Policybazaar files DRHP: Losses, commissions, litigation among key risks

LOSSES AND ANTICIPATED EXPENSES

As with other internet companies such as the recently listed Zomato and Paytm and MobiKwik, which filed for IPOs in July, Policybazaar said in its DRHP that the company has a history of losses and anticipates increased expenses in the future. The company, though, cut losses to Rs 150 crore in FY21 from Rs 304 crore in FY20. In FY19, the company made a loss of Rs 346 crore.

“We expect our costs to increase over time and our losses will continue given the investments expected towards growing our business. Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or increasing profitability or positive cash flow on a consistent basis,” the company said.

REVENUE DEPENDENCE ON PARTNERS

Policybazaar derives its revenue primarily through commissions from third-party insurers and lending partners. Any change in commission rates will impact operations.

“Since we do not determine, and cannot predict, the timing or extent of premium or fee rate changes, we cannot predict the effect any of these changes may have on our operations. Any decrease in commissions or other fee rates may significantly affect our results of operations,” it said in the DRHP.

The company also depends on operations continuing with these business partners. Its four largest partners contributed 32.81 per cent of revenue from operations in FY21 and 35.11 per cent in FY21.

“While we continually seek to diversify our partners, there can be no assurance that the concentration will not decrease or further increase,” the company said.

REGULATION OF SUBSIDIARIES

The company’s subsidiaries are overseen by regulatory authorities such as SEBI, the Reserve Bank of India and, most importantly, the Insurance Regulatory and Development Authority of India. The company is subject to periodic examination and due diligence by the regulators. Any form of non-compliance may result in regulatory action.

SEBI had issued an administrative warning to its subsidiary Paisabazaar on October 2020 in relation to non-compliance with certain provisions of the SEBI (Investment Advisers) Regulations, 2013.

“Paisabazaar has responded to SEBI, along with provision of the requisite information sought,” the company said.

COMPETITION

Policybazaar anticipates competition not only from other online insurance aggregators but also from its own partners and their offline and online sales channels.

“New competitors may emerge at any time. Some of our competitors also offer their insurance and credit products on our platforms, so they both compete and cooperate with us, and can stop offering products on our platforms altogether, which could adversely affect the product mix on our platforms and sales,” the company said. “Our competitors may introduce platforms with more attractive products, content and features, or services or solutions with competitive pricing or enhanced performance that we cannot match. Some of our competitors may have more resources to develop or acquire new technologies and react quicker to changing requirements of consumers and insurance and financial companies.”

LITIGATION

The company revealed that its subsidiaries and certain directors are involved in legal proceedings and any adverse decisions against them may attract penalties. Four pending litigations against the company were detailed in the DRHP, 105 involving its subsidiaries and two involving directors amounting to over Rs 300 crore.

THREAT OF DATA BREACHES

Policybazaar highlighted that failure to protect confidential information, prevent cybersecurity and data breaches or improper use or disclosure of such data will materially and adversely affect business. Additionally, if third-party insurers and lending platforms fail to maintain data integrity, the company’s consumers, business and financial conditions could be adversely affected.