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Max Financial Services Ltd
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Ladies and gentlemen, good day, and welcome to Max Financial Services Limited Q3 FY '19 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Mohit Talwar, Managing Director, Max Financial Services Limited. Thank you. And over to you, sir.
Thank you. And good afternoon, ladies and gentlemen. Welcome to this earnings call. I'd like to introduce my colleagues, Prashant Tripathy, who's the MD and CEO of Max Life; and Mr. Jatin Khanna, who handles the Investor Relations for Max Financial Services. I will talk about the key highlights first for 9 months and then update on the strategic priorities as we have been doing in our previous calls. Max Financial had a robust revenue growth of 16% and achieved INR 11,292 crores. Consolidated PBT at 253 crores is down 27% year-on-year due to the reasons which we had outlined in our earlier investor release. There were some one-off expenses relating to an acquisition which we didn't pursue. And then there was a truing up of the Axis Bank put option liability. And these were -- and there was some expenses relating to distribution expansion and change in product mix. Moving on to Max Life. They've had a fantastic performance. Max Life's MCEV on an operating basis has grown 18.8% to INR 8,254 crores. Structural NBM's pre-cost overrun expands by 280 basis points to 22.8%, and actual NBM post-cost overrun expands by 240 basis points to 20.4%. Full year RoEV and NBMs are expected to be better than the historical trends. Value of new business post overrun has grown 37% to 466 crores. Individual APE has grown at a strong 21% to 2,269 crores with increased contribution from protection products. Max Life has been outperforming the industry growth on new sales individual by growing at 21% against the private market growth of only 11% and against 65 basis points in its market share. Strong momentum in sales growth continues in January, too, where growth is even higher than 21% where as we understand that some of the largest banks have had a muted performance. Investment in proprietary channels led to a 30% growth in 9 months, contributing 33% of sales, exceeding the banca's growth of 17%. This is in line with our aspiration to increase proprietary share to about 35% to 40%. To this effect, Max Life has entered into a strategic knowledge partnership with New York Life where ex-New York Life lenders will work with Max Life starting March to help drive further performance improvement in the proprietary channel. We will be leveraging best practices in the agency distribution channel via co-branded selling tools like training manuals and manual and digital literature. Continuing with our strong focus on digital, the e-commerce channel has grown 76%. Protection sales, including individual and group, grew 65% year-on-year, resulting in improvement in protection mix from 9% in the 9-month financial year '18 to 12% in 9 months of financial year '19. Individual protection mix improved by 210 basis points to 6% in 9 months financial year '19, which is best amongst the listed peers. Group protection mix improved 110 basis points to 5% in 9-month '19. Gross written premium has grew a strong 15% to INR 9,054 crores. 14% growth in renewal premiums to INR 5,956 crores, led by a record improvement in conservation ratio to 90%. 13-month persistency improved by 265 basis points to 84%. Max Life claims paid ratio at 98.26% in financial year '18 makes it the only private insurer to surpass market leader, LIC. Assets under management as of December '18 end stood at INR 58,397 crores. This has grown 16% year-on-year. Max Life is recognized as best -- as being amongst India's best companies to work for in 2018, is #1 in life insurance, amongst the top 15 in BFSI and amongst the top 50 companies in India. I'll briefly update on the progress towards strategic priorities now. We are expanding our proprietary channels to build robust multi-distribution architecture. We plan to add 36,000 new agents every year over the next 3 years and increase our agency offices from 205 to 415 over the next 12 to 18 months. To this effect, we have opened 100 new offices this year so far and added around 3,000 agents. We will aspire to grow these channels by around 30% CAGR over the next 3 years to get to 35% to 40% contribution from this channel. Max Life agency channel is one of the few channels that delivers positive margins. And the profitability of proprietary channels is now similar to nonproprietary channels, encouraging us to grow these channels sharply. We will continue to strengthen our market leadership in online sales because of consistent pricing advantage powered by strong underwriting capabilities. We will continue our efforts of deeply integrating with our bancassurance partners and build capabilities across products, marketing and technology while continuously attempting to acquire new partners. There will be a focus to pursue a more balanced product portfolio with a bias towards protection segments, which you would have noticed in our product mix shift as well.Therefore, to sum up, Max Financial Services is on course to drive strong shareholder outcomes via its new strategic plan. With significant investments in proprietary channels, sustained improvement in cost ratios and improvement in product mix, we are progressing our aspirations of a 25-25-25 target on EV, VNB and VNB margin over the next 3 years. On that note, I'd like to hand over to the moderator to open the floor for question and answers. Thank you.
