Mumbai: Private equity firm True North Managers Llp is close to buying out Analjit Singh-promoted Max India Ltd’s entire 51% stake in standalone health insurer Max Bupa Health Insurance Co. Ltd, said two people with direct knowledge of the discussions. Max India will exit the health insurance business a decade after it entered as a promoter. This will mark the first exit by an Indian promoter in the domestic health insurance industry.

“The new joint venture will have True North as the majority partner, while British partner Bupa will continue to hold 49% in Max Bupa. True North will buy Max India’s 51% stake in Max Bupa at around 1,000 crore," said the first person cited above, requesting anonymity.

The deal would value Max Bupa at around 2,000 crore, this person said. “This valuation is based on Max Bupa’s gross underwritten premium of around 755 crore during fiscal 2018 and an estimated 931 crore for fiscal 2019," this person said. It assumes that gross underwritten premium will grow more than 23% this fiscal and thus values the enterprise at 2.2 times gross underwritten premium.

Emails sent to Max India, True North, KPMG and Khaitan remained unanswered. Mohit Talwar, managing director of Max Financial Services Ltd, said, “We do not want to comment on this."

Max Bupa earned a net premium of 278.23 crore in the fiscal first half through September, an 11.85% increase from last year’s 248.75 crore. Operating expenses during the period increased to 156.26 crore from 131 crore during April-September 2017. The company’s assets were estimated at 133.45 crore at the end of September, compared with 110.42 crore a year earlier.

The second person cited earlier said Max Bupa and True North officially agreed on the deal a few days ago and were expected to make a formal announcement soon. “There were two meetings between the managements of Max India and True North on Tuesday and Wednesday this week to discuss the final structure, payment schedule and other key contours of the deal," said the second person.

Consolidation in India’s health insurance industry has intensified over the past one year.

In August, Star Health and Allied Insurance Co. Ltd said private equity firms WestBridge Capital and Madison Capital and billionaire investor Rakesh Jhunjhunwala had jointly agreed to buy Star Health. The buying consortium, Safecrop Holdings Pvt. Ltd, will buy shares from Star Health Investments Pvt. Ltd and funds managed or advised by ICICI Venture, Tata Capital and Apis Partners, according to a statement issued by the insurer. The deal values Star Health at 6,300-6,500 crore, according to Bloomberg Quint. With a 92% exposure to the retail health business, Star Health earned a total direct premium of 4,161 crore for the year ended March 2018, while its profit rose 45% on a yearly basis to 171 crore.

Separately, on 26 November The Economic Times newspaper reported that Housing Development Finance Corp’s general insurance arm, HDFC Ergo, is in advanced talks to acquire Apollo Munich Health Insurance Co. Ltd for an approximate valuation of 2,600 crore. Apollo Munich, a 51:49 joint venture between Apollo Hospitals and German reinsurance company Munich Re, is the country’s second-largest stand-alone health insurance firm after Star Health and Allied Insurance Co. Ltd.

Private insurers worry their business prospects will potentially shrink following the unveiling by Prime Minister Narendra Modi of Ayushman Bharat or the National Health Protection Mission (AB-NHPM). The government-sponsored health insurance scheme will offer free coverage of up to 5 lakh per family per year at any government or even empanelled private hospitals in India. The private insurers also fear that the Insurance Regulatory and Development Authority of India is framing rules on capping health insurance premiums and insurer portability, which will further squeeze their business.

“The reasons behind Max India’s exit is its limited ability to grow the business, a disproportionate jump in expenses compared to premium income, promoter’s constraints in infusing capital and staggering losses," said the second person. Max Bupa recorded a net loss of 38.68 crore during the April-September period, a more than sevenfold jump from the 5.24 crore loss reported in the same period last year.

In November 2015, Max India announced that Bupa would raise its stake by 23% in Max Bupa for 191 crore. After this transaction was completed in 2016, Max India’s holding fell from 74% to 51%.

KPMG’s corporate finance LLC’s India division has the mandate for the latest deal with Khaitan and Co. as the legal adviser. Founded in 1999 and originally named India Value Fund Advisors, True North invests in midsized, profitable, India-centric businesses. The company has invested in at least 40 domestic firms and launched six investment funds, with a combined corpus of at least $2.8 billion, including co-investments. These funds have been raised from at least 35 international institutions, with a combined investable capital base of at least $1 trillion.

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