PB Fintech : Turnaround from Red to Black

From chasing unicorns to attaining profitability - Welcome to the new era of Fintech!

Last week, we saw a number of listed compnaies come out with their quarterly earning reports, but one company in particular stood out for me. PB Fintech, and their spectacular turnaround story from Red to Black. 

For those who are new here, PB Fintech is the powerhouse behind the renowned fintech marketplaces, Policy Bazaar and Paisa Bazaar. Paisa Bazaar, the e-marketplace that has revolutionized lending, is your one-stop-shop for all kinds of retail credit information. Similarly, Policy Bazaar has transformed the way we access insurance policy details.

But for our regular fintech enthusiasts, this is old news. You’ve been riding this wave with us, geeking out over all things fintech. So, without further ado, let’s dive right into this exciting edition of The Fintech Chronicler!

Before we get into that, an Announcement. I am moving my content to SubStack.

So if you have been enjoying the Fintech Chronicler, Consider subscribing. While I shall continue to post here on LinkedIN, they would be a recap of my substack deep dives, and of course much shorter, like how the audience on LinkedIN prefers. But as always if you feel like I've missed something, then do feel free to slide into my inbox . And we'll have a great conversation.

Quarterly Financials Results of PB Fintech LTD : the Highlights and Market cap

Just a few months ago PB Fintech was grappling with a lot of losses. But on May 7th, when they had their quarterly earnings call, they announced something groundbreaking. They reported their first ever quarterly profits. This isn't just a win for PB Fintech, it's a potential game changer for the entire Indian Fintech industry itself. Not just Fintech builders who now probably have an example for them to look up to and kind of emulate their journey, But it's also about bringing confidence of investors back into the in Indian fintech space that Yes, there is a way for them to get value out the investments that they make in India. So buckle up because we are going to analyze this success story and see what it means to the future of Indian FinTech space and explore how it can pave the way for a wave of profitable innovation to come about.

Now, back to highlight.

Profit After Taxes, Surges the Share price today

In FY24, there was a significant turnaround in the Profit After Tax (PAT), shifting from a loss of ₹488 crore to a profit of ₹64 crore. PB Fintech's total insurance premium for the quarter amounted to ₹5,127 crore, marking an Annual Recurring Revenue (ARR) of ₹20,000 crore in insurance premiums. This growth was primarily driven by an expansion in the new health and life insurance segments. Additionally, in Q4 FY24, online insurance new premiums experienced a notable 47 per cent year-on-year increase. The company's cash position saw a year-on-year improvement of ₹259 crore, reaching ₹5,263 crore, attributed to a 39 per cent year-on-year growth in core online revenue, amounting to ₹2,375 crore.

Growth in Premiums

In FY24, the overall business premium increased by 37 per cent year-on-year to ₹15,875 crore. Within this, the core online business premium constituted ₹11,356 crore, marking a 34 per cent year-on-year increase, while new initiatives contributed ₹4,519 crore. In FY24, revenue from the core online business surged by 39 per cent year-on-year to ₹2,375 crore, while revenue from new initiatives saw a 25 per cent increase, reaching ₹1,062 crore.

Operating Revenue Growth in 2024

Furthermore, in FY24, operating revenue amounted to ₹2,375 crore, marking a 39 per cent year-on-year growth. Despite a significant rise in new health insurance premium, the contribution margin strengthened to 45 per cent. Additionally, adjusted EBITDA rose to ₹324 crore from ₹107 crore, with the margin improving from 6 per cent to 14 per cent. In FY24, PB Fintech's lending division, Paisabazaar, disbursed loans totaling ₹14,800 crore and issued 5.8 lakh cards. Notably, 75 per cent of the disbursements made through the Paisabazaar platform were to existing customers. Policybazaar, on the other hand, boasted 7.73 crore registered customers, out of which 1.66 crore were transacting consumers. Over the fiscal year, the company successfully sold 4.21 crore policies. Meanwhile, Paisabazaar saw 4.34 crore consumers accessing their credit scores, with 5.1 million engaging as transacting consumers.

In the Fine Print

Now that the headline numbers are over, let us jump into the details, with their quarterly financial report, just so we can read the fine print.

As you can see from the above P&L statement, there has been a substantial increase in their business activities. Here is an overview of how PB FinTech's business has been expanding. 

