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

Mr. Madhukar Ladha, Institutional Research Analyst, HDFC Securities

Despite a difficult environment, MAXL delivered an APE growth of 10.4% YoY. A significant share of NPAR savings in the mix drove margin higher by 320/710bps YoY/QoQ to 24.2% in 1HFY21. We expect the margins to moderate in 2H. We expect an FY21-23E APE/VNB CAGR of 12.6/15.4% and have adjusted our estimates to build in higher margins. We retain our ADD rating with a higher target price of Rs 690 (Sep-21E EV + 19.3x Sep-22E VNB less group level expenses and hold-co discount).

2QFY21 highlights: Total APE was in line with estimates at Rs 11.5bn (10.4/74.6% YoY/QoQ). The share of protection in the mix grew 362/-805bps YoY/QoQ to 17.0% as individual/group protection grew 69.6/7.4% YoY. Group protection was driven by higher GTI business. Share of NPAR savings in the mix shot up to 39.7% (1,632/2,169bps YoY/QoQ). The share of PAR and ULIP declined as customers chose protection and assured returns. Strong beat on VNB margin (+747bps vs. estimates) at 28.2% (615/1,107bps 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 improved ~100bps across buckets except remaining flat for the 37th month. The share of Banca channel grew 436bps YoY to 70.4% while declining for the proprietary channel to 29.6% (- 342bps). AUM growth was healthy at 18.9/6.2% YoY/QoQ to Rs 732.5bn. Max reported solvency of 207%. Operating RoEV was at 17.5% for 1HFY21.

MAXF-AXSB deal update: RBI has directed AXSB to use the direct route to invest in MAXL. Thus, AXSB can directly acquire a 9.0% stake in MAXL, while an additional 3% can be bought through subsidiaries. AXSB can acquire an additional 7% in tranches.

Outlook: NPAR savings and protection are expected to moderate in 2HFY21. For FY21E, we expect MAXL to deliver an APE/VNB growth of 0.5/2.7% YoY.

Shares of Max Financial Services Ltd was last trading in BSE at Rs.589.7 as compared to the previous close of Rs. 591.1. The total number of shares traded during the day was 32863 in over 1859 trades.

The stock hit an intraday high of Rs. 601.7 and intraday low of 583.45. The net turnover during the day was Rs. 19432845.

Source : Equity Bulls

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