Policybazaar Shares End Lower Even As Kotak Reposes Faith In The Stock
Kotak set the stock’s fair value at Rs 700, implying a potential upside of 17.8%
Shares of PB Fintech Ltd., the operator of insurance etailer Policybazaar, fell even as Kotak Institutional Equities initiated coverage with a ‘buy’ citing its leadership in online insurance and a diversifying product mix.
Policybazaar’s 90% market share in the online insurance marketplace is driven by its “pioneering market position, industry-first offerings, large brand investments translating into strong brand recall, a robust technological backbone, and use of rich customer insights to improve claims experience for its insurance partners and develop customised products”, the brokerage said in a June 18 report.
Its insurance business, according to the report, is well placed to deliver high multi-year growth, with a 39% CAGR in premium expected during FY22-26.
“The company’s booming digital business is augmented by its point-of sales person as well as offline businesses that help expand its product bouquet with long-trail earning policies,” it said.
Kotak set the stock’s fair value at Rs 700, implying a potential upside of 17.8%. That compares with its initial public offering price of Rs 980 apiece. The stock, however, has fallen more than 40% since debut, tracking peers such as FSN E-Commerce Ventures Ltd. (Nykaa) and Zomato Ltd., amid a global selloff in tech companies.
PB Fintech’s high multi-year growth, the brokerage said, will lead to consistent market share gains, better unit economics and drive operating leverage over time. “Its diversifying product mix, aided by increasing distribution channels, will help gather trail commissions—a key driver of its profitability.”
Kotak sees PB Fintech reporting an EBITDA breakeven by FY25 and turn positive by FY26. That, even as, near-term drags of offline and point-of sales person businesses require investments. “We expect a marginal increase in overall commission yields on the back of a shift in focus to high-commission products, but constrained somewhat by low-yielding but highly-profitable renewals.”
The brokerage’s expectation of a high multi-year growth for Policybazaar builds in significant market share gains in the low-penetrated traditional savings and fast-growing health businesses.
Kotak also listed a few key risks to PB Fintech’s business:
High dependence on select insurance companies
Increasing competition for Policybazaar from offline/online players.
Growing competition from the rapid evolution of new digital lending business models and emergence of new fintech players.
Effective execution of the offline business.
Tightening insurance regulations.
With Kotak’s, PB Fintech now has seven ‘buy’ ratings. Apart from that, the stock only has one ‘hold’ call. On June 10, Morgan Stanley and Citi reiterated their 'buy' ratings on the company as well. The two have target prices of Rs 840 and Rs 900 respectively. The overall consensus price of analysts tracked by Bloomberg implies an upside of 46.2%.
Shares of PB Fintech swung, falling as much 2.1% and then gaining 1.9%, in early trade on Monday amid volatile markets. The stock ended 0.8% lower thereafter.