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MOSL: MAX Financial Services (Buy)-Steady performance; VNB margin moderates on seasonal factors

MAX Financial Services: Steady performance; VNB margin moderates on seasonal factors

(MAXF IN, Mkt Cap USD4.9b, CMP INR1060, TP INR1250, 18% Upside, Buy)

 

Non-PAR growth and Persistency trends robust

• MAX Life Insurance (MAXLIFE) continued to demonstrate a resilient performance in a challenging macro environment, led by healthy 32% APE growth. This was owing to robust growth in Non-PAR Savings and recovery in ULIP. However, Protection growth has moderated, similar to that for peers. On the distribution front, the strong push via the bancassurance channel has aided premium growth, while proprietary channel growth was impacted by COVID 2.0.
• The VNB margin declined to ~19.7% in 1QFY22 (v/s 24% in 4QFY21), largely affected by seasonality due to the drag from operating cost and rising ULIP mix. Overall, we expect the VNB margin trajectory to remain stable and estimate a 21% CAGR in APE over FY21-23E. This would enable a 23% VNB CAGR over FY21-23E. Maintain Buy.

 

Healthy APE trends led by Non-PAR/ULIP; VNB margin moderates on seasonal factors

• GWP grew ~27% YoY, led by 29%/56%/~21% growth in first-year/single/renewal premium. However, shareholders' pre-tax profit declined 44% YoY to ~INR770m.
• In 1QFY22, individual APE grew 31% YoY, with total APE growth at 32%, aided by strong trends in Non-PAR Savings (~99%) and healthy recovery in ULIP (~40%). On the other hand, Protection trends were sluggish (flat). The share of Protection stood at 19% (v/s 25% in 1QFY21 and 14% in FY21), while Non-PAR increased to 27% (v/s 18% in 1QFY21). MAX increased pricing for individual protection products in July'21.