The market is underestimating the impact of Insurance Regulatory and Development Authority of India’s (IRDAI) upcoming Bima Sugam platform on PB Fintech, the parent company of Policybazaar, global broking firm Macquarie has said.
It has issued an “underperform” rating for the PB Fintech stock with a target price of Rs 560, suggesting a downside of more than 25 percent from the current market price.
Macquarie's earnings estimates trail both consensus and management guidance for FY27E by 25 percent and 30 percent, respectively.
The firm's analyst Suresh Ganapathy has highlighted several for the cautious outlook on PB Fintech. Foremost is the potential disruption posed by the insurance regulator's Bima Sugam platform, a move aimed at creating a neutral insurance market place.
Follow our live blog for all the market action
Macquarie suggests that the perceived target market for PB Fintech's services could be overestimated. Traditional channels are expected to maintain dominance in the sector, while insurance companies are likely to push their own digital platforms, potentially limiting the market share available to PB Fintech.
"Bima Sugam could lead to lower take rates and a diminished market share for PB Fintech starting from FY25, with implications extending into the long run," Macquarie said.
A take rate refers to the fees online marketplaces collect for enabling third-party transactions. PB Fintech has already spent over Rs 800 crore on promotion expenses (ex-acquisition marketing expenses) over FY18-23, which would need to be ramped up when competition increases.
Ganapathy's analysis indicates that PB Fintech has already captured approximately 25 percent of the market share within its addressable Total Addressable Market (TAM).
In the face of impending competition, the stock's valuation appears steep, trading at 48x FY27E price-to-earnings ratio (P/E).
Comparing PB Fintech to its peers, Macquarie points out that Bajaj Finance, a more profitable entity with a significant asset under management (AUM) growth, trades at approximately 26x FY25E price-to-earnings ratio. This is in contrast to PB Fintech, which trades at around 36x FY27E consensus P/E.
Also Read: Bajaj Finance an elephant that can dance, say bullish analysts, but investors stay cautious
The owner of insurance aggregator Policybazaar on August 7 reported a sharp contraction in its consolidated loss at Rs 12 crore for the quarter ended June 30, 2023, a dramatic reduction from Rs 204 crore in the year-ago period.
The stock has tumbled over 10 percent in two trading sessions after Q1 results were announced. Ahead of the results, the stock had gained 11 percent.
On August 9, it stock closed at Rs 746 on the National Stock Exchange, down 1.86 percent from the previous day.
Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
Find the best of Al News in one place, specially curated for you every weekend.
Stay on top of the latest tech trends and biggest startup news.
