Max Financial Gets 'Buy' Rating As Citi Initiates Coverage
Citi expects operating return on embedded value to remain robust for Max Financial Services.
Citi Research initiated coverage on Max Financial Services Ltd. with a 'buy' rating and target price of Rs 1,840, citing sustainable operating Return On Embedded Value or ROEV delivery, partnership scale-up, and product innovation as key drivers.
The research firm expects operating ROEV to remain strong at 17-18% over the medium term. "(Its) operating ROEV is likely to outpace that of HDFC Life and ICICI Prudential Life over the medium term," the report stated.
Max Financial is the key operational subsidiary for Axis Max Life Insurance. The company is planning to reverse merge its operational entity into the parent at a later stage. The research firm expects regulatory approvals for the reverse merge to be a key headwind.
Max Financial is well positioned to gain market share, noting that the Annual Premium Market or APE share revived to 6.9% in fiscal 2025 after dipping in fiscal 2023, Citi said. "Swift distribution diversification and counter share scale-up at new partnerships subsequently coupled with sustained focus on product innovation and steady deployment of sales personnel across channels put the company in a sweet spot for further market share accretion," the brokerage firm said.
Moreover, diversified product and channel strategy enhances its ability to successfully navigate cycles, Citi noted. "Despite high bancassurance contribution, pace of new partnership tie-ups and counter share gains at these channels are encouraging. Focus on tapping untapped customer cohorts via subchannels and prudent product innovation augur well for sustainable growth," the report added.
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Some of the key downside risks for the insurance company, according to Citi, include sharp reduction in overall growth trajectory of lifers. This can be due to moderation in demand, rise in competitive pressure from smaller players or new entrants with deep pockets, regulatory-led disruption of current distribution engine, and volatility in interest rates or equity markets affecting investment variance, resulting in lower than-expected embedded value.
However, higher-than-expected APE growth aided by new product launches and higher penetration in smaller markets, tepid competitive pressure in select high margin segment leading to favourable shift in value of new business or VNB margins, and lower regulatory headwind for reverse merger providing higher visibility to investors, are some of the key upside risks.
