Preferring Policybazaar over Zomato shares, brokerage and research firm Ambit said that deep domain understanding, successes in selling a difficult product and clear roadmap for profitability drive its Buy rating on PB Fintech shares, with a target price of ₹944 a piece, implying a potential upside of more than 43% from current levels.
“Profitability is more a matter of choice, not chance as renewal premium pool (90%+ contribution margins) expands over time to around 60% of premiums. This should translate into 35% EBITDA margins and 45% contribution margins in steady state, with sustained profitability post FY25E. A grounded management with ‘build vs buy’ focus showcasing successes in early scale-up of POSP/group insurance lends confidence," the note stated.
Digitally-enabled brokers such as Policybazaar stand to gain from strong structural enablers, especially with focus on differentiated retail products, Ambit highlighted, saying that low insurance penetration in India and inherent need are the key reasons to be bullish.
PB Fintech houses India’s 2 largest online (web aggregator) platforms for insurance and lending products, Policybazaar and Paisabazaar respectively. Though, the brokerage sees exit of larger insurers, fall in commissions and shortcomings in selling complex insurance products (life/health) as key risks.
“Profitability at PB is likely to be achieved earlier in FY25E versus FY27E at Zomato in our view. Also PB business model has embedded profitability on account of an ever rising pool of renewal premiums with contribution margins of 90%+. We expect renewal revenues to rise to 47% of revenue by FY41E at Policybazaar (versus 11% currently)," the brokerage added.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
