Buy This Stock For 21% Return, Expected Growth In New Premiums: ICICI Securities

Renowned brokerage firm ICICI Securities suggested investors buy the stock of PB Fintech for a 21.13% return in 1 year. The firm is estimating a 27% CAGR in new premiums in PBF's core business.

Target Price

The Current Market Price (CMP) of PB Fintech is Rs. 1749. ICICI Securities has estimated a Target Price for the stock at Rs. 2140. The stock is expected to offer a 21.13% upside, in 1 year.

Stock Outlook
Current Market Price (CMP)	Rs. 776
Target Price	Rs. 940
1 year return	21.13%

Company performance

Individual new business premium (life) and retail health insurance sourced from online channels grew at 38% CAGR in FY16-FY21 vs 12% for non-digital channels. New business premium income for PBF has grown at 26% CAGR vs the 11% witnessed by the industry between FY19-FY21. Based on industry estimates, premiums via online channels stood at US$1bn for India representing 1% of the total FY20 premium which is significantly lower than the US (13%) and China (5.5%). ICICI added, "Cost overrun is the only risk, but with total advertising/promotion expenditure at Rs.2.4bn in Q3FY22, the cost-to-income ratio is expected to plateau ahead. We expect the ratio to gradually dip from 107% in FY21 to 81% in FY26E."

Comments by ICICI Securities

According to ICICI Securities, "The prime growth driver for PBF should be in the increasing premium income expected in the digital medium. The long-tail nature of the insurance business drives high operating leverage as renewal books typically should not call for any additional cost and ideally be operating at a near-100% contribution margin. We expect the core renewal book to clock 39% CAGR between FY22-FY31E and the revenue and contribution CAGRs from renewals to be 33% and 35%, respectively by FY31E. The insurance agent, on being boarded through PBF's portal PB Partner, helps grow retail insurance premiums manifold (Q3/Q4 volumes were at Rs2.4bn/5bn)."

About the company

PB Fintech (PBF) is among the leading insurance and lending intermediaries in India. It operates principally through its platforms PolicyBazaar/PaisaBazaar, and has also entered into newer businesses. PBF is well placed to benefit from the rising insurance penetration in India, especially through digital distribution. High growth, operating leverage, strong balance sheet, and established brand recall among the Indian populace are its key business moats. This should help the company generate strong free cash flows as we expect its cost-to-income ratio to plateau ahead.

Disclaimer

The above stock was picked from the brokerage report of ICICI Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.