Add Max Financial Ltd for the Target Rs 1,900 by Emkay Global Financial Services Ltd
MAXF reported strong performance in 1QFY27, led by VNB margin delivery at 23.2% (+3.1ppt yoy), while APE at Rs19.2bn grew 15.2% yoy. The strong VNB margin delivery was driven by robust growth in the protection business, resulting in a favorable product mix, and movement in the yield curve, despite the impact of GST ITC losses. The management targets VNB to grow faster than APE, indicating margin expansion during FY27. Axis Bank infused Rs3.81bn in Axis Max Life, increasing the Axis Group’s stake to 19.99%, while the management believes current capital solvency remains adequate and the QIP approval remains valid till May-27. Axis Bank has signaled its intent to increase its stake in Axis Max Life to ~30%, which could provide sufficient capital for growth. To reflect recent developments, we have tweaked our estimates, resulting in ~1% cut in APE, while increasing VNB margin estimates by 30- 40bps, leading to ~1% increase in VNB over FY27-29E. With valuations remaining favorable, we maintain ADD with an unchanged Jun-27E TP of Rs1,900, implying FY28E PEV of 2.0x.
VNB to grow faster than APE; Axis Bank channel witnesses improvement
Protection APE during 1QFY27 grew ~26% yoy, led by strong ~44% growth in the Retail Protection segment, backed by the GST rate cut. The Annuity segment witnessed strong 116% growth during the quarter. With a change in product mix, the Axis Bank channel witnessed continued improvement, clocking ~14% growth. Led by a focus on the highmargin Protection segment, the management targets VNB growth to be faster than APE growth, implying margin expansion during FY27. While the QIP approval remains valid till May-27, the management mentioned that current solvency remains adequate, and capital would not be required in the near term as of now.
Solvency capital remains comfortable, concerns on FFA exaggerated
Axis Bank's Rs3.81bn infusion in 1QFY27 took solvency to 198%. The management views this as adequate to support growth for the next two-three quarters, even as the enabling approval for a QIP remains live till May-27. Further, the capital infusion by Axis Bank would provide additional debt capacity to maintain the solvency margin. With Axis Bank having signaled its intent to increase its stake in Axis Max Life to ~30%, we believe additional capital infusion by Axis Bank (if at all) is likely to rule out the need for the company to raise equity through QIP. Investor concerns around the shift to an RBC/IFRSbased solvency framework center on Funds for Future Appropriation (FFA), which currently counts toward the Available Solvency Margin (ASM). We believe the concern is overstated, as the exclusion of FFA is likely to be accompanied by a commensurate reduction in the required solvency margin, rendering the net impact on the solvency ratio modest.
We maintain ADD and Jun-27E TP of Rs1,900
To bake in recent developments, we tweak our estimates, resulting in ~1% cut in APE, while increasing VNB margin estimates by ~30-40bps, leading to ~1% increase in VNB over FY27-29E. We maintain ADD and Jun-27E TP of Rs1,900, implying FY28E PEV of 2.0x.
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