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Business on sound footing; maintain Buy
* MAX Life (MAXL) reported in-line results in Q4FY19 with APE growth of 21.6% yoy (87.5% qoq) to Rs16.7bn (+2.7% better than our estimate). Gross written premium (GWP) during the quarter rose by 18.8% yoy, led by 17.7% yoy growth in renewals.
* Value of new business (VNB) margins at 21.7% (+150bps yoy) was ahead of our est. of 20.9%, led by a 90bps positive change from moving to effective tax rate. Business mix and assumption change added 140bps, while acquisition cost overruns led to a 80bps contraction.
* Persistency expanded for all major cohorts with 13th month persistency up by 300bps yoy to 83%, while 25th month persistency contracted by 100bps yoy to 71% due to particular ULIP business written last year, which is expected to stabilize gradually.
* MAXL’s strategy toward a balanced product mix and focus on non-par savings and the protection segment should be margin accretive. We reaffirm our positive view on the stock and reiterate Buy rating with a revised TP of Rs590 at 1.2x FY21E EV.
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