IGI Logo

Max Life delivered strong 30.5% APE growth to Rs14.5bn (Emkay: Rs13.8bn); however, the higher share of ULIPs during the quarter resulted in a 470bps VNB Margin compression YoY to 17.5% vs our expectation of 20%. Consequently, VNB at Rs2.5bn came in lower than our expectation of Rs2.8bn. The management remains optimistic of the growth outlook, given the investments in the distribution channels. The management anticipates ~100-200bps impact on VNB margin owing to the new surrender regulations. Although, it will redesign the products and commission structures to mitigate the negative impact on margins. To bake in the developments during the quarter, we have increased our FY25-27 APE estimates by 6-8% while we have cut our VNB Margin estimates by 1-2ppts. We retain our ADD rating on the stock with a revised upwards Jun-25E TP of Rs1,200/share (from Rs1,150/share earlier) implying FY26E P/EV of 1.8x.

Strong APE growth, margins under pressure on higher ULIP and distribution investments During Q1FY25, Max Life clocked in 30.5% APE growth to Rs14.5bn, which came in 5.1% higher than our estimates. This strong growth was primarily led by growth across ULIPs and protection products. Driven by a ULIP-heavy product mix and an increase in operating costs, VNB Margins at 17.5% saw a 470bps decline on YoY basis and missed our estimate of 20%. Resultantly, VNB at Rs2.5bn missed our estimate of Rs2.8bn. Max Life’s PBT at Rs1.51bn grew 47% YoY. Embedded Value at Rs220.4bn grew 30.1% YoY, driven by Axis Bank’s capital infusion and came in 2.4% above our estimates. The management mentioned that Max Life saw positive persistency and mortality variance during the quarter. AUM at Rs1,612bn grew 24.8% YoY and 7% QoQ vs our estimate of Rs1,566bn. Persistency across cohorts saw an improvement whereas solvency ratio improved to 203% following the capital infusion.

Growth to continue in high gear; margin to catch up in coming quarters The VNB Margin at 17.5% during Q1FY25 saw compression on account of high growth in ULIPs and investments in the distribution channels. However, with operating leverage kicking in, the management expects VNB margins to improve going forward. The new surrender regulations are likely to impact the company’s VNB margins by 100-200bps; however, the management endeavors to mitigate this impact by redesigning the products and commission structures. While the proprietary channel saw strong growth during the quarter, the company has maintained its counter share at the Axis Bank channel. Additionally, the management also stated that growth momentum at the banca channel has picked up during Jul-24. While the e-commerce channel saw robust growth during the quarter, addition of headcounts in the sales force is expected to boost growth in the agency channel

We retain ADD with a revised Jun-25E TP of Rs1,200/share To reflect the developments during the quarter, we have tweaked our FY25-27 estimates which has resulted in ~6-8% increase in APE, whereas we cut our VNB margin estimates by 1-2ppts leading to a 0-4% increase in VNB estimates. We retain our ADD rating on the stock with revised upwards TP of Rs1,200/sh (from Rs1,150/sh earlier) implying FY26E P/EV of 1.8x. While the VNB margins remain under pressure, we believe Max Life’s investments in distribution channels will drive healthy APE growth in the coming quarters.

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