MFSLNSEAugust 17, 2023

Max Financial Services Limited

8,131words

66turns

11analyst exchanges

0executives

Key numbers — 40 extracted

INR 1,612 crore

you that pursuant to the approval of Max Financial and Max Life board, Axis Bank will be infusing INR 1,612 crore by subscribing to equity shares of Max Life at fair market value determined basis DCF methodology.

19.02%

Life. Post subscription to the preferential issues of shares, Axis entity shall collectively hold 19.02% equity share capital of Max Life. Axis will also have an additional right to acquire 0.98% stake o

0.98%

y hold 19.02% equity share capital of Max Life. Axis will also have an additional right to acquire 0.98% stake of Max Life from MFSL. The proposed transaction is subject to receipt of shareholders’ appro

80.98%

said shares to Axis Bank, the shareholding held by Max Financial in Max Life will stand reduced to 80.98% from the current levels of 87%. The additional capital infusion by Axis Bank in Max Life highlight

87%

eholding held by Max Financial in Max Life will stand reduced to 80.98% from the current levels of 87%. The additional capital infusion by Axis Bank in Max Life highlights their commitment towards buil

rs,

with South Indian Bank and five additional brokers and corporate agents and in the following quarters, business from them will begin. We are working in a very programmed manner to expedite and enhance o

25%

our presence on those counters. In quarter 1, our new business premium experienced a noteworthy 25% growth. And total APE grew by 10%. Our prop channels achieved substantial growth, with APE (Annu

10%

In quarter 1, our new business premium experienced a noteworthy 25% growth. And total APE grew by 10%. Our prop channels achieved substantial growth, with APE (Annualised Premium Equivalent) increas

23%

prop channels achieved substantial growth, with APE (Annualised Premium Equivalent) increasing by 23%. This growth was primarily driven by impressive performance in both online and off-line proprietar

44%

ntained, and we achieved successful market share expansion in the savings business, resulting in a 44% growth in our e- commerce business. Off-line: Our offline proprietary channels demonstrated robus

18%

ur e- commerce business. Off-line: Our offline proprietary channels demonstrated robust growth of 18%. The agency channel growth fuelled by new agent activations and adviser recruitments. Furthermore,

line and off-line space, we saw very robust growth. However, our bank channels' APE experienced a 2% decline in quarter 1. Looking ahead, we have planned a series of significant investments in FY '2

Guidance — 20 items

Amrit Singh

opening

“We would like to inform you that pursuant to the approval of Max Financial and Max Life board, Axis Bank will be infusing INR 1,612 crore by subscribing to equity shares of Max Life at fair market value determined basis DCF methodology.”

Avinash Singh

“So if you can provide again a medium-term guidance on the margin part?”

Prashant Tripathy

“And shareholders kindly agreed that, rather than doing a secondary, this will be a primary where the capital will come to Max Life Insurance.”

Prashant Tripathy

“It's really a positive step for our growth and we are very optimistic that this capital which is coming to our business will be good for driving our growth for at least next 18 to 24 months.”

Prashant Tripathy

“And the guidance on margin actually stays, which I gave at the beginning of the year, that we should look at margins for the full year lower than how it was last year.”

Prashant Tripathy

“We have given guidance of between 27% to 28%.”

Prashant Tripathy

“We acquired many customers, where we will be deploying our own people.”

Prashant Tripathy

“So there's an all-around work taking place towards driving growth and hence, the guidance on margin actually stays.”

Prashant Tripathy

“So those will be the attempts, but for the time being, my guidance actually stays.”

Prashant Tripathy

“So I mean, of course, in a backdrop of also that March was abnormally high, this 20% kind of growth guidance, does it hold for this FY as well?”

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Risks & concerns — 4 flagged

However, our bank channels' APE experienced a 2% decline in quarter 1.

