Global brokerage firm Bernstein has significantly reduced its share price target for PB Fintech Ltd., the parent company of Policybazaar, by 53 percent. The new target stands at Rs 1,085, down from the previous Rs 2,310, even while maintaining an 'Outperform' rating on the stock.
Bernstein's revised forecasts and target price reflect the impact of a more severe-than-anticipated commission cut proposal. The brokerage stated that PB Fintech faces a crucial 'do-or-die' situation over the next 18 months as it navigates these regulatory changes.
Commission Cuts Force Business Model Rethink
The report highlights that PB Fintech's reduced take-rates in the general insurance business are insufficient to cover current operational costs. This necessitates a fundamental shift in its business strategy. Bernstein suggests the company will either need to scale back its general insurance operations or develop alternative models to recover lost revenues, particularly in the health segment.
While mitigation strategies exist, Bernstein noted they are difficult to quantify and integrate into current forecasts. The brokerage anticipates a scaling down of the Point of Sale Person (POSP) business. Despite these immediate challenges, Bernstein maintains a positive long-term view on the remaining business segments for growth and value creation beyond FY28, but stresses the high uncertainty of the coming 18 months.
Sharp Cost Controls and Strategic Adaptation Expected
Bernstein has also lowered its profit estimates for PB Fintech, now valuing the business at 25 times its FY30 profits. The firm projects net income for FY30 to be around Rs 2,000 crore, a significant reduction from the earlier estimate of Rs 3,200 crore, primarily due to the regulatory hit.
The brokerage assumes a 'max pain' scenario, with no rollbacks from the regulator regarding the commission caps. Consequently, Bernstein's forecasts do not factor in any potential upside from future mitigation strategies. The immediate quarters will demand stringent cost controls and effective execution of planned adaptation strategies to weather the crisis.
Bernstein's updated model forecasts core insurance revenues at the product level, excluding POSP revenues and direct costs. It also bakes in sharp cost cuts in the core business for FY28, with a projected rebound in spending as revenue growth resumes in FY29. The path to Rs 2,000 crore in FY30 is seen as arduous, requiring a robust response to the current regulatory environment.