Q2FY24 Review: PB Fintech: Strong broad based growth, profit path intact

7 Nov 2023 , 01:32 PM

PB Fintech (PBFI) reported Q2FY24 revenue growth of 42% YoY to ~Rs8.1bn, above IIFLe of 36% YoY. Insurance premiums grew 37% YoY (15% QoQ), driven by a strong 53% YoY growth in the new premium for Health and Term insurance. Credit disbursals continued the momentum, growing 42% YoY. Contribution margins were at 30% in Q2 (vs 33% in Q1). Ebitda (ex-ESOP) came in at Rs130mn, implying an Adj. Ebitda margin of 1.6% (vs 3.4% in Q1), slightly lower due to higher proportion of health in total revenue plus elevated marketing spends in Q2. Existing initiatives recorded Rs680mn Ebitda during Q2 at 11.4% margins. ESOP costs remained broadly flat at Rs1bn, leading to PAT loss of Rs210mn (vs Rs120mn in Q1). PBFI reiterated confidence of turning PAT positive in FY24. Analysts of IIFL Capital Services marginally change their FY24-26 estimates; their 12-m DCF based TP increases to Rs830 (was Rs800) on roll forward. They believe PBFI will continue to deliver at least 2X industry growth and an improving path to profitability over the next three years, resulting in achieving PAT of Rs11bn by FY26. Maintain BUY. 

Premiums growth strong, led by Health and Term: 

Insurance premium grew 37% YoY/15% QoQ to Rs34.8bn, driven by a strong 53% YoY growth in the new premium for Health and Term insurance business, which is the highest in the last 7 quarters. Credit disbursals rose 42% YoY to Rs41.4bn. Overall revenues grew by 42% YoY to Rs8.1bn, while renewal revenue is annualising at Rs4.4bn (+48% YoY).

 FY24 PAT profitability guidance reiterated: Ebitda (ex-ESOP) for the consolidated business came in at Rs130mn in Q2 implying margins of 1.6% vs 3.4% in Q1, due to due to higher proportion of health in total revenue plus elevated marketing spends in Q2. Contribution margin for the existing business was at 45% (flat YoY), which combined with lower losses in new initiatives, led to overall margins at 30%. 

Maintain BUY: 

PBFI remains on track to achieve its margin and profit guidance. Analysts of IIFL Capital Services reiterate BUY with an increased 12-mth DCF-based TP of Rs830 (was Rs800), implying 7.4X/5.6X on FY25/26 EV/S and 34X on FY26 P/E. It is trading at 6.3X FY25 EV/S, offering 29% revenue Cagr over FY23-25, vs. Indian internet firms at 6.2X EV/S (25% Cagr). Key risks: Regulations, Bima Sugam.