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PAT beat of 36%; VNB margins contract 615bp YoY RoEV to sustain at 20%

* MAX Financial Services (MAXLIFE) reported a healthy PAT of INR1.6b in 2QFY24 (36% beat) with APE/VNB growth of 39%/12% YoY.

* In 2QFY24, total APE grew 39% YoY to INR16.5b (in line). Absolute VNB grew 12% YoY to INR4.2b (16% miss) and VNB margins came in at 25.2% in 2QFY24 (declined 615bp YoY, our estimate of 30.1%).

* Margin pressure was seen in ULIPs, owing to the new product (index fund), which has lower margins. Annuity margins were lower due to the change in the mix within the segment.

* We have cut our absolute VNB estimate by 6.2%/3.8% for FY24/25, resulting in a VNB margin of 28.1% in FY25 (vs. 29.2% earlier). We reiterate our Neutral rating on the stock with a TP of INR900, premised on 2.0x Mar’25E EV and a holding company discount of 20%

Margins declined due to higher share of par products and pressure on ULIP margins

* Gross written premium grew ~14% YoY (in line) in 2QFY24. New business premium increased 28% YoY, led by 38% YoY growth in first year premium. Renewal premium grew 8% YoY (in line). Shareholders PAT (pre-tax) surged 196% YoY to INR1.6b (36% beat).

* In 2QFY24, total APE grew 39% YoY to INR16.5b (in line). All products witnessed YoY growth, with par products reporting exponential growth of 93% YoY and 107% QoQ. Retail protection was up 92% YoY/80% QoQ. Group protection grew 52% YoY, but declined 19% QoQ. Total protection increased 72% YoY, while ULIP business grew 43% YoY. Non-par savings stood flat YoY, but rose 9% QoQ.

* On a YoY basis, the business mix moved in favor of par products with a 24% share (vs. 17%), while that of Non-par savings declined to 28% in 2QFY24 from 38% in 2QFY23.

* Absolute VNB grew 12% YoY to INR4.2b (16% miss) and VNB margins came in at 25.2% in 2QFY24 (declined 615bp YoY, our estimate of 30.1%). AUM grew ~18% YoY to INR1.34t.

* On the distribution side, Banca APE/Proprietary Channels grew 30%/57% YoY.

* On the cost front, the opex-to-GWP ratio increased 180bp YoY to 22.8%.

Highlights from the management commentary

* The company has maintained its guidance of 27-28% VNB Margins for FY24. Beyond FY24, margin should improve ~100-150bp. The increase in margins will occur due to introduction of new products, leading to a rise in the share of non-par products.

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