Max Financial Services Ltd Q2 FY2024 Concall Summary

Key Takeaways

• APE growth accelerated to 32%, well ahead of the 16% private sector pace, driven by a 34% jump in policy volumes and broad-based channel strength. Proprietary channels surged 50%, and the agency force expanded recruitment 62%.
• New business margins dipped to 24% in H1 as the product mix tilted toward participating and ULIP plans, but Q2 standalone margin improved to 25.2% and management reiterated its full-year target of 27–28%, citing a historically stronger second half and upcoming non-PAR launches.
• The Axis Bank transaction is progressing through regulatory approvals, with shareholder consent secured and the first set of queries received from IRDAI and PFRDA. Management expects no material impact on VNB margins from the arrangement and reaffirmed Axis Bank’s counter share will be maintained at 65–70%.
• Protection & Health and annuity segments posted breakout growth of 55% and 217% respectively on an APE basis, supported by a dedicated retirement team, new product designs, and the inclusion of the SEWA integrated wellness plan. Annuity margins, however, weakened on mix shift toward regular premium variants.
• What to watch next quarter: Whether the ULIP margin drag from the new index-linked small-cap fund fades as overindexing normalizes, the pace of non-PAR product launches in H2, and any update on the Axis Bank regulatory approval timeline.

Top-Line Momentum & Channel Performance

• Individual APE growth of 32% was nearly double the private sector average, with policy count rising 34%, almost 3x the industry. Growth was broad-based across distribution, product innovation, and technology.
• Proprietary channels delivered a 50% APE surge, with online maintaining leadership in protection and achieving leadership in savings during the quarter. Agency recruitment grew 62%, and new agent activations drove renewed momentum.
• Banca APE grew 30%, led by Axis Bank momentum, while eight new partners were onboarded, including a strategic digital partnership with AU Small Finance Bank.
• Agency growth is being treated as a strategic advantage, supported by a BCG-led project to accelerate expansion. Management is reasonably certain agency momentum will sustain in the 20–30% range once new office investments kick in.
• Cost of acquisition remained stable across channels, even though reported commission rates rose sharply due to classification changes under new commission guidelines.

Amrit Singh: "But at a cost of acquisition level, you should assume that it has remained stable of how it was previously."

Margin Trajectory & Product Mix

• H1 new business margin was 24%, down from the prior year, driven by a deliberate focus on participating and unit-linked plans. Within ULIP, a new index-linked small-cap fund launched for the online channel carries inherently lower margins.
• Q2 standalone margin improved to 25.2%, and management expects the upward trajectory to continue. Second-half margins are historically higher because roughly 60% of annual sales occur in H2, generating operating leverage.
• The ULIP margin drag is not viewed as structural or permanent. Initial overindexing on a newly launched product is typical for the first 1–2 months and is expected to settle as the year progresses.
• Non-PAR savings margins were maintained through two monthly resets that aligned with market movements. A price correction on the non-participating design chassis was executed in October, and a new non-PAR variant is launching imminently.
• Annuity margins appeared weaker year-on-year due to mix shift between variants, not a specific design margin issue. Industry pressure on single-premium annuity has driven a shift toward regular premium designs.
• Operating leverage is the primary mechanism for margin expansion, playing out through absolute sales volume against absolute opex. Even with opex growth, the volume effect historically delivers leverage.

Prashant Tripathy: "I remain absolutely optimistic about the margin guidance. As the year began, I had shared that the business will be making investment towards growth and market share. And hence, the 31% margins was not sustainable for us, which we achieved last year, and we had given a guidance of 27% to 28%. We remain committed to that, and we are very optimistic that we'll be able to go in that range."

Axis Bank Transaction & Strategic Relationship

• Shareholder consent has been secured for Axis Bank’s INR 1,612 crore infusion, and the regulatory approval process with IRDAI and PFRDA is underway. The first set of queries has been received from regulators.
• Axis Bank’s counter share in Max Life will be maintained at 65–70%, reflecting its position as an investor in Max Life while operating an open-architecture model with multiple partners.
• No material impact on VNB margin is expected from the long-term arrangement with Axis Bank.
• On whether Tata products are being sold in Axis Bank branches, management said the answer is currently no but declined to confirm it will remain so in the future.

Prashant Tripathy: "Axis Bank believes in open architecture. And it believes in having multiple partners at the same time, they have clarified and so have we to investors at large that Max Life is an investment of Axis Bank. And hence, our counter share will be kept at 65% to 70%."

Protection, Health & Annuity Breakout

• Protection & Health APE grew 55% in H1, and annuity sales surged 217%, driven by both single-premium and limited-premium plans. A full-fledged retirement team established over the last 18 months is now delivering across NPS, corporate superannuation, and individual annuity channels.
• The SEWA product, now classified under Protection & Health, integrates hospitalization, ICU, surgery, critical illness, disability, and life cover. Its margin profile is similar to protection.
• Annuity growth is partly benefiting from a group annuity design sold to superannuation customers and clients, alongside a broader product suite spanning regular-pay, single-pay, and deferred designs.
• Credit life is expected to pick up further with new partners signed during the quarter.

Digital & Operational Investments

• Core systems went live on cloud, making Max Life only the second company globally to migrate the Ingenium core system to cloud, per Oracle.
• Generative AI initiatives were launched: SalesGenie, a virtual training companion for agents, and a SEWA bot pilot for customer service. A renewal management system also went live for major banca partners.
• Opex elevation will persist through this fiscal year, driven by investments in distribution muscle and technology. Policyholder opex to GWP stood at 15.4%.
• Customer metrics remain strong: claims settlement ratio of 99.51% in FY23, overall NPS improved 3 points to 55, transaction NPS at approximately 72. 13th-month persistency at 84%, 61st-month at 58% for the period ending September 2023.

Prashant Tripathy: "We are informed by Oracle that we are the only second company in the world to move the Ingenium core system to cloud."

Long-Term Margin & Competitive Positioning

• Over the next 2–3 years, management expects the margin profile to rise from 27–28% by a couple of hundred basis points, balancing operating leverage benefits against competitive pressures.
• VNB margin expansion will come from both operating leverage, playing a major role, and product mix actions, including pricing adjustments and a shift from participating and ULIP toward non-participating.
• The proprietary channel is expected to sustain momentum across all vectors, with agency growth supported by new office investments and an expanded direct sales force now covering digital leads, bank leads, and surrender leads.
• Management declined to provide a specific agent base target for the next 1–2 years, instead tracking multiple measures including active agents and agents delivering INR 10 lakh or more in new sales. Agent-cohort productivity is measured at the branch level, not the individual agent level.

Prashant Tripathy: "As we grow and there is operating leverage that comes the margin will improve, but you are in a competitive situation, you are fighting it out with competition. So that eats into margins. So honestly, over the next 2 to 3 years, we should think about the margin profile from 27%, 28% going up by maybe a couple of hundred basis points."

Guidance & Commitments

Key Metrics