Max Financial Services shares experienced a slight dip on Monday after a new report from Jefferies addressed investor concerns regarding the insurer's ability to meet upcoming expense-of-management (EOM) regulations without compromising its growth trajectory.
Jefferies analysts concluded that worries about MaxF's growth under the new norms appear "overstated," projecting that the company can achieve compliance by fiscal year 2029 (FY29) while still delivering robust performance.
Navigating New EOM Regulations
The Insurance Regulatory and Development Authority of India's (IRDAI) distribution consultation paper introduced stringent EOM requirements, sparking apprehension among investors. Max Financial Services' EOM ratio, which stood at 23% in FY26, is mandated to decline significantly to 15% by FY29 and further to 12.5% by FY32.
Jefferies' Path to Compliance and Growth
According to Jefferies, MaxF possesses a clear strategy to reduce its EOM ratio. This includes leveraging approximately 300 basis points from group funds expansion, an additional 400 basis points from implementing a new commission structure, and 100 basis points through targeted cost rationalisation efforts. These measures are expected to mitigate concerns about a material slowdown in the company's growth.
The brokerage firm projects MaxF to achieve a 16% annualised premium equivalent (APE) Compound Annual Growth Rate (CAGR) through FY29. This growth is anticipated to be fueled by enhanced productivity from the 67,000 net agents recruited over the past two years, strategic initiatives to boost growth via Axis Bank, and expanding opportunities in specialized categories like credit life insurance.
Proven Resilience and Future Potential
Jefferies highlighted MaxF's consistent track record of successfully navigating previous regulatory shifts. Despite significant changes such as caps on tax benefits for savings products, revised surrender regulations, and the loss of input tax credit, the insurer maintained an impressive 19% APE CAGR over the preceding three years.
A key area of opportunity identified by Jefferies lies within MaxF's bancassurance channel, particularly its strong partnership with Axis Bank. MaxF currently holds a substantial 65-70% counter share at Axis Bank, which also owns a 20% stake in the insurer. The brokerage foresees potential for increased shelf space once commission rates stabilise under the new regulatory framework.
Financial Outlook and Target Price
The report sets a base-case target price of Rs 2,050 for Max Financial Services, suggesting a significant 41% upside from the report's reference price of Rs 1,451. This valuation is based on 12x September 2028 estimated P/VNB (excluding EV). Furthermore, Jefferies expects operating margins to expand by 140 basis points by FY29, contributing to an 18% Value of New Business (VNB) growth over the next three years.