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Thursday, 28 October 2021
CM RATING42/100
 

PB Fintech (Policybazaar)

No protection from loss

Offer is made at 43 times post-IPO EV/TTM sales, which seems very high

PB Fintech, owners of Policybazaar and Paisabazaar platforms, is India’s largest online platform for insurance and lending products leveraging the power of technology, data, and innovation. It provides convenient access to insurance, credit and other financial products and aims to create awareness amongst Indian households about the financial impact of death, disease, and damage.

The company seeks to enable online research-based purchases of insurance and lending products and increase transparency through consumer-centric approach, which enables consumers to make informed choices.

The company also facilitates its Insurer and Lending Partners in the financial services industry to innovate and design customized products for consumers leveraging its extensive data insights and data analytics capabilities.

Yashish Dahiya is the co-founder and Chairman, Executive Director and CEO of the Company.

The company launched Policybazaar, flagship platform in 2008, an online platform for Consumers and Insurer Partners to, respectively, buy and sell core insurance products. In FY2020, Policybazaar was India’s largest digital insurance marketplace among all online insurance distributors with 93.4% market share based on number of policies sold. Furthermore, in FY2020, Policybazaar constituted 65.3% of all digital insurance sales in India by number of policies sold.

On Policybazaar platform, 48 Insurer Partners have offered over 390 term, health, motor, home, and travel insurance products end September 2021. In FY2021, 3.7 million policies, representing 80.4% of the new policies sold through Policybazaar platform, were sold with minimal human assistance. Policybazaar platform originated premium of Rs 2742.9 crore for Insurer Partners from new insurance policies and a total premium of Rs 4701.3 crore including renewals. The annual number of visits on Policybazaar website was 126.5 million in FY2021.

The company has an asset-light capital strategy and does not underwrite any insurance or retain any credit risk on its books. Policybazaar is registered with and regulated by IRDAI as a direct (life and general) insurance broker.

In 2014, the company launched Paisabazaar, which is an independent digital lending platform that enables Consumers to compare, choose and apply for personal credit products. The company has built 56 partnerships with large banks, NBFCs and fintech lenders who offer a wide choice of product offerings on platform across personal credit categories, including personal loans, business loans, credit cards, home loans and loans against property.

Paisabazaar was India’s largest digital consumer credit marketplace with a 53.7% market share, based on disbursals in FY2021. Paisabazaar is also widely used to access credit scores, with approximately 22.5 million Consumers cumulatively having accessed their credit score through platform end June 2021. Paisabazaar enabled disbursals have increased from Rs 5101.5 crore in FY2019 to Rs 6549.6 crore in FY2020, while declined to Rs 2916.8 crore amid pandemic in FY2021 and stood at Rs 984.2 crore in Q1FY2022.

Policybazaar and Paisabazaar platform offerings address the large and highly underpenetrated online insurance and lending markets.

The company primarily generates revenues from the Policybazaar business from insurance commission from Insurer Partners and additional services provided to Insurer Partners such as telemarketing and other services relating to sales and post-sales services, account management, premium collection, and various other services. In Paisabazaar business, the revenue is generated from the commission received from Lending Partners on credit advisory and related services provided to consumers or Lending Partners.

The Offer and the Objects

The initial public offer (IPO) consists of a fresh issue to raise Rs 3750 crore issuing 3.99 crore shares at lower price band of Rs 940 per share and 3.83 crore shares at the upper band of Rs 980 per share.

Further, the offer of sale (OFS) comprises raising of Rs 1934 crore by issuing 2.06 crore shares at lower price band and Rs 1.97 crore shares at upper price band. OFS also includes sales of 2.675 lakh shares to raise to Rs 25.15 core at lower price and Rs 26.22 crore at upper price band. Thus, the cumulative OFS comprises raising of Rs 1959.72 crore.

The issue is to be made through the book-building process and will open on 1 November 2021 and will close on 3 November 2021.

The company proposes to utilize the funds which are being raised through the Fresh Issue. The company aims to utilize Rs 1500 crore from the net proceeds of the issue for enhancing visibility and awareness of brands, including but not limited to “Policybazaar” and “Paisabazaar”. The company wants to utilize Rs 375 crore for pursuing new opportunities to expand its consumer base including offline presence, Rs 600 crore for strategic investments and acquisitions and Rs 375 crore for expanding presence outside India.