[Operator Instructions] The first question is from the line of Madhukar Ladha from HDFC Securities.
In your opening remarks, you mentioned that there was some truing up of the Axis Bank liability provision in the previous quarter. Can you give a little bit more color on that? What was the amount and how was it determined? So that's the first question. And my second question is you also spoke about the New York Life partnership. So this is something new, so I would like to know more about that, yes.
Let me first talk about the Axis Bank's adoption liability. It is now migrated to Ind AS, which is the IFRS equivalent, which stands to [ tele ] regular accounting. Now this is -- because there's a put and call option on this instrument, therefore, after the [ tele ] regular accounting methodology, we only recognized about -- broadly about 28 crore mark in the last -- in the first 6 months and this derivative. For this quarter, there's another 10 crore mark, which we have recognized on that same instrument. However, this is just purely an accounting entry in the sense that as these -- all the put and call options are exercised, this amount will reverse in the P&L. So really, this amount is ignorable from an overall results standpoint, right. It's there, but it's just there because of accounting norms and has no implication on cash flow or in terms of P&L or whatever over this life of the option.
And these put and call options are on Max Life's shares. So this is on...
These are -- yes, this is the 1%, which needs no -- between the 2 shareholders buy as frequencies.
Right, right. Understood. And you can pick up the New York Life question.
The second question...
Prashant -- would Prashant like to take that?
Yes. Thank you, Mohit. So we have gotten into a knowledge partnership kind of relationship with New York Life where there are 2 contracts that we've signed. Three very, very experienced professionals from New York Life who held strong leadership positions within agency and product area are going to be coming and working with us for about 1 year time frame to look at our own channels closely and come up with mechanisms to a, enhance the productivity and also impart leadership to agency, office heads and senior colleagues. This is required predominantly because of 2 reasons: a, New York Life parted ways with us in 2012. And hence, it would be important that after 6 or 7 years, we kind of look at -- get a very practical course on what they have done, try to replicate and learn from them. And b, because we are on expeditious journey to expand our agency very quickly. As Mohit shared, we have opened close to 100 new office units, and we hope to reach about 145 by the mid of this year. It is important to make sure that we replicate practices of agency consistently across all the newer offices. So this particular target where 3 of their very senior, retired professionals come over and work with us, who will be here for 1 year, will help us do that. The second one is marketing and branding leverage opportunities where we will a, try to brand or create platforms, which would be motivating for our own agency workforce and also come up with co-branded literature, which could be used for the purposes of training or publicity. So these are 2 that we're going to work on. And the objective is to continue down the journey of recreating the productivity and making our own channels contribute to overall sales growth as quickly as possible.
The next question is from the line of Utsav Gogirwar from Investec Capital.
Actually, my first question is with respect to the agency channel. If I look at the number of agents, it has declined from around 62,000 last quarter to 42,000 in Q3. Can you just help us to understand what's happening over there? Because at the initial comments, you mentioned that you have also added around 3,000 agents. So I just want to understand what's happening over there.
Very good question, Utsav. And let me just highlight to you that any -- at any point of time, amongst our agents, about anywhere between 25% to 35% of the agents are active and who are contributing. And over a period of time, there are many agents who become dormant. And we run campaign every 2 or 3 years to make sure that we kind of call out those agents who have chosen to do something else and are no longer contributing. We made that call last quarter to ensure that all those agents who were not performing are being called out. And hence, you will see a reduction in number of agents. This is a part of our journey to make sure that we overall lift the productivity of the channel and also minimize the cost and not waste our energy on people who are not contributing. So at any point of time, the agency workforce is contributed by number of agents who were hired last year. They're now part of the tool that is there and also new agents that we are hiring. This year, suffice it to say that the new agent recruitment has been on a forward trajectory, and we have been able to hire 20% more new agents than last year. However, like I mentioned to you, every 2 or 3 years, we look at our agency workforce. And people who have not contributed for a long period of time are given the opportunity to come and become active. If they fail to become active, we will call them out. And this is a part of that exercise. It has no bearing on our ability to generate more sales. And also it cleans up the overall agency environment, so that we focus only on those agents who are contributing.
