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SHAREHOLDERS of Max India can accept the open offer made by the Warburg Pincus group at Rs 200 per share. Over a three/five year period, there is the possibility of upside linked to growth in the healthcare and insurance business.

Shareholders can, however, capitalise on the certainty afforded by the open offer and cut exposures now.

As an investment opportunity, the stock can be evaluated in the post-open offer period when the price may also decline. A part of the holdings might not be accepted in the open offer; investors comfortable with a two/three year holding period can retain them.

Max India has a presence in the BOPP films business; the focus is, however, on healthcare and insurance where it has a joint venture with New York Life of the US.

The healthcare business is still in a fledgling state, with two hospitals in New Delhi to be commissioned in a phased manner in 2005-06. It has a growth opportunity in this space. It may, however, be several years before a healthy level of earnings emerges, as the gestation period in the healthcare business is long.

Max New York Life, the joint venture in insurance, is a relatively small player compared to private sector peers such as HDFC Insurance and ICICI Prudential.

It is likely to be one of the survivors over the long term, given its strengths in the business. Here, too, the payoffs for Max India may flow only over the long term.

A near-term trigger for the stock could be the initial public offering of Hutchison, which is likely this year as a subsidiary of Max India has a 10 per cent stake. As Hutch is likely to command a valuation that is similar to that of Bharti Tele-Ventures,

Max India would be placed to make a neat pile. If it decides to sell the stake, the manner in which the cash flows are used would be a critical factor. The presence of Warburg Pincus as a major shareholder — if the open offer succeeds, it may have a stake of close to 50 per cent — may ensure that usage of the cash flow is done in a manner that benefits shareholders.

The Warburg Pincus group is making the open offer after it had picked up a stake of 29.7 per cent through a preferential offer of equity priced at Rs 200 per share. The open offer closes on August 18.

S. Vaidya Nathan

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