KYI – Know Your IPO ✅

Let’s understand everything about this online insurance broking company below

Story –

The story goes – Yashish Dahiya’s father was cheated by a few insurance brokers. So Dahiya junior went on a crusade and co-founded PB for consumers to compare insurance policies & purchase a policy that makes sense for them. (Src – MorningContext)

About Policybazaar (PB) or PB Fintech –

Incorporated as “ETECHACES Marketing and Consulting Private Limited” at New Delhi on June 4, 2008.

Professionally managed company with no identifiable promoter

According to Frost & Sullivan (FY20) –

– PB was India’s largest digital insurance marketplace with a 93.4% market share based on no. of policies sold

– In FY20, 65.3% of all digital insurance sales in India by volume was transacted through PB

More on Business –

– Paisabazaar was India’s largest digital consumer credit marketplace with a 53.7% market share, based on disbursals in FY21. It is widely used to access credit scores, with ~22.5 mn Consumers in total having accessed their credit score through the platform as of Q1FY22.

– They also innovate with Insurers and Lending Partners with the help of their extensive data insights

– Policybazaar and Paisabazaar platforms make personalized recommendations of insurance and credit products respectively based on consumer needs

– FY21 – 7,310 full-time employees. 462 in tech & product. As per the morning context, their call centers employ more than 5000 employees!

– They have operations in Dubai. They plan to scale up in Gulf Cooperation Council (“GCC”) region as well as South-East Asian countries

Policy Bazaar – From a Web aggregator to Insurance broker –

– PB became a direct insurance broker on June 10, 2021, from a web aggregator

– The web aggregator license had limitations on commissions and offline sales ability.

More details in the image, do read completely

Let’s talk about 2 of their main platforms –

Starting with of course PolicyBazaar –

– As of Q2FY22 – 48 Insurer Partners offered 390 term, health, motor, home, and travel insurance products. (Down from 51 partners in FY21)

– In FY21 it sold over 7.2 million policies worth over Rs 4,700 crore

Now moving to Paisa Bazaar –

– 56 partnerships with large banks, NBFCs, and fintech lenders

– Offerings – personal loans, business loans, credit cards, home loans & Loan Against Property

– scaling this up as a digital personal credit platform for varied consumer segments

PaisaBazaar Disbursals –

– However, disbursals are down for Paisa Bazaar majorly which makes sense as the economy was shut down and of course the company must have trodden carefully here before starting to lend again

Key operating and financial metrics

– Good growth seen in business premiums and total sum assured

– Total disbursals came down but notice that disbursals to existing users went up (so our previous statement of management’s carefulness is confirmed)

Covid-19 Impact on India Insurance Industry –

– The World became conscious during the COVID period when hospitalization and negativity was seen all around us

– Insurance growth was seen as more people wanted to safeguard themselves

Issue Details –

Img Src – Axis Direcct

Fresh issue Objectives –

Risks –

– 4 largest partners accounted for 33% of total revenue for FY21
– A lot of competition! From independent online players, offline players to fintech companies!
– HDFC Ergo delisted its products from online insurance aggregators, including Policybazaar
– Insurance companies are looking to gain more autonomy in the increasingly digital world of retail insurance
– HDFC Ergo joined the largest private sector general insurer ICICI Lombard and public sector behemoth LIC of India in such a move (logging out of Policybazaar)

Insurance Regulator on Web Aggregators – (2019-20 Annual Report) –

– In a nutshell, online web aggregators haven’t moved a needle when it comes to the insurance space.

– In Life insurance – web aggregators share of individual new business was 0.27% compared to 60% by agents

– In health Insurance – web aggregators share of individual new business was 0.99% compared to 34% by agents

Revenue Model

– Before we look at financials, let’s look at their revenue model and how it is fixed

Revenue Breakup

Financials –

– Good topline Growth
– High A&P costs + 5000+ employees in call center shows characteristics of a push product (Insurance is such. Takes many calls to convert a sale)
– EBITDA & net loss narrowed down due to A&P expenses pullback
– Cash flows +ve in FY21

Valuations –

FY21 EPS (4.11) | Q1FY22 EPS (2.91)

Roe (7.54%)

FY21 NAV 54.5 | Q1FY22 NAV 51.2

The company is loss-making and being a fintech, valuations also make no sense.  At the upper band of Rs 980, the company is demanding a market cap of 44041 Cr post listing. As per FY22A sales, the company is demanding 44x Price to sales, which is very expensive.

Conclusion –

– To conclude, yes, the insurance penetration is low in India, online is even very less and the scope for such aggregators/online brokers is HUGE!
– But many are entering the space and creating their own ecosystem of financial services.
– Brokerages are creating platform companies with all services inside, fintech too are entering and insurance creators i.e life and general insurance companies are taking the tech route themselves and they are no rush as agents are accounting for a good share of business
– HDFC Ergo and ICICI Lombard have already logged out of PolicyBazaar.
– Keeping in mind all of this, we have an avoid on the IPO. We would like to monitor this space for more time before taking up any action.

Thanks for reading till the end!

If you would like to add anything or give any feedback or would like to appreciate the article, reach out to me on Twitter – aditya_kondawar or email me at [email protected]!

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