So this ratio, if I look at, say, inactive agents to total number of agents for us and for industry, is it like on a similar levels? Or we are better off?
I'm sure there are no -- comparable data exists. But I'm -- we're making sure that we will be higher than other people and assure that in our overall productivity of our agents, especially performing agents.
Okay. Second question is with respect to persistency. So if I look at 13-month persistency where you've shown a pretty -- a good performance over there. But a 25th month persistency has seen decline. So just want to understand why -- like...
That's also a very good question, Utsav. Basically, you may recall that last year, we had increased the proportion of ULIP in our overall product mix, which is going to move to the second year block. And because the market being volatile, we have seen since -- a bit of a higher level of policies not continuing, which is reflecting in the persistency levels. We believe that by the time we finish the year, that soon will stabilize and come back up.
[Operator Instructions] The next question is from the line of [ HR Gamma ] from [ Finvest ].
I just wanted to know -- can you hear me, sir?
Yes. Yes, we can. Go ahead, please.
Yes, yes, sure. You said your growth level has substantially come down from what we had in H1 FY '19. Then here in the net, a new business premium, which in H1 had grown by 21.4%; and in Q3, it has grown only by 11.6%. As a result, the 9-month performance growth in new business premium has substantially come down. So what is the main reason? Are we -- being recasting the products, et cetera, therefore, not selling some old products or something?
No, no, [ Mischal ]. Let me explain to you. Your observation is correct that in quarter 3, which is October to December, the growth rate was a bit lower than the overall growth rate for the first half. In the first half, we had reported a number of about 26%. And YTD, we are reporting close to about 21%. So quarter 3 would be close to about 14-odd percent. Now this was predominantly because a, it was on a higher base. If you were to look at last year, our growth rate in quarter 3 had picked up. So there was a bit of a base effect. But also, we found that our bank channels were not growing as fast as we would expect them to. But suffice it to say that the trend has already reversed. For the month of January, we grew close to about 36%, which means YTD -- which means YTD January, our numbers would be more like 23%, 24%, and we are on an upward trek -- tick. These things do happen through the year. Some quarters will be heavy, some quarters will be smaller. I'm not really worried about quarter 3 that we saw a bit of a lower growth. We will pick it up. And by the time we finish the year, we will be more or less on the trajectory of achieving 23%, 24% growth.
Okay. My second question is between individual and group, which will be your major priority areas?
Always individual business. We have always communicated that individual is something that is sustainable, that is long term, that delivers long-term margin. So we have always maintained that individual is very important. Equally, on a tactical basis, we are also looking at opportunities within group business where all of which will not be repeat premium. Some of them are single premium also, but that's more tactical. That's just to support the peers' momentum. But in individual business also, we don't look at so much on single premium. Our focus is on regular premium because we believe that, that's what generates long-term value for the customer as well as shareholder.
Okay. So my third question is on association with New York Life. Are we not getting any adequate guidance, et cetera, from Sumitomo or existing partner?
We do work very collaboratively with Sumitomo -- Mitsui Sumitomo. But we'd like to highlight that we grew broadly. Mitsui Sumitomo is more of a PMP company than life insurance company. And hence, their overall know-how with respect to distribution channel, we have already leveraged. Mitsui Life being predominantly a gold agency channel, there is always new to learn from them. Our partnership came to an end in 2012. And since 2012, the industry has moved a lot. So it will be good to reconnect with them after 7 years to learn whatever additional channel they would have created, either in public training materials or their history. And recreate that as a part of our own learning process as well as their process.
Okay, okay. And so last question from my side. We keep on hearing a lot that many people are interested to take over the promoter's stake in Max Life. So what is your thinking on that? Do you think any substantial change can take place over the next few months?
