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MAXF’s H1FY24 APE growth at 26% YoY and VNB margin at 24.0% gave us a slightly positive surprise on growth, albeit a minor negative surprise on margin. Increased PAR in product mix and changes to the variants of ULIP (Online index fund ULIP entailing lower margin) and Annuity plan, coupled with investments in distribution-capability augmentation, caused a margin miss. With both— Agency and Banca channels—performing well and given its leadership in online channels, Max Life is on the right track to clock ~11% APE growth for FY24E. Overall, the company is keeping growth at the heart of its strategy and execution, while putting in optimum effort in delivering on margin. To factor-in the recent developments and outlook, we make minor changes to our FY24-26 estimates and reiterate BUY on the stock, with revised Sep-24E target price of Rs1,090/share, implying FY25E P/EV of 1.9x.

Max Financial: Financial Snapshot (Consolidated)

Robust APE growth; product-variant change and investment in distribution result in softer margin

At Rs27.7bn (up 25.7% YoY), Max Life’s H1FY24 APE came ~3% above our estimates, while VNB margin at 24% (H1FY23: 26.7%; Emkay Est: 25.8%) was on the lower side, largely due to the change in product variants and the investments in augmenting the distribution capabilities. Driven by lower margin and robust APE growth, VNB grew 13.1% to Rs6.6bn (Emkay: Rs6.9bn). Embedded Value at Rs179.1bn came broadly in line with our estimates, growing ~10% over FY23. Strong growth in Par products resulted in a lower new business strain during H1, boosting the Max Life PBT to Rs2.6bn (up 81% YoY) vs. our estimate of Rs1.7bn. Overall, H1 results reflect Company’s clear focus on growth.

Growth at the heart of strategy and execution

While the management aims to diversify the product mix and grow the share of Non-Par products, focus remains on prioritizing topline growth over profitability through investments towards expansion of distribution reach, new product offerings and increased penetration. While concerns around new entrants in the Axis Bank channel persist, increased agency activation, improved efficiency in the direct channel, and leadership position in digital space are likely to drive robust growth for Max Life. Further, we believe the capital infusion by Axis Bank by the end of FY24 should fuel the growth engine in the medium-to-long term.

Marginal adjustments to our estimates, reiterate BUY

To account for the Q2 performance and outlook ahead, we slightly reduce (by ~1-2%) FY25-26E APE as well as FY24E VNB margin to 27.0% from 27.5%, while keeping the FY25-26E VNB margin unchanged at 27.5%. We reiterate our BUY rating on the stock, with Sep-24E TP of Rs1,090/share (implied FY25E P/EV: 1.9x). With its distribution channels, banca and proprietary firing well, MAXF is on the right track to deliver profitable growth. As the additional stake acquisition in Max Life by Axis Bank closes and the corporate structure simplification of MAXF progresses, holding company discount is likely to reduce and drive further re-rating.

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