☂ Policybazaar IPO – Everything you need to know about PB Fintech Limited IPO
Life has been pretty good for this online insurance aggregator. PB Fintech raised over ₹2,569 crores in its latest round from 155 anchor investors, which included leading insurance firms such as HDFC Life NSE -0.39 %, ICICI Prudential, Bajaj Allianz Life, SBI General Insurance, and Max Life Insurance, according to a BSE circular posted on 29th October.
With an innovative business model that aims to transform the insurance and lending industry, PB Fintech, through its technology and transparency-driven platforms Policybazaar and Paisabazaar, is attracting customers and investors.
PB Fintech’s IPO (popularly dubbed as Policybazaar IPO in the market) is set to open on 1st November looking to mop-up ₹5,650 crores from the market. The IPO comprises a fresh issue of ₹3,750 crores and an offer for sale (OFS) of more than ₹1,900 crores, largely by SoftBank. It has set a price band of ₹940-Rs 980 per share for the IPO, pegging its valuation at an eye-popping ₹46,125 crores (~$6.15 billion), valuing it more than ₹25,923-crore market cap of New India Assurance – the country’s largest non-life insurer.
ISSUE DETAILS
- IPO Size: ₹6,017.50 Cr (fresh issue of ₹3,750 Cr + OFS of ₹2,267.50 Cr)
- Face Value: ₹2 Per Equity share
- Price Band: ₹940-980
- Min Investment: ₹14,700 (15 shares)
- Book Running Lead Managers: Kotak Mahindra Capital Company, Citigroup Global Markets India, Morgan Stanley India Company, HDFC Bank Ltd, ICICI Securities and Jefferies India
- Registrar: Link Intime India Private Ltd
- DRHP: View
For you: What is an IPO? Should you invest in them?
ABOUT THE COMPANY
PB Fintech is India’s leading online platform for insurance and lending products. The company provides convenient access to insurance, credit, and other financial products and aims to create awareness in India about the financial impact of death, disease, and damage.
In 2008, PB Fintech launched Policybazaar aimed at catering to consumers who need more information, choice, and transparency in insurance policies.
Policybazaar started out as a comparison website that generated leads for insurance companies. It offers a comparison metrics of policies from various insurance companies using various criteria, including claims settlement ratios and sum assured, making it easy for a layman to find the best-suited policy for them. Over the years, the company has evolved into a platform that allows users to search, buy, renew and lodge claims. It also received an insurance broking license from the IRDA and has expanded its offline presence into insurance distribution.
Currently, 51 insurance partners offer over 340 term, health, motor, home, and travel insurance products on the Policybazaar platform, as of March 2021. The company’s technology solutions are focused on automation and self-service-driven consumer experiences requiring minimal human intervention. As of March 31, 2021, over 4.8 crore consumers were registered on Policybazaar and purchased over 1.9 crore policies. In FY2021, the annual number of visits on Policybazaar’s website was a whopping 12.65 crores. It’s a huge number considering it is not an entertainment website, as the company’s founder noted.
According to Frost & Sullivan, Policybazaar was India’s largest digital insurance marketplace with a 93.4% market share based on the number of policies sold in Fiscal 2020. Also, in the same year, 65.3% of all digital insurance sales in India by volume were transacted through Policybazaar.
Besides the insurance vertical, the company distributes loans through Paisabazaar in partnership with 56 banks and fintech companies.
OFFER BREAKUP
| Category | Allocation | Issue Size (₹ in crores) |
| QIB | 75% | 4,513.12 |
| NIB | 15% | 902.63 |
| Retail | 10% | 601.75 |
| Total | 100% | 6,017.50 |
OBJECTIVES OF THE IPO
What will the company do with the money its raising through IPO? The proceeds from the IPO will be used for funding strategic investments and acquisitions, expanding presence outside India, and general corporate purposes. Here’s what the DRHP says:
- For enhancing visibility and awareness of company’s brands, including but not limited to “Policybazaar” and “Paisabazaar” – ₹1,500 crores.
- New opportunities to expand company’s consumer base including offline presence – ₹375 crores.
- Funding strategic investments and acquisitions – ₹600 crores.
- Expanding presence outside India – ₹375 crores.
- General corporate purposes.