— Prashant Tripathy

One is the new initiatives and all the new capacity that we have been installing over the last 6 to 8 months and given our reporting mechanism is of actual costs and absolute costs for the quarter and the fact that this quarter is low on sales, there is a drag which that particular thing kind of creates on overall margin profile.

— Amrit Singh

There is another element of the drag which is more to do with underlying variants and mixes and also the curve's movement during the quarter, which has had some bearing on the margin profiles of each of the categories, but we have taken pricing actions around correcting some of these things and that will get corrected.

— Amrit Singh

With respect to opex, some part of that drag will remain and that's also the reason for us guiding a lower margin profile, but as the year matures and sales volume picks up, the operating leverage will play out.

— Amrit Singh

Q&A — 11 exchanges

Two questions. The first one is like this change of plan. So nearly 1,600 crore capital infusion, that kind of increases your solvency margins to nearly say, 230 percent. So I mean, this change of arrangement would have some thought process behind it, so if you can just sort of provide some color on your growth plan, say, for over the next 3, 4 years. Because this is a substantial, like, 40% augmentation to your solvency margin. So what kind of a growth plan do you have in mind over the 3, 4 years? And secondly, if I go into your margins, of course, there have been marginal increase in protect

Prashant Tripathy

Avinashji, like always, very sharp questions. Let me address them one by one. You're right. Our solvency margin is going to go up by 39%, which will give us good capital in the business which is required for growth. We have very aspirational plans for future, which we have been repeating again and again. We have specific plans to drive growth and growth upwards of 20%. We have plans to become dominant in two areas, protection; as well as retirement and, within that, annuity. And as you know, these product categories require capital because the initial requirement of capital on both these produ

Yes. So just wanted to get a sense of how the Axis channel is doing. At least, first quarter, it seemed to be a little subdued, so what are we seeing from there? And what do you think should be our expectation for this year, for the balance 9 months? Yes, your observation is correct. And it is highlighted in our representation also that the growth from Axis channel for the quarter was subdued. It was not on account of we significantly losing counter share or anything like that. The counter itself witnessed slow growth or sluggish growth predominantly because we were dealing with a very large b

Management

Just firstly, on this non-par bit, what is the kind of pricing action that you just alluded to that you would have taken with how and what kind of action you would have taken in this quarter or post or in 2Q so far. And also I would like to understand on the same, continuing on the non-par piece, as to what is the kind of demand on the ground and the category of 5 lakh plus. How has that changed in the new tax regime? That will be my first question. On your second question. There is no impact that we have seen, so far, with respect to the mix of greater than 5 lakh business, the traditional bu

Prayesh Jain

So but on the small base right now we haven't really seen any impact coming through which is material. Coming to the actions that we have taken on non-par, these are generally a reduction in IRR of the products, which are in line with how the interest curves move. So these actions are on those lines where we have been correcting over the past now a few months actually progressively the IRR, making it more in line with the interest movements. And the other question was on the banca channel again, while you mentioned that you haven't lost any share on the Axis Bank front. But how are the other b

I have one simple basic question: why Axis has stopped at 19% instead of 20%, why that optionality of not picking up to 20% in one go. Any reason to understand that point why 1 percentage of left over? That's my first question. And then I have two questions on the operational side and maybe I'll ask afterwards. I think the reason for that is the approval that was sought and the volume that was sought of INR 1,612 crore and, honestly, whatever is the valuation that has come. So it's a mathematical outcome. There was no intentional effort actually to keep it at 19% and not 20%. So it was depende

Sanketh Godha

Got you. And sir, this 1 percentage will be more, this 1 percentage will be more and more like primary again. Or it most likely will be a secondary one? It is expected to be secondary, not primary. Okay, perfect. And second question is regarding the opportunity size that you might have assessed, these new relationships South Indian Bank, UCB, Ujjivan, Tamilnad Mercantile Bank and new broker relationships, what that you have got into. I mean internally you might have assessed what this size in APE terms could be for you. So just wanted to understand, potentially if it plays out as per your plan

Question is on when you look through this particular deal, right, that Axis has got more control in terms of appointing Board members. Now how should like would as management now be very comfortable with the fact that market has been thinking of wallet share losses further because you have more partnerships in Axis. So does this make you feel very comfortable about wallet share now in Axis counters?

