PB Fintech down 5% in 2 days on Bima Sugam worry; analysts say buy the dip

The selling in PB Fintech (Policybazaar) shares, analysts feel, is overdone as the owner of the online insurance portal remains committed to achieving profitability

The decline of over 5 per cent in PB Fintech’s shares (the parent company of PolicyBazaar) in the past two days presents an opportunity for long-term investors to consider buying the stock, suggest analysts. By comparison, the benchmark S&P BSE Sensex has remained flat during the same period with a negligible gain of 40 points, or 0.06 per cent.

Analysts believe that the recent selling is “overdone”, as the company behind the online insurance portal remains committed to achieving profitability, and the potential threat from the government’s online insurance portal, Bima Sugam, might be embellished.

“The recent market dip is a chance for investors to buy into the stock, given that the government’s portal could be limited in terms of efficiency and market-share gains. Bima Sugam might not be able to compete with PolicyBazaar,” says independent market analyst Ambareesh Baliga.

Drawing parallels between Open Network for Digital Commerce and Bima Sugam, Baliga points out similar concerns that affected Zomato’s stock a few months ago. However, the results for the 2023-24 (FY24) April-June quarter (first quarter, or Q1) indicated that Zomato’s business remained unaffected.

Meanwhile, government-backed Bima Sugam aims to function as an online insurance marketplace, resembling an e-commerce platform. This platform will enable insurers to offer and sell their products, while consumers can conveniently purchase or renew policies, file claims, and access related services within a unified framework.

UPI moment?

Global brokerage firm Macquarie has initiated coverage on PB Fintech with an ‘underperform’ rating and a target price (TP) of Rs. 560, nearly 25 per cent lower than current levels. Macquarie believes that Bima Sugam could disrupt the insurance market and pose a threat to PB Fintech's target market segment.

“Our channel checks reveal that the regulator wants this to be a ‘UPI moment’ in the industry. In our view, it can be a disruptive start-to-end insurance journey platform offering a seamless experience and has the potential to affect prospects for PB Fintech in the long run. We see the impact coming in the form of lower take rates and lower market share from 2024-25 (FY25) onwards,” it said in a report.

However, analysts within the country believe that private players like PolicyBazaar have strong brand recall, giving them an edge in competing with Bima Sugam. Nevertheless, concerns about valuations persist.

“What’s more worrying for PB Fintech shares is its stretched valuation. With a market capitalisation of Rs. 33,000 crore and a 2026-27 price-to-earnings ratio of 48x, the company needs to swiftly attain profitability. While it has narrowed its net loss in Q1FY24, the market will closely monitor its performance throughout FY24,” says Kranthi Bathini, director-equity strategy, WealthMills Securities.

During Q1FY24, PB Fintech achieved consolidated revenue of Rs. 660 crore, marking a 23 per cent decrease quarter-on-quarter (QoQ) but a 32 per cent increase year-on-year (YoY). Additionally, the consolidated net loss narrowed to Rs. 11.2 crore YoY.

PolicyBazaar witnessed a 30.9 per cent YoY growth in online insurance premiums (down 8.8 per cent QoQ), with the management remaining confident about delivering 2-3x the industry growth rate. The take rate (fees charged by third-party platforms) for organic revenues improved to 16.6 per cent (up 50 basis points, or bps/79 bps YoY/QoQ) due to a change in the product mix.

Bathini suggests that long-term investors should hold on to the stock due to the growth potential of new-age companies in an expanding economy. On the other hand, short-term investors might consider taking profits, given the 48 per cent surge in the past six months.

Kotak Institutional Equities has assigned an ‘add’ rating to the stock with a TP of Rs. 800, projecting a 29 per cent premium compound annual growth rate for PolicyBazaar during 2022-23 through 2029-30 (FY30) and 18 per cent from FY30 through 2034-35 (FY35).

The overall contribution margin is expected to rise to 34 per cent by 2025-26, up from 25 per cent in FY25. Furthermore, the higher share of core businesses is likely to drive the contribution margin to 42-45 per cent during FY30-35.

“We don’t see any significant competition in PB Fintech’s core business and believe the company can sustain growth and margin expansion. Although we have revised our revenue estimates for new initiatives, this has simultaneously led to improved earnings before interest, tax, depreciation, and amortisation margins. We maintain a ‘buy’ rating with a TP of Rs. 980," state analysts at JM Financial.