Can anyone share their thoughts on effect of bima sugam on policybazaar ?
I think their margins will come down & some sales growth. But it may not be disastrous as finally dont expect free to be great experience for customers.
Discl - not holding.
Yet to hear any guidelines from the regulator although the media is already talking superficially about it. Here is my opinion/thinking:
Being a regulatory initiative, I expect that it would be a data lake to -
- Improve transparency - By mandating all insurers to disclose more data in a standardized format
- Automate the audit of insurers by IRDAI.
- Provide online access to the policies and their lifecycle
Insurance being a push and complex product needs guidance both while buying insurance as well as servicing claims. This aspect is and would continue to be fulfilled by an agent, a key catalyst to source premiums for all insurance companies.
Agents like PB might be charged a small fee to access the data as the portal will be a cost center for the regulator. Any other monetary noose will dilute the core purpose of the regulator - an insurance product for the masses for various needs.
Overall, the focus should be convenience, implied by name (Bima Sugam) as well, and not cheap/free insurance.
Good set of numbers by PB Fintech.
As trail revenue increases over time in both Pasia & Policybazaar (renewal rev) , the margin profile of the business should look dramatically different.
Management is guiding to be PAT positive in FY24.
My personal opinion is that being PAT positive is a little bit of an understatement. If you back out the 542 cr of ESOP charge in FY 23 (Which is not a real expense “this fiscal” but was a historical expense & because of GAAP accounting, it is being reflected over the vesting period), they are already Adj. PAT +ve 54cr.
Increased operating leverage next year as the business grows, a higher mix of trail rev, improved efficiencies in the “new initiatives” and no further ESOP charges should drive GAAP PAT significantly above 54cr.
Disc: Invested.
Agree with your view. however ESOP charges are expected to continue for next 3 years (though the amount will go down). Also, while it is non-cash expense from accounting perspective wont it result in EPS dilution?
As the book size builds up over coming years, I get a feeling that Policy Bazaar should be a better choice compared to pure play insurance players. Just my thoughts!
A recent interview of Yashish Dahiya. Sheds some light on the journey thus far & some qualitative aspects of the founding team.
PB Fintech Q3 FY 2024 (concall - rough cut)
Filing: https://www.bseindia.com/xml-data/corpfiling/AttachLive/6f489e31-0009-41a8-8070-2fc00507206d.pdf
- Turned PAT positive. Adjusted EBITDA will keep improving by 200 crores annually
- ESOP cost in Q3 FY 2024 was 65 crores (mentioned in call but it shows 37 crores in filing). ESOP cost is likely to be in 100 to 120 crores range in medium to long-term. Current year is likely to be 330 crores.
- This is a big takeaway: Of the 501 crore additional revenues 9M YoY, 170 crores flown to EBITDA directly.
- Another big takeaway: Analyst asked - Contribution margin in core business is stable at 44%? Is this plateauing? Answer: it will not plateau even 10-years from here. Industry is 7 to 8 lakh crore premium and only 1 lakh is new premium rest is renewal premium. Renewal premium is much more profitable. So contribution margins will continue to improve as company increases share of renewals.
- Health grew higher than Term. Health growth depresses EBITDA margins, in absence of higher growth in health EBITDA margins might have been higher by 2%. Health is 0% contribution margin in first year.
- Health revenue in first year is 20% but underwriting cost is about 80% upfront taken so it depresses margins but very good for long-term.
- I did not understand this fully – Health insurance first year NPV is 2.7x, Motor other – 1.6x and life is 1.2x.
- Credit to slow down due to unsecured lending tightening by lenders (in line with Paytm). Management guides 2-3x of industry loan growth, industry growth is likely to be in 13-16% growth (can’t remember this exactly but broadly in similar lines). However, Yashish Dahiya mentioned I will be disappointed if we grow lower than 40%. In H1 company grew in 40-50% range. H2 may come down to 30-40%. Long-term growth remains intact.