Prashant Tripathy

Adarsh, thank you very much. I think, as management, we've been repeating multiple times that we have been very comfortable with Axis Bank and how our counter share position will be. I've repeated multiple times that everybody should expect us more in the range of between 65% to 70%; or 70%, plus, minus a few points. So with this change, actually it's not an additional comfort to management. I think it is an additional comfort to investors and analysts community because we always knew about it, but yes, you're right. With these changes which are quite positive in nature, I think Max Life Insur

The first one is essentially on your outlook on the non-par business. Given the fact that you have repriced the product now, do you expect the momentum to continue? And hence, do we expect the non-par share to remain at similar levels towards the end of the year?

Prashant Tripathy

Thank you, Nischint. That's a great question. I mean when we finished last year last year, of course, the bias towards non-par was higher. And we have made conscious efforts this year actually to rebalance. And a lot many times, the product mix also gets driven by the products of the season. So for example, last quarter, we launched a product which was more in par space. And of course, par gained ground. As we are moving through this quarter, we have a very strong ULIP plan as well as a non-par plan, which are scheduled to be launched, but on a long-term basis, Nischint, we will attempt to be

I wanted to understand. Is there any change in strategy towards credit life? Because it seems to be doing very well in this quarter?

Prashant Tripathy

Yes. I mean, of course, we are trying to acquire new partners. There's reasonably high level of aggression as well as growth and more counters have been won. Like I always mentioned, the level of flexibility to drive the business in the context of changed guidelines and regulatory flexibilities have enhanced our ability as well as desire to be significant or reasonably significant players in this space, so we are pursuing this agenda reasonably aggressively at this point, Neeraj. Got it. And what kind of run rate we can expect similar, we can assume for the coming quarters. Or maybe more relat

I wanted to ask. In the NPS, in the annuity business, I wanted to understand where NPS stands. Maybe currently it's not very meaningful, but in the larger scheme of things, how do you plan, how do you expect this to contribute to the annuity business? As I indicated to you, we have now created a holistic retirements team which actually is tapping into all the three ecosystems, the corporate annuity market, the individual annuity market and also being present in the National Pension System (NPS) annuity market. National Pension System there are maturing customers. And obviously maturing profile

Prudvi Raj Saya

Okay. Another one, on the state insurance, wherein you have allotted a couple of state facilities to that, can you quantify what will be the impacts we can expect from this in terms of business? It is a bit premature actually to talk about the volume numbers, but we remain very optimistic and we are going to participate. There are two states. The largest of them is Uttar Pradesh, which has been allocated to us. We are right now putting the plans in place, deploying resources. And the big vehicles through which we will approach state insurance plan will be Bima Vistaar as well as PMJJBY. Those

I have a question on the new product, the SWAG par product that you have launched. So back in third quarter '22, also you had launched a new par product, which did quite well. And as far as I remember, that was also a higher-margin and probably a longer-term product is what I remember. So can you give some colour about the product? And also, with these two new products, can we now say that your par book is effectively no longer the 10% to 12% margin book? It's a higher margin book, in case its SWAG is also a higher-margin product. So we did launch this product in the month of June, SWAG par. A

Management

Just a question on a couple of regulations. Firstly, on the expense-of-management regulations, do you see any changes in the commission payout? And what are your thoughts and strategies to kind of IFRS implement this regulation or take advantage of this regulation? Secondly, on implementation, there is talks about a few of the insurance companies moving to IFRS from, if I am not wrong from FY'25 onwards. What are your thoughts? And how is your preparedness? And what would be the implications on the numbers as and when it is implemented? The expense of management, actually it creates more flexi

Management

The last one I have is that, after these 6 months, the timeline for the current Axis stake increase approval, when you will start that reverse merger process; and expected timeline, probably, given you will need to take multiple approvals there also how much timeline you believe will take for the entire thing to collapse and Max Life to become the listed entity.

