PB Fintech CEO Yashish Dahiya: Investors need to know we are a boring company that will keep growing; there will be no tamasha

Dahiya added that the company is looking to increase the annual run rate for insurance premiums from Rs 10,000 crore currently to Rs 35,000 crore by FY27.

On November 8, PB Fintech reported a loss of Rs 187 crore for the quarter gone by. Losses narrowed from the Rs 204.44 crore loss in Q2 of FY22. Revenue from operations jumped 105.11 percent to Rs 573.47 crore in Q2 from Rs 279.58 crore last year.

Excerpts from the interview.

You have maintained that you will focus on growth more than profitability. This quarter your core business has seen good growth and losses have narrowed, too. Is profitability closer? What is the plan on that front?

Yashish Dahiya: What is playing out is what I have always said —- that profitability is not a challenge; it is an automatic thing that will happen because our core business has gross margins now of 45 percent and it is growing at 55 percent.

There has been some noise around new initiatives, while the core business has not yet come to scale. As it comes into scale, the new initiatives get dwarfed. Our target is to attain a profit of Rs 1,000 crore by financial year 2027. At that point the new initiatives will not matter.

The two noises around our results are on ESOP charges as well as new initiatives. This year we faced Rs 700 crore in ESOP costs, but five years later it may be Rs 30 crore. The ESOPs we are giving are the same across all years. If you spread them out over the entire period, the cost is Rs 300 crore per year. Next year will be an average year where we may have Rs 320 crore of ESOP charges and we should have enough adjusted EBITDA and interest income to take care of it.

So, there is no rocket science here. Our core business EBITDA has increased by Rs 60 crore YoY in the quarter. Our new initiatives have been declining by Rs 15 crore over the last two quarters. That will continue to happen for the next two quarters. Both put together it is obvious that we will be adjusted-EBITDA positive. Yes, we will still have the ESOP costs, which are high today because we are still in the first year after our IPO. As time goes, they will keep reducing.

If you keep ESOP charges aside, we are already cashflow positive because we have interest income. We are earning Rs 60-70 crore every quarter in interest income. Next year, as we make Rs 200-300 crore in interest income, it should cover our ESOP charges. Also, next year, our positive adjusted EBITDA and Profit After Tax will not be very different, only Rs 50 crore apart.

These are things that just have to fall into place. The market will start to give that credibility as things start falling into place. It takes them time.

Alok Bansal: The first half of FY22 had very low ESOP costs as compared to the first half of FY23, so the losses going down looked good optics-wise. For the second half of both FY22 and FY23, there will be ESOP costs. But costs will come down this year. So, that, combined with the business doing better, it will look like a big difference in terms of the EBITDA loss number that will be reported. The company would not have done anything different, but it will just look optically very good.

You had said earlier as well that the markets are not looking at the long term and focusing only on profitability. Do you think the perception will change as your numbers get better?

Yashish Dahiya: In the first six months after listing, I used to get very frustrated that they were not getting it. Now, I don’t get frustrated. I say if they don’t get it, it is their problem. I don’t care. I can only explain. And I have also stopped trying to bother explaining too hard. In our analyst call, I was only focused on the target of delivering Rs 1,000 crore in profit by FY27. Eventually a business is a business. If it does not deliver profit, it doesn’t have value. We are very clear: let’s just deliver that number and not talk about the other pieces.

Insurance premiums grew by 79 percent as compared to the same quarter in FY22. What kind of growth do you expect across verticals? Will this growth continue?

Yashish Dahiya: There are of course wider reasons why the insurance space will grow. But looking at the controllables that we handled. In the first half of FY23, the retail protection industry saw negative growth, but we had growth. Even our enquiries have fallen, but our premiums per enquiry have gone up from Rs 1,100 to Rs 1,500.

How much of sales is from physical touch points?

Yashish Dahiya: Our meetings (with customers) are leading to 38 percent higher efficiency in conversion, i.e., premium divided by costs. About 14-15 percent of our indexed capacity is in the physical team. From a premium perspective, it is delivering upwards of 20 percent.

Alok Bansal: This is different from the Point of Sale Person (PoSP). When we talk about offline, it is just an extension of the call centre sales and service channel we have in place already. It is not a different customer acquisition channel, but the same customer getting to meet an employee face to face.