In addition, the Company expects to receive the benefits of listing of the Equity Shares on the Stock Exchanges.

Strengths

The company has created strong brands in both Policybazaar and Paisabazaar through its Consumer-centric approach, recognized throughout India. Policybazaar is one of the most trusted insurance brands in India. About 83.0% of the policies sold on Policybazaar and 66.0% of loans originated on Paisabazaar were to consumers who came to platforms of the company directly or through direct online brand searches.

The proprietary technology stack helps the company design user-friendly Consumer journeys across all processes by automating various aspects across the product value chain.

Policybazaar was India’s largest digital insurance marketplace with a 93.4% market share based on the number of policies sold in FY2020. Policybazaar also constituted 65.3% of all digital insurance sales in India by number of policies sold

Forty-eight Insurer Partners sell their products on Policybazaar, which represents 84.5% of all licensed insurers in India.

Paisabazaar was India's largest consumer credit marketplace with a 53.7% market share based on disbursals in FY2021. Paisabazaar has 56 partnerships with large banks, large NBFCs and fintech lenders.

The company provides Insurer and Lending Partners with access to the large Consumer bases of both Policybazaar and Paisabazaar to enhance their sales.

The consumer acquisition cost for Insurer and Lending Partners is one of the lowest through platforms of the company.

Policybazaar and Paisabazaar platforms have large, efficient, and intelligent networks. The strong network effects give significant competitive advantages and ability to further enhance competitive position.

Consumers who purchased health insurance through Policybazaar in FY2014 for the first time have made repeated health insurance purchases worth 5.9 times the 2014 premium. Similarly, the multiplier is 3.4 times for motor insurance. High renewal rates provide clear visibility into future business and delivering superior economics

Policybazaar and Paisabazaar platforms serve Consumers with varied needs, credit profiles, demographics, employment types and income levels. The company maintains a significant competitive advantage over individual financial services providers with the rich data it generates.

The business model is a capital efficient model with low operating costs. The company does not carry any underwriting or credit risks while distributing insurance and personal credit products.

As a larger proportion of Consumers would buy either unassisted or with reduced levels of assistance, capital and operational efficiency improves.

The market for insurance products in India is estimated to increase from Rs 7.6 trillion in total premium in FY2020 across life and non-life insurance to Rs 39.0 trillion by FY2030 at a CAGR of 17.8%. The Indian insurance market is highly underpenetrated, with the life insurance market penetration in terms of sum assured as a percentage of GDP of only 24.6%, as compared to 265.0% in USA and 95.4% in China.

India’s health expenditure was amongst the lowest globally at Rs 5.5 thousand per capita, compared with Rs 83.3 thousand per capita in USA and Rs 37.6 thousand per capita in China. Only 10.0% of the healthcare expenditure in India was getting financed through health insurance.

In FY2020, 1.0% of the total premium was sold through online channels in India, which was much lower compared to 13.3% in USA and 5.5% in China. The high underpenetration of insurance products combined with the compelling Policybazaar platform, India’s largest digital insurance marketplace, presents abundant market opportunities.

India’s lending market is highly under penetrated and stood at 18.2% of nominal GDP in FY2021, much lower as compared to the USA at 79.2% and China at 55.6% in CY2020. In FY2021, only 1.0% of disbursals were through digital marketplaces in India representing a meaningful market opportunity for Paisabazaar, India’s largest digital consumer credit marketplace.

Weaknesses

The company has been incurring losses and increase in expenses in the future would cause further losses. Any failure to increase revenues sufficiently to keep pace with investments and other expenses could prevent the company from achieving profitability on a consistent basis.

The COVID-19 pandemic, or a similar public health threat, could adversely affect business.

Insurer and Lending Partners inability to offer products catering to the evolving needs of Consumers may restrict the company in retaining existing Consumers or attracting new Consumers to its online platforms.

Relationships with Insurer and Lending Partners and their cooperation to offer attractive life insurance products on platform are crucial for business success.

