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The rerating is structural

We initiate coverage on Max Financial Services with a BUY rating and a target price of INR 1,800, valuing the company at 2.2x FY27e EVPS of INR 1,025 for Axis Max Life Insurance. The company holds 80% economic interest in one of India’s leading bank-led insurers, Axis Max Life Insurance Company, rebranded from Max Life Insurance in Dec’24. The insurer delivered individual APE growth of 18% in FY25, 3pps above private sector, and is leading YTDFY26 growth amongst large players.

Axis Max Life has a well-rounded product and distribution presence. It has shown the strength of its products and sales efforts through strong counter shares - 66% in Axis Bank and 54% in Yes Bank - in competitive spaces. With these partnerships strengthening, we expect a growth impulse in the near term, from 8% banca CAGR over FY21-FY25. Over FY21-FY25, the insurer has strongly grown its proprietary channel, delivering 28% CAGR.

Its VNB margins have fluctuated with product mix, falling from a peak of 31.2% in FY23 to 24.0% in FY25, but it delivered 14% VNB CAGR through FY21-FY25. The insurer has gradually managed the impact of surrender norms on its profitability, and we expect margins to improve from 24.0% in FY25 to 26.0% by FY28e as the incremental sales of low-margin, market-linked products normalises.

Over FY25-FY26, the stock has rerated with the overhaul in corporate structure and strong growth. At CMP, it trades at 1.9x FY27e EVPS of INR 1,025. The stock trades 1SD above its mean valuation over FY21-FY25; we believe the underlying justifies the premiums.

Industry has maintained its share of customer wallet: While inflows into stocks and mutual funds (against deposits) have captured headlines, life insurers have maintained Indian customers’ wallet share, at 17-18%. Life insurers have stayed relevant with product innovation – return guarantees, protection with return of premiums (RoP), deferred and limited pay annuities, term + ULIPs, early liquidity in participatory products, etc. While LIC has grown at ~10% CAGR on its strong base and deep penetration, private insurers have sustained mid-teens growth.

Rising productivity and prop channels have delivered growth: Banca channel dominates the distribution mix with 55.3% share for FY25. The channel has grown at a steady pace of 11% CAGR over FY20-FY25, with strong presence in Axis Bank and Yes Bank. However, its share in the mix has come down as prop channel growth has outpaced it, with 28% CAGR over FY21-FY25. Share of the prop channel is increasing, led by surge in online sales – where it is the leader in protection segment – and sustained rise in agent productivity.

Product innovation has driven customer demand: Max Life has consistently delivered the right product at the right time to drive growth. From FY21 to FY23, the insurer rapidly grew its non-par and annuity bouquet, launching SWAG in the non-par segment and regular pay variant of annuity. In FY24- FY25, Max introduced SWAG Par and variants of ULIPs for online and offline channels. This led to robust growth of 16% CAGR over FY20-FY25. Going into FY26, thewe expect growth of 3-4ppts above the private sector

Margins compromised to meet customer demand, expect improvement in FY26-FY28e: For Max Life, topline growth of 18% in FY25 was driven by ULIP sales (share of ULIPs increased from 35% in FY24 to 42% in FY25). This resulted in slower VNB growth of 7% YoY. In FY25, the management had targeted VNB margins of 23-24%, and achieved 24.0%, at the upper band of its targeted range. It is targeting 24-25% margin for FY26 and 25%+ in steady state thereafter.

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