The company is at an annual run rate of Rs 10,000 crore for insurance premiums. What growth targets have you set for the coming years?

Yashish Dahiya: We are looking to grow to an annual run rate of about Rs 35,000 crore for insurance premiums by FY27. Rs 10,000 crore of that should come from PoSP, which is currently at Rs 2,000 crore. The balance Rs 8,000 crore will grow to Rs 25,000 crore by FY27, so around three times higher. That is just about 22-23 percent growth rate, it is not a very extreme growth rate. If we grow like we grew in the last year, this will take us just two years to achieve. I am giving us four years.

In this quarter, loans worth Rs 12,000 crore were disbursed through your platform. How much is that likely to grow?

Yashish Dahiya: Credit disbursal in our country must be 10 times the insurance premium. My guess is it will grow much faster than the insurance premium.

Alok Bansal: Credit goes through deep cycles, which insurance typically would not go through. Insurance is an all-season product. Both are very different.

Did you have to make any changes in the flow of lending to adhere to the RBI’s digital lending norms?

Yashish Dahiya: Paisabazaar does not touch money. The money goes from the lender to customers, and repayments go directly to lenders.

What are the growth plans for the UAE business? Do you have any further geographical expansion plans for the near future?

Yashish Dahiya: We are doing well. We are a long-term player, we are never in a hurry. There are no immediate expansion plans. See, we are very boring. I think that’s the thing that investors and analysts eventually need to take away — that this is a very boring company. They just keep growing. At some point they will keep putting in profit, that’s what they are.

There will be no pivots and changes and any other kind of tamasha. Because we’ve got our core proposition right from the very beginning, which is to solve the health and life insurance problems of the middle class in the country. It will take us probably 20-30 years to solve that problem.

Alok Bansal: You will not typically see any random stuff or any big bang acquisitions coming from this management team.

On your analyst call you said your current valuation is the same as back in 2018-2019. Can you elaborate.

Yashish Dahiya: Tencent invested in us at a pre-money valuation of $1.5 billion in 2019. Today we are at a pre-money valuation of $1.4 billion, after excluding cash. So, yes, we are valued less than we were in 2019. And it was an off-the-cuff remark. But from a revenue perspective, we are 5.3 times bigger.

Alok Bansal: When you’re not in the market to raise money, all these things don’t matter to a company. Share prices can go up and down and it can impact the morale of employees to some extent. But from a company perspective, we are not in the market to raise more money. We just need to put our heads down and execute for the next few years.

The lock-in period for PB Fintech ends on November 15. Are you worried about the stock falling further and that retail investors will take a hit? Have you had any discussions with your investors on their plans after the lock-in period?

Yashish Dahiya: I spoke with all our pre-IPO investors on November 8. I said only one thing to them, that I am very grateful for their support in the company before we went public. I don’t hold them to anything anymore. They are of course free to do whatever they wish. I am not guiding them in any way or shape whatsoever. We are the drivers of the company, they were the passengers. They are free to get out whenever they feel is their priority.

To be brutally honest, the share price per se is not controlled by the management. We control our deliverables, where we are ahead of all analyst expectations on both growth and profitability. The share price is actually the investors’ problem and my problem as an investor. The reason I care about the share price, quite honestly, is because I am the largest retail investor. I own 11 times the shares that all the retail investors put together hold. But it is not my job as founder and CEO to be worried. That is Yashish Dahiya as an investor’s problem, and that is the retail investors problem, whoever they are.

We will deliver what we are talking about.

What do you have to say to tech founders who are looking to list in the coming months? What is the learning from the past year?

Alok Bansal: There has to be a reason for listing. If there is a need for capital, this is a very efficient way. You get a lot more freedom as a company but you also have a lot of restrictions as a company. The life of a private company and that of a public company are very different. My only hope is that any company or founder understands that before the listing.

Private markets are more forgiving sometimes. They are also able to engage with you much more deeply. In public markets you don’t get that much of an opportunity to engage deeply with any particular investor. So, yes, the level of discussion becomes a little shallow. That’s where earnings calls become more important for how clearly you can establish your business model, your numbers. Don’t go to the markets before you have a certain stability in your business model.