PolicyBazaar IPO Opens Next Week. Should You Apply?

After Nykaa promoter FSN E-Commerce Venture's ₹53.5 bn IPO, PB Fintech, the owner of the online platform PolicyBazaar and PaisaBazaar, is all set to hit the market next week.

The initial public offering (IPO) of PB Fintech, the parent company of online insurance aggregator and fintech platform Policybazaar, will open for subscription on 1 November 2021. Individuals will be able to subscribe to the public issue till 3 November 2021.

The price band of the IPO has been set at ₹940-980 per share. The issue size is 60.1 m shares, with a face value of ₹2 each.

Through the public issue, PB Fintech will raise an amount of around ₹56.3 bn.

PB Fintech, which filed draft papers with market regulator in August, obtained the regulator's clearance last week to float the public issue.

The company is the leading online platform for insurance and lending products and providing access to insurance, credit and other financial products.

Kotak Securities, Morgan Stanley, Citigroup Global Markets, ICICI Securities, and Jeffries are set to be the book running lead managers of the issue. Link Intime is the registrar of the IPO.

As part of the offer for sale (OFS), SoftBank (SVF Python II - Cayman) will sell shares worth ₹18.8 bn. SoftBank will sell up to a quarter of the nearly 16% stake it holds in the company.

The founders will also sell shares of around ₹580 m in the IPO.

Category-wise reserved portion

A total of 10% of the quota is reserved for retail investors, 15% for high net worth individuals (HNIs), and the rest 75% for qualified institutional buyers (QIBs).

Retail investors can buy a minimum of 15 shares under a lot for an amount of ₹14,700 and a maximum of 13 lots (195 shares) for ₹191,100.

Use of IPO funds

The company plans to utilise ₹15 bn of the raised amount for enhancing visibility and awareness of company brands including PolicyBazaar and PaisaBazaar.

It plans to use ₹3.8 bn towards new growth initiatives to increase customer base including offline presence.

Meanwhile, ₹6 bn will be utilised for funding strategic investments and acquisitions. An additional ₹3.8 bn will be dedicated towards expanding its presence outside the country.

About PB Fintech

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 is an online platform for consumers and insurer partners to buy and sell insurance products. 51 insurer partners offered over 340 term, health, motor, home, and travel insurance products on the policy bazaar platform as of March 2021.

Policybazaar offers its users with pre-purchase research, purchase, including application, inspection, medical check-up, and payment & post-purchase policy management, including claims facilitation, renewals, cancellations, and refunds.

The company's technology solutions are focused on automation and self-service-driven consumer experiences requiring minimal human intervention.

PB Fintech also launched PaisaBazaar in 2014 intending to provide ease, convenience, and transparency in selecting a variety of personal loans and credit cards for the consumers.

The company has partnered with 54 large banks, NBFCs, and fintech lenders offering a wide choice of products to consumers across personal credit categories, including personal loans, business loans, credit cards, home loans, and loans against property.

Competitive strengths

• Provides a wide choice and transparency to customers to research and select insurance and personal credit products.

• Proprietary technology helps in superior data intelligence and customer service.

• Collaborative partnership with various companies for insurance and lending products.

• Strong network effects for Policybazaar and PaisaBazaar platforms.

• High renewal rates.

• Capital efficient model with low operating costs.

• Founders with clarity of purpose backed by experienced management.

• There are no listed companies in India that engage in a business similar to that of PolicyBazaar.

• The startup is backed by marquee investors such as SoftBank, Temasek, and InfoEdge.

Company's financial track record

The company has incurred restated losses of ₹1.4 bn, ₹2.9 bn, and ₹3.5 bn in fiscals 2021, 2020, and 2019, respectively.

The company expects costs to increase over time and losses will continue given the investments expected towards their growing business.

 

In the draft red herring prospectus (DRHP), the company said,

We have expended and expect to continue to expend substantial financial and other resources on, among others, developing a physical channel and investing behind experiments.

These efforts may be more costly than we expect and may not result in increased revenue or growth in our business.

Any failure to increase our revenue sufficiently to keep pace with our investments and other expenses could prevent us from achieving or increasing profitability or positive cash flow on a consistent basis.

If we are unable to successfully address these risks and challenges or if we are unable to generate adequate revenue growth and manage our expenses and cash flows, we may continue to incur significant losses in the future and our business, cash flows, financial condition and results of operations could be adversely affected.

Revenue generation

The company has recorded strong revenue growth in the last 3 years. Mainly, the firm generates revenue from two sources.

1. PolicyBazaar business – Company receives insurance commission from insurance partners and additional services that they provide to insurance partners such as telemarketing and other services relating to sales and post sales services.

2. PaisaBazaar business – Company receives commission from its lending partners, credit advisory and related services that they provide to consumers and lending partners and marketing services that they provide to financial services partners etc.

PolicyBazaar's presence

Policybazaar, which started out as a comparison website that generated leads for insurance companies, has evolved into a platform that allows users to search, buy, renew, and lodge claims.

After receiving an insurance broking licence, the company has expanded its offline presence for distribution.

Offline – The company has already set up 15 physical offices as of 15 July 2021 and seeks to develop up to 200 physical retail outlets by the end of Fiscal 2024.

These outlets will serve as experience centres for consumers and provide them with the comfort of a local physical presence to help resolve any queries or service requests.

Further, they will now also be able to provide on-ground claims support to existing and new consumers.

Online – PB Fintech claims that it has built India’s largest online platform for insurance and lending products by leveraging the power of technology, data and innovation.

According to Frost & Sullivan, in fiscal 2020, PolicyBazaar was India’s largest

digital insurance marketplace with a 93.4% market share based on the number of policies sold.

Furthermore, in fiscal 2020, 65.3% of all digital insurance sales in India by volume was transacted through PolicyBazaar.

Certain risk factors in PB Fintech

• The company has a history of losses and anticipate increased expenses in the future too.

• Covid-19 pandemic or similar public health threat, could adversely affect company business.

• It operates in dynamic and competitive online fintech industries which makes it difficult to predict its future prospects.

• PB Fintech depends on insurance and credit products based on the needs of consumer. The firm can lose business if they cannot continue to attract customers.

• It intends to invest part of IPO proceeds for brand building for both PolicyBazaar and PaisaBazaar. Benefits out of such expenditure or investment cannot be ascertained at this stage.

Grey market premium of PB Fintech

As per market observers, PolicyBazaar shares are available at a premium (GMP) of ₹175 in the grey market today.

The grey market is an unofficial platform, wherein trading starts after the announcement of IPO price band till the listing of shares.

What's the ideal IPO strategy to follow?

In the past few months, a large number of corporate houses have submitted proposals for floating IPO. A number of IPOs are also expected to hit the market soon.

As companies line up to raise funds from the market amid high valuations, investors need to consider numerous factors before investing their money in an IPO.

If you are investing in an IPO, weigh in all the positive and negative factors affecting the company.

Take a close look at the company's financials and valuations. It would give you a clear picture of what's brewing.

Happy Investing!

This article is syndicated from Equitymaster.com