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Strong topline growth with understandable margin miss

PB Fintech reported a healthy 47.7%/41.7% YoY growth in core insurance premium / loan disbursals for the quarter. On overall insurance premium and credit disbursals, the company was well ahead of JMFe by 5.6% and 7.5%, respectively with health and term insurance growing 53% YoY. Consol. revenue reached INR 8.1bn, +22%/+42% on QoQ/YoY basis, with a strong beat on JMFe (INR 7.3bn). However, adj. EBITDA margin declined by 190bps QoQ to reach 1.6%, primarily attributable to a higher mix of new health insurance premium and increased marketing spends. Company continued to strategically tone the growth in New Initiatives as competitive intensity remains heightened. We find the performance this quarter to be impressive considering growth driven by core business with new business premium growing 60%+ YoY. The management remains confident of achieving PAT profitability in FY24 and its guidance on INR 10bn PAT in FY27 and we believe there is a strong pathway for the company to positively surprise on this. We roll forward to Dec’24 and reiterate ‘BUY’ rating with a TP of INR 1,010.

* Strength in the core: Policybazaar’s online insurance premium grew at a strong 47.7%YoY, with management showcasing confidence of delivering 2-3x the industry growth rate. We also note an improvement in take-rates to 16.9% (vs 16.7% in Q1FY24). While there was a pressure on EBITDA and margins in the current quarter (-190bps QoQ), it could be attributed to 1) higher marketing costs by INR 300mn on a lower base of Q1, 2) investment in call centre operations and feet-on-street team to gear up for H2, and, 3) higher proportion of health insurance in the new business premium that is margin diluting in year 1 but generates strong NPV going forward. The management reiterated that despite higher advertising spends by new entrants, they dominate online insurance distribution. Furthermore, the company has picked up pace in new business premium that should sustain growth in the coming years as renewal rates remain strong too, resulting in sharp margin expansion to reach ~25% Adj. EBITDA margin by FY27.

* Credit distribution remains stable: Credit disbursals on Paisabazaar have grown 16.9%/41.7% QoQ/YoY to reach INR 41.4bn in 2QFY24. The company also enabled issuance of 600k credit cards on an annualised basis. Paisabazaar generated revenue of INR 1,540mn (+53% YoY), while improving EBITDA profitability (~6-8% Adj. EBITDA margin) for the quarter with contribution margins sustaining upwards of 40%. The company has 65+ financier partnerships and has co-created products that generate 14%+ of total credit revenue as trail revenue.

* PB Partners business could see heightened competition: PB Partners has now reached 16,300 pin-codes with Tier 2+ cities contributing to 71% of the premium. While Policybazaar did ramp-up rapidly to become the largest PoSP player in the country, the competition has sustained with InsuranceDekho raising USD 210mn in 2023 itself. Our channel checks suggest that InsuranceDekho premium is roughly on par with PB Partners in Oct’23. While EBITDA margin in New Initiatives has improved sequentially by ~530bps, we do not anticipate EBITDA profitability to be delivered before FY27.

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SEBI Registration Number is INM000010361