Max Financial Services protection and annuity growth support VNB margin outlook

Investment View

Prabhudas Lilladher retained its BUY recommendation on Max Financial Services in its August 14, 2026 Q1 FY27 result update. The broker’s central thesis is that sustained growth in protection and annuity products, a favourable product mix, increasing contribution from newer bancassurance partnerships and expansion in tier 2 and tier 3 markets should support APE growth and VNB margins.

Q1 FY27 Business Performance

Max Financial Services reported Q1 FY27 APE of Rs 19,220 million, up 15.2 per cent year on year and slightly below Prabhudas Lilladher’s estimate of Rs 19,511 million. Growth was led by PAR, protection and annuity, while NPAR declined due to a high base.

Management expects NPAR growth to recover in subsequent quarters. Q1 FY27 VNB rose 33.1 per cent year on year to Rs 4,460 million, broadly in line with the broker’s estimate of Rs 4,488 million. VNB margin expanded by 315 basis points year on year to 23.2 per cent, compared with 20.1 per cent in Q1 FY26.

VNB Margin and Operating Efficiency

Management attributed approximately 70 per cent of the margin improvement to favourable yield-curve movement and approximately 30 per cent to a higher protection mix and operating leverage. The broker noted that the margin expansion offset the adverse impact of the GST exemption, with no material residual impact expected.

A lower yield curve in Q2 FY27 could reverse part of the benefit, but management remains confident of sustaining the margin profile through FY27. Proprietary business carries a higher margin than the company average, while annuity and NPAR have broadly similar margin profiles.

Operating efficiency improved, with the total cost ratio declining to 16.0 per cent from 17.8 per cent a year earlier, helped by channel productivity and cost controls across travel, administration and advertising. Embedded value increased approximately 15 per cent year on year to Rs 304,200 million, AUM rose 10.6 per cent to Rs 2,026.2 billion and solvency stood at a comfortable 198 per cent.

Persistency and Distribution

The 13-month persistency ratio fell to 83 per cent in 2M FY27 from 86 per cent in 2M FY26 due to a discontinued product variant. Management expects this cohort effect to normalise over the coming quarters. The 61-month persistency ratio improved to 59 per cent.

Distribution is increasingly diversified, with proprietary and partnership channels contributing 47 per cent and 53 per cent, respectively, of Q1 FY27 APE. Proprietary business grew 15 per cent, including 27 per cent online growth and 9 per cent offline growth. Partnerships grew 16 per cent, with Axis Bank up 14 per cent and other partners up 21 per cent.

Approximately 65 per cent of customers are from tier 2 and tier 3 markets. Management highlighted Smart Rise variable annuity, the USD-denominated Smart Gift Plan for NRIs and the Aura proposition for HNIs as growth initiatives.

Axis Bank Partnership and Capital Position

Axis Bank acquired an additional 0.98 per cent stake for Rs 3,800 million, taking its holding to 19.99 per cent, and remains interested in raising its stake to 30 per cent. Management sees no specific need for capital over the next two to three quarters, although the QIP approval remains valid until May 2027.

Earnings Estimates and Valuation

Prabhudas Lilladher marginally reduced its FY27E and FY28E APE estimates by 0.9 per cent and 0.8 per cent, respectively. The broker forecasts APE growth of 16.2 per cent in FY27E and 16.5 per cent in FY28E.

The target price was reduced to Rs 2,025 from Rs 2,035. Valuation uses an appraisal-value framework, applying a 16.5 times multiple to FY28E VNB and adding FY27E embedded value, with a 7 per cent holding-company discount. This implies 1.9 times FY28E P/EV.

Key Factors to Monitor

• Potential reversal of yield-curve benefits.
• Recovery in NPAR growth.
• Normalisation of persistency ratios following the discontinued product variant.
• Execution in newer partnerships and expansion across smaller cities.