PB Fintech

If the recent performance of PolicyBazaar and PaisaBazaar is anything to go by, it seems the parent company PB Fintech is now poised to enter into the green with the certainty of growth in the coming years. 

P B Fintech, also known as PolicyBazaar and PaisaBazaar, is an Indian financial technology company that provides online insurance comparison and purchase services, as well as financial product comparison and application services. The company was founded in 2008 by Yashish Dahiya, Alok Bansal and Avaneesh Nirjar with the vision of simplifying financial services’ purchases and promoting financial inclusion in India. PolicyBazaar is PB Fintech’s flagship platform and allows users to compare and purchase a wide range of insurance products, including health insurance, life insurance, car insurance and travel insurance. 

The platform provides users with access to multiple insurance providers and allows them to obtain instant quotes and make informed decisions based on factors such as coverage, premium, and features. PaisaBazaar, on the other hand, is PB Fintech’s financial product comparison platform that allows users to compare and apply for various financial products, including credit cards, personal loans, home loans and mutual funds. The platform provides users with customised recommendations and allows them to compare different financial products based on interest rates, fees and other features.

Both PolicyBazaar and PaisaBazaar leverage technology to provide a more transparent and convenient experience for users. The platforms use advanced algorithms and data analytics to provide customised recommendations and personalised financial products based on users’ specific needs and risk profiles. Both platforms are also known for their user-friendly interfaces, transparent fee structures and excellent customer service. PB Fintech has been successful in disrupting India’s traditional financial services industry by providing a more customer-centric and innovative approach to financial services. 

The company has received several awards and recognition for its disruptive approach to financial services, including the ‘Best InsurTech Company’ and ‘Best Personal Finance Platform’ at the 2020 Economic Times BFSI Awards. Overall, PB Fintech is a leading financial technology company in India that is changing the way Indians buy insurance and access financial products. The company’s user-friendly interfaces, customised recommendations and transparent fee structures are empowering users to make informed decisions and find financial products that best meet their needs

Financial Highlights

For the quarter ended December 31, 2022, the company reported a surge in revenue from operations by 66 per cent YoY to `610 crore. The company’s core business-adjusted EBITDA was positive, recording `26 crore in the quarter, while its credit business broke even in December, ahead of the Q4 expectations. PB Fintech’s net loss declined significantly to `87 crore in Q3 from `298 crore in the same period last year. The company’s credit business has a run rate of `12,700 crore disbursal and 5.2 lakh credit card issuances on an annualised basis. 

The company stated that 75 per cent of the cards issued in Q3 were E2E digital and co-created products like step-up cards and duet credit cards are gaining traction. According to the company’s management, their growth is driven by the growth in renewal income which is the most secure part of the business, new business growth and higher efficiencies in new businesses. PB Fintech’s new initiatives revenue has grown 3.7 times while the adjusted EBITDA loss is roughly the same this quarter as compared to the same period last year. The insurance premium business has recorded a growth of 70 per cent YoY to `3,028 crore, while credit disbursal saw a growth of 57 per cent for the third quarter.

PB Fintech’s UAE business has grown 167 per cent YoY and the contribution margins stood at 44 per cent. The credit business has continued to grow and reached a breakeven point in December 2022. The annualised disbursal rate is currently ₹12,700 crore with about 0.5 million credit cards issued. Up to 33 million customers have accessed their credit scores on the platform. In Q3, 75 per cent of the cards issued were digital, which has helped improve margins. Step up cards and duet cards, which are co-created products, are gaining popularity. In brief, the company’s various products are now finding good acceptance across various levels of the consumers.
 

Sector Overview

The financial technology industry in India is growing rapidly with a focus on customer-centric services and personalised experiences. This trend is particularly evident in the insurance technology sector where technology-driven start-ups are emerging and transforming the industry. Despite India’s large population, rising incomes and rapid urbanisation, the insurance penetration rate in the country is less than 4 per cent. This has created an attractive sub-segment for upcoming start-ups to launch financial technology services, particularly in the insurance technology space.

Insurance technology start-ups in India have emerged in various sectors, including health insurance, life insurance and property and casualty insurance. These companies use technology to improve the insurance customer experience, streamline processes and offer more customised and accessible products, all the while aiming to increase efficiency and reduce costs. The insurance technology market in India has already produced two unicorn start-ups, Digit Insurance and PolicyBazaar and several insurance technology companies have raised funding from midsized venture capital firms in the first half of 2021.

