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RoEV to remain reasonably healthy

Our view – Improved APE growth to partly offset VNB margin pressure

VNB margin – VNB margin for the quarter was subdued due to a tactical focus on ULIPs, while company remains confident of managing the impact of surrender rules: Calculated VNB margin for 1QFY25 fell -471bps YoY and -1111bps QoQ to 17.5%. The share of ULIP has risen in the prop channel, with the company aiming to tactically benefit from buoyant equity markets, particularly via the online prop channel. The share of ULIP in total APE has risen from 25% in 1QFY24 to 39% in 1QFY25. The company will recalibrate this approach going forward. The other factor impacting margin was seasonality. Due to the new surrender rules, there will be a negative impact of 100-200 bps on overall company VNB margin towards the end of the year but product design changes will attempt to eventually nullify this impact. Earlier, management had guided for a full year margin of 25-26% and VNB growth in the mid-teens. Now, the company has to navigate regulatory changes but will try to come as close to guidance as possible.

APE growth – Overall APE growth of 31% YoY in 1Q is further improved from 19% registered in FY24, with prop channel picking up banca slack: New business APE degrew/grew by -49.4%/30.5% QoQ/YoY, driven higher YoY by growth in Individual Protection and ULIP segments. APE growth was driven by the prop channel, which grew 64% YoY and now occupies 49% share in total APE, up 10% points YoY. The offline prop channel grew 24% YoY driven by agent activation whereas the online prop channel was up 200% YoY driven by new fund offers targeting the online savings segment. For the quarter, bancassurance growth was subdued at 9% YoY. However, things have accelerated significantly in July and the YTD July (4M) growth for Axis Bank stands at 19% YoY compared with 8% in 1Q. We maintain ‘BUY’ rating on MAXF with a revised price target of Rs 1300: We value Max Life (MLI) at 2.4x FY26 P/EV for an FY25E/26E RoEV profile of 20.2/19.5%% and then apply a 20% holding company discount. We had deliberately 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. (See Comprehensive con call takeaways on page 2 for significant incremental colour.) Other Aspects (See “Our View” above for elaboration and insight)

* VNB growth: VNB de-grew/grew -69.1%/2.8% QoQ/YoY driven YoY by sharp rise in APE

* Expense control: Expense ratio grew 619bps/267bps QoQ/YoY to 27.5%, QoQ driven by rise of 634bps in Opex ratio

* Persistency: 37th month ratio rose 300bps YoY to 64% whereas 61st month ratio was up 700bps YoY at 58%

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