No, this is not very -- something which we are in a position to answer being on the public side. However, I can attempt an answer on this. I think on behalf of the promoter, and he has also gone fairly public, the focus areas for him is going to be life insurance. It's going to be in the areas of real estate, [ Antara ], and some investment functions. He's also, on some previous occasions, made a statement that in order to bring down the level of his indebtedness and the pledges, you could see a small amount of monetization. In fact, he already has done one where 2% was sold to New York Life about maybe a month ago as in all with the intention of bringing down the pledge. And so please don't be surprised if you see a small monetization taking place. Only at this point in time, I'm not aware of any transaction which is happening. But these things are important. And given -- from an investor's perspective also, there is a little bit onscreen on the stock on a [indiscernible] hedges. And so one can say is that, please do not categorize him or the company in the same bucket as the other promoters where actually the businesses are not as strong. Here, you're hearing from Prashant and from myself that the underlying business, it continues to be robust and strong. And what I can assure you is that I don't believe that you're going to actually be seeing any sort of dumping of stock in the market.
Absolutely right, sir.
There are enough lines of credit that are also available just in case there is an exigency. And yes, simultaneously, there could be an opportunity where maybe somewhere around 5%, 7% could be monetized there.
Okay. And sir, as far as our relationship with Axis Bank is concerned, you think we'll continue on until at least 2023?
So yes, this is a very, very, very relevant question you pose. And it comes to us from various quarters. I just want to say, the existing arrangement is until '21, '22, right? And even Axis has gone on record in terms of wanting to do something strategic. Whether -- they've also talked about all options being open. But the comfort we take is the fact that this relationship has stood the test of time over the last 6 years. It's a win-win relationship for both sides. And the CEO in Axis has also gone on record stating that he knows his company well. And with all the comfort level has already been established. So we are optimistic that going forward, there will be engagement. And I hope that we will get into a more deeper strategic relationship with them. But on a standalone basis, the arrangement which we have currently that -- is still to '21, '22.
The next question is from the line of [ Patik Potan ] from Reliance Mutual Fund.
Sir, is it possible for you to give the channel by product mix?
We don't actually disclose channel by product mix. But we have chosen to declare this time the protection mix by channel, which is visible. Let me just give you a very high level comment on where we are by different channels. So as we have shared in past, we write more year-linked and nonparticipating business through bank channels. And from our own channels, we write more participating and protection business. Participating and protection put together will be close to about 70% to 75%. The balance, 25%, comes out of ULIP and nonpar savings for us. From the bank channels, we will do close to about 45% to 50% ULIP, about 10% to 15% nonpar savings and protection. And the balance comes from participating.
That's very, very interesting, sir. Just to -- one question on ULIP. I mean, it takes [indiscernible] 9 months here where it's going to be the ULIP segment, and the equity markets being a bit weak. What are your thoughts on ULIP as a category in terms of -- obviously, after roughly [indiscernible], that's much true as what private industry is with just some back -- holiday [indiscernible] and the [ revenue and EBITDA ]?
As long as the business is not hugely swayed towards doing ULIP only, I think it's very good product category. And we have always maintained that we would like to sell ULIPs to only those customers who understand what ULIP is. And naturally, hence we sell it, a significant part from our bank accounts, which is access to gold customer who understand ULIP as a design. As far as my view on ULIP is concerned, it's a good product for people who understand it because it is not a lump sum payment which is going towards the equity market. It gets evened out over a period of time. And by the time you finish paying the premium, you could expect a good return. Again, it is also a product design which gives you the flexibility to choose what instruments or underlying instruments you want to go for, you could go for a simple growth kind of a design as well as more collaborative design. So it gives the flexibility to the customers. It also gives switching options. So net-net, I will say ULIP is a good design irrespective of wherever the market is as long as it is controlled and it is being sold to people who understand what ULIP is.
And sir, was there a small migration that you have seen in persistency, something that should be or shouldn't be worried about or you're just thinking just about? And then if you can, I mean, also explain what will be the [ address ] that could save the ULIP segment.
So I wouldn't be worried about whatever is the reduction in persistency towards 1 or 2 small [indiscernible]. They get autocorrected, and they're also linked to that particular quarter and what we want at that point of time. As far as ULIP ticket size is concerned, we will write close to about 1.28, 1 lakh [indiscernible] average ticket size.
Understood. So I guess one last question before I go out. Sir, how many -- if it's possible, how many unique customers do we add every quarter or every year? Just a ballpark number.
That's a question which I don't have right now the answer for. All I can say that our unique customers, net of surrender, has been growing this year close to about 6% or 7%. So my sense is that we will be adding about 10% to 15% unique customers this year.
And just to your key number of...
In magnitude, if you could write...