Arrangements with partners are typically not exclusive, and they may have similar or more favourable arrangements with competitors.

The insurance and financial services companies’ partners may develop their own technology capabilities to serve Consumers online.

Consumers rely on the insurance product information provided on platforms. The company may not be able to ensure the accuracy and completeness of product information and the effectiveness of recommendation of insurance products on its platform.

Insurance broking business is subject to various laws and regulations.

The proper functioning of online platforms and technology infrastructure is essential. Any disruption to IT systems and infrastructure could affect the ability to maintain the satisfactory performance of the platform and deliver consistent services to users.

The business generates and processes a large amount of data, and any failure to protect confidential information, prevent cybersecurity and data breaches or improper use or disclosure of such data would affect business and reputation.

The company uses sophisticated technologies for daily operations that require continuous developments and upgrades.

A significant portion of revenue is contributed by insurance products. Insurance Web Aggregator Services accounted for 68.5% of total revenue from operations in FY2021.

The strategy to expand internationally involves risks that could increase expenses, adversely affect operations, and require increased time and attention from management.

Valuation

PB Fintech has posted strong 57% growth in the revenues to Rs 771.30 crore in FY2020, while the revenue growth moderated to 15% in FY2021 amid the impact of pandemic. However, the company has recorded improved revenue growth of 36% in Q1FY2022. The other income of the company also improved at strong pace of 26% in Q1FY2022. However, the bottomline remains in red due to high operating expenses.

At the higher price band of Rs 980, the company is demanding mcap of Rs 44051 crore and offer is made at 43.0 times post-IPO EV/TTM sales for period ended June 2021, which appears to be expensive. There is no comparable listed player in India.

The post issue book value of the company stands at Rs 126.2 end June 2021. The scrip is offered at price to book value multiple of 7.8 times.

Another IPO bound fintech payments bank company - Fino Payments Bank is offered at price to book value multiple of 9.9 times. In terms of EV to sales for TTM ended June 2021, Fino Payments Bank is offered at 5.9 times EV to sales.

The significant under penetration life and non-life insurance and consumer credit market in India provides healthy growth potential. However, the company operates in dynamic and competitive online fintech industries making it difficult to predict prospects. The business is subject to intense competition from existing or new competitors.

PB Fintech: Issue highlights

For Fresh Issue Offer size (in no. of shares crore)

 

- On lower price band

3.99

- On upper price band

3.83

Offer size (in Rs crore)

3750

For Offer for Sale Offer size (in no. of shares crore)

 

- On lower price band

2.08

- On upper price band

2.00

Offer size (in Rs crore)

1960

Price band (Rs)*

940-980

Minimum Bid Lot (in no. of shares )

15

Post issue capital (Rs crore)

 

- On lower price band

90.23

- On upper price band

89.90

Post-issue promoter & Group shareholding (%)

0.0

Issue open date

01-11-2021

Issue closed date

03-11-2021

Listing

BSE, NSE

Rating

42/100

 

PB Fintech: Financials


1903 (12)

2003 (12)

2103 (12)

2006 (3)

2106 (3)

Sales

492.25

771.30

886.66

175.02

237.73

OPM %

-68.28

-41.47

-18.02

-33.96

-49.79

OP

-336.09

-319.89

-159.76

-59.43

-118.36

Other Income

36.56

84.27

70.75

16.25

20.44

PBDIT

-299.53

-235.63

-89.01

-43.18

-97.91

Interest

7.48

11.92

11.52

3.19

2.89

PBDT

-307.01

-247.55

-100.54

-46.37

-100.80

Depreciation

30.42

47.30

41.38

10.57

10.04

PBT

-337.43

-294.84

-141.91

-56.94

-110.84

Tax

9.38

9.19

8.33

2.81

0.00

PAT

-346.81

-304.03

-150.24

-59.75

-110.84

EPS (Rs)*

-7.7

-6.8

-3.3

-5.3

-9.9

*EPS annualised is on post issue equity capital of Rs 89.90 crore of face value of Rs 2 each
Figures in Rs crore
Source: PB Fintech Issue Prospectus