IPO TIMELINE
| IPO Open Date | 01-Nov -2021 |
| IPO Close Date | 03-Nov-2021 |
| Basis of Allotment Date | 10-Nov- 2021 |
| Initiation of Refunds | 11-Nov-2021 |
| Credit of Shares to Demat Account | 12-Nov-2021 |
| IPO Listing Date | 15-Nov-2021 |
IPO STRENGTHS
- The company has created strong, consumer-friendly brands offering wide choice, transparency and convenience. Policybazaar and Paisabazaar platforms have large, efficient and intelligent networks, providing consumers with the ability to browse financial services products offered by 51 insurer partners and 54 lending partners.
- Strong management with a proven track record. Key management team includes Mr. Yashish Dahiya (Co-Founder, MD and CEO), Mr. Alok Bansal (Co-Founder and CFO), Avaneesh Nirjar (Co-Founder and CEO), Ms. Kitty Agarwal and Mr. Sarbvir Singh.
- India’s most trusted and widely used insurance platform which offers a wide choice and transparency to customers to research and select insurance and personal credit products.
- The company’s proprietary technology helps in superior data intelligence and customer service as well as better functioning relationships with partners.
- Collaborative partnerships with various companies for insurance and lending products.
- Strong network effects for Policybazaar and Paisabazaar platforms allowing for customer retention and revisiting without significant marketing expenditure.
- High renewal rates for policies sold on the platform.
- Capital efficient model with low operating costs, and low inherent risks.
- Capital efficient model with low operating costs.
IPO RISKS
- The company operates in dynamic and competitive online fintech industries. Any new disruptor in the market can put PB Fintech on the backfoot and hurt its growth prospects and business.
- Lately, a small yet growing band of incumbents in India’s legacy insurance industry, like HDFC Ergo, LIC, and ICICI Lombard have delisted or stayed away from listing new products on third-party online brokers and web-aggregators like Policybazaar. Since the company depends on its insurance and lending partners for business, if this trend continues it could hurt PB Fintech’s business.
- There is a growing sentiment among insurance companies to decrease the dependency on third-party services, like Policybazaar, and instead invest in their own agency relationships and distribution capabilities. This could pose a challenge for the company in shielding its market share and consistently scaling its revenue.
- The company has a history of losses, and we anticipate increased expenses in the future. If the company does not improve its return ratios, then it could put pressure on the company’s stock price.
FINANCIAL DATA
The company has been making net losses, although their losses have been declining YoY since FY19. They could potentially become a PAT-positive company soon.
| (₹ crores) | Income | Expense | PAT |
| 2019 | ₹529 | ₹866 | –₹337.42 |
| 2020 | ₹856 | ₹1150 | –₹294.84 |
| 2021 | ₹957 | ₹1099 | –₹141.91 |
PEER COMPARISON
There are no listed companies in India that engage in a business similar to that of Policybazaar.
However, in the unlisted space, there are several other insurance brokers like Coverfox, Turtlemint, Paytm, and RenewBuy while on the aggregator space Policybazaar competes with PolicyX, PhonePe, BankBazaar, and ETInsure.
RECOMMENDATION
At the upper band of ₹980, the issue is valued at an enterprise value-to-revenue multiple (EV/R) of 49.49x based on its FY21 revenue of ₹886.66 crores, which is pretty expensive.
EV/R is a measure of the value of a stock that compares a company’s enterprise value to its revenue and is used to determine whether a stock is priced fairly.
Though the company has been making net losses for the past three years, its plans for future strategies for expansion and scalability show great promise in the fintech market. Plus, insurancetech is a hot space lately with growing interest from all categories of investors.
Policybazaar has a 90% share in the digital insurance market, and Paisabazaar has a 51% share in the digital consumer lending market, according to its DRHP. Overall, they are the market leaders in their respective segments. Their digital model is capital light and efficient and is substantially scalable in a short period of time. The industry outlook for both the consumer credit and insurance industry are both positive as they are expected to expand significantly by 2030E, and the company also has strong fundamentals which are implicit of a promising future. For this reason, we have a “Neutral Rating” for this issue.
While the insurance broker’s license and the minimal online insurance penetration in India provide the company with massive growth potential, the current valuation seems pretty expensive. Hence, we recommend this IPO only for investors with a high-risk appetite, a long-term investment horizon, and who have the patience to wait.
Given the IPO is already very aggressively priced, even those looking for listing gains should subscribe only if they are ready to take high risk.
If you choose to invest in IPOs, make sure to allocate no more than a small percentage of your portfolio. This rule applies to investing in any individual stock. Experts recommend that you avoid putting large percentages of your cash in any one company, no matter whether it’s a hot IPO name or has been listed on the NSE for over two decades.
