pb fintech share price: We are very clear that PB Fintech wants to deliver Rs 1000 cr profitability by FY27: Chairman
Your top line has grown well. How sustainable is it? All costs have risen sharply due to employee benefits and advertising spend. Is it a deliberate attempt to rein in costs?
Yashish Dahiya: We have two parts of our business right. We have the core business and the new initiatives and we have seen growth in both. The staff costs have increased but because our total revenue has increased by 105% and correspondingly, we have reduced our losses in the new initiatives from the last two quarters by around Rs 30 crore per quarter. We will do another Rs 30 crore a quarter in cost reduction by the last quarter of this year.
In the core business, while we have seen a growth in the business of about 55% on revenue, we have also seen a growth in the contribution which has almost doubled during the year. The contribution growth is much higher and at the EBITDA level, there is a delta for the first half of the year which is Rs 98 crore and for the last quarter which is around Rs 60 crore.
So in the core business there is more efficiency, more profitability and in the new initiatives lower losses. Compared to last year, the new initiatives have grown slightly more than the core business. So it’s just a mixed change, but overall the losses are lower and the business is about double.
How has the journey to profitability been? How will it play out?
Alok Bansal: There are three or four different parts of our business. The first is the income part as of now. Our earnings have grown at about 2 to 5 times the industry growth rate. It is on the revenue side of the core business. Initiatives that start from a small base will have a much faster growth, but at some point they will also slow down as we work more on efficiency.
Overall, revenues continue to grow at least 2x to 3x or 5x industry growth rates.
Now coming to the cost part, there are two main costs for us. One is the customer acquisition cost and the other is the customer service cost. In both of these we are becoming more and more efficient. So on the marketing side, we will see that our premium per inquiry has moved quite drastically from Rs 1,100 odd from last year to around Rs 1,500 and that is a very big change in a year.
Similarly, we see about 38-40% more efficiency coming from the hybrid models, and the contribution can move from 35% to 45%. Below the contribution level, we have two other costs that are mostly fixed in nature and much of the benefit of the improved contribution and improved revenues will flow down to EBITDA. Therefore, EBITDA in the last two quarters for the core business has been positive. Obviously, there is a large non-cash charge that we saw that needs to be taken on the P&L, even though the costs were incurred prior to the IPO, but the charges will continue to come under the P&L for the next five years.
That’s the only thing, but another way to look at it is to look at our cash balance. It is visible and the number has not decreased. It has gone up and it will continue to go up from now on.
You are the core of a fintech company. What then is the rationale behind running a salesperson business?
Yashish Dahiya: Insurance as a product is a very difficult product to get consumers into. We are pretty much the only place in India where customers come on their own and say I want to buy insurance. It does not happen in insurance as a category because it is not a desirable product. It’s not like an ice cream or a pair or jeans or a pair of specs. The best case scenario is that you pay the money and never deal with the product again because a claim is not a happy experience.
So it takes a lot of thought and a lot of nudging before a person actually buys what is ultimately good for them. It is a kind of complicated product. What we noticed at one point, especially when you talk about health insurance and life insurance, if you support a customer when he comes to the site, he converts 3x compared to x if you don’t support him. If you are able to improve this support and meet the customer at his home, you can get 6x, and thus every incremental effort you put in makes the person convert and you get higher productivity.
Now, a typical offline agent, who does not have the customers coming to him, earns only Rs 50,000 to 100,000 a year of sales or a month of sales, whereas the person in our call centers sells more than Rs 10 lakh every month. But the moment we put a person who is also willing to go and meet the customer, he starts showing Rs 20 lakh sales a month.
The reason is not that he is a super salesman, but because he gets those inquiries where the customers are ready, but not quite ready to part with the money yet. It takes a lot of pushing to get the customer to take out Rs 20,000 from their pocket. My best case scenario is that I never see this product again, because getting sick or dying is not a happy experience for anyone.
The other part that disrupts your cash flows is regular spending on new initiatives. Give us the rationale behind this and can you give examples of how these new initiatives have started to bear fruit?
Alok Bansal: When we talk about new initiatives and the costs we incur on these, the bulk of it goes to enable the sales agents to be able to serve their customers in a better way, using our platform and technology and in the relevant business, per now we are investing and we will invest somewhere in the vicinity of around Rs 200 crore for all initiatives combined.
Now, the goal of that business when we started in the middle of last year was how quickly we can get to the leadership position, and that was achieved in the first six to seven months. Once we got to that level, the team has started working on the efficiency side of all the initiatives, and once we worked for the efficiency, there are more things we need to do.
One of the very important things that we were able to achieve again in a very short time was to enable the sales agents to sell more products and not just motor but also health, life, business, whatever the customer needs. It is going to improve the earning power of that sales agent. So finally, if you look at India as an overall market, there are many people who come to Policybazaar, but there are people who go to an agent.
From our perspective, we have to serve both. The customers who come to us go through the usual experience from our phone call plus physical meeting. Customers who choose to go agent get part of the Policybazaar experience by using our platform. They are able to give them better experience not only through purchase but also through claims. We have a large team supporting these customers who come through sales agents. Overall, it is in a way complementary to what we did, and therefore this is something that we as a company should definitely spend some time and effort on.
Right now, PB Fintech faces a lot of competition on the credit side of the business. How do you cope with it and how are you going to increase your market share?
Yashish Dahiya: We don’t play that much in many other areas, but what we do work on is when a customer comes to us, we have their credit score, etc., and based on that and based on the customer’s needs, we advise them.
The customer may need Rs 5,000 for five days or they may need Rs 5,00,000 for 10 years. We advise them on which different institutions can give them that credit, that loan and who can do it very quickly for them, in a very transparent way. We bear none of the risk ourselves, but we take all the information and make the initial assessment and forward it to the financial institution.
So for the customer, the value we add is that we cover the widest range of suppliers and tell them where they can receive their offer, and to the suppliers we marry them to the customers who are likely to buy their products. So from a market model perspective it does a phenomenal job. It is able to give an offer to 80% because customers do not have the same profile and you cannot have a single offer for all customers.
There are customers who are super prime, there are customers who are prime, below prime. There are customers who cannot be given credit, who have to take step up cards, who have different solutions for themselves. So covering the entire spectrum is Paisabazaar’s strength and that is exactly what it does. I don’t think it competes with any players who have a specific offer. These players are largely suppliers to Paisabazaar.
Given that your stock has been under tremendous pressure, are there any investor concerns you’d like to allay?
Alok Bansal: What we can control is how the company is doing and touch three that you would have seen in the revenue from growth, profitability, customer service levels, technology levels – everything seems to be moving in the right direction. Now when we look at the share price, to be honest we don’t understand this dynamic as well. Over the past year, many factors have affected your stock. These include interest rate changes as well as some other factors that can play on investors’ minds at any given time. The way we look at our business is that a lot of these questions will be answered as time goes on, but we just have to execute, we just have to keep proving that more and more customers are coming to us, they’re getting the best possible service and getting the best personal injury benefit.
As the numbers start coming through, the management target has been very clear that we want to deliver profitability of Rs 1,000 crore by FY27. If that is delivered, the noise coming from the other factors automatically starts to have less of an impact. We as a company and management are quite comfortable with what we want to implement, but the share price is something we don’t really understand and don’t want to comment on.
