PremiumMax Life Insurance’s March quarter metrics should bring cheer to investors because of a strong recovery in business growth. However, a miss on quarterly net profit weighed on the share price, which fell 1.6% on Wednesday.
Max Life Insurance reported a growth of 19% on an annualized premium equivalent (APE) basis and an increase in market share in FY21, notwithstanding the impact of the covid-19 pandemic.
By March, the company’s market share stood at 11%, more than 100 percentage points higher than a year ago, mainly because it reported a growth in business higher than the industry. 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 of its holding company, Max Financial Services Ltd, since April.
Max Life Insurance has been able to leverage 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. Axis Bank will increase its stake in Max Life to 21% and also have three board seats.
The deal has boosted the life insurer’s valuations, given that Axis Bank continues to contribute a significant portion of the insurer’s new business.
Max Life’s proprietary channels also showed increased contribution to growth in the March quarter. The APE growth here was as much as 22%, a sharp increase from 9% in the previous quarter.
Max Life was not only able to grow faster than the industry average, but it also got more bang for the buck. Its value for new business grew by 44%, while the 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. These profitability metrics broadly met analysts’ expectations.
That said, the second wave of covid-19 infections has impacted operations to some extent. However, Max Life will need to work on its persistency ratios. Granted, ratios for the 13th and the 25th months are impressive at 84% and 71%, respectively, 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.
That said, further gains hinge on whether the company is able to sustain its growth metrics in fiscal 2022. Shares trade at a modest multiple of two times the estimated embedded value for FY22.
Never miss a story! Stay connected and informed with Mint. Download our App Now!!