Max Financial Services Ltd Q1 FY2023 Concall Summary

Key Takeaways

• APE growth held up, but mix shifted: Proprietary channels surged 34% while banca slowed to 8% as open architecture bit; overall APE grew, but the engine that drove it changed.
• VNB margin improved to 21.1%: The 140 bps YoY expansion came from better product margins across PAR, non-PAR and protection, not assumption changes, and management held its 26% full-year guidance.
• Retail protection declined 19%: Management called it a moderation from COVID-era peaks and expects a recovery in Q2, but the category has now contracted for two straight quarters.
• Pension fund entry is imminent: PFRDA registration received, regulatory inspection done; operations expected to start in Q2, opening a new long-term fee pool.
• What to watch next quarter: Whether protection volumes actually recover, the pace of banca base-effect normalization, and the Certificate of Commencement for the pension fund.

Channel Dynamics: Proprietary Surges, Banca Resets

• Proprietary channels grew 34% YoY, driven by a 33% increase in active agents. Management attributed the agent ramp-up to simplification of the adviser rewards program and a deliberate shift toward variable agency, whose share rose ~200 bps YoY.
• Bancassurance grew only 8%, a sharp deceleration. The primary cause was the full-blown impact of open architecture at Axis Bank, where counter share has now been stable for 6–7 months. The high base from last year's scale-up at Axis and Yes Bank will take two more quarters to run off, with stabilization expected in Q3 and Q4.
• Online savings grew 10x YoY on a small base, helped by SEO leadership, combo plans, a homemaker campaign, the NRI segment on Policybazaar, and progressive web apps. Online protection was flattish.
• Proprietary channels are expected to gain share over the next 2–3 years, with the non-proprietary mix inching from 30 last year toward 35:65. Distribution spend will stay elevated to build differentiation across open-architecture counters.
• If the corporate-agent tie-up cap rises from 3 to 9, Max Life intends to be "fairly aggressive" in competing for open counters, citing its experience handling complex bank relationships. No draft regulation exists yet, only news reports.

Amrit Singh: "3 moving to 9, I think it just opens more counter for players like us. And we will go aggressively out in the market. We have strong experience and expertise of handling all sorts of banks and all sorts of complexity within the bank. So that actually becomes a strength point for us."

Product Mix & Demand: Protection Weak, Non-PAR Resilient

• Retail protection de-grew 19% YoY, which management attributed to natural demand moderation after two years of COVID-driven spikes. On a 3-year CAGR basis, protection grew 14%. Management is "hopeful" of a volume recovery starting in Q2.
• Non-PAR savings grew 20% and remains robust. Margins are stable sequentially and improved YoY; any benefit from yield-curve movements is passed to consumers via better IRRs to keep products competitive, so margin expansion from rates is not assumed.
• ULIP grew 21% on the back of the Flexi Wealth Advantage Plan launch, which mobilized ~INR 87 crore in Q1. Management intends to keep the full-year product mix similar to last year, implying some ULIP moderation as quarters progress.
• ULIP demand risk is flagged but not yet visible: historically, choppy markets hit ULIP demand 6–12 months later. Management has not seen those trends yet but acknowledged pressure points could emerge if market underperformance continues.
• Group protection growth came from term life; credit life growth tracked disbursement momentum at partners, with attachment rates of 65–80% and some ticket-size enhancement from rate renegotiations.

Amrit Singh: "Historically, it has always been the case that whenever the markets have become choppier, 6 months, 12 months later the life insurance ULIP product demands have got impacted. But as we speak, we haven't experienced any of those trends yet."

Margins: Q1 Seasonality Masks Underlying Improvement

• VNB margin improved to 21.1% from 19.7% YoY, calculated on an actual cost basis. Q1 margins are always the lowest due to seasonality and improve quarter-on-quarter; management expects to exit the year closer to recent full-year levels.
• Margin improvement was broad-based: participating margins rose because a better-margin PAR product launched in November–December is now in the mix; non-PAR margins improved from a shift within the product suite; protection margins recovered because reinsurance changes that depressed them last year have lapsed.
• Full-year margin guidance of 26% was reiterated. Management sees 100–200 bps improvement as possible over 2–3 years but believes 30% is too high given competitive intensity and a bias toward growth spending. Distribution spend will create some drag on non-PAR margins this year.
• The PAR margin benefit will start moderating from November–December, when the better-margin product laps its launch.

Amrit Singh: "It's potentially possible to reach those on excel basis but keeping competition in play, I think 100 basis points, 200 basis point improvement in margin is definitely a possibility. But 30% level might be a bit high. And we are biased towards driving growth, so some bit of spend towards that will come in play."

Embedded Value & Solvency: Noise, Not Distress

• MCEV was flat due to economic variances of minus ₹477 crore (3–3.5% of opening EV), which management expects to reverse once market conditions settle.
• Operating RoEV was 13.5%, lower due to Q1 seasonality: lower sales and higher expenses create a negative maintenance operating variance that disappears as the year progresses.
• Solvency declined from 201% to 196%, partly from new business strain and partly from derivative contracts reflected in the fair value change account. The derivative impact has since reversed. Management is comfortable with capital for over 1–2 years and sees no need for a fund raise.
• Max Life does not anticipate paying dividends to Max Financial Services, choosing to retain dividends to support capital consumption for growth.

New Initiatives: Pension Fund, AI Underwriting, Digital Tools

• Pension fund operations are expected to start in Q2, pending only the Certificate of Commencement. PFRDA registration has been received and regulatory inspections concluded last week.
• In-house AI underwriting models were launched for fraud prevention, targeting diagnostic-center-related frauds. The models can grade diagnostic centers, identify mirror reports, and provide deviation scores.
• Video Point-of-Sale Verification was introduced for high-risk customers as an additional mortality-risk control and sales-quality measure.
• A common in-house dialer was deployed, with early trends showing a 40% improvement in agent efficiencies through centralized campaigns and real-time call metrics.
• A unified payment platform was developed to standardize the online checkout experience, minimize redirection, increase payment success rates, and improve NPS.

Guidance & Commitments

Key Metrics