Retain ADD on Max Financial - Good gets better - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

MAXL delivered an APE growth of 36/57% YoY/QoQ (6% miss vs. estimates). VNB margin for the full year came in at 25.2% (+358bps YoY), led by higher share of NPAR business and better fixed cost absorption, partially offset by tightening mortality assumptions. We expect margin to improve in the range of 50-100bps due to increase in the proportion of NPAR in the mix and better fixed cost absorption. We tweak our APE estimates to build in healthy growth posted in Apr/May-21. We expect FY21-23E APE/VNB CAGRs of 13.9/15.0% and have adjusted our estimates to build in the higher margin. We retain our ADD rating with a higher target price of INR 1,060 (Mar-22E EV + 22.6x FY23E VNB less group level expenses and hold-co discount).

4QFY21 highlights: Total APE was 6% below estimates at INR 19.2bn (36/57% YoY/QoQ, 2YCAGR 7.5%). The share of protection in the mix moderated to 9.9% despite individual protection advancing 16.5/42.4% YoY/QoQ. Group credit protect grew 60% sequentially as disbursements picked up across partners. The share of ULIP revived to 42.7% as customers returned to market-linked products. Miss on VNB margin (-206bps vs. est.) at 24% (+127/-452bps YoY/QoQ) was on account of tightening of mortality assumptions (INR 880mn/-1.8%), factoring in the second wave of COVID.

Conservative provisioning: Persistency improved 100/200bps (on YoY basis) across 13th/61st month. While the share of banca channel continues to increase (+552/350bps YoY/QoQ) to 75.5%, proprietary channel displayed healthy growth at 36.6% QoQ. While net COVID-19 claims came in at INR 1.21bn, the company has created additional provisions to the tune of INR 3.4bn (taking total COVID-19 provisions to INR 5bn). We believe MAXL is carrying adequate provisions (4x FY21 claims), factoring in the second wave. EV grew 18.6% to INR 118.3bn. AUM growth was healthy at 32.7/6.7% YoY/QoQ to INR 904bn. Operating RoEV was at 18.6% for FY21.

MAXF-AXSB deal update: AXSB entities have become co-promoters in MAXL with the right to acquire another 7% stake. Stake acquisition from MSI (5.2%) is expected to be consummated by 2QFY22 (the application is pending with IRDAI).

Shares of Max Financial Services Ltd was last trading in BSE at Rs.1027.65 as compared to the previous close of Rs. 996.2. The total number of shares traded during the day was 60751 in over 3122 trades.

The stock hit an intraday high of Rs. 1037.6 and intraday low of 1001.55. The net turnover during the day was Rs. 62271440.

Source : Equity Bulls

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