Retain ADD on Max Financial - NPAR business drives margin beat - HDFC Securities

Mr. Rajesh Ravi, Institutional Research Analyst, HDFC Securities & Mr. Nilesh Ghuge, Institutional Research Analyst, HDFC Securities

MAXL delivered an APE growth of 21.3% YoY (beating the top 3 listed peers). Higher share of NPAR business coupled with better fixed cost absorption drove margins higher by 488bps YoY to 25.9% in 9MFY21. We expect margins to slightly moderate in 4QFY21 as proportion of PAR and ULIPs increases in 4Q. We expect an FY21-23E APE/VNB CAGR of 13.8/11.1% and have adjusted our estimates to build in higher margins. We retain our ADD rating with a higher target price of INR 850 (Sep-21E EV + 24.2x Sep-22E VNB less group level expenses and hold-co discount).

3QFY21 highlights: Total APE was broadly in-line with estimates at INR 12.4bn (21.3/6.2% YoY/QoQ). The share of protection in the mix moderated to 11.9% as individual/group protection declined 23.8/28.2% QoQ, however group credit protect grew 50.0% sequentially as disbursements picked up across partners. Share of NPAR savings in the mix was higher (35.3%, +1,533/-422bps YoY) as a result of launch of new NPAR products. Share of ULIP revived as customers returned to market-linked products. Strong beat on VNB margin (+707bps vs. estimates) at 28.6% (758/41bps YoY/QoQ) was driven by a significantly higher share of NPAR savings.

Persistency declined (on YoY basis) across all cohorts except for the 61st month. Sequentially persistency remained flat across buckets except for the 49th/61st month (-100bps/+100bps). Share of Banca channel continues to increase (+325/210bps YoY/QoQ) to 72.0% (we believe this is mainly due to strong performance of AXSB), while declining for the proprietary channel to 27.5% (-275/239bps YoY/QoQbps). AUM growth was healthy at 23.5/9.0% YoY/QoQ to INR 847bn. Max reported solvency of 208%. Operating RoEV was at 18.0% for 9MFY21.

MAXF-AXSB deal update: CCI approval for Axis Bank and subsidiaries to take stake in MAXL has been received, while application to IRDAI for the same is in progress.

Outlook: NPAR business is expected to moderate in 4QFY21. For FY21E, we expect MAXL to deliver an APE/VNB growth of 13.8/11.1% YoY.

Shares of Max Financial Services Ltd was last trading in BSE at Rs.808.4 as compared to the previous close of Rs. 818.1. The total number of shares traded during the day was 83717 in over 2278 trades.

The stock hit an intraday high of Rs. 825 and intraday low of 804. The net turnover during the day was Rs. 68071313.

Source : Equity Bulls

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