Max Financial Services Ltd Q4 FY2023 Concall Summary

Key Takeaways

• Strong FY23, Q4 boosted by one-off tax changes: APE grew 12% for the year and 38% in Q4, but Q4 included an estimated INR 300–350 cr of early buying ahead of budget tax changes.
• Proprietary channels are the growth engine: Offline proprietary grew 43% for the year and 90% in Q4, while bancassurance de-grew 2% for the full year as open architecture pressured the channel.
• VNB margin expanded for the year but dipped sequentially in Q4: Full-year margin rose to 31.2% from 27.4%, but Q4 saw a sequential decline driven by lower-margin large-ticket non-PAR sales, full-year cost drag, and product variant mix normalization.
• Axis Bank counter share held at ~70% despite open architecture, and management expects the investment transaction to close in FY24, with both primary and secondary options under consideration.
• What to watch next quarter: Whether the product mix normalizes away from the Q4 non-PAR spike and how that flows through to margins, the pace of bancassurance recovery as Axis and Yes Bank growth kicks in, and any concrete timeline on the Axis investment transaction.

Channel Performance & Mix Shift

• Proprietary channels delivered breakout growth: Offline proprietary (agency + direct) grew 43% for the year, with top advisors up 50% YoY and advisor activation improving 10%. Direct channel grew 36% YoY on manpower additions and improved productivity.
• Online business scaled rapidly: Online business grew 44% in FY23, with the online savings portfolio growing 5x over FY22, while leadership in online protection was maintained.
• Bancassurance was the drag: Bank channels de-grew 2% for the full year as open architecture reduced the overall pie for the first nine months, though Q4 showed 13% growth indicating revival. Counter share in Axis Bank was maintained at around 70% over a 15-month period.
• Proprietary channel share target: Management aims for proprietary channels to contribute more than 40% of total business in the short term (18–24 months), calling it an imperative for Max Life.
• New distribution partnerships signed: Four banks signed in FY23 (DCB, Tamilnad Mercantile Bank, Ujjivan, Capital Small Finance Bank) plus six brokers, with 50 new proprietary channel offices established.
• Bancassurance growth expectation: Management expects banks to grow at double-digit rates for Max Life to achieve double-digit growth, with optimism rooted in Axis Bank and Yes Bank's long-run track record of delivering above-market growth.

Tripathy: "I think as we look ahead, a company like Max Life Insurance has more to gain out of open architecture. So, we look at this particular thing quite favourably and it is going to presented itself in form of more opportunity to Max Life Insurance."

Product Mix & Margin Dynamics

• Full-year VNB margin expanded 380 bps to 31.2%: Driven by product innovation, new products and variants, and expansion into new categories. VNB grew 28% YoY.
• Q4 sequential margin decline had three drivers: Large-ticket non-PAR policies carry lower margins and appropriate assumptions were made for them; full-year run rate of distribution spend created cost drag; variant mix of the SWAG product launched in Q3 normalized.
• Q4 product mix skewed to non-PAR at 60%: This was a one-time impact of budget tax-related changes, and a moderation is expected going forward, with rebalancing toward participating and some ULIPs.
• Annuity mix rose from ~1% to ~5%: Driven by organizational focus on retirement, including a new limited pay annuity variant and extended early ages. Retirement business achieved approximately 300% growth on an APE basis in FY23.
• Margin guidance held at 27–29%: Management expects margins to remain in this respectable range as a stable margin to price, with continued investment creating some drag as the bias is toward driving growth and regaining market share.
• Q1 margin seasonality is structural: Q1 margins are always lower because sales are far lesser than subsequent quarters while costs are equally loaded across quarters, a pattern that has held for many years.

Axis Bank Relationship & Transaction

• Counter share maintained at ~70% despite open architecture: Management expects Max Life to continue enjoying a large share of the Axis Bank counter in the range of about 65% to 70%.
• Investment transaction expected in FY24: Both primary and secondary options are under consideration, and valuation will become relevant only at the time of transaction. Management will announce when Axis completes its internal processes.
• Axis Bank growth optimism: Management stated Axis Bank is a very aspirational bank with big plans for growth, and insurance is a large part of its fee income. Axis is expected to bounce back and deliver industry-consistent growth rates.
• Tata–Citi tie-up scope is limited for now: Tata gets access only to Citi branches that Axis has acquired, not the entire Axis Bank branch network.

Tripathy: "Axis Bank definitely is a very aspirational bank. They have big plans on their growth and insurance definitely is their large part of the fee income. So, it will be wrong for me to say that Axis will continue to be lower than the industry, I'm sure they will bounce back, and they will do industry consistent growth rates."

Protection & Retirement Outlook

• Retail protection saw 50% sequential growth in Q4: This was a result of product interventions throughout the year, and supply-side challenges post-COVID are being addressed with augmented underwriting capabilities using tech and analytics.
• Protection growth aspiration is 20%+: Management stated that anything less than 20% is not at all aspiration, though they declined to provide specific segment-level growth numbers, calling them very difficult to give.
• Two years of low base sets up for growth: Management expects protection business to start growing from this point onward after two years of subdued performance.
• Retirement business scaled meaningfully: Achieved approximately 300% growth on APE basis in FY23, and annuity will continue to be an area of focus going forward.

Economic Variance & Solvency

• Non-operating variance of INR 1,040 cr was driven by interest rates: Approximately INR 900 cr+ came from interest rate movements, specifically the short end of the curve in March. EV sensitivity tables assume a parallel 1% shift, whereas the actual non-operating variance reflects the real shift, which was different, causing the apparent disconnect.
• No gap in hedging: The company continues to run its hedging program as before, and these variances are transitory given the hold-to-maturity approach.
• Solvency dropped 10% this quarter: The regulator provided additional capital mechanisms, including up to 50% of net worth as an additional buffer and 25% as additional debt.

Amrit Singh: "EV sensitivity is an assumption of a parallel shift in 1% across the yield curve, whereas the non-operating variance is actual shift, which happens. And obviously, the reality was that simulated shift is slightly different, and that's how it looks different."

Strategic Initiatives & Regulatory Developments

• Max Life Pension Fund Management commenced operations: Garnered AUM of approximately INR 143 cr as of 31st March 2023 in H2 FY23.
• Digitization drove multiple efficiency gains: AI and automation increased the paid-to-applied ratio; profile-based medical and pension grades and KYC waivers enabled frictionless underwriting and instant issuance; new product pricing changes reduced to 2 days from over 2 weeks; unified payment platform increased online payment success rate by approximately 7%; 56% of IT infrastructure is now on cloud.
• Composite licensing actively being explored: Management is actively working in this space, and if flexibility becomes available, especially in contiguous businesses like health, the company will look at it favourably with agility.
• EOM guidelines still settling: Management noted it will take some time for the dust to settle, and the company will continuously keep working on optimization. [12-13]

Tripathy: "There is a possibility that it can get introduced, as a part of the act. And on behalf of Max Life Insurance, we are actively working in this space and if any such flexibility is available to us, especially in the context of contiguous businesses like health, we will look at that quite favourably with agility and we will try to work out."

Guidance & Commitments

Key Metrics