INSTITUTIONAL EQUITY RESEARCH

PB Fintech
Digital player embarking on a physical journey
21 Sep 2021
INDIA | FINANCIALS | Company Update

PB Fintech, through its two subsidiaries PolicyBazaar and PaisaBazaar, has built India’s largest KEY FINANCIALS
online platform for insurance (93% market share) and lending products (51% markets share), Rs bn FY19 FY20 FY21
Operating Revenue 4.9 7.7 8.8
by leveraging its strong brand and technology. Over the past decade it has enabled online and
Operating Expenses 8.2 10.9 10.4
research-based purchases of insurance products, resulting in huge web traffic (126mn in EBITDA -2.9 -2.3 -0.8
FY21), providing extensive amount of data to insurance partners to innovate and design Contribution Profit 0.42 1.0 3.5
customized products for consumers. PolicyBazaar has recently acquired an insurance-broking PBT -3.3 -2.9 -1.4
PAT -3.4 -3.0 -1.5
licence and plans to open 200 retail outlets by FY24, complementing its online presence with
EPS -12 -8.7 -4.1
the offline channel. We believe in-person customer engagement through its offline channel Cost to Income 154% 133% 105%
will help PolicyBazaar to: (1) Sell more savings products and (2) provide access to consumers Contribution Margin 8.6% 13.7% 39.8%
in tier-2/3 cities, having low digital footprint, thus expanding its total addressable market. Source: DRHP, Phillip Capital India Research
While the company has yet to breakeven, a higher proportion of renewal premium, with
Sujal Kumar, Research Analyst
significantly low marginal cost of acquisition and fixed-cost absorption, providing significant (+ 9122 6246 4114) sukumar@phillipcapital.in
operating leverage, will be key for future profitability.
Manish Agarwalla, Research Analyst
(+ 9122 6246 4125)
Total addressable market and growth opportunities: Insurance is largely a push product, and magarwalla@phillipcapital.in
given its complexities, only a few of these products are suited for online sales – such as pure
term, individual health, and motor (renewal). We estimate that the actual total market for
any web aggregator such as PolicyBazaar is just 28% of the total industry premium of Rs 7.6
trillion – at Rs 2.1 trillion in FY20. While penetration may look small overall, in major segments,
it is quite significant. We estimate the total market for the web aggregating/retail insurance
broking model to increase to Rs 4.6 trillion by FY25 from an estimated Rs 2.1 trillion in FY20.
Assuming increase in penetration, we estimate total premium for PolicyBazaar to increase to
c.Rs 16bn by FY25 (33% CAGR) from Rs 3.7bn/4.7bn in FY20/21.

Advertisement and promotional expenses will remain high: Increasing traffic onto its
website is very crucial for PolicyBazaar for acquiring new customers. It spends 10-11% of its
new business premium on advertisements and promotions, and we believe that it spends a
large part of this on search marketing. We believe PolicyBazaar sources c.15% of web traffic
through paid searches and expect it to incur similar marketing expenditure going ahead.
However, as its existing customers come directly to the website/app, and with the proportion
of renewal premium increasing, advertisement expense as a % of total premium will keep
declining; it has already fallen to 6.6% as of FY21 from 9% in FY18.

Operating leverage to drive profitability: We believe operating leverage will come from two
sources: (1) Higher proportion of renewal premium resulting in lower cost of premium
acquisition, as marginal cost of customer acquisition in the renewal business is very low. (2)
Non-operating expenses will increase at a much lower rate compared to business growth. As
of FY21, these expenses, in the form of staff and brand-promotion costs, constitute 44% of
operating revenue. We expect them to decline to 14% in FY25, providing significant operating
leverage. Overall, we expect PB FinTech to breakeven by FY25.

PaisaBazaar – data monetisation will be a key success factor: One of the key strategies for
consumer acquisition in PaisaBazaar is to provide free access to credit scores, thus creating
score awareness. As of March 2021, c.21.5mn unique customers have accessed their credit
score from PaisaBazaar. We believe any kind of monetization of this database could
significantly improve profitability of the business.

Key Risk: Higher dependence on few insurance companies, internet search as a key source
of its website traffic, regulatory changes, data security, and competition from fin-techs that
could result in higher cost of customer acquisition.

