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Leading the digital insurance and credit marketplace

* PB Fintech Limited commenced operations in FY08 initially as an insurance web aggregator. Subsequently, it entered the credit market to provide convenient access to credit and other financial products. In addition to creating a distribution channel, it also provides online marketing, consulting, and support services for the industry, and follows an asset-light capital strategy without undertaking any insurance or credit risk.

* The company has been successful in building India’s largest online marketplace for insurance and lending products, leveraging the power of technology, data, and innovation. The company offers online research-based purchases of insurance and lending products. It further facilitates partners to innovate and design customized products for consumers by leveraging extensive data insights.

* Policybazaar – the flagship platform – caters to consumer demand for higher awareness, choice, and transparency towards the online sale of insurance products. It has thus evolved as India’s largest digital insurance marketplace, with market share of 93.4% (based on the number of policies sold); it constituted 65.3% of the digital insurance sales in India by volume as of FY20. It has partnered with ~51 insurers, and ~48m consumers have registered on its platform.

* Paisabazaar is the largest digital consumer credit marketplace, with market share of 51.4% on the basis of disbursals. It began its operations in FY14 with the goal to transform personal credit access by offering ease, convenience, and transparency in selecting a variety of consumer credit products. It is widely used to access credit scores, with ~21.5m consumers as of Mar’21. It has partnered with ~54 lenders across banks, NBFCs, and fintechs offering a wide choice of consumer credit products, such as personal loans, business loans, credit cards, home loans, and LAP.

PB FINTECH: Investment arguments and growth drivers

* Strong brand recall; healthy mix of repeat customers: PB Fintech maintains dominant market share and a strong brand recall among the customers. As a result, it has become the preferred destination for comparing/exploring financial products. This has enabled it to acquire a large customer base and superior product offering have enabled it to attract repeat business from existing customers.

* Low penetration provides long-term structural growth opportunity: The sum assured as % of GDP remains far lower in India at 25% for Life Insurance, with a protection gap of 83%. Non-Life Insurance penetration also remains low at ~1% v/s the global average of 2.8%. Within consumer loans, penetration stands at 16.7% v/s 80% in the US and 56% in China. Furthermore, premiums via the online channel stand much lower at 1% for India v/s 5.5% in China and 13.3% in the US. We believe that lower penetration, along with the adoption of digital channels, would be the key growth driver over the medium term.

* Rising awareness about insurance products: We believe COVID-19 has created an awareness among consumers about the importance and need for having insurance. Thus, increasing consumer demand/awareness for insurance products, particularly term and health, which are easier to sell, would likely support the growth momentum over the medium term.

* COVID-19 accelerates adoption of digital channels: India’s active Internet user base is expected to increase to ~900m in FY26 from 400–450m in FY21, while Internet/smartphone penetration is likely to increase to 75%/72% by FY30 (v/s 45%/39% in FY21). COVID-19 has further accelerated the adoption of the digital channel, which augurs well for online marketplace leaders such as PB Fintech.

* Insurance Brokers License to propel growth: Policybazaar acquired the Insurance Brokers License in Jun’21, which would aid in providing in-person customer engagement and services through the physical offices. It would also look to garner group businesses to develop relationships with corporates/SMEs. The company plans to open up ~200 physical outlets by FY24, which would aid in expanding the sources of premium income.

PB FINTECH: Implied valuation and multiple analysis

* Media articles suggest PB Fintech’s proposed IPO valuation stands at USD5–6b. We conducted two scenario analyses at proposed valuations to derive valuation multiples (P/Sales) and compared them with global peers.

* We estimate a revenue CAGR of ~40% over FY21–24, led by 42% growth in premium income. We project the EBITDA / contribution margin to expand to 4.8%/52.1%.

* PB Fintech would continue to invest in the business, which would support the growth momentum. This coupled with improving operating metrics, would enable the company to trade at higher multiples.

* Thus, at proposed valuations of USD5–6b, the implied P/Sales multiple corresponds to 16–19x on FY24E.

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