Max Financial Services Ltd

NSE:MFSL

Earnings Call Analysis

Max Financial Services Reports Strong Q2 Growth and Brand Strategy Update

In Q2 FY25, Max Financial Services demonstrated robust performance with a 34% increase in individual-adjusted first year premiums, exceeding industry growth rates. Total annual premium equivalent (APE) rose by 31%, with a notable focus on e-commerce, contributing significantly to growth. The company plans to enhance brand identity with Axis Bank, expected to strengthen market presence. Margins are projected to be 23-24%, with a noticeable 600 basis points improvement from Q1, attributed to operating leverage and increased rider uptake. The value of new business grew by 16%, with a net margin of 21.2% for the half year.

Strategic Branding Shift

Max Financial Services is in the process of refreshing its corporate brand identity in partnership with Axis Bank, aiming to enhance its market presence. This strategic rebranding is expected to solidify brand recognition and leverage existing customer associations, particularly outside urban areas. The new name and brand identity will be announced next quarter, pending regulatory approvals.

Strong Growth Metrics

In Q2 FY'25, Max Financial reported a remarkable 34% growth in individual-adjusted first year premiums, significantly higher than the industry growth rates of 24% and overall market growth of 21%. The total annual premium equivalent (APE) grew by 31%, supported by robust sales across proprietary and partnership channels.

Operational Efficiency and Margins

Operating leverage played a critical role in driving margin growth in Q2. The company saw a 600 basis point improvement in margins, with 500 basis points attributed to operational efficiencies and strong sales volume growth. The addition of riders significantly impacted the margins, contributing 100 basis points. The overall value of new business (VNB) margins stood at 23.6%, reflecting a 23% increase in VNB compared to the previous quarter.

Impact of Regulatory Changes

New surrender value regulations effective October 1, 2024, introduced complexities in product offerings. Max has successfully relaunched 98% of impacted products and expects to mitigate margin impacts, which are projected at 100-200 basis points for the full year. Management is optimistic that these impacts can be managed effectively over the next few quarters.

Sales Channel Performance

The e-commerce channel significantly outperformed, with sales growing over 105% in the first half of FY'25, now contributing 15% to total APE, up from 9%. The direct sales channel also increased by 90%, while the agency channel maintained its contribution at around 21%. These channels' performance reflects a sustained strategy of diversifying distribution methods.

Future Outlook and Guidance

Looking forward, Max Financial aims to maintain strong growth momentum, aspiring for double-digit VNB growth and sustaining APE growth in line with previous projections. The company remains confident in maintaining VNB margins around 23-24% for FY'25, with ongoing adjustments to product mix and distribution compensation to navigate the competitive landscape.

Earnings Call Transcript 2025-Q2

[Operator]

Thank you, ladies and gentlemen, good day, and welcome to the Max Financial Services Limited Q2 and H1 FY '25 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Amrit Singh, Chief Financial Officer, Max Financial Services Limited and Max Life Insurance Company Limited. Thank you, and over to you, sir.

[Amrit Singh, executive]

Thank you, [ Reo ]. Good morning to everyone. And once again, I welcome you to the Max Financial Services earnings call for the quarter ended September 2024. We made our results available on our website as well as stock exchanges last evening. And as always, I'm today joined by Prashant Tripathy, Managing Director and CEO of Max Life Insurance.

I'll request him to share key developments and insights from this quarter.

[Prashant Tripathy, executive]

Good morning, everyone, and warm welcome to Max Financial Services earnings call. I'm very excited just to begin with to share with you that we have now solid plans to refresh our corporate payment brand identity with Axis Bank on board as a co-promoter. Max Life management propose the inclusion of Axis as a part of its corporate name and brand identity. And I'm so thankful to the Axis Bank's Management Board as well as Max that we now have the permission to use Axis name from their perspective on our brand identity.

With Axis Bank coming as co-promoter way back in 2021 igniting a powerful synergy, the time was right for us to consider having Axis name in our brand also. Our goal is to create an even more powerful and influential brand that continues to inspire Bharosa for our customers, employees, investors and other stakeholders.

This strategic decision was backed by an in-depth research by all our stakeholders, with all our stakeholders by an external consultant. The key findings of studies show a strong association with Axis Bank beyond urban and Tier 1, and Max and Axis joint branding being a preferred theme. Combining the 2 brands would result into stronger brand association, increased likability, ease of remembering and preferred buying consideration. And it will also very solidly and overtly exhibit to all the stakeholders the association as well as ownership of Max Life Insurance by Axis Bank.

The brand refresh has been approved by all the Boards, Max Life, Max Financial and Axis Bank as a new corporate name and brand identity will be announced in due course, subject to corporate and regulatory approvals. I am very optimistic that we will do that over next quarter.

Now moving on to key development in quarter 2 across all the strategic areas, and I'll take them up one by one. Firstly, about sustainable growth.

In the second quarter of FY '25, our individual-adjusted first year premium exhibited a very strong growth of 34%, outperforming both the private sector and overall industry growth rates of 24% and 21%, respectively. It is noteworthy that this growth even on a 2-year CAGR term is also a healthy 25% compared to overall industry growth of only 14%.

