Fundamental Analysis of PB Fintech

In this article, we will do a fundamental analysis of PB Fintech. This year, many IPOs’ have come. One after another IPO is coming in which big IPOs are included. Likely, one more big IPO is PB Fintech whose flagship brands are Policy Bazaar and Paisa Bazaar.

PB Fintech to launch its IPO has filed its DRHP document with SEBI. The IPO’s date, price band, lot size isn’t out yet But given the anticipation for IPOs of startups in India and the blockbuster response to the Zomato IPO, we thought we will bring you up to date with everything about PB Fintech, its flagship brands PolicyBazaar & PaisaBazaar, and their prospects.

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Introduction

First, let’s talk about the journey of PB Fintech and its brands.
Its flagship brand Policybazaar was launched in 2008 to simplify the insurance space.
By founders Yashish Dahiya, Alok Bansal, and Avaneesh Nirjar as an insurance comparison website.
Over the years, the website expanded to become an insurance marketplace.
In 2015, Policybazaar also launched its app on Android and iOS.
Based on the number of policies sold, today Policybazaar is India’s largest digital insurance marketplace with a 93.4% market share in FY20.
Around 65.3% of all digital insurance sales in India were done by Policybazaar in FY20.
As of March 2021, on the Policybazaar platform, 51 insurers offer over 340 terms, health, motor, home, and travel insurance products.
According to Crunchbase, Policybazaar has raised a total of $766.6 million across 13 rounds including secondary share transactions.
Info Edge which runs Naukri.com was the seed investor in Policybazaar with an investment of $6.9 million in 2008.
Over the years, the company has added many marquee investors to its roster including Intel Capital, Tiger Global, Premji Invest, True North, SoftBank, Temasek, and many others.
Now let’s talk about its second flagship brand which is Paisa Bazaar which the co. launched as a loan marketplace in 2014.
It is now India’s largest digital credit marketplace with a 51.4% market share based on disbursals in FY20.
Paisabazaar is also used to access credit scores. As of March’21, almost 21.5 million users access credit scores through the platform.
Paisabazaar with banks, NBFCs, and fintech players has around 54 partnerships to offer a wide variety of products including personal loans, business loans, credit cards, home loans, and loans against property.
The company has 2 reporting segments.
Insurance Web Aggregator Services provided by Policybazaar.
Other Services are provided by Paisabazaar and others.

Fundamental Analysis of PB Fintech — Business ModeL

Policy Bazaar

Policybazaar’s business model is aiming to address the common concerns of insurance customers.
Like, Time-consuming process, Difficulty in product comparison, size fits all, Lack of transparency, lack of proper guidance.
The Policybazaar is an insurance web aggregator services platform that offers consumers a self-service platform.
For, Pre-purchase research, Purchase like application, inspection, medical check-up, and payment.
Post-purchase policy management & related activities like claims facilitation, renewals, cancellations, and refunds.
The insurance web aggregator services or Policybazaar accounted for 68.5% of total revenues from operations in FY21.

The primary ways for earning revenues for Policybazaar are:

First, Insurance commission from insurers based on a % of premiums originated
Second, additional services to insurers such as telemarketing, post-sales service, account management, premium collection, and others
In FY21, Policybazaar sourced from new policies Rs 2742.9 Cr of premium and a total premium of Rs 4701.3 including renewals which accounted for 41.7% of the total premium from the platform.
As of March 2021, Policybazaar has over 48 million registered customers and has sales of over 19 million policies. In FY21, it saw a total of 126.5 million site visits.
This segment saw decent revenue growth of almost 18% YoY.
Out of all insurance categories, motor insurance is the biggest contributor in terms of the number of policies sold.

Now we will talk about co.’s other services.

Paisabazar Business Model

In FY21, Other services accounted for 31.5% of revenues from operations.
Paisabazaar’s business model is based on resolving fundamental concerns of credit customers which includes Difficulty in product and offer comparison; Difficulty in determining the best-suited offer; Information asymmetry and lack of transparency;
Difficulty in getting credit score; Lack of end-to-end assistance; Paper heavy and time-consuming process.
The free credit score service is a big tool for easy customer acquisition for Paisabazaar.

Revenue Breakdown of Paisabazar

Paisabazaar generates revenues from:
Commission from lending partners based on a % of loan disbursed;
Credit advisory and related services to both consumers and lenders;
Marketing services to financial services partners.
The Paisabazaar platform has a high customer retention rate with 67% of total disbursal in FY21 going to existing customers.
Around 40% of disbursal in FY19, FY20, and FY21 going to existing customers.
The platform saw disbursals of Rs 2916.8 Cr in FY21 which was down 56% YoY from Rs 6549.6 Cr of disbursals done in FY20.
This drop-in disbursal is expected to be a result of the COVID-19 pandemic.
The other services segment saw decent growth of almost 9.5% YoY in FY21.

