For Q4FY21, Max Life reported VNB of Rs 4.6 bn, up 44% y-o-y (2yr Cagr of 9%), in line with our estimate. This was led by 36% premium development & 130bps y-o-y expansion in margin to 24% q-o-q fall in margin is partly due to Covid reserving. Stability of banca. partnership with Axis and sufficient reserving towards Covid (>4x of FY21 Covid-claims) provide visibility of development and EV. We count on VNB to normalise tad decrease and see 18% Cagr more than FY21-24 with FY22 ROEV of 21%.
Premium development and margin expansion drive VNB development: Max posted robust 44% y-o-y development in VNB. On q-o-q basis margins had been down by 450bps, largely as it made extra reserves towards Covid dangers arising from enterprise written this year. Premium development in Q4 was driven by non-par segment (up 165%) and rebound in Ulips (up 41%) whereas Par and protection had been weak.
We also think that the level of margins till 9MFY21 had been above sustainable levels as Max got advantage from steeper yield curve on non-par enterprise. Persistency ratio (13m) was up 100bps y/y at 84% and posted operating RoEV of 18.5%. Profit in FY21 was impacted by larger development and also Covid charges this should really normalise.
Banca. tie-up and Covid reserve provide visibility: Axis Bank formed 63% of APE in FY21 and with the new arrangement as nicely as comfort on partnership with Yes Bank, we see Max nicely poised to provide 17% Cagr in APE more than FY21-24. Also, Max has constructed affordable reserves towards dangers arising from Covid with its reserves at Rs 5 bn becoming > 4x of Covid-linked death claims for FY21, which is larger than the other listed life insurers.
Maintain Buy: We raise our VNB forecasts for FY22-23 by 2-4% factoring in tad greater margins and premiums and now see 18% Cagr in VNB more than FY21-24. ROEV should really stabilise about 21% in FY22. We raise TP to Rs 1,200 (Rs 1,040 earlier) based on 3x Mar-23 P/EV.