IGI Logo

Growth accelerates

Max Financial (MAXF) posted a good show in 9MFY22. Max Life’s APE growth accelerated to 23% YoY from 19% in H1FY22. On the margin front, the performance was slightly muted, with 9MFY22 margins down by 80bps YoY due to a higher ULIP share in the product mix and a relatively lower share of protection (supply-side issues hit protection sales). On the non-operational front (MAXF-Max Life merger, purchase of ~5.2% stake in Max Life by MAXF from Mitsui Sumitomo and up to 7% additional stake transfer to Axis Bank group), the status was broadly unchanged from H1FY22. Overall, the robust 9MFY22 performance, especially on a relatively stronger base, reinforces our belief in the long-term profitable growth potential of Max Life. Any material progress on the non-operational aspects could be the next big trigger for MAXF shares. We reiterate our Buy rating with a revised target price of Rs1,240.

* Max Life delivers robust operational and financial performance: The sole operating company of Max Financial, Max Life, posted an overall good set of numbers in 9MFY22, with APE growth accelerating to 23% YoY in 9M from 19% YoY in H1, driven by strong 30% YoY growth in Q3. On a YoY basis, VNB margin was down 80bps to 25.1%, largely on account of an increased share of ULIP in the product mix and a slight reduction in protection in the product mix. Operational parameters, such as persistency and cost, were broadly stable or slightly improved.

* Outlook remains positive: The strong growth delivery by Max Life becomes even more noteworthy, considering that it comes on a relatively stronger base. On the retail protection side, the company has started to witness volume growth from Dec’21 after seeing a volume decline for eight months. MAXF is still in talks with reinsurers on pricing and expects some price hike in its retail protection offering. Additionally, it will increase its retention to ~Rs3.0- 3.5mn from the current Rs2.0mn, taking its retention to ~35% from the current 25%. Overall, management remains very confident of delivering profitable growth, led by wide product offerings and powerful distribution (including Axis Bank), strong agency channel and a solid presence in proprietary and web aggregator digital channels. On margins, the gradual expansion will come from operating leverage playing out with increasing business volumes.

* Current weakness in shares unwarranted: The performance of MAXF shares has traditionally been driven by a combination of fundamental performance of Max Life and noises around MAXF. Given that the operational performance of Max Life remains solid, the status of non-operational matters remains unchanged and management expresses its confidence in getting requisite regulatory approvals to achieve the desired corporate structure, the recent underperformance of MAXF shares is unwarranted.

* Minor changes to estimates; reiterate Buy with a revised TP of Rs 1,240: We have slightly tweaked our estimates to reflect slightly stronger growth and a bit lower margins due to the product mix, leading to a ~4-7% reduction in our FY22-24 VNB estimates. We cut the TP to Rs1,240 from Rs 1,290 on account of 1) an increase in the cost of equity to 12.5% from 12.0%; 2) rolling forward the valuation to Mar’23 from Dec’22; and 3) a slight reduction in VNB estimates as mentioned. We reiterate our Buy rating on the stock and find the stock attractively valued, offering a strong upside.

To Read Complete Report & Disclaimer Click Here

or More  Emkay Global Financial Services Ltd Disclaimer http://www.emkayglobal.com/Uploads/disclaimer.pdf & SEBI Registration number is INH000000354

Above views are of the author and not of the website kindly read disclaimer