PB Fintech | PB Fintech share price: PB Fintech’s Yashish Dahiya on stake sale, break-even plans and more
The Nasdaq meltdown had a knock-on effect on Indian fintech and new age companies. PB Fintech shares are down 50% so far this year. That said, there is a new trend of these companies going from red to green. Talk to us about it?
For us, nothing has changed. We always said that we would be EBITDA positive very soon, and it is very difficult for us to predict one quarter or the other. But ever since we went public, we became a little more confident about the exact quarter we thought it would happen. We went ahead and told the investors in our latest earnings. For us, it is only necessary to explain when we are a little more certain about it. But the core business has always been about contribution positive.
It had a contribution of around 35%-40% all along, and so as the core business grows, it continues to contribute and our fixed costs do not grow as fast as the core business. So over time EBITDA starts to move. Last year we had approximately NOK 1,400 million in turnover. This year we will earn around Rs 2200 crore so the growth is around Rs 800 crore.
If you do that with the 30% contribution margin at some level, you add around Rs 240 crore on top. Our overall contribution due to the mix etc. is a little lower than that, but one can add so much contribution while fixed costs don’t increase that much.
Our fixed costs only increase by around Rs 30-40 crore. You add the surplus pool and that’s what we commented on. It was not a comment intended for financial analysts. It was more of a comment for the media or the retail shareholders who seem to think that this is the way to think about profitability and that this is the way to think about the company getting there.
Talking about profitability, you said recently that you don’t want to see any decline for three to four years, you want to reach EBITDA breakeven and be in the green around the 4th quarter of this year. What do you mean all this is more for retail investors and not so much for the financial community?
Most of the financial analysts build their own models that are already pretty close to what we said we would do as a business. So there wasn’t much difference. But when you think about the retail or the media side, they almost always look at the static image, a little bit more than the dynamic image. In most interest companies, when they break even, growth and profits happen quite quickly, and it has happened all over the world, and the reason it happens is because they have high gross margins.
Most of these businesses operate with 40-50% gross margins, and there is a difference between internet businesses and non-internet businesses. The POSB business built up the amount of revenue that the core business took 10 years to build up in six months, but even 30 years from now, it won’t have the profitability or margins that my core business can have because the gross margins aren’t that high; they are very low indeed. At best, the coverage ratio will be a few percentage points, while the coverage ratio in the last quarter was 45% in the core business.
What that means is that when you increase revenue by Rs 100, Rs 45 is pretty close to the bottom line, and that aspect is why internet companies are usually valued a little differently by financial analysts than what was the profitability for this quarter, and that’s why I have said from the very beginning that sometimes by pushing profitability forward or backward you can hurt the business because what you want is growth in the end because growth and high margins will bring profitability.
Most financial analysts using their models see in four-five years Rs 1,000-crore profit coming through, so it doesn’t matter if the profit happens in one quarter or the next, what matters is that it will happen in four-five years later. That is the point we were trying to make to the retail investors.
You trimmed your stake by about 0.82% and we saw the stock come under so much pressure. Why did you trim your efforts even though you’ve made a commitment that you won’t do it for at least another year?
I just want to clarify. We have all built a company over 14-15 years. 100% of everything you own is in that company. Outside of the company, sometimes you don’t even own a car. It is not a situation that anyone should be in, and especially me and my family were not prepared to be in that situation.
I sold around 15-20% of my stake for that reason and now there is nothing else to sell. So, 80% of what I own in the world is still in the company, and I have enough stake in the company and no interest in any short-term price or anything like that. For me, it’s not a question of what price you sell at. Is it profitable? Could the price be higher or lower next year? That’s not what we think about. We think about family security and tax must be paid on the exercise of shares.
By the way, the facts are wrong because my bet hasn’t actually gone down. It has gone up because I have about 1.1 core shares and I have sold about 70 lakh. My shares have gone up by around 40 lakh shares and that must be understood very well. When that happens, you also pay tax and have an element of financial security. With both of these in mind, it was the absolute rational thing to do. How the markets react is not for me to decide. Whether they understand what I’m doing, whether they don’t, is their choice.
You must complete one year of listing by 15 November. Do you understand the stock markets better? The stock market wants to know if you are listening to it, taking the feedback and if there will be more disclosures?
I don’t understand the stock markets at all.
I want to make two explanations very clear; why I am here in the first place, I am not here because of Policybazaar and I am not here because I listen more to the stock market or something like that. I’m here because someone I respect a lot, a well-wisher told me that the industry is missing your voice. I’m real. He said this two, three days ago, and I respect him a lot. I immediately called my PR. He said you should take the risk and talk to the media. You shouldn’t worry about what people think; you have done the maximum for this industry in terms of building health insurance and life insurance in the country and making it popular and not having your voice as part of the ecosystem is a disservice to the industry.
That’s why I’m back and not because I want to communicate anything about Policybazaar share price or anything. Now coming to the question, do I understand the stock market better? The answer is no, and I don’t even want to, to be brutally honest, I’ve never invested in a single stock in my life, and I don’t understand how stock prices move up or down.
We definitely do not want to control the share price, we have not shown any indication in the last year that we are doing anything to control the share price, we have no such thing. We communicate with the stock exchange and that’s it.
We are happy to talk to the retail investors and try to explain our story to them. If they want to understand, that’s great, if they don’t understand, that’s fine, that’s fine. Over time, the company will deliver something that will create indisputable values, indisputable values and you won’t have to argue about whether we should grow, whether there will be a profit. It is there for all to see and I am very confident that it will happen. And when that happens, the value will flow. That’s the state of mind we’re in.
The company never needs to raise more capital, we don’t need to sell any shares. If the share price moves up or down, it’s not something we think about or worry about quite frankly.
What we have also seen in recent times and as you point out that you are an important stakeholder when it comes to insurance, you kind of lead the digital story on that front also for penetration and all that. What are the other big triggers?
The reason why customers do not buy enough insurance today is because they are not confident about the damage experience. They are not confident about the service experience, the onboarding processes, the claims experience. Although they have improved every year, they are still painful for the consumer.
At one level or another, we as an industry owe it to the consumer to make them available to the consumer to have a claims layer and a service layer. We need to make it available to every insurance touch point, every distributor.
All the data integration that exists like VAHAN data, IIB data, account aggregator data that doesn’t need to be given to individual players but the team can have it.
The industry should build a layer that is fraud detection data, claims processing, service management layer and make it available to everyone, every agent, every bank, every distributor, every insurance company. That to me will be the UPI moment in the insurance industry from a point of service perspective. Many more people will gain confidence in the product and buy it.
The other thing is that 97% of sales are done by distributors. The distributors in the industry are usually seen as bad people, but if they contribute 97% of the industry, whether they are agents, banks, insurance companies, brokers, online aggregators, X, Y, Z whatever, they contribute 97% of the premium to this the country. We must
them.
How do you strengthen them? You empower them with technology. You give them flexibility. You give them delegated authority. All of these things need to happen if we want to see very rapid growth. If we as an industry are able to do these two things—develop a beautiful service data layer and free up our distribution to move forward and be empowered to serve the customer well—it can change the industry dramatically.
