PB Fintech shares: Nuvama downgrades Policybazaar parent's stock despite first ever quarterly profit. Here's why

PB Fintech Ltd saw its shares getting downgraded by Nuvama Institutional Equities despite the parent of Policybazaar and Paisabazaar reporting its first ever quarterly profit, as the stock valuations turned rich.

Nuvama said it has revised its FY25 Ebitda estimates by 1.7 per cent to build in slightly higher growth and upped its target price to Rs 790 from Rs 750 due to rollover of earnings estimates to FY26, but downgraded the PB Fintech stock to ‘REDUCE’, given its rich valuations.

PB Fintech reported a consolidated net profit of Rs 38 crore for the December quarter compared with a loss of Rs 87.30 crore in the year-ago quarter. Its revenue was up 43 per cent YoY at Rs 871 crore.

The 1 per cent YoY uptick in core premium lifted the Q3 revenue of the core platform business by 39.5 per cent YoY, it said adding that PB Fintech's new initiatives also posted strong revenue growth of 50.3 per cent YoY.

"A strong growth in new health premiums dragged core business adjusted Ebitda margin to 12.8 p cent, but a sharp improvement in new initiatives’ contribution buoyed overall adjusted Ebitda to Rs 39 crore (estimate. Rs 15 crore). Strong other income aided PB Fintech to report its first-ever quarterly PAT," it said.

The PB Fintech management suggested that the proportion of longer-term health premium was higher in the base year, resulting in slightly lower growth of renewal premium. In that context, the new business premium growth is quite impressive, Nuvama said.

New protection premium (life and health) improved 44 per cent YoY. Disbursement growth was muted at 9.2 per cent YoY due to the restrictions imposed by the RBI on the industry. The improvement of 79 basis points YoY in take rate to 4.1 per cent led to improvement of 35.5 per cent YoY in credit revenues.

Nuvama noted that the management sounded upbeat on its commentary to turn around this segment and is now guiding for low profitability beyond five–six years.

"Contribution margin came in at 43.7 per cent (down 56 bps/down 88 bps YoY/QoQ) as new health insurance business has negative contribution in the year of first sale, but the renewals come at margins of 85 per cent and the business has higher renewals with premium hikes and is much more NPV positive than other lines of business. Strong cost control resulted in existing business reporting adjusting Ebitda of 12.8 per cent," it said.