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Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research
is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt
Securities Inc, an SEC registered and FINRA-member broker-dealer.
 PB FINTECH COMPANY UPDATE

Key Charts

Revenue from operation Revenue contribution by business segment

10000 Policybazaar Paisabazaar PB Fintech Others Policybazaar Paisabazaar PB Fintech Others
9000 100%
5% 3%
837 9%
8000 24%
240
7000 1,883 80% 31% 29% 21%
6000 2,262
60% 29%
5000 267
4000 1,546
40%
3000 791 6,069 67% 68%
5,159 63%
2000 965 47%
3,103 20%
1000 1,582
0 0%
FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
Source: DRHP, PhillipCapital India Research

PolicyBazaar’s target market Health insurance claim ratio: Industry vs. web aggregator
Total Claim Web aggregaort Claim
70%
NON-LIFE 63% 61% 63%
Commercial, 59%
Retail LIFE 60%
12%
Health, 3%
50%

40%
Motor, 9%
30% 27%
LIC, 50%
Policybazaar Private 18%
Individual, 20% 15%
Target Market 12%
16%
10%

0%
Private Group, 10% FY17 FY18 FY19 FY20

Source: IRDAI, PhillipCapital India Research

Operating leverage benefit from renewal premium PolicyBazaar: Website traffic source
1.1%
1.4%
1.3%
Direct

Referals
23.6%
Search

1.5% Social

Mail

71.0% Display

Source: DRHP, Similar web, PhillipCapital India Research

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 PB FINTECH COMPANY UPDATE

PB Fintech: Market leader in digital distribution

PB Fintech has built two of India’s largest online platforms for insurance and lending
products leveraging the power of technology, data, and innovation. It seeks to enable
online research-based purchases of insurance and lending products and increase
transparency, which enables consumers to make informed choices. It also facilitates
insurance and lending partners in the financial services industry to innovate and design
customized products for consumers, leveraging their extensive data insights and data
analytics capabilities.

PB Fintech operates through two operating subsidiaries

1. PolicyBazaar: Launched in 2008, it is the largest insurance web aggregator in India
with 51 insurer partners and a market share of 93% in the digital insurance
marketplace as of FY20.

2. PaisaBazaar: Launched in 2014, it has built partnerships with large banks, NBFCs,
and fintech lenders (total 54 partnerships) offering personal loans, business loans,
credit cards, home loans, and loans against property. According to Frost & Sullivan,
it was India’s largest digital retail credit online marketplace with 51% market share
of FY20 disbursals.

Around 2/3rd of PB Fintech’s revenue came from PolicyBazaar. PaisaBazaar and

standalone entities generates 11% and 21% of revenue (as of FY21). In FY21
PaisaBazaar saw 16% decline in revenue largely because of lower disbursement.

Revenue from operation Revenue contribution by business segment

10000 Policybazaar Paisabazaar PB Fintech Others Policybazaar Paisabazaar PB Fintech Others
9000 100%
5% 3%
837 9%
8000 24%
240
7000 1,883 80% 31% 29% 21%
6000 2,262
60% 29%
5000 267
4000 1,546
40%
3000 791 6,069 67% 68%
5,159 63%
2000 965 47%
3,103 20%
1000 1,582
0 0%
FY18 FY19 FY20 FY21 FY18 FY19 FY20 FY21
Source: DRHP, PhillipCapital India Research

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 PB FINTECH COMPANY UPDATE

PolicyBazaar: Moving from digital to physical distribution

The online insurance market is highly underpenetrated in India, with just 1% of total
premiums sold online in FY20 compared to 13.3% for USA and 5.5% for China. Rapid
digital adoption will significantly improve digital adoption. Online insurance market
consists of: (1) direct online sales by insurance companies, and (2) online sales by
insurance distributors.

Online insurance penetration Online insurance landscape

Premium Via Online Channel (USD bn) As a % of Total Premium
Digital insurance
13.3% marketplace
250 14%
(54%) PolicyBazaar
12%
200
208
Online insurance c.Rs 41bn Rs 37bn
10% (1%)
150 93.4%
5.5%
8%
c.Rs 76bn Online sales by
insurance companies
market share
100 6%
(46%)
4%
50
c.Rs 35bn
1.0% 2%
35.5
0 1 0%
India China USA

Source: DRHP

Web aggregators have grown rapidly

As shown in the chart below, the web aggregator channel has been growing at a much
faster rate than the industry. For life insurance, new business premium for individual
business saw 9% CAGR in the last three years vs. 80% growth for web aggregators. In
health insurance, web aggregators saw 113% CAGR in the last three years vs. 17% for
the industry.

Life insurers’ NBP: Web aggregator vs. industry Health insurers’ GDPI: Web aggregator vs. industry
Industry growth WA growth WA Share (RHS) Industry growth WA growth WA Share (RHS)
250% 234.6% 3.0%
160% 0.30%
136%
140% 0.27% 2.5%
0.25% 200% 2.44%
120%
0.20% 2.0%
100% 150%
0.17% 1.64%
80% 67% 0.15% 1.5%

60% 100%
48% 1.10% 69.7% 70.0%
0.10% 1.0%
40% 0.07%
19% 0.05% 50%
22% 0.5%
20% 6% 4% 15% 14%
0% 0.00% 0% 0.0%
FY18 FY19 FY20 FY18 FY19 FY20

Source: IRDAI, Phillip Capital Research

Market size and growth opportunity

Insurance is largely a push product and given the complexities of the product only few
products are suited for selling online such as pure term, individual health, and motor
(renewal). As shown in the table below, we estimate that the actual total market for
any web aggregator such as PolicyBazaar is just 28% (at Rs 2.1 trillion in FY20) of the
total industry premium of Rs 7.6 trillion. Also, while penetration may look small overall,
it is quite significant in major segments.

