PB Fintech may miss guidance of Rs 1,000 crore profit by FY27 following GST cut on health, life insurance

PB Fintech

While the removal of Goods and Services Tax (GST) on health and life insurance premiums for individuals has been highly lauded, it may prove a blow to insurance marketplace PB Fintech.

The zero percent GST on life and health insurance effectively removes the input tax credit (ITC) for insurers. The loss of ITC will significantly dent the margins and profit of insurance players, who in order to pass on the benefit to consumers, have decided to rejig their commission structures. Individual agents, who have been impacted approached the regulator, urging intervention and shifting the burden from individuals to corporate agents.

This could potentially create headwinds for companies like PB Fintech, impacting around 68 percent revenues, noted forensic research firm Trudence Capital’s latest report. As a result, the company may fail to meet its profit guidance of Rs 1,000 crore by FY2027.

ITC allowed insurance players to deduct the GST that they pay on business expenses against the GST that they collect from customers. Here's a quick example on how the ITC benefit works for insurers:

• For example, if an insurance premium is Rs 100, with 18 percent GST, an insurance player collects Rs 118.
• If the insurer is incurring Rs 35 as expense on commissions and other services, they will pay Rs 6.3 as GST, which is 18 percent of Rs 35.
• The insurer offsets this Rs 6.3 against GST collected and deposits only Rs 11.7 with the government.
• Now, with the premium exempt, the ITC benefit is gone. As a result, insurers may raise base premium to Rs 106.3 to recover cost.

Impact on PB Fintech’s core online revenues

PolicyBazaar, the flagship business of PB Fintech, earns 99.5 percent of its revenue from the commission take rate applicable to the premiums collected or the number of policies sold. Trudence Capital noted that in FY25, the life and health insurance segments accounted for roughly 68 percent of the total commission earned by PB Fintech.

PB Fintech’s core online business reported a revenue of Rs 2,573 crore in FY25, which going ahead, is likely to be severely impacted as the firm will have to absorb the GST on commissions.

Further, over the short-term, the insurance player may find it difficult to trim costs, of which manpower, administrative expenses, and A&P spends are the majority.

According to the forensic research firm, if the commissions are rejigged, the greatest impact would be on the health and term insurance, which could see a cut of 15.3 percent. Based on some calculations, PB Fintech’s core online revenue could fall by 6.8 percent or Rs 175.3 crore if the firm is forced to absorb 100 percent of the GST changes.

If PB Fintech absorbs 50 percent of the costs, following possible cost-cutting and the insurers bear some of the burden, the core online revenue could face a 3.7 percent decline or Rs 94.2 crore.

However, this will be a significant step back for the firm, which is already reeling from lower growth in its core new premium segment. The growth has slowed over the past quarters, reverting to levels last seen in Q1 of FY2024.

Impact on PB Fintech’s trailing revenues

Trailing revenues are the revenues collected through renewal of schemes. This is a low-cost, but high-margin revenue stream, since most expenditure (marketing, customer acquisition spends) is for new business. PB Fintech’s management noted that it earns 80 percent margins on trailing revenues, and will be a driver in achieving the profit guidance of Rs 1,000 crore by FY2027.

The firm’s trail revenue from the insurance segment accounts for roughly Rs 560 crore, of which the bulk comes from health insurance. Health insurance was at the highest GST rate of 18 percent.

Trudence Capital noted that, taking a conservative estimate that 50 percent of trailing revenues are derived from health insurance, PB Fintech’s revenues could fall by Rs 42.7 crore or 7.6 percent if the full GST absorption is taken by the firm. If PB Fintech bears 50 percent of the burden, the revenues could decline by Rs 23.1 crore or 4.1 percent.

“With the majority of the trail revenues coming from health, the management’s claim on making 80 percent margins on trail revenue will take a toll,” added the forensic firm. “We believe that earning 80 percent margins on trail revenues is over-exaggerated. In fact, the management has repeatedly cut its guidance on trail revenue margins from 90 percent to 85 percent, and now 85 percent to 80 percent.”

Cumulative impact

If we consider both the core online business and trail revenues:

• If PB Fintech absorbs 100 percent of the GST impact, the consolidated revenue loss would amount to Rs 220 crore, or 4.4 percent. Adjusted EBITDA would decline by 65.7 percent.
• If PB Fintech absorbs 50 percent of the GST impact, the consolidated revenue loss would amount to Rs 120 crore or 2.4 percent. Adjusted EBITDA would decline by 35.2 percent.

“The announcement by the GST council to reduce GST rates on life and health insurance is a body blow to the profitability of PB Fintech already reeling from lower growth,” stated Trudence, adding that the management’s guidance of Rs 1,000 crore profit by FY27 looks bleak. Going ahead, it will be critical to watch how the firm addresses the situation.

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