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PB Fintech, the company operating online distribution platforms for insurance (Policybazaar.com) and consumer lending (Paisabazaar.com), listed on the exchanges today. After being oversubscribed by 15.9 times, the IPO listed at ₹1,150 which is a 17.3 per cent premium to the upper end of IPO price band of ₹940-980 per share and is now trading at ₹1,227 or 25 per cent premium to IPO price. We recommend investors to book gains from the IPO on allotment and exit the investment, given its valuation.
The company operating at the intersection of two rising trends, digital adoption and financial inclusion, has strong macro factors supporting a positive view on the stock. But valuation of the company at the time of IPO itself at 46 times sales (FY21), factored in most of the macro-tailwinds. The high valuations now reinforce the high hurdle for investment returns even with high growth assumptions. Even with generous growth assumption of 40 per cent CAGR in total premium handled by PB Fintech till FY25 and industry level growth in digital lending platform, the company valuation will still be at 20 times FY25 sales. The company’s lack of profits or a path to profitability may weigh-in on the valuation at some point as well.
Current Business
Revenue for the company is driven by commission and fees, from insurance (68 per cent of FY21 revenues), and lending (21 per cent). PB Fintech’s insurance business generates commissions on sales (43 per cent) and outsourcing services (49 per cent) provided to insurers and rewards. On a base of total premium, the commission rate and even the outsourcing charges are 5 to 6 per cent each, while rewards is another 1 per cent, across FY19-21. Paisabazaar similarly generates commission revenues from loan disbursals and other services in the range of 3-6 per cent.
The company has a high market share in digital insurance and even consumer lending and generates high renewal business from both segments. Even with high proportion of automated purchases on both platforms and leading market share, employee and advertising expenses still account for 58/38 per cent of revenues in FY21 (compared to 75/64 per cent in FY19) and company is still reporting losses. The Adjusted EBITDA margin improved to -6.9 per cent in FY21 from -58 per cent in FY19. While path to actual profitability is still far away, company defined metric Contribution Margin which considers costs directly related to sales improved to 40 per cent in FY21.
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