PB Fintech, the parent company of PolicyBazaar, has seen its shares tank 20% so far since its IPO in 2021. Initiating coverage of the stock, analysts at ICICI Securities said that PB Fintech is well placed to benefit from the rising insurance penetration in India, especially through digital distribution. The brokerage firm has initiated the coverage with a ‘ Buy’ call and a target price of Rs 940 per share. The stock came under pressure earlier this year along with other internet stocks and has not recovered completely so far. On Tuesday morning, PB Fintech shares began trading at Rs 777 per share.
Better than other insurance players
Analysts at ICICI Securities believe that PolicyBazaar’s business model could enjoy higher growth than other insurance players. “The prime growth driver for PB Fintech should be in the increasing premium income expected in digital medium,” they added. Industry estimates show that premium via online channels stood at $1 billion for India representing 1% of the total FY20 premium which is significantly lower than the US (13%) and China (5.5%), leaving space for growth. In the financial year 2020, PolicyBazaar was India’s largest digital insurance marketplace with a 93.4% market share in terms of the number of policies sold.
Insurance in India has massive scope to grow and this bodes well for PolicyBazaar. High growth, operating leverage, strong balance sheet and established brand recall among the Indian populace are some of the key business moats. This is expected to help the company generate strong free cash flows.
Digital consumer lending business has growth potential
ICICI Securities said that India’s consumer lending market stood at Rs 36.8 lakh crore (banks + NBFCs) during the first half of the previous financial year. “Despite the large market size, penetration in FY20, measured in terms of outstanding consumer debt as % of nominal GDP, is considered relatively low at 16.7% vs 79.2% in the US and 55.6% in China,” they said. The low consumer lending penetration in India is largely due to inadequate financial literacy amongst borrowers, limited reach of lending institutions.
Here again, PB Fintech has the potential to grow as in financial year 2020, PaisaBazaar was India’s largest digital consumer credit marketplace with a 51.4% market share, based on disbursals. In the previous financial year, disbursement of loans from PaisaBazaar platform stood at Rs 6,600 crore, up 126% on-year and credit card issuance increased from 45,000 in the financial year 2020 to 1,62,000 in financial year 2021.
“We have assumed terminal growth at 7% and cost of equity at 12% to arrive at the target price of Rs 940,” analysts at ICICI Securities said. The brokerage firm further expects Rs 1,020 crore EBITDA (adj) by FY26E driven by strong growth outlook.