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 PB FINTECH COMPANY UPDATE

We estimate total market for web aggregating/retail insurance broking model to

increase from current estimate of Rs 2.1 trillion (FY20) to Rs 4.5 trillion by FY25.
Assuming an increase in penetration, we estimate total premium for PolicyBazaar to
increase from Rs 3.7bn/Rs 4.7bn in FY20/21 to Rs 15.7bn by FY25 – at a CAGR of 33%.

Market sizing
FY20 (Rs bn) LIFE Non-Life Total Comments
Total Premium 5,729 1,828 7,557 New business premium + renewals
- less LIC Premium 3,794 Na Na LIC is not a part of PolicyBazaar platform
Private Players 1,935 Na Non-Life: Public players are also part of PolicyBazaar platform
- less Group business 734 939 1,677 Non-Life: Commercial and group health; life: group term, pension
Target Market 1,202 889 2,091
Source: IRDAI, Phillip Capital Research

Penetration by segment and growth opportunity (Rs bn)

Industry PolicyBazaar
Target Policy- Penetration 5 Year 5 Yr CAGR Estimate Industry PB Penetration PB Premium PB Growth
Segments Market bazaar CAGR (FY20-25 CAGR) Premium (FY25E) FY25E FY25E (CAGR)
Non-Linked savings 595 3.7 0.6% 15% 15% 1,196 1.1% 13 29%
ULIP 529 5.6 1.0% 32% 20% 1,315 2.0% 26 37%
Protection 7,8 9.3 11.9% 40% 35% 349 15.0% 52 41%
Motor (OD+TP) 689 7.4 1.1% 13% 13% 1,270 2.0% 25 28%
Health Retail 199 11.1 5.6% 18% 18% 456 8.0% 36 27%
Total 2,091 37.0 1.8% 4,588 153 33%
Source: IRDAI, Phillip Capital Research

Underwriting standards are better in web aggregating model

Demographically, the online channel sources better customers as they are more
informed and have higher education and higher income. Also, as consumers fill online
forms themselves, there is lesser chance of fraud. This is evident from the fact that loss
ratio for the web aggregator channel is much lower than industry average as shown in
the chart below.

Health insurance loss ratio

Total Claim Web aggregaort Claim
70%
63% 61% 63%
59%
60%

50%

40%

30% 27%

18%
20% 15%
12%
10%

0%
FY17 FY18 FY19 FY20

Source: IRDAI, Phillip Capital Research

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 PB FINTECH COMPANY UPDATE

Key regulations highlights

Remuneration:
1) Sale of lead (not allowed): No charges shall be paid for transmission of leads by
the insurance web aggregator to the insurer.
2) Commission: Leads which are converted into sale of insurance policies will entitle
the insurance web aggregator to earn remuneration.
3) Product listing: A flat fee not exceeding Rs 50,000/year towards each product
displayed by the insurance web aggregator in the comparison charts of its web site
subject to an overall ceiling.
4) Outsourcing: Insurance web aggregator can undertake outsourcing functions to
provide ‘insurance services’. In such instances, the insurer may pay the insurance
web aggregators reasonable service charges. An insurance web aggregator can
undertake outsourcing activities on behalf of insurers through the telemarketing
and distance marketing modes.
5) Rewards: Reward being not more than 20% (life insurance of first year commission
or remuneration paid to insurance agents and insurance intermediaries and 30%
of commission (in case of general and health insurance).
6) Marketing: Web aggregator shall not display any information pertaining to
products or services of other financial institutions / FMCG or any product or
service on the website.
7) Renewal: An insurer shall not pay any fee or remuneration, by whatever name
called, on any type of renewal premium / policy payable from the second year
and the subsequent years, to insurance web aggregators. Explanation: For the
purposes of general insurance and health insurance, it is clarified that renewal
commission is payable on annual insurance policies such as motor insurance,
health insurance, and other similar policies provided the insurance policies are
renewed without any break.

Premium
1) Insurance web aggregators shall not solicit non-single premium type policies for
annualized premiums exceeding Rs 150,000 over telemarketing modes (voice as
well as SMS) for life insurers.
2) Single premium policies shall not be solicited for a premium of more than Rs
150,000 over telemarketing mode.