Here is a more neutral and insightful rewrite of the passage:

Upon examining the total premium reported by the company for the same quarter last year versus the current quarter, we observe a substantial growth rate of 37%. Their core operations, encompassing Policy Bazaar and Paisa Bazaar, exhibited a robust expansion of 34%. Notably, the new initiatives introduced by the firm, namely Partner Bazaar, exhibited an even more remarkable growth rate of 46%.

It is pertinent to note that while the new initiatives have demonstrated impressive growth, their contribution to the overall business portfolio remains relatively modest, constituting less than a third of the company's total operations. This discrepancy in scale between the core business and the new initiatives could potentially explain the disproportionately high growth rate witnessed in the latter segment.

The company's ability to drive growth across both its established core business and newly ventured initiatives is a testament to its adaptability and strategic vision. However, a more comprehensive analysis, taking into account factors such as market conditions, competitive landscape, and the company's long-term strategy, would be necessary to draw more definitive conclusions about the sustainability and implications of these growth trajectories.

Coming to contribution to the profit margin. It is no surprise that the new initiatives are still loss making, with a loss of 3% to the revenues earned, while their core contributed 45% profit margins.

Going back to how PB Fintech's premium businesses has grown over the years, and the revenue that Pb fintech makes is basically every premium that's sold on their platform, every credit that is burst on their platform, they get a percentage revenue share from the regulated entity, the financial entity that's this burst those policies or credit or whatever. So that credit has also grown, the overall it's grown out of 43%. New initiatives grew 50% and the core business grew 40%. So we're definitely seeing a huge improvements over there as well.

Inclusion in the MSCI

The company's impressive financial performance has garnered the attention and validation of not only the stock market but also MSCI, a prominent investment research firm. MSCI, an acronym for Morgan Stanley Capital International, is renowned for providing stock indexes, portfolio risk and performance analytics, and governance tools to institutional investors and hedge funds.

Significantly, MSCI has recently included PB Fintech in their index, a testament to the firm's credibility and growth potential. This inclusion is accompanied by a forecast of substantial inflows, estimated to be in the vicinity of $238 million, for the current fiscal year.

Revenue sources of PB Fintech

Let's take a closer look at how PB Fintech's core businesses have expanded over time. The revenue PB Fintech generates comes from the premiums paid for policies sold through their platform and the credit disbursed through their platform. For each policy or credit product sold, PB Fintech receives a percentage of the premium or credit amount from the regulated financial institution providing the product.

This revenue stream has seen remarkable growth, with an overall increase of 43%. The new initiatives introduced by the company have experienced an even higher growth rate of 50%, while the core business has grown at a strong pace of 40%. These figures clearly demonstrate significant improvements and progress across all areas of PB Fintech's operations.

The company's ability to drive consistent growth in its established lines of business, coupled with the impressive performance of its newer ventures, highlights its agility and strategic decision-making. By continuously adapting to market dynamics and meeting evolving customer needs, PB Fintech has solidified its position as a leading player in the financial services industry.

Business Model of PB Fintech

Before we dive deeper into the financial numbers, I think it's important to really understand the business model of PB Fintech, the company behind Policy Bazaar and Paisa Bazaar. Unless we get a good grasp of how they operate, it'll be tough to fully appreciate the impact of their profits on the entire fintech industry.

According to the research firm Frost and Sullivan, PB Fintech is the largest online platform in India for insurance and lending products. They leverage technology, data, and innovation and the company is engaged in providing convenient access to all sorts of financial products like insurance, credit, and more. Their main aim is to create awareness among Indian households about the financial impact of the 3Ds - Death, Disease, and Damage.

They have a really consumer-centric approach, where they try to enable research-based purchases of insurance or credit products. They want to increase transparency, so consumers can make informed choices. At the same time, they also facilitate their insurance and lending partners by leveraging their extensive data insights and analytical capabilities to help disburse customized financial services.

Now, let's talk a bit about the history of PB Fintech. It all started back in 2008, when the world was reeling from the fall out of the Sub Prime crisis in the US. 

Brief History of PB Fintech

PB Fintech launched Policy Bazaar as their flagship platform back in 2008 to address consumers' need for greater awareness, choice, and transparency in the insurance sector. At the time, insurance distribution was dominated by the Life Insurance Corporation of India (LIC) and was driven primarily by agents going door-to-door. This agent-driven model, while effective in spreading awareness, often led to issues of mis-selling due to the commission-based incentive structure.

