Buy Max Financial Services; target of Rs 665: Sharekhan

Sharekhan's research repor on Max Financial Services

Max Financial Services (MFS) posted strong numbers for Q1 FY2021, with better-thanexpected operating performance, and an encouraging EV growth with market share gain despite the impaired collections because of the lockdown is notable. Max Life Insurance (MLIC, MFS has 72.5% shareholding) saw gross written premium (GWP) rise by 4% y-o-y, despite the lockdown, which impacted a major part of Q1FY21, which we believe is impressive. New business premiums (on an APE basis) amounted to Rs 661 crore, down 4% y-o-y which indicates better than expected traction. Market share for new business (on APE basis) saw increase to 10.7% from 9.7% in FY20. Despite all COVID-19 challenges, Max life outperformed industry and gained more than 217 BPS share from FY20 in private market. Also, the individual sum assured of new business clocked a 39% growth in Q1FY21 due to strong growth in protection business that was also encouraging. The 13th-month persistency ratio for Q1 FY2021 was stable at 82% (as compared to 83% in FY2020), which indicates good customer retention and effective client communication. Claims paid ratio stood at 99.22% at the end of FY20, one of the best in the industry and best-ever ratios reached.

Outlook

We believe strong business fundamentals and current valuations (at a significant discount to peers) make risk-return favourable for MFS. We maintain our Buy rating on the stock with a revised price target (PT) of Rs. 665.