Max Financial Services - Regulatory Overhang; Fairly Valued: Motilal Oswal

Motilal Oswal Report

In FY24, the non-linked and non-protection businesses accounted for 55% of the annual premium equivalent for Max Life, the highest among the listed peers. The media has been indicating that IRDAI is considering various options with respect to surrender charges. Any option that increases the surrender value to the customer can be detrimental to the value of new business margin.

Max Life has the highest risk to these changes.

Axis Bank, with its skin in the game in Max Life, will have to counter various challenges, such as a high credit-to-deposit ratio at the bank and the increased number of life insurance partners.

We expect a 13% compound annual growth rate in APE and VNB margins for Max Life during FY24-26. Return on embedded values would be maintained in the 18-19% range. Reiterate Neutral with a target price of Rs 1,020, based on 2.0 times March-26E EV and a holdco discount of 20%.

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