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 PB FINTECH COMPANY UPDATE

PolicyBazaar: Key operating metrics

PolicyBazaar premium growth… (Rs bn) ...driven by growth in number of policies sold (mn)
CAGR
New business premium Renewal Premium No of Policy Average Ticket (RHS)
42% 8 8,000
50 47.0 7.2
7 7,000
5.9
40 37.6 6 6,000
19.6
81%
11.2 5 5,000
30
23.2 4 4,000
3.1
20 6.0 3 3,000
26%
26.4 27.4 2 2,000
10 17.2
1 1,000

0 0 -
FY19 FY20 FY21 FY19 FY20 FY21

Higher renewal premium leading to better advisor efficiency Higher proportion of term plan (sum assured in Rs bn)
No of Advisor (RHS) Total Premium per advisor Life Non-life SA to Premium (RHS)
New Premium Per advisor 8000 160
16 5,000
4,422 7000
14 150
3,675 4,000 6000 2,385
12 3,334
5000 140
10 3,000 893
4000
8
3000 653 130
6 2,000
4,633
4 2000 3,925
1,000 2,895 120
2 1000

0 - 0 110
FY19 FY20 FY21 FY19 FY20 FY21

Source: DRHP, Phillip Capital Research

Operating leverage driven by high renewals

High renewal rate provides long term visibility from existing customers with negligible
marginal cost of acquisition. As shown in the chart below, consumers who have
purchased health insurance through PolicyBazaar in FY14 have made repeat purchases
worth 5.9x since then; similar multiples are visible at 3.4x for motor insurance.

PolicyBazaar consumer cohort

Source: DRHP, Phillip Capital Research

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 PB FINTECH COMPANY UPDATE

Revenue Model
Policy Bazar earns its revenue largely through:
1. Commissions: Commission earned for solicitation of insurance products/policies
based on the leads generated from its designated website using telemarketing.
2. Outsourcing services: Additional outsourcing services to insurer partners like
telemarketing and other services related to sales and post-sales services, account
management, premium collection, etc.
3. Rewards: Rewards earned from insurers in relation to sale of products.
4. Product listings: Includes services pertaining to listing of products of insurers on
its website.

Life insurers are driving PB’s revenue

As shown in the chart below, life insurers contribute c.60% of PolicyBazaar ’s revenue,
largely through outsourcing services. General / standalone health insurers contribute
23% / 17% of revenue. While it looks like there is a stark difference in the way
PolicyBazaar is compensated by life and general insurers, it is largely because web
aggregators are not supposed to get remunerated for renewal of policies from life
insurers which is why PB gets compensated mainly through outsourcing services.

PolicyBazaar revenue by type of insurer PolicyBazaar revenue breakup

General SAHI Life Outsourcing services Commission Rewards Product listing
100% 100% 2.8% 8.8%
18.4% 19.4%
21.1%
80% 80%
55% 59% 60%
62% 41.4%
60% 60%

77.0% 71.1%
40% 40% 76.1%
17%
15% 17%
15%
49.8%
20% 20%
29% 26% 23%
23%
4.6% 9.5%
0% 0%
FY18 FY19 FY20 FY21 General SAHI Life Overall

Source: DRHP, Phillip Capital Research

Top-five clients contribute 56% of revenue for PolicyBazaar; HDFC Life 15%, Max Life
13%, TATA AIA 12%, and IPRU Life 9% in FY21.

Revenue by top clients PolicyBazaar commission rate (commission + outsourcing)

HDFC Life Max Life TATA AIA 14%
12.2% 12.5%
BALIC IPRU LIFE Religare Health 11.9%
Max Bupa Star Health HDFC Ergo 12%
BAGIC Others
100% 10%

80% 8%

60% 6%
11% 8%
8%
5% 7% 9% 4%
40% 12%
10% 12% 12%
1% 4%
7% 13% 9%
20% 13% 2%
21% 17% 21% 15%
0% 0%
FY18 FY19 FY20 FY21 FY19 FY20 FY21

Source: DRHP, Phillip Capital Research

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 PB FINTECH COMPANY UPDATE

Operating expenses: Operating leverage is the key to profitability

Customer acquisition and servicing expenses, including employee expenses and
advertisement and promotion expenses, are the major expenses for PolicyBazaar, at
80% of its total cost. However, as it continues to develop its platform and consumer
cohorts, it expects a larger proportion of consumers to buy policies with reduced level
of assistance, thus increasing capital and operating efficiencies. As shown in the chart
below, its opex growth in the past few years has been lower than operating revenue
growth, thus providing significant opportunity for operating leverage benefit.

