PB Fintech shares: HSBC initiates coverage with 'Buy', sees 76% upside in bull case

HSBC Global Research has initiated coverage on multibagger PB Fintech Ltd, which operates India's largest online insurance marketplace - Policybazaar,  with a 'Buy' call and a target price that suggests 19 per cent upside on the counter. PB Fintech's growth story would be driven by its strong brand, large customer base, and distribution reach, the foreign brokerage said.

The brokerage feels that even as PB Fintech has outperformed the broader markets with 165 per cent rally in 2024 so far against a 29 per cent rise in the S&P BSE Midcap index, it has the potential to re-rate, given its ability to grow the business and improve the PAT margin.

HSBC suggested a target price of Rs 2,550 for PB Fintech, saying its bear case target stands at Rs 1,610 and bull case at Rs 3,780.

"Our bear case implies 25 per cent downside versus 76 per cent upside in our bull case, indicating a favourable risk-to-reward ratio. Key downside risks: higher-than-expected deferment in commission rates, risk to scaling new initiatives, increasing competition, initiative by the regulator to launch an online public marketplace, and loss of key personal," it said.

HSBC said there is low risk of PB Fintech facing a 'disruptive' competition environment, given the high capital burn required by peers over a long period. The addressable market remains large; and current regulations, including promoting the adoption of open architecture, will likely aid PB Fintech, as it scores highly on profitability, execution and technology, the brokerage said.

As the revenues from insurance products sold by large banks grew at an average CAGR of 20 per cent over FY2022-24 - 8 times the revenues of PB Fintech in FY24, HSBC i confident that PB Fintech has a great deal of growth headroom.

"We forecast a 27 per cent revenue CAGR over FY25-28 and think PB Fintech will see positive jaws on the back of scale, efficiencies, technology and a sharper slowdown in non-cash expenses growth. We forecast that the Ebitda margin will improve from 3 per cent in FY25 to 19 per cent in FY28. This should lead to a 66 per cent CAGR in profit after tax (PAT) over FY25-28e," HSBC said.

HSBC said PB Fintech has a substantial early mover advantage in an underpenetrated market, highlighted by its 8.69 crore customer base, much larger than those of its peers, which are still at an early stage of growth.

"PBFIN is well past the growth stage that requires high customer acquisition costs, so it can focus on scale, while benefitting from operating leverage," it said.