PB Fintech – Another Platform Play
Company Name – PB Fintech Limited (PB Fintech)
Current Share Price – INR 577 (February 24, 2023)
Market Cap – INR 25,963 cr
1. What is interesting about the stock?
Insurance tech and lending fintech have seen significant success globally in recent years, as more consumers and businesses turn to digital solutions for their financial needs.
Insurance tech, also known as insurtech, has been successful in providing innovative and convenient solutions for insurance products, such as personalized policies and streamlined claims processing. Insurtech has been particularly successful in areas such as peer-to-peer insurance, digital insurance marketplaces, and usage-based insurance.
Lending fintech has been successful in providing alternative lending solutions to traditional banks, such as peer-to-peer lending and crowdfunding. Lending fintech has also enabled greater financial inclusion by providing loans to underbanked populations and small businesses.
Both insurance tech and lending fintech have seen significant growth and investment in recent years, and the trend is expected to continue as more consumers and businesses adopt digital solutions for their financial needs. However, the success of individual companies in these sectors will depend on various factors such as the quality of their technology, their ability to innovate and adapt/compete, and their ability to meet regulatory requirements, especially in a country like India.
PB Fintech has 2 leading platforms under it: PolicyBazaar and PaisaBazaar. PolicyBazaar, launched in 2008, is India's leading online platform for insurance and lending products. It provides convenient access to insurance, credit, and other financial products. After receiving the insurance broking license from IRDAI, it is also in the process of creating an offline presence. PaisaBazaar, launched in 2014, is a financial advisory platform from the same company.
Insurance is a long-term growth story in India, as there are growth prospects in terms of penetration (number of people covered – world average is 2.8x that of India) and the insurance protection gap (coverage per person – US average is 5x that of India). It is primarily a “push” product, so the distributor is critical to the industry. This has led to the growth of third-party as well as direct salesforce, in both the online and offline modes.
The GoI’s push towards digitization has helped the 2 platforms grow exponentially, and PolicyBazaar has a 90+% market share of the fast-growing online insurance distribution space. But with increased competition from super-app aspirants like Paytm and Jio and other aggressive players like Coverfox, it is likely to face tough times. The annual run rate of insurance premiums is INR 12,000 cr as of Q3FY23.
PaisaBazaar is India’s largest digital consumer credit marketplace with a ~50% market share, based on disbursals. It has partnered with 50+ large banks, NBFCs, and fintech lenders to offer personal credit products like loans and credit cards. It also offers free access to credit scores in partnership with all 4 credit bureaus in India.
Company has a run rate of INR 12,700 cr of disbursal and 5.2 lakhs of credit cards issued on an annualized basis in Q3FY23
33 million customers have accessed the credit score on the platform
75% of the cards issued in Q3FY23 were end-to-end digital.
The Company has lost money since inception and has been funded through capital raises from marquee international investors (USD 366 million across 7 rounds) before the IPO. Though the losses have been coming down, the offline expansion could result in deteriorating financial metrics.
Why invest in PB Fintech?
The key investment arguments summarized would be:
90+% market share in a fast-growing online insurance distribution market with high brand recall for PolicyBazaar
50+% market share in the digital consumer credit marketplace and the only profitable platform in PaisaBazaar
Moving to an omnichannel presence through the establishment of physical branches apart from web and mobile app presence
Experienced management team
2. Key Historical Financials
Revenue grew 61% in FY22 and 66% in Q3FY23
EBITDA losses have come down in the last few quarters with an EBITDA margin of -22% in Q3FY23. I would avoid looking at "Adjusted" EBITDA as it involves a lot of mental gymnastics
PB Fintech has a cash balance of INR 2,844 cr and an investment of INR 867 cr as of September 2023
Management expects to deliver positive PAT in FY24 - which could include a good contribution from other income (on the cash balance or investments)
3. What is my view on company valuation?
The Company had seen a good debut on the stock markets with a 16.6x oversubscription and 17% listing premium. After reaching a peak of INR 1,470, the share price significantly corrected to ~INR 350 before recovering to the current level. Current share price is ~50% of the price in December 2021 when we first analyzed the Company.
For INR 577 per share, the trailing P/B ratio is ~7x, Price/Revenues ratio of ~12x, very expensive in any market for a loss-making business. While the platform businesses are attractive, the fundamentals will take time to catch up.
4. What are the risks to the investment analysis?
Risks to the analysis are:
Competition intensifies and takes away customers from the Company’s platform through aggressive practices
Insurers see good growth in their websites and therefore, leave third-party sites like PolicyBazaar
The physical sales channel is highly competitive and needs different skills from online sales. PolicyBazaar might not be able to transition effectively
About the Author
I have over 18 years of experience in private equity and public markets. I am an engineer by background an MBA from a premier institute in India.
I have had no stock, option, or similar derivative position in any of the companies mentioned for the last 30 days, and shall not initiate any such positions within the next 5 days. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from SocInvest). I have no business relationship with any company whose stock is mentioned in this article.
I am not a SEBI registered advisor. This article is purely for educational purposes and is not to be construed as investment advice. Please consult your financial advisor before acting on it.
I have used publicly available information while writing this article.