You'll likely recall, from your own childhood experiences or the tales of older generations, the ubiquitous presence of insurance agents knocking on doors, pitching policies with promises of benefits and larger than life policy covers. This approach, coupled with the agents' compensation being tied to the number of policies sold and premiums generated, inadvertently created an environment ripe for mis-selling. A classic case study of the principal-agent problem. 

I vividly remember a personal experience from my childhood that illustrates this point. My father, a prudent individual who meticulously scrutinized terms and conditions, was sold a term insurance policy by an LIC agent. However, the policy came bundled with various add-ons that my father had no real need for, given his existing medical insurance had them covered. When the agent returned the following year to collect the premium, my father inquired about the necessity of these additional riders, only to discover what he already knew. That these add-ons, apart from inflating his premium paid, added little to no tangible benefits.

It was in this context that Policy Bazaar introduced a novel concept – a neutral insurance distribution model. By leveraging technology and data, they aimed to empower consumers with informed choices, transparency, and a pool-based approach to insurance distribution. This innovative platform quickly became India's largest digital insurance marketplace, addressing the long-standing gap in the industry.

PB Fintech goes Public: Sneak Peak at the DRHP

Accoridng to their DRHP which was filed in June 2021, and the company subsequently listed in November 2021, they had 93% of the market share, just based on the number of policies sold. And in the financial year 2020, 65% of all digital insurance sale in India by volume was transacted through Policy Bazaar, clearly demonstrating their makret leadership. By the way, it's very interesting, because another insurance platform, GoDigit, is also had their IPO last week, which we shall cover in another session.  

Now in 6 years, seeing the massive success that they saw in the entire insurance space, they were convinced to launch Paisa Bazaar in 2014 with the goal to transfer how Indians access personal credit. And the focus again over there was ease, convenience, transparency. And they selected a variety of retail lending products like personal loans and credit cards for this. Now according to Frost and Sullivan, Paisa Bazar was at that point in time India's largest digital consumer credit marketplace and they had a market share of about 51.4% in this is as of the financial year 2020. Paisa Bazaar also provided some sort of financial literacy around credit scores by actually providing access to credit scores. And there were back in 2021, there were approximately 21 million consumers who had access to credit scores through their platform. Now, even today, if you see, while there are basically 4 credit bureaus in India that all lenders have to report their current outstanding to and on the basis of which these bureaus come up with the credit score. And as per RBI, you should be able to pull your credit data, once every 12 months for free. Even then, most people find it very cumbersome to go through each of these credit bureaus and pull their data. But Policy Bazaar does exactly that for all of us at scale. And I would highly recommend that all of you go through and check your credit history, your credit score periodically and flag it off if you're seeing any discrepancy over there. By the way, Paisa Bazaar as of today has also created a way for you to raise disputes on your credit scores as well. The best part is they are disbursing all these services, using a very asset light capital strategy because 

1. they don't underwrite any insurance,
2. they don't retain any credit risk onto their book.

And as and as per the license that they were given, they act only as a direct life and general insurance broker.

Benefits of Policy Bazaar

Now coming to the benefits of Policy Bazaar, and lets split it into Benefits for customers, and Benefits for their Insurer Partner on their platform.

First, consumer-friendly research and needs-driven platform. So consumers here have the ability to research and compare a wide range of insurance products offered by any of their insurance partners.

So they can actually increase the choice and transparency for the end consumers. And once consumers are provided whatever basic details is there, They provided with multiple options along with the cost detailed features in a simple to understand manner, not those tedious terms and condition booklets that my dad used to read when I was a kid.

Now the next advantage is services responsiveness. According to Frost and Sullivan again, the insurance industry is a very process heavy industry which leads to lengthy processing time and it's across different stages in the transaction process. Whereas with Policy Bazaar, there's a convenient servicing option for consumers thanks to the integration that they have.

And finally, convenience of transactions. Every transaction process on Policy Bazaar, as per the promise that they give, is faster and more secure option for consumers as compared to any traditional offline alternatives. They also provide numerous options for multiple insurance partners.

Consumers don't really need to visit each of those platforms individually and can explore as many options all in 1 place. They also believe that their end-to-end service, their entire end-to-end online service, reduces the pre-produced time by providing consumers the ability to research and compare products in 1 platform itself.