Total APE in quarter 2 also expanded by 31%, led to a significant 20% -- over 20% increase in number of policy we issued. Therefore, so far in the first half of the year, our sales which is APE and adjusted FYP have grown by an impressive 31% backed by secular growth from both proprietary and partnership channels.

Our continued investment in prop channels led to a sustained momentum in their growth, achieving year-on-year 45% growth in quarter 2 FY '25 and 51% in H1 FY '25. It is noteworthy that our strong focus and execution capabilities have resulted in cross channel growing a 2-year CAGR of around 46% in H1 FY '20.

Off-line in prop channels saw a remarkable 39% growth driven by enhanced front line sales productivity and the expansion of our top-performing agent pool. Our online channels continue to lead the market, holding the top position across digital platforms in those protection and savings segment. These channels grew by over 59% in quarter 2 FY '25, fueled by robust demand of our new fund offer in that online selling segment.

Further, in our ongoing efforts to broaden distribution, we have successfully onboarded 20 new partners during quarter 2 FY '25, including 2 banks, India Post Payments Bank is one of them, 10 GCL partners, 5 online and offline brokers and 3 corporate agents. While these partners become sizable in medium term, our exciting partnership channels delivered a strong performance in quarter 2 as well, posting a 22% growth and 17% in H1 FY '25.

Additionally, despite the competitive and slow disbursal market, our Group Credit Life business expanded by 34% in H1 FY '25, showcasing our ability to scale up in highly competitive market despite being late entrants. In short, we are committed to maintaining a similar momentum of growth throughout the year, surpassing industry growth by a significant margin.

Talking about products which has been a big discussion item also in view of the regulatory changes which became effective from 1st of October. Our dedication to product innovation remains steadfast. Max Life continues to lead the market in launching attractive products that align with customer needs while delivering healthy returns to our shareholders. With the same objective in quarter 2, we introduced Nifty 500 Momentum Fund predominantly for e-commerce customers, a move to leverage opportunities in the current equity market. This led to 74% growth in the ULIP segment at company level. With the ULIP share in our mix increasing from 35% total APE last year to 47% in quarter 2 FY '25.

Protection, a long-term focus area for us, saw 49% growth in retail protection in quarter 2 driven by the success of our unique SEWA health proposition and strategic emphasis on rider. We achieved the highest ever rider attachment ratio of 45% in H1 FY '25 versus 31% in H1 FY '24, with rider APE growing by over 280%. With this protection and health penetration in our individual APE, we reached 11% in quarter 2 FY '25 versus 10% previous year.

Further, in retirement, we recently launched our latest version of IRI Study, which revealed that most urban Indians recognize the importance of early retirement plan. The retirement preparedness index for urban India increased from 47 points in IRIS 3.0 to 49 points in IRIS 4.0, supported by greater awareness and proactive financial planning. Therefore, the retirement segment remains a strategic priority for us, and we are well positioned to capitalize on this opportunity through our annuity proposition.

While quarter 2 annuity sales saw a moderate growth of 5% due to competitive pricing actions, we expect them to ease in the coming quarters, paving the way for renewed growth from this segment.

All our efforts in distribution expansion, along with product innovation, resulted in a significant increase of 23% in our VNB for quarter 2 with an NBM of 23.6%. And with that, our first half VNB growth is now 16%. This is an increase on quarter-on-quarter 6.1%, which comes from the benefit of our operating leverage and strong growth in rider attachment. You will find these outcomes to be consistent with the commentary that we had shared with you at the end of quarter 1, where there were a lot of questions around our NBMs.

Surrender regulations update is something that you must be waiting for. As you are aware, new surrender regulations became effective from 1st October, and it wanted all our products to be fully compliant. I'm happy to share that we have successfully relaunched 98% of these products for sale. Further, we are in the process of mitigating the impact on margins by existing distribution compensation, customer benefits as well as taking actions on specific discretionary area of expenses.

As guided earlier, we anticipate a net margin impact on a run rate basis, full year run rate basis, of between 100 and 200 basis points. Majority of which, I believe, will be mitigated in the medium term, medium term defined as over next few quarters.

Talking about customer obsession across the value chain. At Max Life, customer obsession is integrated to everything we do. The dedication to delivering unparalleled value interest has been recognized, with Max Life being named as one of the Best Organizations for Customer Experience 2024 by ET Now.

We also achieved a 5-point increase in our company-wide Net Promoter Score rising from 56 in March '24 to 61 in September '24, with both the points and relationship NPS showing similar gains.

We maintained our leadership in 13-month persistency for a number of policies, with our regular and limited premium persistency reaching its highest ever level at 87%, up 309 basis points while our 61st month persistency stood at 58% for the period ending September 2024.

The fourth strategic lever, which is digitization for efficiency and intelligence, our ongoing digitization initiatives continue to enhance operational efficiency across the business, delivering both cost selling and improved customer satisfaction.

Max Life efforts were recognized with the Digital Transformation Award at the 19th SKOCH summit for our OCI Cloud Journey as well as the Best DevSecOps Team Award by Quantic.

