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Strong growth outlook in insurance/credit, cost performance stands out in Q1FY24

PB Fintech’s (PBF) Q1FY24 performance continued to track along the expected lines of premium growth, credit disbursement growth, stable contribution margins, range-bound fixed costs and controlled losses in new initiatives. The roadmap remains to become profitable in FY24 and attain ~INR 9bn-10bn in adjusted EBITDA/PAT by FY27. The crux of the business remains an exponential increase in contribution driven by (1) renewals, (2) new business growth and (3) efficiencies in new business growth (offline is a big imperative here constituting 20% of core new business). We downgrade PBF from BUY to ADD basis high valuations. Our revised DCF-based target price stands at INR 818 (earlier: INR 715), implying a valuation multiple of ~40x for FY27E. Risks include less than expected growth in core premiums basis lower demand or competition from other channels.

Core premium growth remains healthy (Q1 as well as currenttrends). This is the biggest earnings driver for the company

Overall core premium came in ~INR 23bn, up ~30% YoY but lower 12% QoQ in Q1FY24. Q4 is typically volume heavy along with additional one-off flash sales of INR 470mn in Mar’23, and as such QoQ comparison is not justified. Overall premium growth remains equally split between new business and renewals. There is a positive trend in protection premiums but declining trend in savings in FY24TD. Life and health premium grew 40% in Q1FY24 (31% in Q4FY23). Total number of registered customer with Policybazaar as on Jun’23 stood at 69.5mn of which transacting customers were 14.5mn (bought at least one policy since inception). Number of policies sold since inception till Jun’23 stood at 35.6mn which is ~2.5 policies per customer.

Overall core contribution margin is up 300bps YoY to ~45%.

Q1FY24 contribution margin stood at 33% split between +45% for core business and (-)10% for the new business initiatives

Annual renewal EBITDA run rate is now more than INR 3.5bn

Annual renewal run rate currently stands at INR 4.2bn versus INR 3.3bn in Q4FY23 and INR 2.9bn in Q3FY23 with an EBITDA margin of 85%.

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