Yes, yes, yes. I'll do that. I'll do that, sir. I'll do that.
[ We'll just hire people to do it then ].
The next question is from the line of Nischint Chawathe from Kotak Securities.
A couple of questions from my side. One was if I look at the third quarter, it looks like there was some slowdown in group protection. Is there anything specific that we should be reading in this?
We have not seen significant reduction in group protection. I know, historically, if you look at our overall number, the -- quarter 3 was both -- a year where they're not that also happened with respect to NBFC. So that definitely is the reason why it might be a bit slow. But is it structurally slowed down for [indiscernible], at any point of time, we keep reviewing this portfolio. And also, on an APE basis, this don't have too much bearing on the total sales because it gets [indiscernible].
And what protection of -- sorry, what proportion of group protection is NBFC?
Maybe around 25%, 30%. Perhaps, about 30%.
Okay. Just if you could share the economics of the deal with -- or the partnership with New York Life. I'm not sure maybe if we did not discuss it earlier.
So the -- I mean, of course, it's a private contract. So I won't be able to share with you the conditions of the contract. But let me just give you the comfort of saying, if you may recall, we had said that for expanding our own channels, we had about 125 crores carved out for the year. This particular engagement is a part of that. So it is going to be all of that.
Sure. Just moving on, it looks like in this quarter, there was some positive investment overruns.
[indiscernible]
Where are you seeing that number, Nischint?
No, we've just done the -- working backwards to the 9-month and the first half.
Are you speaking for this quarter, you are talking...
Yes, yes. That's right. So I'm just basically doing 9 months minus the second half.
We have seen that sometime in September. And the interest rates have come down. So in September, it was around 60, 70 basis points higher. So they have been balancing the levels of margin.
Maybe that's the reason
Yes, that's the reason. So...
And anything on the interest...
[ The whole of interest rate] was in September.
Okay. And anything on the operating overrun side? Because I think between 9 months and first half, your operating overruns would have kind of almost doubled. It was a small number. But still, it seems to have substantially increased.
For agencies, in details, operating and nonoperating is split. But obviously, there's operating variances, which is likely to be positive and small.
But -- okay, fine.
But not substantial, [ Mike ]. Versus that, it will be...
Some [indiscernible].
Yes. Very, very small, really.
Sure. Okay. Let me put this a little differently. On the mortality side, how is the variance or variances? Are we kind of better off or worse off?
It's positive.
The next question is from the line of Sumeet Kariwala from Morgan Stanley.
A couple of questions from my side. So one of them is persistency. The 13th month persistency has improved quite a bit, and 25th month has slowed. And you mentioned that this was driven by ULIPs. So I was trying to understand why is it not impacting 13th month versus 25th months? So the problem has to do with that particular cohort because 13th month should have also been impacted, right? I'm just like...
Yes. A good question. I think the -- I did explain, Sumeet, sometime ago that the 25th month is because of a particular product where we are seeing a lower persistency. I think we're hoping that will get settled. So on the 25th, I'm not expecting that the [indiscernible] that will continue. It should go back up. On the -- and many times, it is also linked to when the sale has happened. I will have to go back and investigate it. If it has to do with the monetization, that also may be a reason. So it should get autocorrected. On the 13th month, we have been on this journey. And I have -- repeatedly saying that one of the 6 things that we are doing is looking on control measures. And we have systematically taken several steps to improve the persistency of 13th month. And hopefully, that will start to flow all the way and improve our persistency. On a long-term basis, we are after achieving 88% to 90% persistency for 13th month and closer to 60% persistency for 61st month. So that's the business trajectory. And hopefully, as time passes by, you'll start to see more and more improvement in 13th month.
Got it. And the product values you spoke about for the 25th month, is that in ULIP or a traditional nonpar?
That was in ULIP.
It was in ULIP. Okay. And again, if I look at the distribution mix, I see, on a Y-o-Y basis, the contribution of other banks has come down. So is there any particular bank that is driving that? Or -- so...
Overall, if you see the -- it is a question of relative growth, I think. If our own channels are growing fast, the other ones will try to contribute a bit low. And you will see that is true of both Axis Bank as well as for our other banks because our own channels are growing much faster.
Well, if -- and apart from Axis, 13% going down to 11%, this is just basically proprietary channels going faster. There's no New York bank-specific issue, right?