Insurance companies themselves are also improving their digital platforms by upgrading legacy systems and bringing in virtual assistants. The online insurance business in India is still underserved with only 1.0 per cent premiums sold online in FY20 compared to 13.3 per cent in the US and 5.5 per cent in China. However, this is likely to change as digital penetration in India continues to increase. Consumers in India are demanding personalised experiences across insurance products, pricing and claims. Additionally, new lifestyle requirements are emerging such as greater leisure travel and pet adoption, which encourage clients to try new products

These include bite-sized insurance, self-help solutions and packaged services. In conclusion, the insurance technology market in India is undergoing significant transformation due to the emergence of new financial technology and insurance technology businesses that crystallise creative business models, favourable regulatory environment and incumbents leveraging technologies to develop a unique set of differentiated solutions. The increased digital penetration and demand for personalised experiences are likely to continue driving growth in the insurance technology sector in the future

Government Initiatives

In 2022, the insurance regulator IRDAI made some significant positive developments, such as the inclusion of mental health coverage under all health insurance products and the removal of limitations for corporate agents. These steps allow greater choice and flexibility for customers and agents, and promote inclusivity and accessibility in the insurance industry. The Indian government has also played a role in supporting the growth of the insurance technology industry with initiatives such as creating a regulatory sandbox to allow companies to test new products and technologies

The Indian government has released various schemes and financial inclusion initiatives that have driven insurance adoption and penetration across all segments. The government’s flagship initiative for crop insurance, Pradhan Mantri Fasal Bima Yojana (PMFBY), has led to significant growth in the premium income for crop insurance. Ayushman Bharat (Pradhan Mantri Jan Arogya Yojana) (AB PMJAY) aims at providing a health cover of 5 lakh per family per year for secondary and tertiary care hospitalisation. During FY22-23, insurance cover for 44.6 crore persons was provided under PM Suraksha Bima and PM Jeevan Jyoti Yojana. IRDAI has also undertaken various initiatives towards boosting insurance penetration, such as permitting insurers to conduct videobased ‘know your customer’ (KYC).

It has also launched standardised insurance products and is allowing insurers to offer rewards for low-risk behaviour. However, the government’s stance on tax relief has changed and income over a particular threshold from saving products is now subject to taxation. In the financial bill 2023, tax exemption was removed for insurance policies with high-value insurance premiums. The insurance technology landscape in India is dynamic and rapidly changing, and it is likely to continue to evolve and grow in the coming years. The Indian government and IRDAI are taking proactive steps towards promoting inclusivity and accessibility in the insurance industry. While various positive measures are reaping good results, the recent change in taxation policy may have implications for the insurance industry.

Outlook

In previous years, PolicyBazaar was not generating positive EBITDA and was using up its cash reserves. However, in the last 18 months, the company has managed to stop incurring losses and is on track to start earning profits. It is expected that the positive cash inflows will continue to increase, reaching about ₹400 crore in the next year. As a result, the company will need to reassess its capital strategy by March 2024. PolicyBazaar is aiming to achieve profit after tax of ₹1,000 crore by 2027. The brand attracts customers who use the platform to buy insurance policies, but it is also available for use by distributors who can leverage it as a technology platform. This enables the PolicyBazaar platform to achieve greater volume, which helps in forming supplier partnerships.

PB Partners, the agent aggregator platform, is leading the market in terms of scale and efficiency. It has a higher proportion of non-motor business than any of its competitors and is now present in 14,300 pin codes across India. The offline business is now contributing to the life and health sectors with around 20 per cent of their premium coming from this area. They have a presence in nearly 60 cities, with major centres in seven of them. There have currently around 1,000 people deployed on the offline side and productivity is being improved. PolicyBazaar has physical offices or presence in 62 locations, and it serves customers in 125 cities

Sales are conducted in 125 locations, while claims are processed in 114 cities. The claims support area has seen significant improvement in the last year and the company has received appreciation from customers, which has helped boost the morale. This will eventually lead to good word of mouth publicity, which will further benefit the company. Since the pandemic situation has improved, the credit industry has started to grow again at a rate of about 20 per cent, which was the pre-pandemic rate. Digitisation has become more widespread with 75 per cent of cards being issued end-to-end digitally. This was almost zero a few years ago

Digitisation reduces drop-offs and improves conversion rates and an increased credit score customer base has allowed for better pre-approved programmes. Despite the positivity surrounding the company’s financials, most of it has already been discounted in the current market price (CMP). The CMP has increased by more than 30 per cent in the last month, which poses a risk for investors. It is important to monitor the situation closely and assess the company’s future prospects before making investment decisions. However, an aggressive investor with higher risk appetite can still take limited exposure to the counter. Hence, we recommend HOLD.