Our quarter 2 technology interventions include the launch of the mSpace pro app, designed to help agent advisers simplify the switch to prospects and the third tool is streamline onboarding of customers and its users.

Our new claims system called TEJAS, now operational for almost all products, offers clear time claim validation for the building customer trust. We also launched a generative AI-based Copilot for over 4,000 frontline sales personnel and supervisors in quarter 2 to assist with real-time sales query and obsession handles.

In summary, our quarter 2 results underscore our ability to scale proprietary channels, grow partnerships and achieve profitable outcomes. As we move forward, leveraging the strength of both Max and Axis brands, we remain committed to delivering sustainable, long-term value for our customers, shareholders, partners and employees.

I'm going to hand it over to Amrit now, who will provide an update on our financial performance. Back to you, Amrit.

[Amrit Singh, executive]

Thank you, Prashant. Some update on key financial metrics incrementally. MFSL consolidated revenue excluding investment income now stands at INR 12,820 crores, a growth of 14% in the first half. The consolidated profit after tax for MFSL stands at INR 295 crores.

Max Life renewal premium grew by 12% to INR 8,046 crores. And hence, consequently, the gross premium has grown by 14% to INR 14,137 crores.

Value of new business over the first half is at INR 756 crores versus INR 653 crores the previous year, a growth of 16%. The NBM for first half now improved to 21.2%.

Embedded value end of September 2024 is INR 23,338 crores. This includes the capital infusion, which was done by Axis in the first quarter of INR 1,612 crores.

The annualized total return on EV first half FY '25, excluding the capital inclusion of INR 1,612 crores is 24.2%, and the annualized operating RoEV stands at 16.8%. In the annualized operating RoEV, there has been a positive operating variance of INR 9 crores. And on overall embedded value, there is a nonoperating variance of INR 660 crores.

Policyholder OpEx-to-GWP stands at 16.5% and total cost-to-GWP is at 25.6%. Policyholder OpEx has grown by 22%, in line with business growth.

Max Life first half FY '25 profit stands at INR 267 crores, a growth of 3%. Solvency position is at 198% end of September '24.

The overall assets under management end of September '24 is INR 1.7 lakh crores, a growth of 27%.

We will now be happy to take any questions that you may have, and I will hand over to the moderator to open the call for questions.

[Operator]

[Operator Instructions] The first question is from Shreya Shivani from CLSA.

[Shreya Shivani, analyst]

Yes. Congratulations on a good set of numbers. Sir, I just wanted to check on 2 things. First is on the surrender value regulation. We've heard your peers speak about that they're using a different combination of clawback or progressive commissions and uphold the structures are currently under discussion with distributors. Where are you guys on this conversation? Are the deals seen most of your peers have said that the industry will take another quarter for this entire dynamic to settle down? So some commentary around that would be useful.

And second, sir, on this Axis, use of Axis Bank in the name -- or Axis in the name, what sort of regulatory approvals are required? You were saying it can come through in the next quarter. Will RBI be included in approving this? Some color around that would be useful.

[Prashant Tripathy, executive]

Yes. Thanks, Shreya. I'll take both the questions. On surrender income, my commentary is consistent with what the industry peers are saying. We have had detailed conversations with large set of partners already, and there are proposals which are a combination of all the things that you mentioned. I'm very optimistic that from our perspective, we'll be able to close it in less than one quarter. With smaller distribution partners, we are engaging in that discussion right now. And we are really optimistic that all that will get settled over the next few weeks.

As far as the approval of branding is concerned, as you know, we need to go to RoC, followed by an approval from IRDAI for the name change. Those are 2 approvals which are required. We don't require any approval from RBI. So hopefully, the turnaround time to do that will be close to 45 days, and I'm very optimistic that hence, for the next quarter, we'll be able to launch our brand.

[Operator]

The next question is from Avinash Singh from Emkay Global.

Avinash's line keeps to be on hold. We'll move to the next question. Next question is from Swarnabha Mukherjee from B&K Securities.

[Swarnabha Mukherjee, analyst]

Congrats on a good set of numbers. So first, I wanted to understand regarding the margin front. So if I were to look at Q2 vis-a-vis Q1, there's around 600 basis points improvement that has come through. Just wanted some quantification from your side that how much of this would have come from operating leverage and how much should have come from the product mix. Because at least at a macro level, it looks like that product mix have, in fact, might be relatively smaller, but if you could give more color on that.

And also whether you, like a couple of your peers had commented that the curve impact were absorbed in terms of the non-PAR products. So have you done the same as well? And whether if that is part of this number, how much in basis points terms maybe had impacted the margin, that would give us some color on what could be going in here. And also if your guidance changes because of that, because this margin came out strong in this quarter, whether there would be any change in the guidance.

Secondly, sir, in terms -- I wanted some color on the breakup that you can maybe provide on the subsegments in your proprietary channel. How -- what has been the mix of the direct channel, the e-commerce and the agencies in your prop channel this quarter and the prior year same quarter? So that would be helpful on how the commission structures are panning out in the e-commerce channel because I think for 1H, you have mentioned that there is more than 100% growth in this channel. So just wanted to understand that. And lastly, in...

