Learn Investing

PB Fintech Ltd, the owner of Policybazaar.com, has hit the IPO markets on November 1, following a flurry of public offers over the last week. The listing, that aims to raise about ₹5,700 crore, consists of a fresh issue of ₹3,750 crore and the rest as an offer for sale. PB Fintech is known for its digital market places — Policybazaar.com for insurance and Paisabazaar.com for consumer lending. Read on to know more.  

About the company, business
Gurgaon based PB Fintech commenced operations in FY08 initially as an insurance web aggregator. Subsequently, it entered the credit market to provide convenient access to insurance, credit, and other financial products. In addition to creating a distribution channel, it also provides online marketing, consulting, and support services for the financial services industry. It follows an asset-light capital strategy without undertaking any insurance or credit risk on its books. The company has been successful in building India’s largest online marketplace for insurance and lending products.

Policybazaar is the flagship platform and caters to consumer demand for higher awareness, choice, and transparency towards the online sale of insurance products. It has thus evolved as India’s largest digital insurance marketplace, with market share of 93.4% (based on the number of policies sold). It has partnered with over 50 insurers. In June 2021, the company received the broker license, which would allow it to target offline and corporate businesses as well.

Paisabazaar is the largest digital consumer credit marketplace, with market share of 51.4% on the basis of disbursals. It began its operations in FY14 with the goal to transform personal credit access. It is widely used to access credit scores, with 21.5 million consumers as of March 2021. It has partnered with over 50 lenders across banks, NBFCs, and fintechs for personal loans, business loans, credit cards, home loans, and LAP.

Financials

Revenue for PB Fintech is driven by commission and fees, from insurance (68 per cent of FY21 sales), and lending (21 per cent).

PB Fintech’s insurance business generates commissions on sales (43 per cent) and outsourcing services (49 per cent). The commission rate and outsourcing charges are 5 to 6 per cent. Paisabazaar generates commission revenues from loan disbursals and other services in the range of 3-6 per cent.

Revenues in FY21 were impacted by the pandemic. Revenues grew by 12 per cent in FY21 compared to 62 per cent in FY20. Thankfully, they have recovered to 36 per cent in Q1 of FY22. The company is loss-making at bottomline level.

With a successful IPO, the company plans to acquire companies which are complementary to its health/insurance/lending platforms. For this, it has earmarked ₹600 crore. Brand building, offline channel and overseas presence have been allocated ₹1,500 crore and ₹375 crore each.

Premium valuations

PB Fintech’s businesses are firmly placed at the cross section of financial solutions and digital adoption. The company’s leadership position may allow for high growth for quite some period. The IPO price commands a premium valuation of 46 times FY21 sales. This type of valuation heightens the risks.

The IPO price values PB Fintech at a market cap of Rs 44,250 crore to Rs 46,125 crore. This is roughly $6.15 billion. To justify this valuation, IPO investors would have to estimate high revenue growth (over 40% CAGR over next 3-4 years) and this could give a clear path to profitability.
IPO anchor investors are backing the valuation. PB Fintech has informed BSE regarding garnering Rs 2,569.3 crore from 155 anchor investors ahead of its IPO. The amount is 45% of Rs 5,709.7 crore which it intends to garner from IPO.  

Brokerages view

Motilal Oswal: “We note that globally companies with strong revenue growth and superior margin profiles trade at higher multiples. PB Fintech would continue to invest in the business, which would support the growth momentum over the medium-long term. Thus, we believe robust business growth, along with improving operating metrics, would enable the company to trade at higher multiples. Thus, at proposed valuations, the implied P/Sales multiple corresponds to 16–19x on FY24E.”
Angel Broking: “In terms of valuations, the post-issue FY2021 EV/Sales works out 47.6x to (at the upper end of the issue price band), which is high considering historical financial performance (making continuous losses on bottom-line front). Considering the company’s overall business model and higher valuation, we recommend a NEUTRAL rating on the issue.”