Opex Cost breakup

Revenue from Operation Total Cost Employee cost Advertising and promotion
150%
Other Expense Network and internet
96%
100% Depreciation and amortisation
66%
100% 1.4% 4.2% 3.9%
50% 4% 4% 5%
18%
13% 12% 11%
0% 80%
-8%
-50% 60% 39% 38% 39%
-40%
-100%
40%
-150%
20% 42% 41% 40%
-200%

-250% -211% 0%
FY19 FY20 FY21 FY19 FY20 FY21

Source: DRHP, Phillip Capital Research

Reduction in employee and advertisement expenses as % of op revenue

In the last three years, PolicyBazaar has been able to reduce its
employee/advertisement expenses as a percentage of operating revenue from
72%/67% in FY19 to 53%/51% as of FY21. With focus on automaton and self-driven
consumer experiences, it expects policies to be sold with minimal human intervention.
In FY21, c.80% of policies sold were largely self-driven. This has led to a steady rise in
the total premium per advisor, resulting in significant cost efficiency.

Employee and advertisement expenses as a % of op rev Advertisement expense as a % of premium

Employee expense Advertisment as a % of NBP as a % of Total Premium
80%
72% 14%
67% 12.1%
70% 63% 11.4%
59% 12% 10.5%
60% 54% 53% 51%
10% 9.0%
50%
7.4%
8% 6.6%
40%
6%
30%
20%
20% 4%

10% 2%

0% 0%
FY18 FY19 FY20 FY21 FY19 FY20 FY21

Source: DRHP, Phillip Capital Research

Advertisement and promotion expense as % of total premium reduced

As shown in the charts below, PolicyBazaar spends around 10-11% of its new business
premium in advertisement and promotional expenses. However, as proportion of
renewal premium increased, advertisement expense as a % of total premium reduced
to 6.6% from 9%.

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 PB FINTECH COMPANY UPDATE

Search marketing is a major tool to bring traffic on its website

We believe it directs a large part of its advertisement and promotion expenditure to
search marketing, for bringing traffic on to its website. In the future, effective search
marketing will be a key driver to bring traffic onto its website. As shown in the chart
below, on average, PolicyBazaar has 10mn visits per month of which c.14% are from
paid searches; 1.5mn visits per month through paid searches is the largest cost that
PolicyBazaar incurs in acquiring customers. A large part (24%) of visitors that come
directly on the website are existing customers (for renewal) in our view.

Number of visitors per month Source of traffic

12 1.1%
1.4%
1.3%
Direct
10

Referals
8 23.6%
Search
6
1.5% Social
4
Mail
2
71.0% Display

0
Feb-21 Mar-21 Apr-21 May-21 Jun-21 Jul-21

Source: Similar Web, Phillip Capital Research

Insurance broking: Establishing a physical presence to complement digital

The insurance broking industry is highly fragmented with a significant number of
brokers having entered the industry – over the last four years, the number of brokers
registered has grown to 463 in FY20 from around 385 in FY17. These brokers are
primarily concentrated in more developed states in India.

Number of insurance brokers No of brokers by state

500 Andhra Pradesh
463 30 1161 23
437 Bihar
426 25 141
450 Chandigarh
20 Chhattisgarh
385
400 Gujarat
41 14
350 6 Haryana
Jammu and Kashmir
300 Jharkhand
Karnataka
250 41 Kerala
Madhya Pradesh
200
7 Maharashtra
150 11 New Delhi
2 134 Odisha
100 Punjab
Rajasthan
50 Tamil Nadu
84
0 Telangana
FY17 FY18 FY19 FY20 Uttar Pradesh
West Bengal
Source: IRDAI, Phillip Capital Research

Brokers contribute around 25% of gross direct premium in non-life and 1% of new
business premium in life. In non-life insurance, the gross direct premium by brokers
has grown to Rs 463bn in FY20 at a CAGR of around 19% from around Rs 192bn in FY15,
higher than non-life insurance CAGR of 17%. As a result, the broking channel increased
its contribution as a percentage of gross direct premium to 25% in FY20 from 23% in
FY15. This increase over the last five years is due to an increase in penetration in motor

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 PB FINTECH COMPANY UPDATE

insurance. As evident, the share of gross direct premium of the broking channel in
motor OD / TP increased to 43% / 24% in FY20 from 30% / 16% in FY15. The penetration
of the broking channel in commercial lines of business is higher as compared to retail.

Broker channel GDPI (Rs bn) Broker channel contribution across the channel
GDPI (Broker channel) As a % of Total GDPI (rhs) 60% FY15 FY20
500 463 25%
50%
404
400 24% 40%
334
305
30% Industry Avg
300 23%
232
20%
192
200 170 22%
10%

100 21% 0%

0 20%
FY14 FY15 FY16 FY17 FY18 FY19 FY20

Source: IRDAI, Phillip Capital Research

The penetration of brokers in retail is still low, given inadequate focus. This is an
opportunity for PolicyBazaar to penetrate bigger and high growth lines of business.