[Prashant Tripathy, executive]

I will lose track of all the questions that you are asking.

[Swarnabha Mukherjee, analyst]

Sir, just one last one on the structure simplification process, if you can highlight.

[Prashant Tripathy, executive]

Let me make an attempt to answer some of the questions and I'll lean on Amrit to share with you the numbers. I think with respect to the advantage or margin increase, you may recall that we mentioned every time that when we come up with our margin numbers, we take expenses on actuals. And hence, if you were to look at last many years, our quarter one margins is smallest and every passing quarter, the margin builds up. And this quarter was no different.

If you remember, we had a 17.5% margin in quarter 1. If you look at our VNB in the first quarter, our VNB was close to INR 250 crores. Now it is more than doubled. So we do significant more sales in quarter 2 compared to quarter 1. And hence, there will be a big advantage of leverage, first part. And I don't know if Amrit has those numbers handy, I'll give it to him in a second.

And the other one is a commentary that I mentioned to you. We attached significant more riders this quarter to drive our margins up. So hence, if you look at our product mix, our product mix is more and less similar -- we have written similar amounts of ULIP also. But because of higher leverage as well as attachment of riders, we were able to drive more profit. So riders, we generally call as a part of our protection and health proposition. And you will notice that protection and health proposition has significantly increased in first half. So that is the big reason why it has happened. But I'm going to hand it over to Amrit to give more color as well as talk about responses to other questions.

[Amrit Singh, executive]

Yes. Thanks, Prashant. So from quarter 1 to quarter 2 walk, the 600 basis point improvement that you see, 500 basis point of that comes out of operating leverage and also strong volume growth that we have continued experiencing in the quarter and around 100 basis point is a mix of the riders, which we have been successfully able to actually attach across our product points.

On the second question that you actually asked was on the yield curve impact. Look, the yield curve impact is a regular course of business. There is yield curve movements, which will happen, and we will respond to the yield curve movements. We have done some bit of it during this first half. The non-PAR pricing has been divested at various points in time, though the movement in the last month has been a bit sharper. But keeping an overall view of competitive intensity and competitive actions, we will also continue to take those calls with respect to adjusting our non-PAR rates for the customers as well.

I think you asked a question on the contribution coming out of our different channels. The agency has, at an overall level, contributed around 21%, 22% last year, which has a similar level this year as well. The cash channel also contributed around 9% last year. It is a similar level this year as well. And the e-commerce contribution is actually up from 9%; it has moved to 15%. So there is the e-commerce growth, which you can see of over 105% in the first half. It's causing to an improvement of share of the e-commerce of the business.

[Swarnabha Mukherjee, analyst]

Yes. So yes, a couple of things. One was whether you are -- whether there is any change in the margin guidance that you had given because of the better margin profile that came through this time and maybe the rider attachments are growing, so you would like to change that? And second is on the structure simplification process, if there is any progress if you want to share.

[Amrit Singh, executive]

So I think on guidance, we stick to whatever we had been saying at the start of the year. You will appreciate that it's not a normal period that we are entering into from a regulatory disruption that has come in play, and it will require this quarter 3 some bit of stabilization to happen. But keeping the overall guidance in view that we do aspire for double-digit VNB growth and a strong APE growth, and VNB margins will be an outcome of some of those things. So we'll kind of continue holding to this particular guidance.

[Prashant Tripathy, executive]

On the structural simplification, we don't have any update beyond whatever we have shared so far. We are working and we are observing.

[Swarnabha Mukherjee, analyst]

Sure, sir. And do you have any time lines in mind for that?

[Prashant Tripathy, executive]

I think we, at the moment, we have visibility to time lines, we'll come back to you. It's -- I mean it is going to be a time-consuming process. And I think we'll make an attempt to do that over the next few quarters is the way I'll put it.

[Operator]

The next question is from Supratim Datta from AMBIT.

[Supratim Dutta, analyst]

My first question is on the growth side. ULIP has been growing very strongly. And it has not been the case for you, but across the sector, ULIPs had been growing very strongly. Just wanted to understand what is your experience suggest that when the market slows down or when things start to stabilize, how easy is it to switch from ULIPs to other products? And what could be some of the levers that you could use to shift the growth from one product to the other? If you could give some color on that end what your past experience will get, particularly given we could enter a period that you could see rate cuts as well. If you could give some color on how life insurance products during rate cut periods, that would be very helpful.

And the next question is on the EV walk. So there seems to be a positive operating variance that you have reported for the half. Just wanted to understand that what has resulted in this positive operating variance. If you could give some color on that, that would be helpful.

[Prashant Tripathy, executive]

Yes. Okay. So I'll take that. I think growth from ULIP definitely is a phenomenon, and this is not happening for the first time in past. Also, there's a strong correlation on ULIP growth with respect to market uptick over the last few quarters. We have seen the share market performed well and, hence, ULIP picks up.

In past, we have witnessed that life insurance industry has been able to maneuver the change quite well, and so have we. There have been many quarters where our growth or our ULIP mix will go up to between 40% to 45%. It will fall between 35% to 40%. But we have more or less maintained that trajectory. I don't expect a big impact on account of yearly transition. If at all, it will be very marginal.

