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Shivani Bhati | Apr 19, 2022 | Views 139164

IPO Update: After plunging 20% since its IPO, Policybazaar’s stock has become more appealing.

IPO Update: After plunging 20% since its IPO, Policybazaar’s stock has become more appealing.

Since its IPO in 2021, PB Fintech, the parent company of PolicyBazaar, has seen its stock drop 20%. Analysts at ICICI Securities, who recently started covering the stock, believe that PB Fintech is well positioned to gain from India’s growing insurance penetration, particularly through digital distribution. With a ‘Buy’ call and a target price of Rs 940 a share, the brokerage firm has started covering. The stock, like other internet stocks, came under pressure earlier this year and has yet to fully recover. PB Fintech shares began trading at Rs 777 per share on Tuesday morning.

Analysts at ICICI Securities believe PolicyBazaar’s business strategy has the potential to grow faster than that of other insurance companies. “PB’s main source of growth Fintech should benefit from the predicted rise in premium revenue in the digital medium”, they noted.

According to industry estimates, India’s premium via online channels was $1 billion in FY20, accounting for 1% of the overall premium, much less than the US (13%), and China (5.5%), leaving room for expansion. PolicyBazaar was India’s largest digital insurance marketplace in the financial year 2020, with a 93.4 percent market share in terms of policies sold.

Insurance in India has a lot of room to develop, which is good news for PolicyBazaar. Some of the important business moats include high growth, operating leverage, a strong balance sheet, and established brand recognition among the Indian population. This should aid the corporation in generating high free cash flows.

The digital consumer lending industry has a lot of room for expansion.

According to ICICI Securities, India’s consumer lending market (banks + NBFCs) totaled Rs 36.8 lakh crore in the first half of the previous financial year. “Despite the vast market size, penetration in FY20 is deemed rather low at 16.7%, compared to 79.2% in the US and 55.6 percent in China,” they stated. In India, low consumer loan penetration is partly owing to borrowers’ lack of financial awareness and lending institutions’ restricted reach.

PaisaBazaar, India’s largest digital consumer credit marketplace, had a 51.4 percent market share based on disbursals in the financial year 2020, indicating that PB Fintech has the potential to grow. Loans disbursed on the PaisaBazaar platform were Rs 6,600 crore in the previous financial year, increasing 126 percent year on year, while credit card issuance grew from 45,000 in fiscal year 2020 to 1,62,000 in fiscal year 2021.

“To get at the target price of Rs 940, we assumed terminal growth of 7% and cost of equity of 12%,” ICICI Securities analysts added. The brokerage business also anticipates EBITDA (adj) of Rs 1,020 crore by FY26E, owing to the high growth projection.

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