For Max Financial Services, capital infusion to boost growth plans
Summary
The capital infusion is expected to provide growth visibility for the next 18-24 months, and the management expects to grow its annualized premium equivalent by more than 20% in the medium-term
Shares of Max Financial Services Ltd are trading lower by around 2% on Friday. The stock pared its gains after touching a 52-week high on Thursday, closing 8% higher after Axis Bank raised its stake in Max Life Insurance Co. Ltd (Max Life), a subsidiary of Max Financial Services.
On 9 August, the board of Max Life approved a proposal to raise capital through a preferential issue of equity shares to Axis Bank for an aggregate investment of up to ₹1,612 crores. With this, Axis Group will collectively hold 19.02%. Analysts from Motilal Oswal Financial Services point out that with the stake increase, a key concern for the stock was addressed and will support Max Life’s solvency ratio which stood at 188% in the June quarter (Q1FY24).
Also, healthy Q1 performance and favourable comments from the management on the company’s prospects augur well. The capital infusion is expected to provide growth visibility for the next 18-24 months, and the management expects to grow its annualized premium equivalent (APE) by more than 20% in the medium-term. The key focus will be on retail protection and retirement, particularly annuity products.
Additionally, it also plans to continue expanding its distribution channel, including bancassurance partnerships (bank partnerships), number of agents, and onboarding brokers. In this regard, during Q1, the company partnered with South Indian Bank along with five brokers and corporate agents. The company is already partnered with 7-8 small banks in recent months. Its key bank partner, Axis Bank, is also expected to drive growth. For Max Life, the Axis Bank channel accounts for about 52% of the overall bank channel. Also, the company has been making efforts to grow its own channel and e-commerce platform.
Further, the management also stated that it plans to focus more on growth. This means it intends to increase the number of policies being sold (volume) while the value of new business margin (VNB) could take a backseat. This, along with the expansion of its distribution channel, would mean that the operating costs are expected to be on the higher side. The management is expecting Max Life’s VNB margin, a key metric for life insurance companies, to be lower at 27-28% for FY24, lower than the FY23 margin at 31.2%.
Also, after a strong performance last year, FY24 APE growth may be marginally lower. However, management expects to clock in double-digit growth, mostly led by retail protection and non-participating products. This has led to a change in analysts’ estimates. Analysts from Emkay Global Financial Services said, “A good performance, removal of a big overhang and upbeat growth outlook, we have raised our FY25E/26E APE by about 6%/9%, respectively."
In Q1, the company reported total APE growth of 10% year-on-year to Rs1,113 crore. And favourable product mix has helped the company in increasing its VNB margin by 110 basis points to 22.2%. Since July-month’s performance was also strong, with Max Life reporting 20.6% APE growth, management expects Q2 growth to be over 20%. That said, while the stock has rallied nearly 23% since the beginning of CY23, any upside from here on depends on consistent improvement in APE growth.
