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Growth to take center stage

Max Life reported a good set of numbers in Q1FY23. VNB growth stood at 23% YoY, led by 1.4ppts YoY VNB margin expansion and 15% APE growth. Struggle in retail protection and the impact of Axis Bank going fully open architecture from Q3FY22 had its bearing on growth. Going forward, retail protection growth and Axis Bank channel performance should improve from Q3FY23. Max Life reiterated its commitment to deliver growth by continued investments in its proprietary distribution channel and Axis Bank-led distribution channel, while responding to competition by improving product attractiveness for customers. In this backdrop, Max Life is guiding for 25-26% VNB margin target, in line with our estimates. On the non-operational front (Max Financial-Max Life merger, purchase of ~5.2% stake in Max Life by Max Financial from Mitsui Sumitomo, and up to 7% additional stake transfer to Axis Bank group), the status was broadly unchanged from FY22. Overall, Q1FY23 performance was good. We reiterate our Buy rating with a revised TP of Rs1,060.

* Max Life delivers satisfactory operational and financial performance: Max Life, the sole operating company of Max Financial, posted an overall satisfactory set of numbers in Q1FY23, with VNB growth of 23% YoY to Rs2.13bn and VNB margin expanding 1.4ppts YoY to 21.1%. It is important to note that Max Life calculates its APE on actual quarterly costs. Hence, Q1 margins are lower. APE growth was satisfactory at 15% YoY in Q1FY23 but was weaker than peers. However, on a 3Y CAGR basis, APE growth for Max Life at 14% comes better than the sector’s growth. The proprietary channel (Agency + Direct) grew at an impressive 32%, but banca growth at 8% was muted. This was largely led by the impact of Axis Bank channel, which should normalize from Q3FY23, when the complete opening of Axis Bank channel for Bajaj Allianz Life is already in base. On the product side, retail protection premium declined ~19% YoY due to demand weakness, led by increased prices and some upfronting of retail protection sales in the past two years in the backdrop of Covid19. Operating RoEV at 13.5% (20.1% adjusted for excess Covid mortality) was very impressive. Solvency ratio at 196% was quite robust and comfortable to support FY23 growth.

* Growth remains the core of strategy: In Q1FY23, the company delivered weaker topline growth owing to a host of factors, including stronger base (on 2,3,5Y CAGR, Max Life has one of the best APE growth). The current challenge on the growth front appears to be largely driven by Axis Bank channel, where Bajaj Allianz Life got all branch access starting from Q3FY22. Now with proprietary distribution channels firing up and Axis Bank channel’s growth likely returning starting Q3 (on base becoming comparable), management is confident of delivering good growth. Driven by focus on growth leading to investments in distribution and offering competitive products, management has reiterated its 25-26% VNB margin guidance.

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