Comparison of some of the existing insurance brokers

FY21 (Rs mn) Muthoot Insurance Broking Manapurram Insurance Broker Mahindra Insurance Broker
Largely group business, Retail through Manapurram’s 400+ physical presence,
Detail jewel cover through branch network Launched Paybima in Sep 20
Muthoot branches
Premium (Rs bn) 4.1 1.3 21.0
Market share 0.8% 0.3% 4.3%
Total Revenue 467 99 1,968
Commission Rate 11.5% 7.8% 9.4%
Opex 43 59.8 1,530
CIR 9% 60% 78%
staff cost/Total expense 76% 70% 66%
PAT 316 29.0 320
PAT Margin 68% 29% 16%
RoE 46% 48% 7.0%
Source: Company Reports, Phillip Capital Research

PolicyBazaar ’s aggressive plans to opening stores before March 2024

The company intends to use Rs 3,750mn from net proceeds towards setting up and
operating retail outlets and point-of-sale networks. It has already set up 15 physical
offices as of July 2021 and seeks to develop up to 200 physical retail outlets by FY24.
These physical retail outlets will in general be small offices with few employees located
within each city and near insurers offices. Management expects to incur an investment
of Rs 1mn per outlet for physical infrastructure, buildings, and upgrading technology
and communication infrastructure. In addition, it sees Rs 4mn cost per retail outlet per
annum for employee and support costs. Overall, the management expects to incur a
total cost of Rs 1,500mn for opening stores before March 2024. It expects to incur an
additional Rs 750mn in building a point-of-sales agent’s network.

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 PB FINTECH COMPANY UPDATE

Scenario analysis
Rs mn Scenario 1 Scenario II Scenario III
Operating expense (200 outlet @ Rs 4mn per outlet) 800 800 800
PoSP commission 889 1,333 2,000
As a % of premium 6% 6% 6%
Total Expense 1,689 2,133 2,800
Assumed Cost to Income Ratio 95% 80% 70%
Revenue 1,778 2,667 4,000
PB gross commission 12% 12% 12%
PB net commission 6% 6% 6%
Premium Required (Rs bn) 14.8 22.2 33.3
EBITDA 89 533 1,200

FY 21 Premium for PolicyBazaar 47 47 47

Broker channel premium (in FY24, assuming 15% CAGR) 860 860 860
Market share 1.7% 2.6% 3.9%
Source: Phillip Capital Research

We believe physical outlets will be profitable if PolicyBazaar is able to capture

>1.7% market share of the broker channel over the next four years.

Profitability by FY25
We expect PolicyBazaar to breakeven by FY25 largely driven by higher proportion of
renewal premium driving premium growth of 37% CAGR and operating leverage (cost
to income declining to 97% by FY25 from 128% in FY21).

PolicyBazaar DuPont
as a % of Total Premium FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26E FY27E FY28E FY29E FY30E
Insurance Commission 5.7% 5.7% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5% 5.5%
Outsourcing services 6.6% 6.8% 6.4% 6.4% 6.4% 6.4% 6.4% 6.4% 6.4% 6.4% 6.4% 6.4%
Product listing services 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Rewards 1.2% 1.2% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
Total Operating revenue 13.4% 13.7% 12.9% 12.9% 12.9% 12.9% 12.9% 12.9% 12.9% 12.9% 12.9% 12.9%
Other Income 0.1% 0.1% 0.3% 0.3% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1% 0.0% 0.0%
Total Revenue 13.5% 13.8% 13.2% 13.2% 13.1% 13.1% 13.1% 13.0% 13.0% 13.0% 13.0% 13.0%
Employee expense 9.6% 8.1% 6.9% 6.1% 5.7% 5.4% 5.0% 4.7% 4.5% 4.4% 4.2% 4.1%
D&A 0.3% 0.8% 0.7% 0.5% 0.4% 0.3% 0.2% 0.1% 0.1% 0.1% 0.1% 0.0%
Advertising expenses 9.0% 7.4% 6.6% 6.1% 5.7% 5.2% 4.8% 4.5% 4.2% 4.0% 3.8% 3.6%
Network and internet 0.9% 0.8% 0.9% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8% 0.8%
Other expenses 2.9% 2.2% 1.7% 1.7% 1.5% 1.3% 1.1% 0.9% 0.7% 0.6% 0.5% 0.4%
Finance costs 0.1% 0.3% 0.2% 0.2% 0.1% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0%
Total Opex 22.7% 19.6% 17.0% 15.6% 14.7% 13.9% 12.7% 11.9% 11.3% 10.8% 10.4% 10.1%
PBT -9.2% -5.8% -3.7% -2.4% -1.5% -0.8% 0.4% 1.2% 1.7% 2.1% 2.6% 2.9%
Source: Phillip Capital Research

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 PB FINTECH COMPANY UPDATE

PaisaBazaar: Focused on digital lending

PaisaBazaar is an independent digital lending platform that enables consumers to
compare, choose and apply for personal credit products. It has built 54 partnerships
with large banks, NBFCs, and fintech lenders. It is India’s largest digital consumer
market place with a market share of 51.4% (as of FY20) based on disbursals.