No. Of course, I haven't seen very robust growth in, for example, like of Lakshmi Vilas and other cooperative banks, which will -- which do contribute to, overall, that 10% or 11% that you're talking about. That could be a part of the reason, but nothing really significant to mention.
And just to refresh, the U.S. bank remains on track.
Yes, we have an ongoing relationship, which is -- yes, it could be the first and close. So as we speak, we remain a single party.
Okay. And final question with respect to nonpar savings. And actually, in product mix, there's items to include the individual and group. And I -- you don't do group much. But is there a focus to reduce that? Or the moderation -- so because that -- if I look at that number, that has come down to 6% now versus 8% in fiscal '18 and 9% in fiscal '17, the nonpar savings. So are we intentionally trying to reduce that? Or again, it's a function of...
No, it's not really intentional. I think we will -- going forward, like to put more pressure on that and more focus so that the percentage goes up. I think through the [ PRB ], required focus on driving protection and also look at the overall value proposition for the customers. But we do want to maintain share of nonparticipating upwards of 10%, between 10% to 15%. And we have embarked in taking a feasible actions to do that. As I have shared in past, that particular book is hedged to a great extent. And hence, it is a very safe design for us to go.
[Operator Instructions] The next question is from the line of Neeraj Toshniwal from Emkay Global.
I just wanted to understand on the -- what -- how much expense is related to distribution we have actually taken during the 9-month? And what was the CapEx in the third quarter to...
Overall, CapEx, as I had mentioned to you, that we were undertaking to -- for the new -- I mean, there is one CapEx which goes as a regular part of the business. I'm not really going deep into the CapEx, but we would have put that runs anywhere between 60 to 65 crores every year, where a large part of that goes towards IT and upkeep of our infrastructure. But leaving that aside, so far this year, we have put 20 crores of additional CapEx in setting up the hundred of new office units that we have done. It is aligned to how we had planned. Actually, a bit lower than how we had planned. And EBIT number will go up as we continue down the path of setting up more and more units. Again, you will notice that 20 crores for 100 offices is more like 20 lakhs. So we are just trying to set up offices which are economical, which are small size. And in a large number of cases, they have been carved out within our own offices to minimize investment in setting up new offices.
Okay. So basically, in group EBITDA, you mentioned there have been an impact of one-off expenses due to acquisition. And so can you split the -- if you can just run down how much has been the impact at individual level?
Jatin, will you take that question?
Okay. Repeat the question, please?
I mean, on the impact of group PBT, just wondered -- have a run through on the -- if you can just go through on the different line items through acquisition, through questions, how are you thinking about that?
Sure, sure. Okay. So the -- so there are 4 brands included that Mohit spoke about. One is the one-off expenses relating to acquisition. As you know, we were participating in the IDBI Federal acquisition. So there was a 27 crore fee which was paid to KKR and Standard Chartered Bank for organizing that funding commitment, so that's one. The true-up of Axis Bank adoption is about 37 crore. So that's the second one. Another one...
How much is the Axis thing? A total of...
37.
37 crores. Okay.
3-7, 37, right? Then the next one is the expenses relating to distribution expansion, which -- and [indiscernible] product mix, which is something which Prashant spoke about in terms of how much amount we are spending in terms of expanding of the distribution network and things like that. So those are our other expenses.
Okay, okay. Cool. And I wonder, do we have any lumpy exposure in terms of -- I mean, if I can pick any particular NBFC or -- that you may need to wrap or you may already have done some provisions?
So Prashant, you want to take this one or...
Yes. I mean, the one that we spoke about last time, which was the -- of course, we all discussed [indiscernible], on which we had an exposure of 40 crores. We have taken the provision of 10 crores already. And going forward, we are monitoring that portfolio. And maybe as we move along, we will raise the provision.
Okay.
Large part of that is in ULIP's.
Yes.
But about the exposure which we have to -- and we have these names that are in -- I mean, other than marginal 5 crore and shareholder fund for our own BFSI, all the other exposure are on ULIP Holding.
Okay. So in those 40 year olds, the majority in the -- you look on -- so you have to spend -- how much is in ULIP, and in particular in IL&FS?
Yes. So of that about 40 crores was in ULIP and 10 crores in shareholders.
