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NPAR business drives margin beat

MAXL delivered an APE growth of 21.3% YoY (beating the top 3 listed peers). Higher share of NPAR business coupled with better fixed cost absorption drove margins higher by 488bps YoY to 25.9% in 9MFY21. We expect margins to slightly moderate in 4QFY21 as proportion of PAR and ULIPs increases in 4Q. We expect an FY21-23E APE/VNB CAGR of 13.8/11.1% and have adjusted our estimates to build in higher margins. We retain our ADD rating with a higher target price of INR 850 (Sep-21E EV + 24.2x Sep-22E VNB less group level expenses and hold-co discount).

* 3QFY21 highlights: Total APE was broadly in-line with estimates at INR 12.4bn (21.3/6.2% YoY/QoQ). The share of protection in the mix moderated to 11.9% as individual/group protection declined 23.8/28.2% QoQ, however group credit protect grew 50.0% sequentially as disbursements picked up across partners. Share of NPAR savings in the mix was higher (35.3%, +1,533/-422bps YoY) as a result of launch of new NPAR products. Share of ULIP revived as customers returned to market-linked products. Strong beat on VNB margin (+707bps vs. estimates) at 28.6% (758/41bps YoY/QoQ) was driven by a significantly higher share of NPAR savings.

* Persistency declined (on YoY basis) across all cohorts except for the 61st month. Sequentially persistency remained flat across buckets except for the 49th/61st month (-100bps/+100bps). Share of Banca channel continues to increase (+325/210bps YoY/QoQ) to 72.0% (we believe this is mainly due to strong performance of AXSB), while declining for the proprietary channel to 27.5% (-275/239bps YoY/QoQbps). AUM growth was healthy at 23.5/9.0% YoY/QoQ to INR 847bn. Max reported solvency of 208%. Operating RoEV was at 18.0% for 9MFY21.

* MAXF-AXSB deal update: CCI approval for Axis Bank and subsidiaries to take stake in MAXL has been received, while application to IRDAI for the same is  in progress.

* Outlook: NPAR business is expected to moderate in 4QFY21. For FY21E, we expect MAXL to deliver an APE/VNB growth of 13.8/11.1% YoY.

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