IGI Logo

Strong quarter driven by seasonality and savings investments

PB Fintech continued its trend of beating estimates by reporting 42.5%/60.9% topline growth on QoQ/YoY basis with revenue reaching INR 8.7bn, a 15.5% beat on JMFe. Additionally, the company also delivered on its promise of turning adj. EBITDA profitable with 3.2% margin in this quarter, an improvement of 780bps over Q3FY23. Insurance premium growth was at 18% QoQ, primarily led by PB Partners business that grew 68% QoQ. We believe this to be an unusual quarter that should not be used to extrapolate as the growth in PB Partners revenue (+97% QoQ) was likely driven by strong sales of life insurance policies in advance of taxation rule changes from Apr 1st, 2023. Paisabazaar delivered as expected with disbursals growing 11% QoQ and the business also turning EBITDA profitable. While New Initiatives (PB Partners, PB Corporate and UAE) lowered losses sharply with contribution margin of -1%, we do not expect that to be sustained in the coming quarters with the management guiding towards breaking even this business in FY27. Furthermore, management guided towards PAT-level profitability in FY24 while reiterating the guidance of INR 10bn PAT in FY27. We roll forward to Jun’24 and reiterate ‘BUY’ rating with a TP of INR 980, using DCF-based valuation approach.

* Core insurance business continues to trend well: Policybazaar’s online insurance premium grew 17.0%/74.4% QoQ/YoY with the management guiding to continue this growth trajectory by growing 2-3x the industry growth rate. We note that take-rates on online insurance premium have dipped in H2FY23 (Q4FY23: 15.2%), unlike the usual uptick in previous year (Q4FY22: 22.2%), perhaps as there has been heightened regulatory scrutiny on intermediary commissions and we postulate that some reversal should happen with EoM based commissions starting April 2023. Management also highlighted that the company sources ~20% of the term insurance in India and with protection showing strength in Q4FY23, which should continue to support growth in the coming year.

* Enhanced profitability in core Business (Policybazaar and Paisabazaar): The Company saw its core business continuing the profitability uptick with INR 640mn in Adj. EBITDA (13% margin) for the quarter. This profitability is driven by ramp-up in renewals (ARR of INR 3.88bn) with 85%+ contribution margin as well as by improved conversions with premium per enquiry reaching INR 1,754 in FY23 (27% YoY growth). The company maintains a CSAT of 88% through exceptional customer servicing with on-ground claims support in 114 cities. Management expects PAT level profitability in FY24 with FY27 PAT reaching INR 10bn.

* Maintain ‘BUY’, Jun’24 TP of INR 980: The company is now the most dominant insurance distributor in the country with our estimates suggesting Policybazaar accounting for ~42% online insurance distribution while also becoming the largest PoSP player. We have maintained our revenue forecasts for the company and brought forward PAT level profitability to FY24 itself, resulting in DCF-based TP of INR 980. However, our steady state profitability remains similar and earlier margin improvement implies slower uptick in the later years. Key Risk: Regulatory headwinds w.r.t. commissions and Bima Sugam and

* Paisabazaar creating its own identity: Credit disbursals on Paisabazaar have grown 11%/53% QoQ/YoY to reach INR 33.6bn in Q4FY23 and the management believes they can grow 3-4 the industry growth rate (tough ask). The company also enabled issuance of 530k credit cards on an annualised basis in Mar’23. Paisabazaar generated revenue of INR 1,200mn, while turning EBITDA profitable for the quarter with contribution margins upwards of 40%. The company now has 65+ financier partnerships and has 6 co-created products that are delivering 10% of the total revenue as trail revenue (36%/53% disbursals/cards issued on trail) with opportunity to expand this steady revenue stream further.

* PB Partners business gaining a health mix of non-motor premium: The company has expanded PB Partners business to 15,000 pincodes with non-motor now accounting for 34% of the premium generated. A higher mix of non-motor business helps Policybazaar generate higher earnings for its PoSP agents while also improving its net revenue as there is relatively lower competitive intensity in this segment. In comparison, motor business is fiercely competitive where it is tough to lower partner commissions without the risk of losing them to the recently funded rivals. Management referred New Initiatives similar to a payment gateway business where one makes a small margin as transactions happen and expects this to only breakeven by FY27. We believe that this business certainly is margin dilutive but is strategic to Policybazaar in order to operate at scale with its insurance partners while also not allowing a free-run to its competition.

To Read Complete Report & Disclaimer Click Here

Please refer disclaimer at https://www.jmfl.com/disclaimer

SEBI Registration Number is INM000010361

Above views are of the author and not of the website kindly read disclaimer