Max Financial Services Ltd Q1 FY2025 Concall Summary

Key Takeaways

• Tactical ULIP push hits margin, but leverage is promised: VNB margin fell to 17.5% as the company leaned into ULIPs to capture market buoyancy, especially online. Management calls this a tactical Q1 move and expects operating leverage to lift margins through the year.
• Axis Bank acceleration is the quarter's most material signal: Bancassurance APE grew just 9% in Q1 but Axis Bank surged 45% in July, taking YTD growth to 19%. The counter share is holding at 68–70%, and the channel is now the central growth bet.
• Surrender regulation is the new margin overhang: IRDAI's proposed changes will compress margins by an estimated 100–200 bps during a transitory period. Management aims to nullify the impact within six to 12 months through distribution, product and expense actions, but withdrew its prior 25–26% margin guidance.
• Proprietary channels are scaling fast and profitably: Prop channels grew 60% and now contribute 49% of sales, with online up more than 200%. Even the eCommerce ULIP book carries better margins than the company average, so the channel mix shift is not purely dilutive.
• What to watch next quarter: Whether the July Axis Bank momentum sustains, the pace of product refiling between 15 August and 30 September, and any quantification of the surrender regulation impact once the final rules land.

The Axis Bank Engine

• Q1 was slow, July was a breakout: Axis Bank APE grew only 8% in Q1, but a 45% July surge lifted the four-month run rate to 19% growth. The acceleration came on the back of new product interventions by open-architecture partners.
• Counter share is holding at the top of the guided range: Management expects to maintain 65–70% counter share and is currently trending at 68–70% on a run-rate basis.
• The unanswered question: An analyst asked whether the July momentum was driven by a specific product launch or a change in effort. Management did not address the question.
• Stake increase is secondary and pending: Axis Bank's 0.98% stake increase is envisaged as a secondary transaction. The company will wait until Axis reaches 20% before approaching the regulator.

Tripathy: "If there was no surrender income guideline change, I would have perhaps reconfirmed the same guidance and I am pretty confident that we will get there, but we have to navigate the regulatory changes... So, we have to see how it goes and hence I will say it will be a bit dynamic, but we are going to work very hard to come as close as possible with respect to the guidance that we gave you."

Margin: The Tactical Dip and the Regulatory Overhang

• Q1 margin is seasonally low and tactically lower still: VNB margin of 17.5% reflects the smallest sales quarter, a deliberate ULIP tilt to capture equity-market buoyancy, and a lower non-PAR contribution. Management says not to read too much into the drop because operating leverage will kick in as sales build.
• The ULIP mix shift was channel-led: ULIP share rose in proprietary channels, driven predominantly by online, where demand for new fund offers was strong. The eCommerce capital-guarantee ULIP carries a better margin profile than the company average ULIP margin.
• OPEX and commission are both up: Policyholder OPEX grew 14%, with 8% from headcount and wage inflation in distribution. First-year commission rose ~60%, largely from the eCommerce channel and new group credit life partners; across other partners, total acquisition cost stayed constant.
• Surrender regulation is the real margin risk: IRDAI's proposed increase in early surrender values will compress margins by an estimated 100–200 bps at the company level during a transitory period. Mitigation will come through distribution compensation restructuring, maturity and surrender proposition realignment, expense review, and product refiling.
• Guidance is withdrawn, not abandoned: Prior guidance was 25–26% margin with mid-teens VNB growth. Management now calls the situation "dynamic" and will not reconfirm, but aims to come as close as possible. If margins end up lower, the company will try to cover the gap with higher sales growth.

Tripathy: "I am satisfied with our margin outcome, and I am sure there are more opportunities to improve, but like I mentioned to you, these are tactical moves that one has to take in the smallest quarter of the year to ensure that we are preparing well and giving enough confidence to our sellers as the year starts."

Proprietary Channels: The Structural Growth Story

• Prop channels are now nearly half the franchise: Proprietary channels grew 60% and contributed 49% of total sales. Offline proprietary grew 24% on agent activation and an expanded pool of top-performing agents. Direct channels added new cross-sell verticals. Online expanded more than 200%.
• eCommerce is high-growth and not margin-dilutive: The capital-guarantee ULIP sold in eCommerce has a better margin profile than the overall company average ULIP margin, so the channel's high ULIP proportion does not drag the blended margin.
• mSpace rollout is the productivity bet: Through FY25, the company will take its mSpace sales app to every channel, aiming to bring different elements of the sales process onto one platform and drive productivity improvement over time.
• Persistency and NPS are climbing: 13th-month persistency hit an all-time high of 87%, up ~320 bps. Overall NPS rose from 56 to 59, driven by transaction NPS (74 to 79) and relationship NPS (44 to 46).

Product and Regulatory Reset

• Product refiling is imminent and compressed: Products will be pulled back and refiled in tranches between 15 August and 30 September. The company is keen to complete the entire replacement exercise by 30 September, ahead of a potential 1 October regulation effective date.
• Mitigation will take three to six months post-implementation: Management is "100% sure" it can completely mitigate the negative impact of the regulatory changes within three to six months, and expects to nullify the 100–200 bps margin hit over six to 12 months through a series of changes.
• New launches are diversifying the book: The Smart Wealth Annuity Guaranteed Pension Plan (limited pay, industry-first) drove 42% growth in retail annuity. The Flexi Cap Fund targeting eCommerce and bank customers drove more than 100% growth in ULIP.
• Protection is growing strongly: Retail protection grew 53% and credit protection grew 49%, with group credit life almost doubling the industry growth rate while maintaining profitability targets.

Tripathy: "Being a life insurance person, I must say these are the changes that will be industry-wide like it happened in 2009 when ULIP regulations change, they will have changes in the industry."

Distribution and Cost Structure

• Six new partners signed in the quarter: Including an agreement with Catholic Syrian Bank, described as one of the quickly expanding ambitious banks.
• Commission spike is channel-specific: The 60% increase in first-year commission is concentrated in eCommerce and new group credit life partners. Across other partners, total cost of acquisition remained constant.
• Headcount investment is front-loaded: The 8% OPEX growth from headcount and wage inflation reflects incremental deployment in own channels: agency, direct selling teams, and support for new partners.
• Operating leverage is the margin bridge: Even at the same product mix, margins will improve quarter-on-quarter as sales build and fixed costs are spread over a larger base. A shift from proprietary to Banca also has a supporting effect on margins.

Financial Strength and ALM

• Axis Bank infused ₹1,612 crores of capital in the quarter.
• Willis Towers Watson completed an ALM review and concluded that the asset-liability framework and position as of 30 June 2024 are appropriate to protect shareholder value and meet policyholder obligations. Testing covered cash flows against 5,000 interest rate scenarios from 2% to 12%.
• Operating RoEV was 14.2% , composed of contribution from unwind, VNB, and positive operating variance from persistency and mortality trends.
• Non-operating variance was positive ₹276 cr , though management did not address whether there was a negative economic variance within that figure.

Guidance & Commitments

Key Metrics