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Bridging the gaps!

Robust distribution; AXSB deal to further cement sector positioning

* MAX Life Insurance (MAXLIFE) has demonstrated resilient performance amid a difficult macro environment, delivering 10% YTD growth in new business APE v/s a 3% decline for private peers, led by a shift in product mix towards Protection and Non-PAR segments.

* The management has increased its focus on the Protection and Non-PAR segments, with their share increasing to ~31% in FY20 from ~16% in FY17. Both these segments would continue to deliver better than industry trends.

* It has made significant investments towards growing its own distribution network – branch/employee count has increased by ~190/~5,600 over FY17-20. Market share in Individual APE has risen to 6.2% in FY21 YTD from 3.7% in FY14.

* MAXLIFE has one of the most productive agency channels, with agent productivity improved to INR250k in FY20 (vs INR150k in FY17). The proprietary channel accounted for 32% to total APE. The deal with Axis Bank (AXSB) would create a strategic partnership and increase visibility for long-term business growth via higher cross-sell opportunities. The proposal has received RBI’s approval and is now awaiting IRDAI’s clearance.

* The stock has delivered a 35% return over the past one-year. Given its strong business performance and likely partnership with AXSB, we expect the re-rating to continue in the stock. We overall expect growth in new business premium (NBP) to sustain at 15% CAGR over FY20-23E, while VNB margin remains steady ~23.5%. This would enable 18% VNB CAGR over FY20-23E, while operating RoEV sustains ~20%. The stock currently trades at 2.3x FY23EV and ~14xFY23 EVOP. We initiate coverage on the stock with a BUY rating and TP of INR830 (2.8x FY23E EV).

Growth momentum strong; market share increases 140bp over FY16-21 YTD

MAXLIFE has delivered a resilient performance amid a difficult macro environment, reporting industry leading 10% FY21YTD growth in Individual APE v/s an 8% decline for the industry. This was mainly led by a shift in the product mix towards Protection and Non-PAR segments, which are witnessing healthy demand in the current environment. Strong push via the bancassurance channel has supported premium recovery as the channel’s share in total new business APE increased to 67% during 1HFY21. The company reported 18% CAGR in new business APE over FY16-20 and its market share in Individual APE among private insurers has improved to ~6.2% in FY21 YTD v/s 4.8% in FY16

Strategic focus on growing proprietary channels

The management has been making significant investments in growing its proprietary channels – branch/employee count has increased by ~190/~5,600 over FY17-20 – which enabled it to steadily gain market share. It has one of the most productive agency channels, with agent productivity improved to INR250k in FY20 (vs INR150k in FY17). The proprietary channel accounted for 32% to total APE. Improving agency channel productivity remains a key focus area for the management.

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