- Credit business is at 8% EBITDA margin while insurance is 14%
- New initiatives (PBpartners and UAE business): broken even in Dec-2023. PBPartners present in 90% of India pincodes
- PBpartners: margins improved significantly due to focus on retail (small) agents business. Retail agents increased by 56%
- Bima Sugam and ONDC risk: welcome competition for overall improvement of insurance coverage of the country.
- On commission on trail basis (on new I-Pru product? - We are selling such product and welcome products which are beneficial and tied to persistency of the insurance.
- Question on TPA (in relation to Bajaj Finserv’s acquisition of TPA): We have 40% stake in visit health (TPA) they are doing wonderful job.
- Management shall come back on: capital allocation, payment aggregator service and strong focus on credit side given opportunity.
- Whats working for health insurance? Ticket size not changed so volume driven. Each of the thing worked - top of the funnel, better customer experience, virtuous cycle working. Karma coming back
quip by Yashish Dahiya. We celebrate claims now instead of new volume. Huge focus on disclosures. Onground teams also helped, explaining better, in-person support. 30 minutes claim support and word of mouth worked. Tech and data to catch fraud. - POSP – If agent leaves? Its agent’s business. PB gets only fee for usage of tech.
Diclousre: Own the stock. transacted in last 30 days.
Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation.
New business vertical going to come, First private company going to compete the monopolistic General Insurance of India in Re-insurance segment, here is the public announcement of principal approval (not final) form IRDAI
PB_fin.pdf (410.9 KB) , does anyone have any idea of economics involved in this Reinsurance vertical…?
Addition of one more player in this space although being funded by a gov org it will be difficult to penetrate this market at a much later stage and compete with the tech and databases they have developed over the years
This gives us a signal before hindsight that the space still has a room to grow
Interested to know fellow investors thoughts?
I was initially worried about this overhang and invested late in PB fintech (from 600 onwards)…what helped make the investment decision was my experience with MFU platform which is similar initiative for Mutual Funds. Its owned by all mutual fund houses and as a result it is no one’s baby. Experience of the platform is at best average, user experience is below par with hardly any worth while enhancements to the platform over last 4-5 years. Only reason I stick around with it is because it is truly independent platform will all mutual funds available under one bucket.
It is my hypothesis that Bima Sugam might start with a bang and eventually end up in similar state. PB fintech’s moat is current management that understands this business very well, rapid agility and good customer experience…the existing book is a big plus ensuring big tail revenue for many years.
Just my 2 cents!
No doubt, Policy Bazaar business is very interesting business with good business model in insurance sector with consistent sales growth.
I would like to understand on the valuation point of view.
Current Market cap is 56,000 Cr. Assuming 56 PE and 1000 cr Profit, which is very optimistic in my opinion. 1000 cr PAT could take at least 3 to 5 years of time. Correct me if I am wrong?
Management revised its guidance of profits to 1470 crores by FY27. https://www.moneycontrol.com/news/technology/hurts-when-people-dont-understand-we-turned-profitable-without-cutting-expenses-pb-fintechs-yashish-dahiya-12253671.html
Also note that management somewhere said that once they reach the said target their bottomline will still grow at 40-50% rate. I have done my own work: My portfolio updates and investment journey - #147 by joinjp2003 when market cap of pb was 50,000 crores.
There are risks: regulatory, new initiatives etc.
Disclosure: I own the stock, ~14% of portfolio. May have transacted in last 30 days.
Disclaimer: I am not a financial advisor and nor a SEBI registered Analyst. The content shared here is only for learning purpose. All the names mentioned here are for example purpose. I may buy more, exit or partly sell the stock/bonds without any prior intimation . Also note that I recently joined a investment advisory firm. My portfolio is not a recommendation for anyone. Some of these stocks might be in clients portfolio as well so please be aware of vested interest.
The incremental margin looks very soft.
I will wait for the earnings call - but it is likely a result of:
- Outstanding health/life insurance growth where large amounts of CAC need to be expensed in yr1.
- EBITDA falling in Paisabazaar. Not unexpected since the top line is down YoY due to RBI curbs on unsecured. A small reset in the business which will take a few quarters to work through.