In terms of EV walk and operating variance, positive variance, operating variance, which is a minor number is because of some of the upsides that we have seen from our mortality experience.

[Supratim Dutta, analyst]

Got it. And just one clarification. So on the main change or rebranding, would it be a joint name that you're proposing, like Axis Max or Max Axis? Or how would that be, if you could give some color.

[Prashant Tripathy, executive]

I think your expectation is correct. I can't tell you whether it will be Axis Max, Max Axis. But yes, it is going to be a combination of both the names.

[Operator]

The next question is from Prayesh Jain from Motilal Oswal.

[Prayesh Jain, analyst]

Sir, firstly, just extending the point on the rebranding. Which channels do you -- in your survey or the feedback that you would have received from the third party? Which channels would you expect to benefit the most out of this? And we've already kind of been delivering a very strong growth on APE front. So on this base also from a, say, 2- to 3-year perspective, what would be your growth aspiration considering the rebranding?

[Prashant Tripathy, executive]

Yes. Thank you very much. That's a very good question you asked, and it was -- it is something very, very strategic. From our point of view, of course, Max Life Insurance is a prominent brand within life insurance space. We are seen as experts in life insurance, and we have had an incredible journey so far. However, Axis is a larger financial services conglomerate and it has presence in many, many more cities, Tier 2, Tier 3, smaller part of India, where perhaps Max Life brand is not as strong. And hence, we kickstarted -- and this is not really something which was a guidance from shareholders. Actually, the management team picked up this exercise to look at any opportunities that may arise by having the strength of Axis Bank associated with Max Life Insurance. And we actually talked to almost everybody.

We -- as you know, we are expanding in smaller cities. We opened 100 branches over last one year. We talked to agents, advisers. We talked to current customers. We talked to prospective customers. We talked to employees of Axis Banks, tellers of Axis Banks, tellers of other banks. And I think across all cohorts, we found that the strength of both brands coming together was more prominent than Max Life on its own. So hence, the management team made a request to our Axis set of shareholders, along with Max shareholders, to allow us to use a brand which kind of carries both the -- the strength of both the brands together, and I'm very happy and lucky that it's been allowed. So we'll take that on board.

It also, in a way, answers some of the questions that investors and analysts have over and over again, come and asked us about the seriousness, the ownership of the agenda of Max Life Insurance growth by Axis Bank. I would like to unequivocally communicate that it is reflected, the ownership of the agenda, the growth of Max Life agenda by Axis Bank is quite vested in the decision that Axis Bank has chosen to lend its named brand to Max Life Insurance. It goes to that extent. So it serves to the purpose of really reflecting and demonstrating to entire world that both the companies are going to work together, and we have very deep interest in building life insurance business in India.

We -- I think the advantage, distinct advantage that we're going to get is also with tellers of Axis Bank, where we have an open architecture situation. And I think having a common brand or having Axis brands attach to Max Life Insurance will definitely give some bit of distinctive advantage to Max Life Insurance in the minds of the tellers. We already are in the counter sharing the 65% to 70%, and we have maintained that. Over and over again, there have been questions around it. We have maintained it. So honestly, from all counts, I think this was a very positive decision that I was supposed to be passionate about, and I'm happy that we're moving in that direction.

Our growth has been strong. Your observation is right. We are doing very well. And I think with these changes or with the strategic decisions that we are doing, one will make an attempt to grow even faster. We have deep aspirations to be among the top 3 players. And I think we will continue to pursue that journey with strength and with determination.

[Prayesh Jain, analyst]

Great. And secondly, from a VNB margin perspective in the second half, how do you see this panning out given that the charges would kind of come in end probably you will have a rebranding cost that would come into your numbers? And also, the commission structures are still being discussed and not yet finalized. So do we see the margins kind of coming up in Q3 and then kind of possibly a more normalized number in Q4. How do we see the margin kind of panning out? And from a -- say again, from a 2- to 3-year perspective, do we see that the VNB CAGR would be similar to the APE CAGR? Or how should we kind of look at from a 2- to 3-year perspective?

[Prashant Tripathy, executive]

Yes. I think margin is something which is quite dear to us. And on all the discussions that we do internally, margin find a very important place. However, over last 2 or 3 years, you would have seen that we are trying to balance market share growth with margin. One would be very happy if we are near about 24%, 25% margin yet being able to maintain the growth trajectory on APE the way we are doing.

Last year, margin was 26.5%. The year began without any surrender impact. We had given a guidance of being between 25% to 26%, that kind of number, close to about 25%. The surrender guidelines have come, and we have spoken about 100, 200 basis point impact. So really, I think our margin should be in the range of 23% to 24% for the full year basis.

I'm being bold in giving some kind of guidance in a very fluid environment. So with the one quarter here or there, I think on a run rate basis, we should try and make -- or try and come close between 23%, 24% for the year. That will be our attempt.

And over a medium-term basis, when I say medium term, over 3 to 4 quarters, we should try to cover up this delta which has come. And as demonstrated in this quarter, we have several initiatives which are running to optimize the margin. So we will continue to do that.

