Increasing the contribution of renewal income to adjusted EBITDA and increasing profitability of new business owing to productivity improvement are some of the key drivers the company believes will help it in achieving its Rs 1,000 crore FY27 profitability guidance.
Brokerage firm Morgan Stanley reiterated its overweight rating (buy) on PB Fintech while maintaining its price target at Rs 705 as earlier, implying an 18 percent upside over the closing price of Rs 595 recorded, Superior quality of business originated relative to the agency channel is a key differentiator,” management said during Morgan Stanley’s India Financials Trip event.
Policy Bazaar accounts for 70 percent of web sales in India with lower claims ratio for web sales relative to the agency, which works well for insurers, it said adding that some of the large players are willing to retain risk originated by Policybazaar on their balance sheets.
“Further, the claims settlement ratio is higher, which is good for customers. The highest volume of customer appreciation that PB Fintech gets is in the claims settlement area,” the report highlighted. For its marketing spend, the company believes that even if it stops marketing spending, it might lose only about 10 percent of its revenues. Customers for which PB Fintech does not incur marketing cost account for 83 percent of its business, it said. Revenue diversification among insurer partners also emphasizes the longevity of its business model. The largest insurer partner contributes less than 20 percent of its insurance revenues, it added.
According to the brokerage, “We note that as per F22 data, only three insurers each contributed more than 10% of its insurance revenues, cumulatively accounting for ~45%.” In its new initiatives segment, break-even is expected to be achieved by FY26-27 while already reaching break-even on a cash flow basis.
Overall, the increasing contribution of renewal income to adjusted EBITDA (Earnings before interest, taxes, depreciation & amortization) and increasing profitability of new business owing to productivity improvement are some of the drivers the company believes will help it in achieving its Rs 1,000 crore FY27 profitability guidance which the company believes is conservative.
In Q3FY23, the company’s net loss narrowed to Rs 88 crore from Rs 298 crore in the corresponding period last year. Its revenue also improved significantly and grew by 66 percent year on year (YoY) to Rs 610 crore. The company also reported that its existing businesses comprising its insurance arm, Policy Bazaar, and lending arm, Paisa Bazaar have now been profitable in terms of the adjusted EBITDA for four straight quarters.
The company’s market capitalization has fallen more than 55 percent since its listing in November 2021, however, it has seen some improvement recently on the back of improving profitability, gaining 20 percent in the last month.
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