Buy Max Financial Services; target of Rs 950: Sharekhan

Sharekhan's research report on Max Financial Services

Max Life reported ~50% y-o-y VNB growth despite a 5% y-o-y decline in APE. VNB margin expanded to 39.3% in Q3FY2023 vs. 31.8% in 9MFY2023 and 24.9%/25.1% in Q3FY2022/9MFY2022, respectively. This was driven by its new non-par product, which likely had higher product margins as well. The share of non-PAR increased to 55% of overall APE vs. 38% q-o-q. Non-PAR savings grew at 118% y-o-y/83% q-o-q, led by a 300% y-o-y increase in the annuity segment. Income from insurance policies with a premium of more than Rs 5 lakh p.a. will not be exempt from April 2023 and will impact par and non-par business flows. We have factored this into our estimates. Also, we believe Q4FY2023 would be bumper growth for the non-PAR savings segment. Individual APE declined by 5% y-o-y. Retail protection grew by 2% y-o-y, while group protection fell by 19% y-o-y. PAR declined by 46% y-o-y. ULIP also saw a decline of 52% y-o-y.

Outlook

We maintain Buy with a revised PT of Rs. 950. Valuations are inexpensive after the recent sharp corrections.