Shares of Max Financial Services have more than doubled investor wealth in the last year. The stock surged around 113 percent to Rs 1,028 per share from around Rs 484 a year ago. The rally is on the back of improving financials, the value of the new business, and bullish views from brokerages and market experts.
In the March quarter, the NBFC reported a multi-fold jump in consolidated net profit at Rs 70 crore as against Rs 6.7 crore in the same period last year. Its consolidated revenues soared 129 percent to Rs 9,760 crore in the quarter from Rs 4,266 crore in Q4FY20.
The surge in profit was largely due to higher investment income, reversal of provision for impairment on financial assets, low tax expense and a partial offset by new business strain due to shift in product mix towards non-par business, the company said.
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For the full year FY21, its net profit jumped by 105 percent to Rs 560 crore. Revenues were up by 72 percent to Rs 31,288 crore during FY21 due to gains in debt and equity portfolio, it said, adding excluding investment gains, the revenues grew by 17 percent.
Brokerages believe that the firm is the best in class in terms of surprising across metrics. Global brokerage CLSA reiterates a 'BUY' rating on the stock post the Q4 earnings and raises its target price from Rs 1,225 to Rs 1,350 per share. It is at a 10-15 percent premium to our SBI Life Insurance target multiple and a 23 percent discount to HDFC Life target, CLSA stated.
The brokerage lists 5 reasons to buy Max Financial:
1) Max is a consistent share gainer: The company which held a 5.5 percent market share in FY10 has doubled it to 10.9 percent in FY21. CLSA added that with the Axis Bank deal, these gains may further accelerate. Max Life's individual Annual Premium Equivalent (APE) market share rose to 6.5 percent in FY21 versus 5.6 percent in FY20, it noted.
2) Max narrowed its cost gap versus peers: As per the brokerage, FY21 growth was driven by a 2x increase in a non-PAR book, leading to non-PAR mix increasing to 30 percent from 18 percent in FY20. Narrowing of cost gap has lead to lower dependence on PAR products and a diversified product mix, it added.
3) Max has the highest agency efficiencies and one of the fastest-growing banca partnerships: The banca channel now accounts for more than 70 percent of total APE, stated CLSA. Bancassurance is a partnership between a bank and an insurance company, whereby the insurance company is allowed to sell its products to the bank's clients. Axis Bank has a 64 percent share in the channel mix versus 63 percent in 9 months of FY21.
4) Max’s VNB margins at 27 percent: The brokerage stated that the lender's adjusted VNB margins were 27 percent for FY21, improving more than 500 bps YoY. While large non-PAR savings and protection mix improvement would have led to a large VNB expansion, more than 500bps is still large relative to the mix improvement in the last 12 months, it added.
5) The valuation discount to HDFC Life likely to narrow: Given a high VNB margin, the valuation discount to HDFC Life is likely to narrow. The brokerage has an 'OUTPERFORM' call on HDFC Life while a 'BUY' call on Max Financial. In the last 1 month, Max has gained 11 percent versus a 2 percent rise in HDFC Life. In the last 1 year, Max is up 113 percent versus a 36 percent rise in its peer.
(Edited by : Jomy Jos Pullokaran)
