Max Financial’s March quarter metrics give credence to valuation


Max Financial Services Ltd’s March quarter metrics brought cheer to investors due to its strong recovery in business growth. Notwithstanding the pandemic’s impact in FY21, its subsidiary Max Life Insurance reported a growth of 19% on annualised premium equivalent (APE) basis and an increase in market share.

By March, the company’s market share stood at 11%, more than 100 percentage point higher than a year ago mainly because it reported a growth in business better than the industry. To be sure, the company’s growth metrics for April and May also have been decent, data from the industry regulator showed. In short, the outlook is bright for the company and its past performance has not disappointed. That should explain the 17% gains of the share price since April.

Max Life Insurance has been able to leverage on its bancassurance partners to increase its business growth and the additional commitment from Axis Bank through a joint venture partnership should increase the heft of the bancassurance channel. The company’s proprietary channels too showed increased contribution to growth. The APE growth here was 22% in the March quarter, a sharp increase from 9% in the previous quarter.

Max Life not only was able to grow faster than the industry but also got more bang for the buck. Its value for new business grew by 44% while value for new business margin rose sequentially to 25.2%. This was possible as the share of margin friendly protection products also continued its steady climb.

But Max Life will need to work on its persistency ratios. Granted, ratios for the 13th and the 25th month are impressive at 84% and 71%, but from thereon ratios come under pressure. The key to future profitability is that customers stick with the life insurer for as long as the cost of a policy sold is upfront but gains are spread over time for the company. For now, analysts believe that the company’s growth prospects are good enough to support current valuations.

News Source: Moneycontrol

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