PB Fintech share price targets: What CLSA, Citi, Morgan Stanley, others say

PB Fintech, the operator of Policybazaar, reported solid set of quarterly results, with its adjusted Ebitda turning positive, in line with the management guidance. The results, analysts said, were led by both core insurance and credit businesses, as well as lower losses in new initiatives. A couple of foreign brokerages believe valuations for PB Fintech are at comfortable levels. Citi has a target of Rs 820 on the stock. Morgan Stanley finds the stock worth Rs 810 while CLSA values the scrip at Rs 720. Among a handful domestic brokerages, JM Financial had the highest target price of Rs 980 target. Kotak's target for the stock stood at Rs 725 while Nuvama's at Rs 595. These targets suggest flattish to 58 per cent upside potential for the stock going ahead.

"The stock has significantly corrected since its listing, providing a good entry point for investors. It absorbed the supply coming from the post-IPO lockup in mid-November 2022 quite well. The fundamental

overhangs of last year are behind us, and we find valuation attractive," Morgan Stanley said.

Key positive catalysts for FY24 include a likely pickup in industry term life premiums, strong growth in savings for PB Fintech from a small base, and cost controls, Morgan Stanley said. This brokerage noted that the contribution margin fr the quarter saw a slight decline from 26 per cent to 25 per cent sequentially and was lower than its estimate of 29 per cent, given higher-than-expected business in new initiatives.

"High customer engagement, back-ended profitability in annuity based commission models, and PB’s early mover advantage driving high brand recall likely pose lower disruption risk. We refrain from carrying out a relative valuation exercise (EV/Ebitda FY26/27E) of PB with other new-age internet stocks due to differentiated business

model. Globally, large traditional insurers brokers trade at 10-20 times forward PE for PAT margin of 15-25 er cent; as such PB’s valuation in a nascent marketplace is comfortable," Citi said.

CLSA said PB Fintech's results were stronger than expected with a lower profit before tax loss. Core insurance platform revenue was inline with the PBT beat driven by lower overhead and slightly better credit revenue and other income.

"The burn rate in new initiatives is stabilising, overhead growth remains in check and we expect core revenue to see a 30 per cent CAGR. We increase our estimates by Rs 70-Rs 90 crore over FY24-26CL and expect near-PAT breakeven in FY24CL along with PAT of Rs 700 crore by FY26CL. We lift our target price from Rs710 to Rs720 and maintain our Outperform recommendation," CLSA said.

JM Financial, which has the highest price target among the brokerages said, while new initiatives lowered losses sharply with contribution margin of minus 1 per cent, it does not expect that to be sustained in the coming quarters with the management guiding towards breaking even the business in FY27.

"We believe this to be an unusual quarter that should not be used to extrapolate as the growth in PB Partners revenue (up 97 per cent QoQ) was likely driven by strong sales of life insurance policies in advance of taxation rule changes from April 1, 2023. Paisabazaar delivered as expected with disbursals growing 11 per cent QoQ and the business also turning EBITDA profitable," it said.

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