Policybazaar shares down 52% in 2022. Edelweiss initiates coverage with ‘Buy’ rating
Online financial products is an exciting space, and Policybazaar (PB) has carved out a niche for itself thereof, said domestic brokerage and research firm Edelweiss, adding that low digital sales and insurance penetration underpin its growth conviction on this incipient segment.
“PB’s strategy of investing in alternate channels-appointments and POSP, not only augurs sustained volume uptick, but also fortifies its bargaining power. Ascending renewals, efficiencies, and unit economics lie at the heart of PB’s improving profitability,” the note stated.
Following its recent correction, the stock is trading at FY23E/FY24E EV/sales of 7.2x/5.7x. “This is contiguous to the lower-end of its relatively short trading history.” All in all, the brokerage house has initiated coverage on Policybazaar shares with a ‘BUY’ rating and DCF based target price of ₹550 apiece.
With a market share of 90%-plus in online insurance sales, PB is the undisputed leader in the space. Edelweiss believes the company is investing judiciously in the appointments channel and client servicing; this, in our view, would cement its leadership position and sustain growth.
“We expect its platform business’s premium to expand at an FY22–27E CAGR of 34.8%. Investments in new initiatives – PB partners, corporate and UAE – would likely add to revenues, and with time, to its bargaining power. In all, we reckon the business to deliver an FY22–27E revenue compound annual growth rate (CAGR) of 33.3%,” it added.
Further, the brokerage expects PB’s margin uptick to be driven by an uptick in: i) renewal revenues in general and health insurance segments; ii) appointments channel; iii) renewal business in PaisaBazaar; and iv) overall efficiency.
Management believes renewal revenue has an EBITDA margin of 85%-plus, and the appointments channel too is expected to be NPV-positive. “We believe the company would break even on adjusted EBITDA in FY24E and would be PBT-positive in FY25E. We are conservatively building a FY27E PBT of ₹8.8 bn, short of management’s ₹10 bn guidance,” it said.
Policybazaar shares made their market debut in November last year and have declined more than 52% in 2022.
The views and recommendations made above are those of individual analysts or broking companies, and not of Mint.
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Ganesh
http://ganesh@finplay.inFinance enthusiast, Mutual fund expert.