Q1FY24 Review: PB Fintech: Soft quarter, but outlook intact

9 Aug 2023 , 10:38 AM

PB Fintech (PBFI) reported Q1FY24 revenue growth of 32% YoY to ~Rs6.7bn, below IIFLe of 53% YoY. Insurance premiums grew 24% YoY (-16% QoQ on seasonality), as healthy growth in Protection was offset by muted Savings and PoSP. Credit disbursals continued the momentum, growing 53% YoY. Contribution margins were steady in Q1 at 25% (vs 24.9% in Q4). Ebitda (ex-ESOP) came in at Rs230mn, implying an Adj. Ebitda of 3.4% (vs 3.2% in Q4). During Q1, existing initiatives recorded Rs690mn Ebitda at 13.4% margins (+70bps QoQ). ESOP costs remained broadly flat at Rs1bn, leading to PAT loss of Rs120mn (vs Rs93mn in Q4). PBFI reiterated confidence of turning PAT-positive by FY24 and achieving PAT of Rs10bn by FY27. Analysts of IIFL Capital Services lower their FY24-26 revenue estimates by 2- 3% on soft Q1, but maintain their margin assumptions. Their 12- month DCF-based TP increases to Rs800 (was Rs750) on roll forward. Analysts of IIFL Capital Services believe growth should bounce back through the rest of the year and PBFI is well on track to deliver on its PAT profitability guidance. Hence, valuations are sustainable. Reiterate BUY. 

Premiums growth moderate on industry headwinds: 

Insurance premium grew 24% YoY/-16% QoQ to Rs30.1bn, given that the robust Protection growth (+40% YoY) was offset by muted growth in Savings and PoSP. Lower PoSP growth was driven by a change in business mix towards higher-quality advisors. Credit disbursals rose 53% YoY to Rs35.4bn. Overall revenues grew by 32% YoY to Rs6.7bn, while renewal revenue is annualising at Rs4.2bn (+53% YoY). 

Confident of achieving PAT profitability in FY24: 

For the consol. business, Ebitda (ex-ESOP) came in at Rs230mn in Q1; implying margins of 3.4% vs 3.2% in Q4. Core business further improved with Adj. Ebitda of Rs690mn; the Credit business has been profitable since Dec. Contribution margin for existing business was at 45% (+300bps YoY), which combined with lower losses in New initiatives, led to consol. margins at 25%. 

Maintain BUY: 

PBFI remains on track to achieve margin guidance. Analysts of IIFL Capital Services reiterate BUY with an increased 12-month DCF-based TP of Rs800 (was Rs750), implying 7.3X/5.6X on FY25/26 EV/S and 34X on FY26 P/E. It is trading at 6.9X FY25ii EV/S, offering 28% revenue Cagr over FY23-25, vs Indian internet firms at 4.6X EV/S (28% Cagr). Key risks: Regulations.