Margins are likely to be broadly stable; protection and retirement to be key focus areas; ‘Buy’ retained with target price of Rs 1,250.
Growth to pick up (+20% over FY21-26); margin trajectory broadly stable.
The past few years have been challenging for Max Life Insurance
, with the management’s focus on simplifying the organisation structure. Going forward, its primary focus would be on delivering superior growth (more than 20% over FY21-26e), with margin remaining range bound. It expects RoEV to remain similar to FY21 levels (18.5%). Growth would be led by a key focus on:
Leader in online acquisition: It is looking to increase sales by 7-9x over the next five years.
Fastest growing and profitable proprietary distribution: The management’s focus is on ramping up its own proprietary channel, with an aim to improve profitability and productivity. It is looking to increase sales by 2.5x over the next five years and be among the top three.
Leader in Protection and health and wellness: Its focus will be on providing Health Insurance
as a rider. It is looking to increase sales by 3-4x over the next five years and to be among the top three.
Leader in Retirement: It recently received approval for NPS management and is looking to scale up the business and strengthen its presence. It is looking to increase sales by 8-9x over the next five years and be among the top three.
Inorganic expansion: The management is open to strategic inorganic opportunities, which would strengthen its existing franchise. It is looking at at least one-to-two such opportunities over the next five years.
Protection and Retirement to be the key focus areas
The management aims to cater to the savings, mortality and morbidity, and the longevity needs of customers, thus covering the entire customer lifecycle. Long term structural opportunities exist, with a primary focus on the Protection and Retirement segment as the Protection gap remains large (Protection policies constitute 35% v/s 10% five years back, with the online channel forming over 40%). On the Retirement side, the need for pension products is likely to increase (total opportunity to increase to Rs 118 t from Rs 28 t by CY50) due to changes in demographics, emergence of nuclear families, and advancement of Healthcare facilities, thus providing robust growth opportunities.
Valuation and view
It expects growth to pick up over the next five years, which is likely to be better than the past five years. Growth via the proprietary channel is likely to remain strong, while banca will continue to deliver healthy growth. Persistency trends have improved, while cost ratios should remain modest. We estimate 21% APE CAGR over FY21-24E, with VNB margin sustaining at 25-26%. This would enable 24% VNB CAGR over FY21-24e, while operating RoEV would sustain at ~22%. We maintain our Buy rating with an unchanged TP of Rs 1,250 per share (3.6x Sep’23e EV with a 20% holding company discount).
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