PaisaBazaar disbursement Key value proposition

70 65.5
Consumer Lender
60
51.0 Easy access to Operational
50 credit efficiency

40 Free access to Reduced acquisition

credit score cost
29.2 Paisabazaar
30 key value Consumer insights
18.2 proposition to reach untapped
20 16.0
12.7 consumer segment
9.9
10 5.4
1.1
0
FY19 FY20 FY21 3Q20 4Q20 1Q21 2Q21 3Q21 4Q21

Source: DRHP, Phillip Capital Research

Consumer acquisition via the free credit score facility

One of the key strategies for consumer acquisition is to provide free access to their
credit score thus creating score awareness. Consumers can check, track, and improve
their credit score over time, which in turn may increase their eligibility for credit in the
future. As of March 2021 c.21.5mn unique customers have accessed their credit score
from PaisaBazaar. This has led to higher consumer engagement, conversion, and
retention rates on the PaisaBazaar platform; 40% of the disbursal in last three years
including 67% of disbursals in FY21 were to existing consumers most of whom it
acquired through its free credit score facility.

Key partners

Source: PaisaBazaar

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 PB FINTECH COMPANY UPDATE

Revenue model
PaisaBazaar generates primarily through:
1. Commission from lending partners: Commission earned for a sale of financial
product based on leads generated from its website.
2. Sale of lead: Sale of lead information of potential customers to banks etc.
3. Online marketing: Bulk emailers, ad banners, and credit-score advisory.
4. Marketing services: Include road-show services.

Operating revenue Commission income as a % of disbursal

Commission Online marketing and consulting Sale of leads 3% 2.8%
2500 2,262 2.5%
3%
2000 403 1,875
2.0%
1,546 277 2%
425
1500
433 2%
964 1,023
1000 257
301 1%
1,434
500 194
856 1%
469 576
0 0%
FY18 FY19 FY20 FY21 FY19 FY20 FY21

Opex breakup Advertisement expense as a % of disbursal

Staff expense Advertising and promotion Employee Advertising and promotion Revenue
Network and internet Other 7% 6.5%
180%
6%
150% 18%
6% 15% 5%
7%
120% 3.5%
4%
3.0% 3.2%
12% 84%
90% 4% 70% 13% 3% 2.6%
7% 2.4%
45% 1.7% 1.9% 1.7%
60% 26% 2%

30% 55% 54% 1%

42% 49%
0% 0%
FY18 FY19 FY20 FY21 FY19 FY20 FY21

Source: DRHP, Phillip Capital Research

PaisaBazaar DuPont
as a % of disbursals FY19 FY20 FY21 FY22e FY23e FY24e FY25e FY26E FY27E FY28E FY29E FY30E
Commission 1.7% 2.2% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0% 2.0%
Online marketing 0.5% 0.6% 3.5% 2.5% 1.8% 1.6% 1.4% 1.2% 1.1% 1.0% 0.9% 0.7%
Sale of leads 0.8% 0.6% 0.9% 0.7% 0.5% 0.5% 0.5% 0.4% 0.4% 0.3% 0.3% 0.2%
Marketing services 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Operating revenue 3.0% 3.5% 6.5% 5.3% 4.4% 4.1% 3.9% 3.7% 3.5% 3.3% 3.1% 3.0%
Other Income 0.0% 0.0% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.1% 0.0%
Total Revenue 3.1% 3.5% 6.6% 5.3% 4.4% 4.2% 3.9% 3.7% 3.5% 3.3% 3.2% 3.0%
Employee expense 1.7% 1.9% 3.2% 2.6% 2.2% 2.0% 1.8% 1.6% 1.5% 1.3% 1.3% 1.2%
D&A 0.1% 0.1% 0.2% 0.1% 0.1% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Advertising expenses 2.6% 2.4% 1.7% 1.7% 1.6% 1.5% 1.5% 1.5% 1.3% 1.2% 1.1% 1.1%
Network and internet 0.2% 0.2% 0.5% 0.4% 0.3% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2%
Other expenses 0.5% 0.4% 0.6% 0.4% 0.3% 0.3% 0.3% 0.2% 0.2% 0.2% 0.2% 0.2%
Finance costs 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
Total Opex 5.0% 5.0% 6.1% 5.2% 4.5% 4.1% 3.8% 3.6% 3.3% 3.0% 2.8% 2.7%
PBT -1.9% -1.5% 0.5% 0.1% 0.0% 0.0% 0.1% 0.1% 0.2% 0.4% 0.4% 0.3%
Source: Phillip Capital Research

