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The initial public offering (IPO) by PB Fintech Limited (PBFL), which operates digital insurance marketplace Policybazaar and consumer credit marketplace Paisabazaar, closes on November 3, 2021. The price band fixed for the offer is Rs. 940 to 980 per share. On the day of its opening on November 1, the issue was subscribed 54 per cent.
The company, which started in 2008, is among the first internet-based platforms to sell insurance and loan products of various companies. Paisabazaar, the credit comparison platform of the company, was launched in 2014.
Let’s assess the prospects of the company.
Exploiting Digital Space
In financial year 2020, Policybazaar became India’s largest digital insurance marketplace among all online insurance distributors with 93.4 per cent market share based on the number of policies sold.
Paisabazaar was India's largest consumer credit marketplace with a 53.7 per cent market share based on disbursals in financial year 2021.
The Policybazaar business is run as an asset-light model. As of March 31, 2021, 51 insurer partners sold their products on Policybazaar, representing 87.9 per cent of all licensed insurers in India, while Paisabazaar had 54 partnerships with large banks, large non-banking financial companies (NBFCs) and fintech lenders.
Business Model
PB Fintech enjoys a capital-efficient model with low operating costs, as it aggregates and distributes insurance and personal credit products offered by insurers and lenders.
The company has grown its consumer base over the past few years; it had over 48 million consumers registered on Policybazaar platform as of March 31, 2021. Around 9.6 million unique consumers purchased over 19 million policies from its insurer partners in FY21.
Paisabazaar is widely used to access credit scores, with approximately 21.5 million consumers having accessed their credit score through the platform as of March 31, 2021.
Growth vs Valuation
“The company has delivered a notable 34 per cent CAGR (compounded annual growth rate) in its revenues and although it has expanded its contribution margin considerably from 8.6 per cent to 39.8 per cent from FY19 to FY21, it remains EBITDA-negative,” says Yesha Shah, head of equity research, Samco Securities, a brokerage firm. EBITDA is earnings before interest, tax, depreciation and amortisation.
She adds that going forward it would be difficult for the company to scale up the growth. “Considering the intensifying competition in the sector and certain larger players delisting their products from the platform, the key challenge for the company lies in shielding its market share and consistently scaling its revenue,” says Shah.
She finds the valuation expensive. “The company is seeking a market cap of around 2.5 times of its last funding round in March 2021. While the insurance brokers license and the minimal online insurance penetration in India provide the company massive long-term opportunities to grow, the current valuation seems pretty expensive,” says Shah.
Other broking houses share her view in terms of valuation. “Macros of the insurance sector are positive and so are the fundamentals of PBFL.
The company with its dominant position in the digital insurance and credit market is expected to benefit from the abundant business opportunities in both markets. At a higher price band of Rs 980, PBFL is demanding an enterprise value (EV)/TTM sales multiple of 40.5x, which seems to be very stretched,” says a report from Choice Broking.
The long-term prospects look bright for the company as India’s insurance market is expected to grow at a good pace in the next few years in all segments such as life, health, and other general insurance. “India was amongst the lowest in the world in terms of sum assured as a percentage of GDP in 2020. India mortality protection gap as a percentage of protection was at 83 per cent in 2019, one of the highest in the world,” says an IPO note by KRChoksey, a brokerage firm.
