Emkay Global Financial is bullish on Max Financial has recommended buy rating on the stock with a target price of Rs 531 in its research report dated May 27, 2020.
Emkay Global Financial's report on Max Financial
MAXL management remains firm over the rising share of Protection plans, with increasing focus on proprietary channel of distribution (~31% of distribution). With Axis Bank acquiring a 30% stake in the insurance company, product diversification is likely to sail through more comfortably. Axis’ share in total bancassurance remains healthy at ~57%. We are building in improvement in margin profile for MAXL, with a gradual rise in share of protection plans along with elevated share of Non-Par savings. However, the management needs to re-price its existing protection plans amid a rise in pricing for reinsurance. We expect VNB margins to improve to ~22.6% by FY22E against ~21.6% during FY20. 13M persistency for MAXL remained stable at ~83%, whereas 61M declined by 100bps yoy to ~52%. However, the data does not include the impact of Covid-19 lockdowns post March’20 and hence, the numbers are least relevant. The solvency ratio fell to ~207% because of a dip in equity markets but still remains in a comfortable range.
We assume coverage on Max Life (MAXL) with a Buy rating (OW in Insurance EAP) and a revised TP of Rs531 at 1x March’22E EV (earlier Rs600 at 1x Sep’21E EV). MAXL has reported a sharp decline in APE by ~15% yoy during Q4FY20, affected by lockdowns; however, the company managed to maintain its market share at 10%.
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