I think the cost of rebranding, I would count it out because that's honestly going to be a one-off cost. And hence, one should look at margins independent of that. But you're right, the next 2 quarters will be in that, and especially this quarter, it's going to be dynamic because of how surrender income regulations are settling. But one would definitely make a very genuine effort to hold the margin at the levels where we are or improve further.

[Prayesh Jain, analyst]

Great. And just last question. How has been the first 23 days, 22 days of October and the new regulations with respect to growth or with respect to product mix, any different from what you would have seen in the first half?

[Prashant Tripathy, executive]

Honestly, I mean that's something which I'll be running afoul talking about the growth rate, let the IRDAI numbers come at the end of the month. I think we request your patience. I don't have any reasons to worry.

[Operator]

[Operator Instructions] We take the next question from [ Sukan Garg ] from [ Equitable Research ].

[Unknown Analyst]

Just a little bit old school question here. What would be the buying rate currently in the policy of Max Life Insurance?

[Prashant Tripathy, executive]

Amrit, do you want to take this? I couldn't even hear -- can you repeat your question?

[Unknown Analyst]

Yes. What would be the buying rate, the policy conversion rate against the codes that's been generated?

[Prashant Tripathy, executive]

Do we have the conversion rates, Amrit?

[Amrit Singh, executive]

It's generally 10% conversion rate is what we observed...

[Prashant Tripathy, executive]

[ And in channels ] right now also.

[Amrit Singh, executive]

Yes. And it does vary depending upon channel-bank conversion. It's slightly higher. E-commerce conversion rates are more tougher. And agency conversion rates and direct-linked conversion rates are between 8% to 10%.

[Unknown Analyst]

So 10% is the overall the code -- for the codes generated against the policy conversion rate?

[Amrit Singh, executive]

Right. That's right. Meeting -- customer meetings done to policy converted.

[Unknown Analyst]

That is 10%.

[Amrit Singh, executive]

Yes.

[Unknown Analyst]

Okay. And what would be the revenue per policyholder and average cost per claim approximately?

[Amrit Singh, executive]

Sorry, revenue in what claims per policy you're asking?

[Unknown Analyst]

Revenue per policyholder and average cost per claim currently.

[Prashant Tripathy, executive]

The ticket sizes, you mean? You mean the ticket size of every policy?

[Unknown Analyst]

Yes. Yes.

[Prashant Tripathy, executive]

It's closer to 1 lakh, Amrit, if I'm correct, right?

[Amrit Singh, executive]

That's right.

[Prashant Tripathy, executive]

Yes. 1 lakh per ticket size on the regular policies. Sorry, I don't have the answer to the second. If you could e-mail me and Amrit, we'll come back to you with specific answers, if that was.

[Unknown Analyst]

Sure. Sure.

[Amrit Singh, executive]

I mean if you're looking for case sizes, in the investor release on Page 46, we do provide average ticket size per policy. On an average, as Prashant mentioned, it is INR 1 lakh for all products put together. But it does vary depending upon the product that is being sold. So it can be as low as 40,000 in our protection design going up to as high as [ 1.50 lakh ] annuity kind of a design.

[Operator]

The next question is from Madhukar Ladha from Nuvama Wealth Management.

[Madhukar Ladha, analyst]

Congratulations on a great set of numbers. Just I'm not sure whether or any of the previous participants have touched upon on this, but can you talk a little bit about what is driving growth within the proprietary channel? So the online channel and the agency channel, if you could give what is the growth for each online direct and agency. And...

[Operator]

We seem to have lost the line for Mr. Madhukar. We'll move to the next question.

The next question is from Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

Congratulations on a great set of numbers. So growth had -- especially growth had been pressed in first half, I mean, and the growth is coming across channel, and even product-wise, would be quite good.

Now when we move to H2, there are kind of a couple of external factors, the biggest including your recent changes probably, and maybe limited by some disruption on the product side and also some negotiation on the payouts. Additionally, the month of October is any way reflected kind of a month where you have the [indiscernible]. I mean so how are you seeing the growth trend so far? And what sort of expectation you will have that within this backdrop, what kind of a growth, I mean, that you can deliver in terms of the APE in H2 -- or rather for the FY '25?

[Prashant Tripathy, executive]

You asked a very relevant question. The good part is it just doesn't apply to Max Life Insurance, it is true of industry, and hence, I will take my response to the industry growth rate. Whatever is the industry growth rate, we will try to grow substantially more than like, for example, the industry growth rate was 24%, we grew 34%. So one would like to have a plus 5% to plus 7% delta with respect to private industry growth rate, let me put it that way.

I'm very optimistic that the changes in regulation is not going to have a material impact on growth rates, and we are at least from our side internally not cutting down on our growth expectations. So one would make an attempt to maintain the trajectory of growth the way we have done in first half.

We are quite committed actually on double-digit teens kind of VNB growth rate, and we will target that. Earlier, Avinash, I did mention that one would make an attempt to hold the margin like we have done in quarter 2 despite having the surrender impact. But yes, you're right, there are some moving pieces. But I can only pivot back to every such regulatory changes. You can go back in history. Each time it has happened, Max Life Insurance has come out stronger. So that gives me a lot of optimism. And based on all the discussions that we have done, made changes, et cetera, I think we are reasonably confident of what we're talking about.