Now, what are the benefits of Policy Bazaar Insurance platform? They can get access to high quality consumer base at a lower customer acquisition cost. As the volume of transactions, now since they target younger consumer cohorts, they also have, because of the extensive data that they have, they have extensive consumer insights, which helps in a better risk assessment and underwriting capabilities. And the tech integration, obviously, in something like an insurance industry, that was the first of its kind.

Benefits of Paisa Bazaar

Now coming to their Paisa Bazaar platform. Paisa Bazaar, again, it's similar to what Policy Bazaar does, but for consumer credit products, Like Credit cards, personal loans, consumer durable loans etc. And the benefits of Paisa Bazaar to the end consumers is easy access to credit.

It's an algorithm based technology platform which has access to multiple credit offers across different lenders and their promises they provide unbiased advice.

Also Paisa Bazaar provides access to mainstream personal credit products in remote towns and areas. Now this is also an advantage for lenders too, especially smaller players, who do not have to set up branches in order to be able to source consumers from such remote locations, Of course the difficulty in collections, is then accordingly baked into the pricing of the loan then. (translates to, higher interest rates charged).

They provide free access to credit scores for all Indians. A byproduct of this is that the awareness about credit scores amongst us Indians became better. So they in a way also contributed to financial literacy programs over there.

Now coming to specifically the benefits that Paisa Bazar offers to their lender, again, the biggest benefit is reduced customer acquisition costs. Thanks to the extensive data that they had collected on their platform, this  also benefits the lenders to underwrite very personalized  lending products to their end consumers.

Market Size and Opportunity

Now let's talk a little bit about the market opportunity that's there. And for this, I will be going back to the DRHP that they had kind of published back in 2021. So the inquiry volumes, that is the appetite for Indians for credit.

That's what they were trying to track over here and they've split it across 3 different categories home loans, personal loans and credit cards. The group that they saw quarter and quarter for each of these for home loans, quarter and quarter was at an average of about, now bear in mind that this data is from 2020, when COVID hit us. So in Q2 of financial year 2021, the appetite for home loans grew 133 percent, personal loans grew 144 percent and credit cards grew 189 percent. It's tapered out now but still you get the sense of how huge the market was, the potential for the market was at that point in time.

By the way, even today, if you see the penetration that we have of people who have a credit card versus the average Indian population, It's still somewhere about, it was at a 4% before, it's come up to about a 9%. So we've just doubled in the COVID era over there. So it's really not that much. And 9% of the adult population, we have a long way to go. When compared to developed markets, and even China for that matter, where credit card or personal lending, unsecured lending is about 50% penetration and in the US it's somewhere I think everyone has a credit card over there.

So it's a huge penetration over there and we are highly under penetrated. Similarly when it comes to the insurance business also, again, vastly untapped market over there. And the need or the awareness about insurance as a product category itself kind of came in thanks to COVID When we were seeing mass hospitalization and there were people without any insurance cover at all who very tragically died without any treatment. So that also spurred like a growth in Insurance in life insurance as well as in general insurance as well. So if you see the growth in Q2 FI 22 for life insurance was about 53% and for general insurance was 47%. And even now it's a vastly under penetrated market. There is 1 thing that we're seeing pick up nowadays a lot is on the sachet sized insurance that's there and go digit in a way has been playing a huge role over there, but we'll come to that later. Or maybe I should just do another session on GoDigit itself. Anyways, I digress.

PB Partner and New Initiatives

During PB Fintech's recent earnings call for this quarter, one thing that piqued my interest the discussion around Partner Bazaar. Becuase, this was the first time I had come across this.

As it turns out, Partner Bazaar or PB partner is an enablement platform designed to cater to PB Fintech's extensive network of over 100,000 independent sellers, equipping them with technological tools to streamline and enhance their insurance sales processes. It's essentially a comprehensive ecosystem tailored for these independent sellers of insurance and other financial products.

The platform empowers sellers by providing a suite of functionalities accessible via their app, enabling them to seamlessly navigate and offer products from various suppliers. This includes features such as research capabilities, insurance management, and customer relationship management tools. And, PB Partners has  maintained their market leadership in this space too, continually refining and enhancing its efficiencies year after year.

Interestingly, PB Partners commands the highest proportion of non-motor insurance business in India, a testament to the platform's versatility and reach beyond the traditional motor insurance domain. Furthermore, the company is actively expanding its footprint across the country, underscoring its commitment to broadening access to financial products and services.