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 PB FINTECH COMPANY UPDATE

Higher non-operating expenses is a major drag on profitability

As per disclosures in the DRHP, contribution margin for PB Fintech increased from 9%
in FY19 to 40% in FY21, but contribution profit is arrived at by including only the
following:
• Employee benefit expenses (under overall expenses) for call centre operations.
• Advertising and promotion expenses (under online marketing expenses) which
includes cost of search engine marketing and other online digital marketing.

Including non-operating expenses, the company made a loss of Rs 352mn in FY21.

These non-operating expenses includes staff cost not related to operations (senior
management costs) and brand promotion costs (promotion costs other than the cost
of search marketing, etc.). We expect these costs to increase at a lower rate than the
business growth rate, thus providing significant operating leverage.

Contribution margin
Actual Reported Adjusted
FY19 FY20 FY21 FY19 FY20 FY21
Operating Revenue 4,922 7,713 8,867 4,922 7,713 8,867
Employee Expense 3,976 5,208 5,540 2431 3479 3091
Advertisement 3,459 4,452 3,678 2069 3181 2246
Total Cost of Acquisition 7,435 9,661 9,219 4,500 6,660 5,337
Contribution Profit (2,512) (1,948) (352) 422 1,053 3,530
Contribution Margin -51% -25% -4% 9% 14% 40%
Source: DRHP, Phillip Capital Research

As shown in the chart below, both non-operating employee expenses and brand
promotion expenses have declined to 28%/16% in FY21 from 31%/28% in FY19.

Non-operating expenses as a % of operating revenue

Non operating staff expense Brand Promotion expense
35%

30%

25%

20%

15%

10%

5%

0%
FY19 FY20 FY21

Source: Phillip Capital Research

Key Risks
• Dependence on few large insurers: 56% of revenue is contributed by 5 insurers;
delisting of products by any of these could significantly impact profitability.
• Higher dependence on internet search: Traffic on the website depends heavily on
internet search traffic, making it vulnerable to changes in algorithms for both
organic and paid searches.
• Regulatory changes: Banning certain commission models or making the
commission fee transparent would almost certainly affect market dynamics.
• Data security: Access to customer data is a key success factor for PolicyBazaar;
privacy concerns and regulations could result in higher risks
• Competition: New competitors, whether direct insurers or fin-techs, could lead to
higher cost of customer acquisition.

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 PB FINTECH COMPANY UPDATE

Rating Methodology
We rate stock on absolute return basis. Our target price for the stocks has an investment horizon of one
year. We have different threshold for large market capitalisation stock and Mid/small market capitalisation
stock. The categorisation of stock based on market capitalisation is as per the SEBI requirement.

Large cap stocks

Rating Criteria Definition
BUY >= +10% Target price is equal to or more than 10% of current market price
NEUTRAL -10% > to < +10% Target price is less than +10% but more than -10%
SELL <= -10% Target price is less than or equal to -10%.

Mid cap and Small cap stocks

Rating Criteria Definition
BUY >= +15% Target price is equal to or more than 15% of current market price
NEUTRAL -15% > to < +15% Target price is less than +15% but more than -15%
SELL <= -15% Target price is less than or equal to -15%.

Disclosures and Disclaimers

PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This
report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times
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own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and
past performance is not necessarily an indication of future performance.
This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report.
Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness
of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future
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Unless specifically mentioned in Point No. 9 below:
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company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report.
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any other products or services from the company(ies) covered in this report, in the past twelve months.
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6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in connection
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7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report.
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9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:

Page | 16 | PHILLIPCAPITAL INDIA RESEARCH

 PB FINTECH COMPANY UPDATE

Sr. Particulars Yes/No

no.
1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for No
investment banking transaction by PCIL
2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of No
the company(ies) covered in the Research report
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4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the No
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5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or No
brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve
months

Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking
services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation
for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities
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Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be
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Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of
the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests,
or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is
not aware of any material conflict of interest as of the date of this publication

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 PB FINTECH COMPANY UPDATE

Compensation and Investment Banking Activities

Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor
received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or
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SUJAL
Digitally signed by SUJAL KUMAR
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LIMITED, ou=PHILLIPCAPITAL (INDIA) PRIVATE
LIMITED, postalCode=400013, st=Maharashtra,
2.5.4.20=935c96f6fe521d9b494ffb9fa7267c61f1def
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KUMAR
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cn=SUJAL KUMAR
Date: 2021.09.22 09:46:09 +05'30'

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