Neutral Max Financial Services Ltd for the Target Rs. 1,330 by Motilal Oswal Financial Services Ltd
Strong margin performance, reverse merger key to re-rating
* Axis Max Life Insurance (MAXLIFE) continued to report better-than-industry performance in 4QFY25, with new business APE growth of 6% YoY to INR30.4b (in line). For FY25, it came in at INR87.7b, up 21% YoY.
* MAXLIFE reported 4% YoY growth in VNB to INR8.5b (8% beat), resulting in VNB margin of 28% vs. 28.6% in 4QFY24 (MOFSLe: 25.8%), as the focus shift to higher-margin traditional products led to strong sequential improvement.
* The company reported EV of INR252b as of FY25 end, reflecting strong operating RoEV of 19.1%.
* Management aims to achieve 300bp-400bp alpha over private industry premium growth, with improvement in VNB margin to 24-25% in FY26.
* We have slightly raised our VNB estimates, factoring in higher business from traditional products. We expect 25%/25.5% VNB margin in FY26E/FY27E and keep APE estimates unchanged. Reiterate Neutral with a TP of INR1,330, premised on 2x FY27E EV and a holding company discount of 20%. The success of the reverse merger is key for further re-rating of the stock.
Sequential improvement in VNB margin as ULIP contribution declines
* Gross premium income grew 11% YoY to INR118.6b (in line). Renewal premium grew 16% YoY to INR77.8b (in line). For FY25, GWP came in at INR332.2b, up 13% YoY.
* ULIP contribution declined to 40% in 4QFY25 from 44%/45% in 2QFY25/3QFY25, while par/non-par savings contribution increased sequentially to 19%/28% from 16%/26% in 3QFY25. Combined with the increase in the rider attachment ratio (43% in FY25 vs. 34% in FY24), the product mix shift resulted in 480bp sequential improvement in VNB margin.
* MAXLIFE launched two products during the quarter - Smart Term Plan Plus (Term product) and Smart Term with Additional Returns (ULIP product), which have higher sum assured multiples and contribute toward achieving higher margin.
* On the distribution front, proprietary /bancassurance channels grew 1%/10% YoY. Proprietary channel witnessed 26% YoY growth in FY25, aided by 16% YoY growth in offline channel and 57% YoY growth in online channel due to higher ULIP sales in e-commerce on the back of new fund offers. Bancassurance channel grew 12% YoY in FY25 as a continued slowdown in Axis Bank channel (+10% YoY) was offset by strong growth in other banca partnerships (+27% YoY).
* The policyholder expense to GWP declined 24bp YoY to 13.6% in FY25.
* Persistency on the NOP basis improved across almost all cohorts, particularly in the 37th-month (up 400bp YoY to 68%) and 49th-month (up 300bp YoY to 60%).
* AUM grew 16% YoY to INR1.75t, while solvency improved to 201%.
Highlights from the management commentary
* The company expects more clarity on the reverse merger after changes in the Insurance Act, expected in the monsoon session of Parliament after which an immediate action will be taken.
* Management wants to increase brand awareness of Axis Max Life in Tier-2/3 cities. Decisions about pricing would be taken next year when Axis Max life brand will cross one year of existence.
* Data and integration are key differentiators in the e-commerce channel and the company expects the growth momentum to continue with some impact of high base, going forward.
Valuation and view
* MAXLIFE reported a steady performance in APE in 4QFY25, which was in line with our estimates. Strong growth momentum continued in the proprietary channel, driven by secular growth in online sales, agency, and direct selling. The decline in share of ULIPs, higher rider attachment and innovative traditional products resulted in VNB margin improvement in 4QFY25.
* We have slightly raised our VNB estimates, factoring in higher business from traditional products. We expect 25%/25.5% VNB margin for FY26E/27E and keep APE estimates intact. Reiterate Neutral with a TP of INR1,330, premised on 2x FY27E EV and a holding company discount of 20%. Further re-rating of the stock will be driven by any developments on the reverse merger.
For More Research Reports : Click Here
For More Motilal Oswal Securities Ltd Disclaimer
http://www.motilaloswal.com/MOSLdisclaimer/disclaimer.html
SEBI Registration number is INH000000412