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Fundamental Analysis of PB Fintech’s

Fundamental Analysis of PB Fintech’s are as follows:

PB Fintech’s Industry

Now, let’s know about the co.’s industry.
The high working-age population in India, the rapid pace of urbanization, and the rise of digital adoption and internet penetration act as drivers of growth for the internet services sector in India.
As compared to other advanced economies, in India the entire financial services sector especially the investment and insurance spaces has good room for expansion given the significant under-penetration of these sectors.
The penetration of financial services in India is rising due to the following factors:
First, changing consumer behavior and rise in financial literacy like people like you are watching financial videos to increase knowledge.
Second, tech advancements enable easy access to information about financial products.
Other than these, the Govt of India has brought initiatives like Pradhan Mantri Jan Dhan Yojana (PMJDY) for Bank account penetration; Pradhan Mantri Mudra Yojana (PMMY) for easy credit to SMEs; Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) for life and term insurance for the poor and underprivileged; Ayushman Bharat Pradhan Mantri Jan Arogya Yojana for health insurance penetration.
The insurance industry in India is expected to grow at a CAGR of 17.8% to reach Rs 39 trillion by total premium by 2030.
The online insurance market is also very under-penetrated in India with only 1% of total premium coming From online mechanisms vs digital penetration of 13.3% in USA and 5.5% in China.
This highlights India’s massive growth potential in the online insurance sector.
The digital consumer lending market share was 21.8% in India in FY20 vs 55% in USA and 25.6% in China.
There is massive scope for expansion for the digital consumer credit marketplace segment in India.

Competitors & Key risk

If you look at the competition, there would be strong competition for PB FinTech. All insurance companies, banks, and NBFC’s have their own digital platforms, along with a very strong distribution network of physical stores.
I think that Policybazaar and Paisabazaar were able to capture the online market due to their first-mover advantage.
However, today every bank, insurance company, and NBFCs is focusing on digital platforms, and today consumers have multiple options to explore the insurance and loan market using the online platform.
Not only that, there is a huge surge in your new age FinTech platforms that are now offering insurance and loan-related products.
For example, Paytm also offers insurance and loan-related services. Then recently, I came across the news, that PhonePe which started as a UPI Payment Service has now launched insurance products on its platform.
I think in the future, there is going to be very intense competition as all FinTech companies are trying to become a one-stop solution for all financial requirements, and that creates a huge competition risk.
On top of that, since PB Fintech is a technology-based company, there will always be a risk of technology obsolescence.

PB Fintech’s Financials

The company saw moderate revenue growth of 12% YoY in FY21 with the insurance aggregator segment growing 17.6% YoY and the other services segment growing 9.5% YoY.
The total expenses for the company have declined only 4% YoY with the biggest rise in employee costs of 6% YoY and the biggest fall in advertising and promotion expenses of almost 18% YoY.
The losses for the company have fallen 51% YoY and now account.

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Strengths and Limitations of PB Fintech’s

Strengths and Limitations of PB Fintech’s are as follows:

Strengths

The company’s biggest strength is its dominant market share in the online insurance marketplace and credit marketplace segments.
The company has also developed a good brand image over the years with the help of consumer awareness campaigns and product comparison features across complex products like insurance and loans.
This has helped it maintain its hold over its operating segments.
One more biggest strength is the company’s industry partnerships are another of its big strengths with 88% of all licensed insurers in India selling their products on its platform.
The massive under penetration in the online insurance and credit spaces provide the company with a big room for market capture.
Both Policybazaar and Paisabazaar are aiming to work as aggregators and brokers only. This business model has strong network effects.
As more and more users come on board, the company can achieve better economies due to its asset-light online model and provide better data insights to its insurer and lender partners which results in more innovative products and better pricing for them.

Weaknesses

The company is still not profitable with a very small decline in expenses in recent years.
Operating on a disruptive model, it is not easy to predict when it will achieve profitability.
The 4 largest insurance partners accounted for 32.81% of total revenues in FY21. Thus, the loss of any of these key partners will be very harmful to the company.
The company’s venture into offline insurance broking will require it to put up a significant amount of capital to build and develop its physical distribution network.
This will certainly put a strain on the company’s finances and delay the quest for profitability.
The insurance industry is very heavily regulated and any non-compliance with existing requirements or any new requirements against the company or its business model will be very detrimental to its business.

Valuation

Now, as far as valuation is concerned, since the company’s lost making, we can’t use the traditional PE ratiometric.
If you look at the price to sales metric for FY 21, at the higher price point of Rs 980 its price to sell stood at 46 which is very high.
Considering the fact there is no visibility of profit in the near future, it is going to be a risky bet for retail investors. Just for reference from the gray market point of view, this IPO is trading at around a 15% premium in the grey market.
But remember that gray market premium changes frequently based on sentiments.

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Conclusion

Overall, PB Fintech is in the business of an online marketplace with Policybazaar and Paisabazaar.
The company is the leader in the online insurance and lending business, And there’s a huge scope of growth in both the insurance and lending business in India.
However, there is strong competition in the FinTech space, and it would not be easy for PB FinTech to retain its high market share.
Moreover, the company has reported losses in the last 3 years and does not see profit visibility in the near future.
Considering all these factors, the valuation of 44,000 Crore looks highly overvalued to me. I think that the company has already factored in its future growth in the current valuation.
So there is not much scope from the near-term return perspective, it is only advisable for high-risk takers to apply for this IPO.
Personally, I believe that such valuations are due to the current euphoria in the market, especially around internet companies. And hence, promoters are going to cash this opportunity.
Although these companies have great potential, the valuations are extremely high. you do it’s very high valuation and no signs of profitability in the near future. What is your take on fundamental analysis of PB Fintech. Let me know ypour thoughts in the comment section.

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Fundamental Analysis of PB Fintech