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After waiting to initiate with BUY in Dec 2022, we now place MAXF as the top pick, tactically

Result Highlights (See “Our View” below for elaboration and insight)

? VNB margin: Calculated VNB margin for 2QFY24 rose 297bps QoQ but fell - 615bps YoY to 25.2%

? VNB growth: VNB growth was at 68.4%/11.5% QoQ/YoY where the YoY growth was driven by growth in APE

? APE growth: New business APE grew by 48.5%/38.8% QoQ/YoY, driven higher YoY by growth in all product segments except Non-Par savings

? Expense control: Expense ratio de-grew/grew -175bps/309bps QoQ/YoY to 23.0%, QoQ driven lower by fall of -380bps in Opex ratio

? Persistency: 37th month ratio was flat YoY at 62% whereas 61st month ratio was up 100 bps YoY to 58%

Our view – MAXF gets its act together on distribution, while simultaneously devising plan for margin

Axis Bank channel sees a sharp turnaround while MAXF continues to build up the agency channel: The banca channel has grown 30% YoY in 2Q. The growth on the Axis Bank channel on paid premium basis was 12% YoY in 1H whereas, in 2Q, it has improved to 28% YoY. The growth in the other banks has been 60% YoY for 2Q. Prop channel (mainly agency) APE growth has been 50% YoY, driven by both offline and online prop channels. Agent count was flat in FY23 at about 70,000 but has risen about 7000 in 1H. Management stated that not only is the company recruiting in large numbers, throughput per manpower has also been improved by way of activation.

While VNB margin in the first half was under pressure due to product mix changes, MAXF sounded confident on their plan to achieve full year guidance of 27-28%: Overall margin has been under pressure mainly due to the launch of the new indexlinked ULIP, whose margin is lower. Furthermore, the strength in Par segment due to the launch of a Par product has come at the cost of the Non-Par segment. Margin expansion in the second half will be driven by tactical product launches including in the Non-Par segment. Operating leverage will also drive margin since 60% of sales happens in the second half for the company.

We maintain ‘BUY’ rating on MAXF with a revised price target of Rs 1200: We value Max Life (MLI) at 2.5x FY25 P/EV for an FY24E/25E/26E RoEV profile of 21.1/21.0/20.8%% and then apply a 20% holding company discount. We had resisted covering MAXF for an extended period of time and then initiated coverage on it in our report dated 4 th December 2022 after we felt the negatives were more than priced in. Now, we place it as our top pick in the life insurance space from a tactical perspective.

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