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* MAX Financial Services (MAXLIFE) reported a stable quarter on the back of healthy VNB margin of 30.3%. VNB margin was aided by strong growth in VNB (16% beat) and APE (7% beat) due to increased demand before the budgetary changes. Non-PAR maintained its robust momentum, led by the annuity business, while other segments also saw a sequential recovery.

* Growth in APE was driven by the proprietary channels, which rose 90% YoY and contributed ~41% to overall APE. The banca channel’s APE also recovered with 13% YoY growth (+41% QoQ). Management expects the banca channel’s growth to improve further.

* We estimate a 15% APE CAGR over FY23-25, leading to a 13% VNB CAGR. Maintain Neutral with a revised TP of INR750, premised on 1.8x Sep’24E EV and a holding company discount of 20%.

Persistency trends stable; VNB margin healthy at ~30.3% in 4Q

* Gross written premium grew ~14% YoY (in line), with new business premium up 27% YoY, led by increased demand before the budgetary changes came into effect. Renewal premium saw a modest 8% YoY growth (3% miss). Shareholders PAT (pre-tax) declined 56% YoY to INR670m. For FY23, shareholders PAT (pre-tax) grew 21% YoY to INR5.05b.

* In 4QFY23, Individual APE grew 39% YoY, similar to total APE growth of 38% (7% beat). All products witnessed a YoY decline, barring Non-PAR savings, which saw robust 153% YoY growth (up 73% QoQ). Retail protection was down 10% YoY/up 9% QoQ. Group protection declined 30% YoY, but rose 93% QoQ. Total protection thus declined 20% YoY, while PAR business fell 30% YoY (up 40% QoQ). ULIP saw relatively flat trends YoY (up 86% QoQ).

* The business mix improved in favor of Non-PAR to 57% in 4QFY23 (v/s 31% in 4QFY22), while Protection (8% v/s 14% in 4QFY22) and PAR (10% v/s 20% in 4QFY22) saw a drop. The share of ULIP fell to 25% from 35% in 4QFY22.

* Absolute VNB grew 31% YoY to INR7.7b (16% beat), with full-year VNB up 28% YoY to INR19.5b. VNB margin thus came in healthy at 30.3% in 4QFY23 (up 380bp YoY in FY23 to 31.2%). EV grew ~15% YoY to INR162.6b, while Operating RoEV came in at 22.1%.

* On the distribution side, banca APE picked up and grew 13% YoY, while proprietary channels witnessed a strong growth of 90% YoY.

* 13th/61st month persistency remained broadly steady at 84%/51%, while other cohorts also remained steady. On the cost front, the opex-to-GWP ratio increased by 80bp YoY to 20.5% (v/s 20.4% in 9MFY23).

Highlights from the management commentary

* The management expects to report double-digit growth in FY24 (higher than FY23). The banca channel is also expected to grow in double digits going ahead.

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