Other Initiatives

So they have an entire knowledge bank that they've created, which is also part of their presentation, for just providing general information, literacy, around what these different fintech products do. They have a bunch of other proposals as well. Now, PB partners also gives you triggers and inputs, like when your insurance is going to be expiring, if there is a proposal you've received which you've not yet responded to and stuff like that for their individual sellers. And they also have details like you can get a lot of additional details about your customers also registration number, engine number, chassis number and all of those etc.

If in case the customer and customer wants to cancel their policy, they help with that too. And they also have PB4 Business, or their corporate insurance program as well, which is. By the way, they've also launched a UAE business and the premium from the UAE business grew 6 times. It just started operation right before they had applied for their DRHP in financial year 2019.

Senior Leaders offloading their shares in PB Fintech Limited

While the stock has been enjoying a lot of positive movement, one thing that could potential impact PB Fintech share price is the news that the top 2 folks at the company have filed with SEBI, to offload as much as 1.86% of their holdings via block deals. 

According to the term sheet, Yashish Dahiya, the CEO is set to offload up to 54 lakh shares, while Alok Bansal, the Vic eChairman, will part with up to 29.7 lakh shares. The shares will be offered at a floor price of ₹1,258 per share, representing a 6% discount to the company's closing price of ₹1,338.25 apiece on the Bombay Stock Exchange (BSE) on May 16, 2024. This proposed transaction is estimated to yield a total deal value of approximately ₹1,053 crore, or $126 million. While I couldn't quite understand the term "Tax implications from future ESOPs", I feel  the potential capital injection resulting from this transaction could position PB Fintech to capitalize on emerging opportunities, fuel innovation, or pursue strategic acquisitions aligning with its growth trajectory? 

The only reason I am not sold on that stroy, is because this news comes comes on the heels of another significant event that transpired earlier this year. On February 1, 2024, Temasek Holdings, the renowned Singaporean investment behemoth, divested its entire 5.42% shareholding in PB Fintech, in a transaction worth a staggering ₹2,425 crore.

Greener pastures, or maturing industry? Only time will tell. 

Conclusion

So that brings us to about the end of what PB Fintech's entire quarterly results was for. Now, why am I so excited about this? What does this mean for the rest of the Fintech industry? I think 1, it definitely says that Fintechs do know how to make money. It's not just about chasing a unicorn status anymore. So I think there's going to be a market shift in the way people, founders and fintech builders especially focus on their business. The priorities are all going to change now because there is now a proven model for profitability in the fintech space. And I think 1 thing that's going to really happen is that the focus is going to be increasingly upon making sure that PB FinTech is able to replicate its success in the coming years as well in the coming quarters. So while after the earnings, so the earnings fall by the way happened right after the market hours. So during the day, we did see a slight movement downwards for PB FinTech. But the minute the results were announced, all of those losses recovered, and they were up by about 7%. And I think they're still trading up. 10 days later as well, they're still trading up. But besides the point, the point is that I think all eyes are going to be on their next quarterly earning report because they're going to be reporting for the first quarter of this current financial year. And as you know, a lot of tax planning and all of those happens typically in the first quarter. Now with a lot of the rejigs that have happened with these tax brackets and all of those, it would be very interesting to see if their literacy programs, their bet on improving financial literacy has kind of paid off over there. If it has, which I think is what is happening currently today in the industry, If it has, we're still going to see a momentum in their annualized recurring revenues that are there from the premiums that they recovered from customers. But if it hasn't, then my bet is that a lot of the insurance premium, by the way, general insurance does not have a renewal policy. They have a reassurance policy. And if it so happens that financial literacy program that they bet on so much is not really paid off, we're not going to see that many reassurance happening on the life insurance because assuming people have signed their auto E-NASH mandates, there's going to be an auto debit by the end of the year or the end of the insurance premium tenure in any ways. So we're not going to see that much of a dip. But yes, on the general insurance piece on your health insurance on any medical insurance that you have, because it's a reassurance policy over there, it's quite possible that we might see a dip over there. So my bets are going to be on the next call that we have, the next earning call that PB FinTech has. It's going to give us a lot of insights into consumer behavior and the level of consumer awareness that's there around all of these financial products.

That is for this edition. I will see you, again on the weekend, with a recap of all the latest happenings in the Fintech space. So stay tuned for it.