MANAGEMENT DISCUSSION

AND ANALYSIS

Mr. Rahul Khosla

Executive President

Mr. Mohit Talwar

Managing Director

Ms. Archana Pandey

Sr. Director - Corporate Affairs

Mr. Sandeep Pathak

Company Secretary

Ms. Sujatha Ratnam

Chief Financial Officer

Ms. Vandana Trehan

EA to Executive President

Max Financial Services Limited (‘MFSL’ or ‘the Company’), a part of the US$ 3 billion Max Group, is the holding company for Max Life Insurance Company Limited (“Max Life”), India’s largest non-bank owned, private life insurance company. It is committed to attaining the highest standards of service in protecting and enhancing the financial future of its customers by adhering to a set of values that are shared across the Group – Sevabhav (spirit of service), Excellence and Credibility.

After the demerger of the erstwhile Max India Limited in January 2016, MFSL became the first listed company in India focussed exclusively on life insurance, thus providing an opportunity for Indian investors to get access to a pure life insurance business. The Company currently holds 70.01% stake in Max Life.

In FY 2017, MFSL, which is currently one of the only two listed companies in the private life insurance sector, reported strong financial growth with consolidated revenues of ₹ 15,249 crore and consolidated Net Profit of ₹ 395 crore in FY 2017, growing 30% and 56%, respectively, over the previous year.

MFSL’s sole operating subsidiary Max Life Insurance showcased robust growth on all business parameters, marking FY 2017 as its strongest performance of the decade. In FY 2017, Max Life reported Individual Adjusted Sales of ₹ 2,639 crore, growing 25% and revenues of ₹ 12,937 crore, growing 19%. Max Life reported Shareholders’ Profit Before Tax of ₹ 768 crore, growing 50% due to strong revenue growth, higher realised investment income, and favourable product mix. Max Life’s Embedded Value stood at ₹ 6,590 crore as at 31st March, 2017 with an Operating Return on EV (RoEV) of 20%. The Value of New Business (VNB) written during FY 2017 was ₹ 499 crore, growing 29% over the previous year, and the new business margin stood at 18.8%, Max Life’s Assets Under Management (AUM) stood at ₹ 44,370 crore as at 31st March, 2017, growing 24% over the last year.

While Max Life maintained its overall market share at 9% in FY 2017, it hit an important milestone in its digital journey by transitioning from a challenger to a market leader in Online Term Sales. Max Life’s e-Commerce channel reported an overall growth of 89% in FY 2017.

Corporate Developments

In June 2016, the Company had entered into a confidentiality, exclusivity and standstill agreement to evaluate a potential combination through a merger of Max Life and Max Financial Services into HDFC Life by way of a scheme of arrangement.

Later, the Board approved a composite scheme of amalgamation and arrangement (“Scheme”) on 8th August, 2016, which inter alia contemplated (a) merger of Max Life Insurance Company Limited with the Company; (b) demerger of the life insurance undertaking of MFSL and merger of the said undertaking with HDFC Standard Life Insurance Company Limited; and (c) merger of MFSL (holding the non-life insurance business) with Max India Limited.

However, Insurance Regulatory and Development Authority of India (“IRDAI”) expressed reservations on the structure as contemplated under the Scheme. The proposed Scheme and the applications filed in this regard with the Stock Exchanges were subsequently withdrawn in July 2017.

56% growth in Consolidated net profit in FY 2017.

Human Resources

MFSL has made concerted efforts in establishing a robust talent management framework and a strong performance management mechanism to ensure that the Company consistently develops credible, strong and inspiring leadership. The focus of the Company has also been to ensure effective corporate governance, availability of critical talent for key positions, engagement of key talent and leveraging progressive methods of employee learning and development. The Company has established an organisational structure which is agile, focussed on delivering results and performing effectively in the dynamic business environment. The Company strongly believes in fostering a culture of mutual respect and trust and we have strived to ensure effective communication channels so that all employees are aligned to the common business objectives.

There were 13 permanent employees in MFSL as on 31st March, 2017.

Outlook

With the cancellation of the proposed merger, MFSL’s key focus will now be to leverage Max Life’s position as a mature business with steady income and earnings and able leadership. It is the largest non-bank promoted private life insurance company and has the most well-balanced distribution mix with a gold standard agency force and a highly productive Bancassurance channel. It is poised for steady organic growth and also has the potential via inorganic growth in the light of likely consolidation in the industry. Its priority, therefore, is to optimise growth while balancing market share and profitability.