INSUBCONTINENT EXCLUSIVE:
HDFC Securities has a buy call on Max Financial Services with a target price of Rs 577.
The current market price of Max Financial Services
is Rs 496.50.
Time period given by the brokerage is one year when Max Financial Services price can reach the defined target
Views of HDFC Securities on the company:
While 1QFY19 total APE grew 17 per cent YoY to Rs 5.6bn post over-run VNB margins increased only
10bps YoY to 18.1 per cent
Margin was dragged lower as 1Q is a seasonally slower qtr (~15 per cent of annual premiums), product mix changed (300bps YoY improvement in
protection offset by a 1300bps interchange from PAR to linked), and costs rose as a result of higher investments in proprietary channel and
higher acquisition operating costs
We believe that as the year progresses growth in business will help in absorption of these additional expenses and hence remain comfortable
with our FY19 VNB margin estimate of 20.4 per cent post over-runs (+20bps YoY)
Additionally, we appreciate this strategy as company invests for growth simultaneously de-risking itself from any possible severance of
relationship with Axis Bank
We believe MAXL has a strong franchise run by a credible and strong management team and believe MAXL-Axis partnership to be mutually
beneficial which neither of the parties would be willing to abandon
To mitigate this risk, MAXL has embarked upon a plan to increase investments to grow its proprietary channels
MAXL is also open to evaluate any acquisition candidates
We have tweaked our APE growth assumptions as a result of which our target price increases to Rs 577 (FY20 EV + 26.5x FY20E adj
