Antique | Max Financial Services 2QFY24 result update – 231102

Antique | Max Financial Services 2QFY24 result update – 231102

FY24 APE growth guidance appears conservative

Max Financial Services’ (MAXF) 1HFY24 APE grew 26% YoY to INR 27.7 bn (6% above our estimate) implying 5-yr. CAGR of 13% led by robust growth in par, protection, and annuity. Par grew 55%, protection grew 42%, and annuity grew 277% (on a low base). 1HFY24 VNB grew 13% YoY to INR 6.6 bn (5-yr. CAGR of 18%) with VNB margin declining 260 bps YoY to 24% owing to a) Higher sales of ULIP in online business at lower margins; b) Higher investments in proprietary channels, and c) Decline in non-par share. Management’s guidance for double-digit APE growth for FY24E seems conservative given an ask rate of 11% YoY (adjusted for INR 3.5 bn one-off sales in Mar’23) for 2H amidst the resilient underlying business momentum and strong growth outlook guided by industry peers. The company reiterated its VNB margin guidance of 27%–28% (vs. 31.2% for FY23) for FY24. Management aspires for 20% APE growth in the medium term and expects VNB margin to improve by 100–200 bps. Factoring a higher growth, we raise our FY24–25E APE by 4% while keeping FY24–25E VNB unchanged on lower margins. We thus increase our DCF-based TP to INR 1,140 (earlier INR 1,100) as we roll over to 1HFY26. Our target price implies 1HFY26E P/EV of 2.4x and P/VNB of 15x after assuming a 20% holdco discount. Maintain BUY.

Investment Summary

Valuations at 1.9x 1HFY26E P/EV and ~11x 1HFY26E P/VNB (after providing 20% holdco discount) seem attractive, considering the expected 14%–15% APE/ VNB CAGR over FY22–26E. Maintain BUY with a DCF-based TP of INR 1,140. Listing of Max Life separately over the next two years shall further unlock value, in our view.