Prashant Tripathy

So one step at a time is what I will say. Right now the focus and attention is going to be to consummate this 7% and subsequently the 1%. Once all that is done, we'll initiate the process of doing it. I think that will be a longer process, so assuming that we are able to do this transaction over 6 to 9 months, you should expect a further period of about 18, 22 to 24 months to do that. Got it. Perfect. So basically it's, if I add up all the numbers, all the months, maybe it's a 2.5-year kind of a scenario to, everything to consummate, right? You're right.

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Speaking time

Prashant Tripathy

Moderator

Amrit Singh

Sanketh Godha

Nischint Chawathe

Adarsh

Neeraj Toshniwal

Avinash Singh

Prayesh Jain

Prudvi Raj Saya

Opening remarks

Amrit Singh

Thank you. Good morning, everyone, and welcome to the earnings call of Max Financial Services for the quarter ended June 2023. Results have been made available on our website, as well on the stock exchanges, last evening. I am joined by Prashant Tripathy, MD and CEO of Max Life Insurance. Let me start with the recent development on Axis Bank transactions. We would like to inform you that pursuant to the approval of Max Financial and Max Life board, Axis Bank will be infusing INR 1,612 crore by subscribing to equity shares of Max Life at fair market value determined basis DCF methodology. Axis Bank has already received requisite approvals from RBI for infusion of this capital into Max Life. Post subscription to the preferential issues of shares, Axis entity shall collectively hold 19.02% equity share capital of Max Life. Axis will also have an additional right to acquire 0.98% stake of Max Life from MFSL. The proposed transaction is subject to receipt of shareholders’ approval; and regu

Prashant Tripathy

Thank you, Amrit. Good morning, everyone. 1. Predictable & Sustainable growth by building distribution: As a part of our ongoing effort to enhance our distribution capabilities, we successfully on-boarded six new partners during the first quarter of FY '24. Notably, we established partnership with South Indian Bank and five additional brokers and corporate agents and in the following quarters, business from them will begin. We are working in a very programmed manner to expedite and enhance our presence on those counters. In quarter 1, our new business premium experienced a noteworthy 25% growth. And total APE grew by 10%. Our prop channels achieved substantial growth, with APE (Annualised Premium Equivalent) increasing by 23%. This growth was primarily driven by impressive performance in both online and off-line proprietary channels. Online: Our online market leadership in protection products is maintained, and we achieved successful market share expansion in the savings business, resu

Amrit Singh

So moving on to the key financial metrics for quarter 1. • • • • Consolidated revenue for MFSL excluding investment income was at INR 4,730 crore, a growth of 19% in quarter 1 FY24. Consolidated PAT stands at INR 101 crore, up 48%; Renewal premium for Max Life has grown by 15% to INR 3,014 crore. Gross premium has grown by 19% to INR 4,871 crore; Value of new business (VNB) for the period was at INR 247 crore versus INR 213 crore for last year, resulting a growth of 16%. The NBMs have improved at 22.2% in Q1 FY24, as compared to 21.1% in Q1 FY23; Embedded value for Max Life at the end of 30th June 2023 stands at INR 16,938 crore, thereby an operating RoEV of 14%; • Policyholder opex-to-GWP stands at 17.4%; • Max Life's stand-alone pre tax profit is at INR 103 crore, an improvement of 14%. Profit after tax is around INR 89 crores; • Our solvency ratio for Max Life stands at 188%. And AUM (Asset Under Management) as on 30th June 2023 is ~INR 1.29 lakh crore, YoY growth of 21%; To conclud

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