Okay. And in terms of operating leverage, I think the statement that was -- if you just look at the third quarter margins, I think it has been quite significantly lower than the second quarter, but -- rather than in the trend last year as well. So anything particular you did or we will be good in fourth quarter, same as what we've seen last year?
Not quite, actually. If you look at the margin that we declared at the end of first half and after quarter 3, they are similar. Actually, we had declared about 20.2%. At 20.4%, it continues to be the same. I'm hoping that...
Sir, just the -- let's look at this particular quarter, third quarter. If you will go to back acquisition, I think that has been quite lower than the second quarter. Otherwise, it hasn't stayed before if we had looked at the 12 months number.
Unfortunately, I'm unable to reconcile. I'm just trying to compare our [indiscernible] margin.
If I may -- Prashant, if I may. For first 6 months, if I remember correctly, the post-overrun margin was 20.2% and the 9 months is 20.4%. So therefore, there's an expansion in margin. So that's point number one. From quarter -- first 2 quarters to quarter 3. And the second is that our margins have expanded relative to same period last year, even on a post-overrun basis at 240 bps. So I think if you look at either quarter 3 or you look at the Y-o-Y, there's an expansion in margin. So I'm not really sure where your comment is coming from.
So basically, I was comparing just third quarter margins versus the last quarter margins. It's singular only without taking the impact of the first 6 months, just third quarter numbers working backwards.
It's like if you want to know, Y-o-Y basis. On a Y-o-Y basis, is it?
Just this quarter. On this quarter VNB, on this quarter APE.
Relative to this -- last year, third quarter VNB versus...
Last sequential basis.
Oh, on a sequential basis. On a sequential basis, like I said, in the first 6 months, we were 20.2%. And the first 9 months, we're 20.4%. So there should be an expansion in margin and not contraction.
Sir, I will take this offline now. I'll probably -- I can explain better.
Okay. But suffice it to say that margins are holding up and there is no deterioration in margin.
The next question is from the line of Adarsh P. from Nomura.
So question again on margins. So 9 months -- vis-à-vis 9 months, you've had like a 240 bp improvement. As you get into completing the full year and have you seen your protection mix has gone up, should that translate into a similar improvement for the full year? Because you did have a bump up in the full year number vis-à-vis the 9-month number last year.
Yes. That came actually out of investments -- investment income. So I wouldn't expect a bump up. My sense is that we will sit somewhere between 20.5% to 21%, and which has been the guidance also. The strategy, Adarsh, has been as follows. That, below the margin because of high expenses that we are investing in building our own channels and recover that by having higher margins from protection. And we have been more than successful actually in doing so. When we began the year, my -- I called that we'd land at -- close to about 19% margin. So it's become something like 20.5% despite making the investment in new channels and opened so many offices, it builds a good story.
And all of your expenditure of this plus INR 100 crore will be part of the actual expenditure that go into VNB margin. Is that a -- the correct assumption?
yes. I mean, in some part, actually, because it also gets a bit crooked amongst different lines of business.
And also there's a [indiscernible] some sale, right?
Correct.
Great. And on the point, I'm going to ask you -- this runs through the margin rather than in a good par leading capitalized, and then getting amortized over a period of time?
It runs through the margin.
[Operator Instructions] The next question is from the line of Sanketh Godha from Spark Capital.
Just want to clarify...
Excuse me, this is the operator. Sir, may we request that you use the handset, please. Your voice is...
Yes. Yes, it's fine. Just want to clarify that in the month of January, you said that the growth is 36 percentage -- 36%. So just -- because if I look at the base of last year January '18, it was 65% you grew. So on a higher base, you have managed to grow at 36% in the month of January. And if it's so, which products are -- led to this strong growth and which channel led to this strong growth?
So across the -- product mix, actually, remained the same. And it's true that on a very large base, we grew at around 36%. Within that, our own channels actually grew close to about 37%. And we saw a reasonably good momentum at banks also. And in overall, banks have grown close to about 35%.
Okay, perfect. That's the question I had.
And a lot or many times if you'll also -- a factor of effort, things building up, et cetera, et cetera. So I'm not really quite saying that we will start to grow at 35% where it's just a reflection of the businesses' ability to grow at a much higher pace on a large base.
[Operator Instructions] The next question is from the line of [ HR Gala ] from [ Finvest ].
