Paisabazaar is PB Fintech’s Achilles heel

Revenue rose at a slower rate than premium, indicating that take rates were lower, possibly due to an inferior product mix. For example, the commission on unit-linked insurance policies (ULIPs) tends to be lower than that on other life insurance products. However, the overall performance of insurance broking was satisfactory.

On the other hand, the core non-insurance business – Paisabazzar.com – saw revenue decline 7.14%, from ₹154 crore in Q2FY24 to Rs143 crore in Q2FY25. This could be a fallout of the slowdown in unsecured lending after the Reserve Bank of India tightened lending norms and raised the risk weights for personal and credit card loans from 125% to 150%.

Paisabazaar.com earns fees by providing a lending and credit card issuing platform to other financial entities. Management said it would focus on secured lending to compensate for the slow growth in unsecured lending.

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Further, adjusted Ebitda (before employee stock option or Esop expenses) soared to ₹56 crore from ₹13 crore a year ago. Esop expenses fell from ₹102 crore to ₹64 crore year-on-year. Management expects Esop expenses to flatten going ahead. 

The company posted profit before tax (PBT) of ₹60 crore against a loss of ₹21 crore a year ago. However, PBT would have been in the red, if not for ₹106 crore of ‘other income’, courtesy its high cash balance. Management has consistently said it’s not too worried about profitability at this stage as the company is in a growth phase.

Healthcare bet

Beyond the financials, investors were intrigued by PB Fintech’s likely investment of up to ₹840 crore for a minority stake (20-30%) in a healthcare company. This caused PB Fintech’s stock to be highly volatile during the quarter. In the Q2FY25 earnings call on Wednesday, management said this would be a one-time investment and was subject to board approval. The stock rose 5% on the NSE on Thursday, but remains 11% below its 52-week high of ₹1,966.50 on 20 September.

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Management justified the healthcare investment as a strategic move that was one of the reasons for its initial public offering. But as things stand, details of the healthcare venture are patchy and the role of PB Fintech or its management in the venture is still unclear. The existing business model (Policybazaar.com and Paisabazaar.com) is asset-light, and the healthcare venture would be in PB Fintech’s accounts as a mere investment.

Since it will be a minority stake, it won’t qualify for consolidation of accounts, meaning it won’t be classified as a business activity. An example of this is Info Edge (India) Ltd, which cannot classify Zomato as a business as it only has a minority (13%) stake in the company.

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PB Fintech stock has rallied 115% so far in 2024, significantly outperforming the Nifty50. While the returns are mouthwatering, there is no comfort on valuations. True, the company has net cash of ₹5,423 crore, which means its enterprise value is lower than its market capitalisation of ₹75,000 crore, but the stock trades at a hefty 55 times its Bloomberg consensus Ebitda for FY27.