[Operator]

Next question is from Sanketh Godha from Avendus Spark.

[Sanketh Godha, analyst]

Prashant, you said that your rider attachment rate is around 45%, which helped in the margin expansion. So just wanted to understand, what is the internal target you have? And to what extent it can get the impact of, say, final rules or product mix change to support the margins? I mean 45% is already a very big number, whether you see this number going fully further up compared to what it is today. That's on rider, first question.

The second question is on annuity. It seems to have slowed down a bit, if I look at the numbers. Is it because last year you had group and now you have not got it that led to that moderation? If you can give a split between that number, annuity business into group annuity and individual annuity and how individual annuity have behaved, that will be useful.

And the last question is on cost. See, the growth has been 31 percentage, but the cost -- overall cost has increased by 280 basis points on year-on-year basis. So I believe this should be still an operating leverage given the kind of growth we had. So I just wanted to understand this cost because of capacity addition, like many more people in Axis Bank or your investments in prop channel is still happening. If that is the case, then future investment leverage -- or sorry, this operating leverage for these investments made in the channel, how you see to play out going ahead? Yes, these are my 3 questions.

[Prashant Tripathy, executive]

Thank you very much. I'll take the first one, and then I'll request Amrit to focus on the next 2.

In terms of rider attachment, Sanketh, our organization, we have chosen protection and health as a very critical area of growth. And we are very deeply working on improving the penetration. And we count that as protection, meaning pure protection, either return on premium kind protection or normal protection. Be health products, and we have an offering called SEWA, which was very, very good in terms of margin contribution as well as sales. And then the third one is riders, which we are trying very hard to attach to. A large part of rider attachment that we did in last quarter was with ULIP designs, which we sold through banks. We are, at this point of time, trying to rebalance the overall mix, and efforts are on to reduce the proportion of ULIPs. And we are seeing reasonable success in doing so.

So we will continue to work on optimizing the margin. If ULIP proportion goes up, we'll try to attach riders so that we're able to preserve margin or reduce or optimize the product mix in a manner that ULIP proportion goes down and the proportion of non-PAR goes up. So those will be attempts. As you would appreciate, these are moving pieces and continuous efforts are made to actually to optimize our product mix so that the margin outcomes are optimal.

For question 2 and 3, I'm going to hand over to Amrit to respond.

[Sanketh Godha, analyst]

Prashant, a small follow-up. Is it fair to assume these riders' margins are meaningfully superior compared to even the protection and the overall company average?

[Prashant Tripathy, executive]

It will be aligned to protection and a tad higher than protection and significantly higher than company average. Yes, Amrit.

[Amrit Singh, executive]

I think on the 2 questions that you asked, one was on annuity and the second one on operating leverage in the subsequent quarters. Annuity, as we did mention in the opening remarks and also in the presentation, the retail annuity has grown at 18% for first half. But the group annuity because we actually experienced a very large deal last year, a single one-off deal last year, there is a large decline in group annuity at the moment, around 60% decline. But if you adjust for that large deal, then there is a 60% growth. We are quite optimistic that this group annuity business also will pick up in the subsequent quarter as it kind of takes away the effect of that one specific large deal.

[Sanketh Godha, analyst]

Amrit, can you split off your annuity into group and retail percentage mix?

[Amrit Singh, executive]

Around INR 173 crores is retail and INR 12-odd crores is group annuities, superannuation annuities.

[Sanketh Godha, analyst]

Okay. Okay.

[Amrit Singh, executive]

On APE basis. This is APE, right? So...

[Sanketh Godha, analyst]

Yes. INR 173 crores is retail and INR 12 crores is where the annuity comes, I guess.

[Amrit Singh, executive]

On operating leverage, you're right. Actually, historically, you would have seen that as quarters progress where sales volume increases and OpEx operating leverage kicks in, there's an improvement in margins which happened. We do experience anywhere between 200 to 300 basis point expansion in margins from what you have seen in quarter 2 going forward, I'd say, because of that.

[Sanketh Godha, analyst]

Amrit, my question was half-to-half comparison, that is first half last year to first half year. You had a growth of 31%, but ideally, the cost ratio should have come down, but it has increased. So I wanted to understand this cost increase is largely because of [ man ] addition in Axis or addition to your prop and how it will play out, if you believe the investments have been upfront, how do you see it playing out going ahead?

[Amrit Singh, executive]

Right. So the total expense that has increased, which is around -- is a 28% increase. And obviously, the individual business has grown by 31%. The APE has grown by 31%. The 28% increase, the OpEx, pure OpEx is actually around 21%, 22% increase. And there is a large commission increase that is evident, which some bit of it is rebaselining of commission between lines, which is actually happening and panning out. And also the fact that we are aggressively pursuing some of the new accounts in Group Credit Life businesses where generally, the commission ratios are higher.

