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Steady performance; Non-PAR growth remains robust

Persistency improves; maintains healthy provisioning buffer towards pandemic linked claims

* MAXLIFE continues to demonstrate resilient performance amid a challenging macro environment, led by healthy (36%) APE growth, aided by robust growth in Non-PAR savings and recovery in the ULIP segment. After witnessing robust Protection growth over 1H, the same moderated during 2HFY21.

* Healthy product mix towards high margin segments and strong APE growth aided VNB growth of 44% YoY during 4QFY21. Strong push via the bancassurance channel has aided premium growth, while the proprietary channel is showing healthy traction.

* We expect 22% CAGR in APE growth over FY21-23E, with VNB margin improving to 26.8% by FY23E. This would enable 26% VNB CAGR over FY21- 23E, while operating RoEV sustains ~22%. Maintain Buy.

VNB growth steady; persistency recovers further

* Gross written premium grew ~21% YoY led by a 36%/40% growth in the first year/single premium, while renewal premium grew ~14%. Shareholder PAT declined 54% YoY to ~INR1.1b in 4QFY21 on higher additional provisions towards COVID-19 death claims.

* Individual APE grew 35% YoY in 4QFY21. Total APE growth stood at 36% YoY, aided by strong trends in Non-PAR savings (143%), with the launch of a new product 'Smart Wealth plan', while ULIP showed recovery trends. Protection growth moderated at 5% YoY as Group Protection fell 17%, while Individual Protection grew 17%. The share of Non-PAR savings increased to 30% in FY21 v/s 18% in FY20. The share of Protection stood at 14% v/s 13% in FY20.

* Absolute VNB growth was healthy at 44% YoY due to strong margin profile and healthy product mix. Margin stood ~24% in 4QFY21 (v/s 22.8% in 4QFY20). Absolute VNB grew 39% YoY in FY21. VNB margin improved sharply to 25.2% in FY21 (v/s 21.6% in FY20).

* On the distribution side, banca APE reported robust trends and grew 41% YoY, while proprietary channel APE witnessed a strong (22%) recovery in 4QFY21. The share of banca improved to 71% in FY21 (v/s 68% in FY20), while the share of proprietary stood at 28% (v/s 31% in FY20).

* MAXLIFE witnessed total net claims of ~INR1.2b in FY21 on account of COVID-19 deaths. It made total provisions of INR3.4b due to a likely adverse COVID-19 experience in FY22, and now holds an excess provision buffer of INR5b on its Balance Sheet. Operating RoEV stands at 18.5% (v/s 20.3% in FY20), impacted by higher COVID-19 provisions.

* Persistency improved with 13th/61st month improving by 100bp/200bp to 84%/54%. In other cohorts, persistency trends remained stable (barring the 49th month). On the cost front, opex-to-GWP ratio declined to 20.7% (v/s 21.7%/20.8% over 9MFY21/FY20).

Highlights from the management commentary

* In the medium term, the management expects persistency to reflect an upward trajectory. The 13th month persistency can reach up to 86% (v/s 84% currently).

* It expects business growth between 15% and 20% over FY22.

* The Non-PAR segment will continue to remain between 25% and 30% in the total APE mix. It expects a 200-300bp VNB margin improvement over the next 2- 3 years.

Valuation and view

MAXLIFE reported strong operating trends, with premium growth in the Non-PAR business remaining steady, while the ULIP business showed a recovery. VNB margin has improved sharply to ~25.2% in FY21 (360bp YoY improvement), while persistency trends have also improved.

Strong push via the bancassurance channel has supported premium growth, while growth is improving gradually in the proprietary channel. We estimate APE growth at 22% CAGR over FY20-23E and VNB margin to improve to 26.8% in FY23E. This would enable 26% VNB CAGR over FY21- 23E, while operating RoEV will sustain ~22%. We maintain our Buy rating with a TP of INR1,200/share (3.1x FY23E EV/3.8x FY23E EV after a 20% holding company discount).

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