get a waiver from the regulator, we'll have -- we'll become alive for 5 years from now. So if they really want to do -- if they really want to be in that position, which is where they could get to, then merger is really the option.

In the swap option that becomes exercisable if the merger doesn't go through, right?

Correct.

And then the last option is the put option, right?

No. Well, exercisable -- no, exercisable independently. But practically, they then why would firstly, they cannot swap for 5 years because of the IRDAI locking kind of. So in fact that there is a 5-year locking, it's not that there's any other interpretations which can be taken of that item. So to that extent, once they have -- within those 5 years, the only option is the merger option. Now if we haven't been able to deliver merger for 5 years, then obviously, they will want to swap to come into the liquidity in this situation.

And it is up to their discretion, whether they want to swap or to put the options to you. Is that fair?

No, no, no. So they can only put if they have exercised the swap.

And -- okay. Okay. [indiscernible], can they get the Max Financial share with.

Correct. Then once they got the shares then they're in a richer company, even if they want to go exit or monetize partly, that's a better option for them.

Okay. So put option is only for a limited number of Max...

Put option is a deterrent that in a way -- I mean in any construct, you will have certain events to say that -- I mean for example, we want Max to sort of get a merger done or a swap done, those kind of things. Otherwise, somewhere in the overall life of the relationship, like I said, we could possibly choose to exercises another option, which will then ensure that our first 2 options are delivered to us. That's how you typically do some of these things. But not to say that -- and that's why we said it's not to their desire or it's not in their interest to exercise the put. I mean, given rationale for why it would make sense to exercise their put.

I would also add here that one, you've talked about the fact that this is going to be sequential, which is a waterfall. There's merger, failing which, the swap and then is the put. Now Jatin's talked about really this being a deterrent. Now I think there's one more lever which is available. And that is that in order for -- whether the merger or the swap actually happens, we also need the concurrence of the majority shareholders. So as part of this dealing construct, we also have to -- we also got [indiscernible], who is the major shareholder who actually adheres to it through a deal but with adherence. So they will support both these items. So really, it is like a deterrent to which Jatin has spoken about.

We'll take one last question from the line of [ Shiv Chanani ], an individual investor.

And congratulations on the transaction. This, I wanted to understand [ post 15 ] and, let's say, post the merger, when Axis Bank actually becomes 30% shareholder in hopefully the listed Max Life. Are there any thoughts around rebranding as like a Max, Axis or something like that?

So the arrangement is that like I've said, the name of the company will be Max Life as it is today. However, there will be an amendment to the sideline which is currently there. And that amendment includes the inclusion of the Axis Bank name as well as the logo, which will be prominently displayed. So very clearly he's talking about the joint venture between Max group and Axis Bank. So that will do that.

All right. Fair enough. And just one more question. Let's say, in whatever, 1%, 5% probability of the merger actually not going through, what prevents Max Financial from giving out shares of Max Life to all the shareholders of Max Financial?

Again, a very good question. I think there is a --

[indiscernible]

Yes. So there is obviously -- firstly, there will be a dividend tax leakage for all the shareholders, which is heavily a financial implication. But to say that, let's say, we leverage with all our options. And therefore, if not an option, which is not somewhere in the table. It's not part of the deal. But it's a possibility, which is there, but it has implication in terms of division tax leakage. So we'll have to do everything when we come out with -- come out with the final, final structure in the sense that the preferred option is the merger, followed by the swap and followed by any other option.

Yes, I do understand the dividend part of it. I'm just trying to understand, is there anything else because, see, dividends is a onetime...

No, nothing, nothing. What you said is absolutely right. It's not that it's not a possibility. It wasn't a possibility because of the tax amnesty scheme previously. It is very much a possibility today, but that possibility has a cost attached to it. So we'll figure out at the right time, which way to go.

Fair enough. And if I may just squeeze in one last question. In terms of like, let's say, again, it's the eventuality of the merger of Max Life and Max Financing. Clearly, Axis Bank becomes the largest shareholder at 30%. So while you mentioned that there is an RBI limit in terms of 30% holding for insurance company. But I'm just trying to understand, is there a conflict between the SBI and RBI because SBI might want that it's an indirect 30% holding in a listed company for Axis Bank. And hence, they may insist on an open offer.

No, not really because practically if you think about it, Max Life was a joint venture. The [indiscernible] is a joint venture today. So yes, so I don't -- I don't see why Axis Bank will be pursued differently.

Have you sought a clarification from SBI and RBI's?

Well, it's -- I mean it's an unlisted company. So there is no clarification required, is not that the company [indiscernible] only has the health insurance business. It also has a shared services vertical. So, practically the only business in the company.

Yes. The question will arise only in eventuality of the merger. Great enough.

Merger does not [indiscernible], as you know. Thank you. Yes, as this was the last question. Mohit, over to you.

Is that the last question?

That's what I heard the moderator say.

Yes, sir. We have one question in queue, it's a follow-up. Unless you want to take that as well?

Yes, let's take it.

The next question is a follow-up from the line of Madhukar Ladha from HDFC Securities.

Just a follow-up, sir. The put option, is there a time limit until which it can be exercised?

So the 63 months after the transaction and up to when is the put option alive?

So the thing is that you know -- like I said, the swap is a precondition to the put. So if they have not exercised the swap, then obviously, they cannot exercise the put. So -- and if they exercise the swap, then swap will get done, if it gets done from the same today. So to that extent, there is no -- it is not a real risk in terms of the put, like I said. While it's there, like Mohit spoke about it, as a deterrent.

But there's no time limit until once the put expire on it or something.

But if they haven't exercised the swap right, then put automatically expires.

Ladies and gentlemen, that was the last question. I now hand the conference over to Mr. Mohit Talwar for closing comments.

Thank you, and I thought this was a very rich and an invigorating session we had. Lots of great questions, and I hope that we have been able to kind of address whatever questions you all had adequately. If there's everyone who wants to reach us separately, if there is something we have not addressed, please feel free to do so. So with that, I kind of bring this session to an end. And thank you very much for joining us again.

Thank you. On behalf of Max Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.