Policybazaar IPO: Brokerages bullish on insurance portal's innovative approach
Considering its multiple growth drivers and leadership position, investors may invest in Policybazaar IPO for listing and long-term gains.
November 01, 2021 / 11:07 IST
PB Fintech Ltd (PBFL), which runs online insurance marketplace Policybazaar and credit comparison portal Paisabazaar, will float its maiden public issue today to raise around Rs 5,710 crore. The issue closes on November 3. The company has set a price band of Rs 940-980 per share.The issue is a combination of fresh and offer-for-sale (OFS) shares. The company will not receive any proceeds from the OFS portion of the issue. Of the net proceeds, Rs 1,500 crore will be used for enhancing the visibility and awareness of its brands, Rs 375 crore will go to fund opportunities, Rs 600 crore will be used for funding strategic investments and acquisitions, and Rs 375 crore will be used to expand the business outside India. Residual funds will be used for general corporate purposes.PB Fintech, through its innovative online platforms, provides convenient access to insurance, credit and other financial products and aims to create awareness among Indian households about the financial impact of death, disease and damage.In FY20, Policybazaar was India’s largest digital insurance marketplace among all online insurance distributors with 93.4 percent market share based on number of policies sold, and constituted 65.3 percent of all digital insurance sales in India by number of policies sold.Paisabazaar was launched in 2014 to provide lending products (personal loans and credit cards). It was India’s largest digital consumer credit marketplace with a 53.7 percent market share, based on disbursals in FY21.The company primarily generates revenues from commission and additional services, and from providing online marketing, consulting and technology services to insurers and lending partners.Also Read - Policybazaar IPO opens: 10 key things to know about the issue, companyAs per KR Choksey, factors that are a big plus for the company include its large, underpenetrated and growing market, leadership in digital marketplace, strong ability to attract new consumers on the platforms (the number of unique visits to its Policybazaar platform during FY21 was over 126.5 million visits), ability to retain consumers, and its strong relationship with insurers and lending partners.The factors that make the company susceptible to risks are any public health threat like COVID-19 pandemic, could adversely affect the business, financial condition, and results of operations. Inability to evolve to the consumer’s changing needs can result in loss of customers. It has a history of losses and the company anticipates increased expenses in the future. Non-compliance to regulations is a major threat to the company’s business.Going forward, the company aims to broaden and deepen consumer reach in India, expand presence by replicating its platform for SME and corporate clients, continue to invest in brands as well as in digital and technology infrastructure and pursue inorganic growth opportunity and international expansion.Choksey report states that Policybazaar’s contribution to profit and margin has grown significantly over the last two years to Rs 353 crore in FY21 from Rs 42 crore, and to 39.8 percent from 8.6 percent, respectively, in FY19. “Though the company is loss-making at EBIDTA level, it has managed to improve unit metrics over the years,” the report said.“We like the company’s focus on growth, willingness to do more experiments while focusing on core business, international expansion and inorganic growth plans. Considering multiple growth drivers and leadership position of Policybazaar in the digital ecosystem, investors should look to ‘invest’ in the IPO for listing as well for long term gains,” the report said. Choice broking feels that the company’s strengths lie in its proprietary technology, data and intelligence stack. It is a collaborative partner for insurer and lending partners, its business scale gives it unique self-reinforcing flywheels and strong network effects; its high renewal rates provide clear visibility into future business and delivering superior economics.The brokerage feels that the company can face difficult headwinds due to unfavourable government policies and regulations; withdrawal of products from business partners; lower commission from business partners; difficulty in acquiring and retaining customers; declining operational efficiencies; business seasonality and continued slowdown in credit growth.The brokerage concludes that at the higher price band of Rs 980, PB Fintech is demanding an EV/TTM Sales multiple of 40.5x, which seems to be very stretched. “Given the positives associated with the business, we assign ‘subscribe for long term’ rating for the issue.”Jyoti Roy, DVP- Equity Strategist, Angel One Ltd, believes that the company’s platforms will address underpenetrated online insurance and lending markets, since insurance penetration is only 4.2 percent (life insurance at 3.2 percent and non-life at 1 percent). “The company is best placed to leverage its tech-driven business vertical to benefit from this above growth. This IPO can be subscribed for the listing gains,” he said. Rajiv Kapoor, Vice-President at Trustline Securities, suggested that in terms of valuations, the post-issue FY2021 EV/Sales works out 47.6x (at the upper end of the issue price band), which is high considering the company’s 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,” he said.
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