Bernstein On PB Fintech: PB Fintech could face a major earnings reset if the proposed insurance framework comes into effect in its most adverse form, with Bernstein estimating a potential 38% hit to FY30 profit.
Yet the brokerage continues to rate the stock ‘Outperform', arguing that cost optimisation can cushion the near-term impact before growth and margins recover from a lower base.
Analysts Manas Agrawal and Himank Sangai estimate FY30 profit at around Rs 20 billion under their scenario, versus Rs 32 billion before the proposed regulations. Bernstein has retained an ‘Outperform' rating with a target price of Rs 2,310, implying around 91% upside.
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Health, Motor Business To Bear Most Of The Pain
Bernstein's detailed scenario analysis following the draft consultation paper suggests the proposed framework could reduce PB Fintech's insurance take rates by around 40%.
That could translate into a potential 36% reduction in FY28E consolidated revenue versus the brokerage's previous estimate, although Paisabazaar is expected to provide some cushioning.
The biggest pressure is likely to come from the health and motor businesses. The proposed shift in term plans towards a trail-based structure could also defer cash flows, creating an initial working-capital drag.
Bernstein also expects PB Fintech's organic premium growth, currently estimated at around 35-40%, to reset to a lower level in FY28E. Lower customer pricing could provide some offset through higher volumes.
FY28 Could Become A Year Of ‘Rational Growth'
The brokerage expects FY28E to mark a period of more measured growth as PB Fintech focuses on protecting its bottom line.
Management has indicated scope to rationalise growth-linked expenses, particularly call-centre hiring, variable payouts and performance-marketing expenditure.
Bernstein's scenario assumes a potential 4% cut to its FY28E premium-growth estimate, alongside the roughly 40% reduction in take rates.
The result could be a 36% reduction in FY28E revenue growth versus the previous estimate. However, the brokerage expects direct costs linked to the core business to be reduced meaningfully as the company pulls back on growth spending.
It also factors in phased indirect-cost rationalisation through FY28 and FY29.
Profit Recovery Expected From FY29
Even after these cost measures, Bernstein estimates FY28E PAT could be cut by around 34% from its previous forecast.
Under its scenario, FY28E profit could fall to around Rs 11 billion, below the estimated FY27E PAT of around Rs 12.5 billion.
The brokerage expects the earnings trajectory to improve from FY29E as growth spending resumes, with FY30E profit recovering to around Rs 20 billion, although this remains well below its earlier Rs 32 billion estimate.
Bernstein also expects PB Fintech to explore asset-light ways to monetise its health franchise, including MGA and CoR structures, or potentially move towards a manufacturing solution.
Despite the potential earnings hit under the maximum-pain scenario, Bernstein retains its ‘Outperform' rating and Rs 2,310 target price on PB Fintech.
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