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Decent set of numbers; ULIP scales highe

Axis Max Life continues to have a product mix geared towards ULIP with its share increasing in the APE mix. The APE grew 26% YoY in 9MFY25 with VNB growth of 9% YoY. We expect APE to clock 18% CAGR over FY24-FY27E to Rs121bn. VNB margin contracted 336bps YoY to 21.9% in 9MFY25. We cut our VNB margin estimates by 140-160bps over FY25-FY27. Embedded Value (EV) grew 29% YoY to Rs241bn in9MFY25. We increase our EV estimates by 9-12% over FY25-FY27 and now expect EV to clock 23% CAGR over FY24-FY27 to Rs365bn. Proprietary channels grew faster than overall APE growth, thereby increasing its share in the APE mix from 40% to 44%. The stock is currently trading at 1.3x FY27E P/EV. We value it using the appraisal method to arrive at a revised target price of Rs1,450 (vs Rs1,400), translating into a 1.7x FY27E P/EV. Maintain BUY

ULIP led growth

Axis Max Life’s APE grew 26% YoY to Rs 57bn in 9MFY25 (up 17% YoY at Rs21bn in Q3FY25). ULIP continues to be the growth driver, with it increasing by 70% YoY in 9MFY25 and thereby increasing its share to 43% (vs 31% in 9MFY24). The company expects the share of ULIP to stabilise. Non-par grew 6% YoY in 9MFY25 with its share decreasing from 27% to 23%. Protection APE (16% share) jumped 27% YoY in 9MFY25 with Individual Protection rising 37% YoY whereas Group (ex-Term Life) increased by 18%. Annuity growth was in single digits at 5% YoY. The company achieved rider attachment ratio of 45% in 9MFY25 vs 32% in the same period last year. We expect APE to clock 18% CAGR over FY24-FY27E to Rs121bn.

VNB margin declines

Axis Max Life’s VNB margin contracted 336bps YoY to 21.9% in 9MFY25 due to change in the product mix (geared towards ULIP and low demand of Non-par). VNB margin in Q3FY25 stood at 23.2% vs 27.2% in Q3FY24. The margin drop of 400bps was mostly attributable to the impact of business mix (300bps) and surrender rule (100bps). To mitigate the impact of surrender laws, the management took internal actions such as increasing rider penetration and ensuring the sale of variants with greater margins. Further, other measures such as upfront reduction and deferral or clawback of commissions have also been taken. We lower our VNB estimates by 6-7% whereas the VNB margin estimates have been cut by 140-160bps over FY25-FY27. VNB margin estimates are 22.2%/22.6%/ 23.2% for FY25/FY26/FY27

EV to clock 23% CAGR over FY24-FY27

EV grew 29% YoY to Rs241bn in 9MFY25. Operating ROEV stood at 17.3%. In 9MFY25, the operating variance was zero whereas the positive economic variance was Rs5.4bn. The economic variance declined from Rs6.6bn in H1FY25 to Rs5.4bn in 9MFY25 on account of a decline in equity. We increase our EV estimates by 9-12% over FY25-FY27 and now expect EV to clock 23% CAGR over FY24-FY27 to Rs365bn

Distribution mix – Proprietary channels score

Proprietary channels grew faster than the overall APE growth with a 41% YoY growth in 9MFY25, thereby increasing its share within the APE mix from 40% to 44%. Bancassurance was relatively weak at 14% YoY growth. The company added 8 distribution partners in Q3FY25, which included 5 group credit life partners, 2 brokers and 1 corporate agent. These new partnerships have already crossed business of Rs1bn

Maintain BUY:

Axis Max Life’s EV is expected to clock 23% CAGR over FY24-FY27E to Rs365bn. The stock is currently trading at 1.3x FY27E P/EV, which we believe is undervalued considering the balanced product mix, diversified distribution mix and strong growth prospects. We increase our EV estimates by 9-12% over FY25-FY27 to bake in a strong Q3. We value the company using the appraisal method to arrive at a revised target price of Rs1,450 (vs Rs1,400), implying an unchanged 1.7x FY27E P/EV. Maintain BUY. Key risks: Change in regulations, adverse economic events and change in persistency

Valuation

Axis Max Life had a decent quarter; APE grew 26% YoY in 9MFY25. We continue to expect APE to clock 18% CAGR over FY24-FY27E to Rs121bn. We increase our EV estimates by 9-12% over FY25-FY27 to bake in a strong Q3; it is expected to clock 23% CAGR over FY24-FY27E to Rs365bn. The stock is currently trading at 1.3x FY27E. We value the company using the appraisal method to arrive at a revised target price of Rs1,450 (vs Rs1,400), implying a 1.7x FY27E P/EV. Key risks: Change in regulations, adverse economic events and change in persistency.

P/EV mean and standard deviation

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