Can you just tell us -- about 25-25-25. If it can be speak [ a little mix ], where do we stand now, and how we will get to the 25-25-25 level?
It's one that that's really a reason and aspiration. We want to first be a business, which we will grow this sales level of VNB at 25%, it has a margin of 25%, and the return on embedded value is 25%. That's really the aspiration toward which we are working. We did 20-20-20 last year, which means 20% growth, 20% margin and 20% RoEV. Now where does this 5% come from? Basically on sales growth, and that's been the VNB growth, that actually comes from 2 factors. A, growth of our own channels. And as I mentioned to you, as we speak, we are making significant investment in our own channel, which is reflected in our own channels' growth rate. We are growing at around 33%. So hopefully, this momentum will continue because in the year that you make the investment or in the 2 years that you make the investment, actually, you can expect a higher-than-average growth through these channels for next 2 to 3 years. So hopefully, that will be a factor which will drive the growth rate. Margin growth actually comes out of 2 factors. A, we will take our protection mix to, in 2 to 3 years' time, close to about 10%. So when that happens, we would see a margin at least of about 200, 250 basis point. And the balance should come out of operating leverage, which you will get when the business is expanding. That should take the margins higher than 25%. And generally, if you hit a 25% growth number, 25% margin number, it is an outcome...
[indiscernible] margin...
Yes, it's -- the good news is it happens on its own at least for first few years until the base becomes really vast. So hopefully, that's what we are targeting the business to reach. Of course, this assumes very good momentum from our tele partners as well as our own channels. And it will just -- gives a guiding path for the business to work together.
Okay. Sir, will you expect any major regulatory disturbances coming from [ Irida ] or from the government side in the way in which we do business, the freedom you have to come up with your products, et cetera?
The good -- I mean, the positive is the -- the answer to your question is no. And I say this, having seen the way the regulatory is thinking, the new government guidelines or the draft that has come. All the other things which were contentious being implemented like compensation guidelines, expense of management product, regulations, all those around [indiscernible]. So I can't really -- anticipating anything major coming from [ IRD ] which could either have a detrimental and significantly detrimental impact or any impact which could inhibit growth in a big way.
Okay. Because of -- in which, they all played in the insurance, especially the mortal side, crop side, et cetera. I was just wondering whether that kind of things could come in some of the products.
We were, perhaps, ahead in the pack, and we got into 2010 to 2013 quite early.
Okay. Okay. Sir, on health insurance, what is your take? Are we having any major share of health?
Actually, we want to participate in health only through 2 parts, either by having a product. As we speak, we have cancer insurance, which is not a very large part of our product portfolio but itself as a health offering. And we do want to participate through our riders to do that. So we do want to participate. We have no desire actually to go down the path of creating dedicated health products because all of us, including the diet industry, tried to venture into health and we didn't have much success.
[Operator Instructions] The next question is from the line of Nischint Chawathe from Kotak Securities.
In this one, qualitative aspect, how would you think the individual protection business kind of ramps up from your -- on the banca side?
So it is a good segment. It just requires a bit of focus. Though it is not as successful as you can see from the percentages. As it is in our own channels, we have a degree of freedom to control, mix is much higher. And the time spent in solicitation is much higher than the banks. But we are on a journey, and we'll continue to push it. My sense is that we must target and go through all the cycles then. Perhaps next year, that will be our target internally.
And in the group, sir, what was the share of Axis? When I say group, I'm saying group protection.
Group protection is quite low. I think less than 1% of APE.
So what I'm saying is that for the business, for the total group protection that you are -- for the total group protection that you have, what is the contribution of Axis? I think you said NBFC is around 25%. So that extra -- for 10% will be Axis.
10%. Yes. So as we speak, our credit life -- or whatever, credit protect business, 100% is APE. Of the 12%, we'll be close to about 1%. Within that 1%, maybe 70% will be Axis and 30% will be [indiscernible].
Okay. Got it. Great.
We don't write -- we're not writers of big credit protect business. As you know, we have shared many times.
Ladies and gentlemen, as there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Okay. There are no further questions?
No furthermore.
Thank you, ladies and gentlemen, for sparing time. We look forward to the next earnings call in the next quarter. Thank you. Good bye.
Thank you very much, sir. Ladies and gentlemen, on behalf of Max Financial Services Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.