Now with respect to OpEx, pure OpEx, pure OpEx, there is obviously an increase, which has been done towards the distribution workforce across our channels. And that distribution workforce, they start showing up productivity gains as time progresses, whether it is an agency, whether it is in directing teams or whether it is in new relationships or banks that we have added. So that's largely the overall context of how OpEx is panning out.

[Operator]

Next question is from Madhukar Ladha from Nuvama Wealth Management.

[Madhukar Ladha, analyst]

Sorry, I got disconnected for some reason. So just wanted to get a sense of what was driving growth within proprietary channel, the online agency and direct subs sort of channel growth there.

And second, if you look at the new business stream, that's also gone up substantially. I think it's good to see that back book surplus has grown, but new business has actually gone up quite sharply in this quarter and in the first half. So any particular reason on that? Is it more reserving-driven? Or is it more sort of higher commission payouts or something of that sort of -- actually payouts going up over there? Some color on that will be helpful. And can you break down the economic variance between fixed income and equity?

[Prashant Tripathy, executive]

Yes. I will refer, Amrit, if you take this question?

[Amrit Singh, executive]

Yes. So you asked 3 questions. The first one is actually where -- what is driving the growth across our proprietary channels. In agency, clearly, our top agent engagement programs and overall top agent momentum is very strong, and that is actually helping us. In addition to the fact that the expansion of capacity, which is helping with productivity gains coming through the year is also in aiding for in what has been driving the growth momentum with the agency channels.

In direct selling teams, actually, it's to do with more and newer pools of customer segments to whom we have started doing cross-sell and upsell, which is actually aiding that growth, and this new pool has come as some of the customers which are unmapped at Axis franchise, customers only have right now e-commerce relationships. Those kind of additional pools have helped. And obviously, we have invested in people to go and kind of tap into those pools across our cities, and that is enabling the growth momentum in the direct channel.

And largely, in the e-commerce channel, I think it's -- we did mention around 2 years back that savings is the business that we are now entering into, and there has been strong savings momentum in that particular channel, and which we have from not being present 2 years back has kind of come to a pole position with this respect to the counter share that we own in that particular market. That has helped. And the underlying protection growth, we'll continue to remain leaders in that business on a whole. So that's the first one.

I think the second question you asked was on the strain. You saw a rise in strain. The reason for this strain increase, one, obviously, is higher sales in protection Group Credit Life and ULIPs, which actually intrinsically have higher NB strain, and that's largely the reason why the strain has grown. It's a factor of business mix and business growth coming out of these specific segments. And all these segments unit-linked, credit life and protection has highest strains initially, unlike saving design policy.

Last question you asked was on the economic variance, what proportion. 2/3 of that is attributable the equity gains and 1/3 to [ OpEx ] gains.

[Operator]

The next question is from Nidhesh from Investec.

[Nidhesh Jain, analyst]

The question is on e-commerce channel. So what is driving such sharp growth in the channel, almost 10% Y-o-Y? Definitely, we must be gaining significant counter shares. So what is -- what we are doing to drive that?

And second is if you can break down the e-commerce channel, what percentage of business is coming from your own website from the e-commerce side -- in the e-commerce side?

[Prashant Tripathy, executive]

Thank you, Nidhesh, and greetings to you. I think we, historically, on the e-commerce channel, as you remember, we were always very good on protection. We have been #1 in protection for many years, and that was our area of focus. However, our presence on savings space was quite limited. And we were the fourth player if we were to add savings and protection together. About a year, 1.5 years ago, we decided that we need to be comprehensive. This is an area of growth. And you would -- if you look at our analyst presentation, you will find #1 in initiative as being a leader in the e-commerce space. So we took tangible steps to consolidate our presence in the savings space, and that's been the key reason of our growth.

Generally, we sell a combination of ULIP with non-PAR on e-commerce platforms. And over the last few quarters, I think index-linked designs have been very famous, very popular, and that's driven our growth as e-commerce.

On the direct website, that's something that we always try to rebalance and my sense is we will have close to about 30% to 35% of the sale as we come from directly our website.

[Nidhesh Jain, analyst]

Sure, sir. That would also be a pretty large number, 30% of your e-commerce.

[Prashant Tripathy, executive]

It's growing. Both are growing quite rapidly, both the aggregator space as well as our own website. Both of them have grown remarkably. Yes.

[Amrit Singh, executive]

So the direct growth is up 90% and aggregators are also around 110%. So both have grown quite handsomely.

[Nidhesh Jain, analyst]

And from a product-level margin perspective, if you sell through aggregator or you sell through other channels, how differential is the product-level margins from...

[Prashant Tripathy, executive]

I think it comes similar, Nidhesh. Honestly, it comes similar, not very different. Even coming to our website also requires investment in terms of generating graphic and search, et cetera.

[Operator]

We'll take that as the last question. I would now like to hand the conference back to the management team for closing comments.

[Amrit Singh, executive]

Thank you. Thank you, and thank you, everyone, for attending our earnings call. We'll continue to look forward to more such interactions and have a good day. Bye.

[Prashant Tripathy, executive]

Thank you very much.

[Operator]

Thank you very much. On behalf of Max Financial Services, that concludes the conference. Thank you for joining us. Ladies and gentlemen, you may now disconnect your lines.