PB Fintech shares rally 4% after last-week rout; Bernstein says earnings will recover, but flags near-term pain

The sharp sell-off came after the Insurance Regulatory and Development Authority of India (IRDAI) proposed changes to the commission structure and expense limits for insurance distributors.

The proposals triggered concerns over their potential impact on PB Fintech’s earnings and profitability, leading to heavy selling in the stock. Monday’s rebound, meanwhile, comes as investors assess the extent of the potential impact and the company’s longer-term growth prospects.

Meanwhile, Bernstein has maintained a bullish stance on the stock with sharp upside potential.

Key points

The investment bank said the proposed framework could imply a 40% reduction in insurance take rates for PB Fintech, translating into a potential 36% cut in FY28E consolidated revenue, with Paisabazaar providing some cushioning to the impact. The shift in term plans towards a trial-based structure could also defer cash flows, creating an initial working-capital drag.

Management indicated that there is room to rationalise growth-linked costs in FY28E, particularly call-centre hiring, variable payouts and performance-marketing spends. Under its scenario analysis, Bernstein assumes that organic premium growth for PB Fintech, currently estimated at 35–40%, will reset to a lower level in FY28E, with lower customer pricing driving a partial volume offset.

Analysts at Bernstein have also factored in a potential 4% cut in FY28E premium growth, although it noted that a wide range is possible, along with the 40% reduction in take rates. As a result, the scenario analysis suggests that revenue growth could be 36% lower than its previous FY28E estimate.

Bernstein believes core-business direct costs can be reduced meaningfully in FY28E as the push for growth pulls back, before normalising from FY29E as growth spending resumes. It has also built in phased indirect-cost rationalisation across FY28E and FY29E.

Consequently, the investment bank's scenario analysis suggests a potential 34% cut in FY28E PAT versus its previous estimate. It now expects FY28E profit at ₹11 billion, below its FY27E PAT estimate of ₹12.5 billion despite cost-control measures. Earnings are expected to recover to ₹20 billion by FY30E, although this is below the earlier estimate of ₹32 billion.

About PB Fintech

PB Fintech is a digital insurance and financial-services platform that operates brands including Policybazaar and Paisabazaar. Policybazaar is the company’s insurance marketplace, helping customers compare and purchase insurance policies across categories such as health, life and motor insurance, while Paisabazaar operates as a digital marketplace for credit products.

The company earns revenue through insurance distribution and other financial-services activities, with its business growth linked to customer additions, insurance premium volumes and monetisation of its platform.