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JM Financial suggests 'hold' on PB Fintech, sets target at Rs 2,200 by December 24 despite risks. Here's why

JM Financial values PB Fintech at 8x EV/Revenue and 35x EV/EBITDA multiple to ideally factor-in long term growth as well as dilute the impact of near-term one-offs.

November 17, 2021 / 01:33 PM IST
 
 
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Policybazaar and Paisabazaar operator PB Fintech shares made a decent debut on November 15 as the stock listed with a 17.35 percent premium. The opening tick on the BSE was Rs 1,150.

The price trend was largely in line with analysts’ expectations and grey market trends.

The initial share sale of online insurance and lending products distributor has seen a good subscription of 16.58 times during November 1-3, garnering bids worth Rs 56,093.64 crore.

PB Fintech, which is widely known for Policybazaar, mopped up Rs 5,625 crore through its public issue that composed of a fresh issuance of shares worth Rs 3,750 crore and an offer for sale of Rs 1,960 crore by selling shareholders.

The stock was trading at Rs 1,407.20, up Rs 64.85, or 4.83 percent at 12:42pm. It has touched an intraday high of Rs 1,435.25 and an intraday low of Rs 1,341.

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Research firm JM Financial has initiated a coverage on the stock with a hold rating and expects the stock to test Rs 2,200 by December 2024.

“Insurance is a long-term penetration story with distribution playing a key role. Even with Rs 8,30,000 crore in premium generated in FY21, India has one of the highest insurance ‘protection gap’ amongst global economies. Policybazaar due to its monopolistic positioning and broad insurer coverage is likely to be at the forefront of enhancing insurance penetration in the country," it said.

"We forecast insurance business to deliver premium/revenue CAGR of 31 percent/32 percent over FY21-31. While we expect slight market share loss in online distribution due to insurers’ investment in direct channel and newer competition, this loss will be aptly compensated by the company’s growth in physical distribution (11 percent premium contribution in FY31).

Larger renewal base, tech investments and operating leverage to drive margin improvement:

With incremental insurance premium generated every month, Policybazaar is building out a larger renewal base that has higher contribution margins due to minimal CAC. Simultaneously, the company’s investments into AI capabilities are expected to reduce fulfilment costs by automating customer support and policy issuance. These factors combined with operating leverage will drive operating profitability by FY26.

The brokerage firm has initiated a hold on the stock with target of Rs 1,270 with significant upside risks in the medium-term. It values PB Fintech as of Mar’30 at 8x EV/Revenue and 35x EV/EBITDA multiple to ideally factor-in long term growth as well as dilute the impact of near-term one-offs.

PB Fintech posted a consolidated loss of Rs 150.24 crore for the financial year FY21, much lower compared to a loss of Rs 304.03 crore seen in FY20. On the other side, revenue from operations had also shown strong growth, rising to Rs 886.66 crore in FY21, up from Rs 771.3 crore in FY20, registering a 15 percent growth.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

 
Moneycontrol News
first published: Nov 17, 2021 01:33 pm
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