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Markets overly cautious on the bellwether of Indian Insurance

Since making a high of INR 1,470, PB Fintech (POLICYBZ) stock price has corrected ~55% despite the company reporting 44% YoY 9MFY22 revenue growth and announcing a gamechanging partnership with Life Insurance Corporation of India (LIC). We understand this has largely been due to market apprehensions with regards to the realistically available addressable market, competitive intensity and potential platform benefits (or lack thereof). In this note, we attempt to address these apprehensions by parsing through industry and company data along with some educated guesstimates. We were already appreciative of the business model and the recent stock price correction also makes the risk-reward extremely favourable. We continue to believe that Policybazaar will remain the dominant insurance distribution platform in India and upgrade PB Fintech to ‘BUY’ rating with a Mar’23 TP of INR 980 (42% upside from CMP), using DCF valuation methodology as an intrinsic valuation approach seems more plausible in light of the volatile markets.

* Policybazaar’s potential addressable market is trivial and the company has already captured a significant portion?: Policybazaar’s total/new insurance premium (excluding PoSP) has grown 38%/34% YoY in 9MFY22 despite a sluggish industry environment with General Insurance premiums growing 11% and Life Insurance new business premium (NBP) growing 7% during the same period. Policybazaar’s growth rates at 2-4x of the base industry already imply that the company is gaining enhanced market share of the overall insurance distribution in India.

We attempt to do a quick market sizing for Policybazaar. IRDAI Life Insurance data suggests that India had INR 1,138bn new individual life insurance premium generated in FY21. As LIC has joined hands with Policybazaar only recently, we look only at INR 574bn of NBP generated by private players. Data from annual reports of private life insurers suggests that ~10% of their NBP came from individual protection, implying FY21 Protection TAM for Policybazaar of INR 60bn. Incrementally, ULIPs account for ~30% of NBP for private insurers, implying FY21 ULIPs TAM of INR 170bn. Similarly, IRDAI General Insurance data suggests that Motor, Retail Health, Personal Accident and Liability premium was INR 1,025bn in FY21. Assuming that only 50% of motor insurance belonged to passenger vehicles and 2-wheelers, we are left with a general insurance TAM of INR 690bn. With NBP of INR 27bn in FY21, Policybazaar accounted for ~3% of the overall TAM of INR 920bn in FY21, implying significant headroom for future growth. Furthermore, the recent partnership with LIC and the foray into corporate/SME insurance provides significant upside to potential TAM available for Policybazaar.

* Why did the co-founders sell shares in a block deal in February 2022?: During the IPO, the co-founders reduced their OFS stake sale to INR 428mn from INR 3,450mn as they did not need the money for tax payments at that moment. However, as the tax payment date came closer now, they had to raise money by selling their stake in the company. However, this has certainly been a dampener for investor sentiment as the co-founders picked an outright sale over raising money by pledging the shares.

* Minimal customer touch-points imply no platform benefits?: While other internet peers such as Zomato, Nykaa, Paytm etc have multiple, frequent touch-points with the customers,

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