Buy Max Financial Services; target of Rs 629: Prabhudas Lilladher

Prabhudas Lilladher's research report on Max Financial Services

Max Life's individual NB APE growth was better at 25% YoY led by strong protection segment growth which grew by 78%. Group protection segment also grew robust at 51% YoY. Improving protection share with improvement in opex cost has helped deliver margins of 20.4% up by 230bps YoY in H1FY19. Management continues to give thrust on growing from proprietary/e-commerce channels and higher focus on improving protection mix further, targeting 25% growth in top-line, 25% VNB margin and 25% RoEV by FY21. We have slightly toned down growth but improved margin estimates marginally as we see continuing upward trends.

Outlook

Valuations at 1.6-1.7x EV remains undemanding with improving product mix, hence maintain our recommendation of BUY with revised TP of Rs629 (from Rs700) translating to 2.6x Sep FY21E EV, rolled from Mar FY20E EV, adjust CoE assumptions upwards and assign higher holdco discount of 20% from 10%.