PB Fintech share price today: PB Fintech, the parent company of Policybazaar, suffered its steepest-ever single-day fall on Thursday, with the stock plunging 36% and wiping out around Rs 31,430 crore from the company’s market value. The selloff came after the Insurance Regulatory and Development Authority of India (IRDAI) proposed sweeping changes to the way insurers compensate distributors.PB Fintech shares hit multiple circuit limits during Thursday’s session before ending 36% lower at a 52-week low. The decline followed IRDAI’s proposal to restructure distributor commissions, with the proposed limits varying according to the insurance product, distribution channel, size of the policy and the effort involved in selling it.On Friday, shares of PB Fintech were trading at Rs 1,150.90, down 4.66% at around 12:45 PM.
Jefferies still bullish
Despite the sharp decline, Jefferies retained its ‘Buy’ rating on PB Fintech, while warning that the proposed changes could have a material negative effect on the company’s earnings in the near term.The sharp fall in the stock and the concerns it triggered among investors prompted PB Fintech to hold an analyst call.According to Jefferies, the company’s management said the proposed reduction in commissions could bring the net present value (NPV) of future payments from the non-life business down to 33-40% of its current level. NPV refers to the present value of a future stream of payments. The impact on the life insurance business is expected to be similar.To cushion the effect, PB Fintech is considering slower hiring and lower marketing expenditure, Jefferies said according to an ET report.The company is also looking at conserving cash while examining newer opportunities, including the managing general agent (MGA) model. An MGA is a specialised type of insurance agent that acts as an intermediary between conventional insurance companies and the public or local brokers.
IRDAI’s proposed changes
IRDAI’s consultation paper on insurance distribution regulations proposes extensive changes to the existing framework. For distributors, one of the key proposals involves setting commission limits according to distribution channels, with lower caps proposed for banks and brokers compared with agents.The proposals also include cutting new business commissions for health and term insurance by at least half. For new motor own-damage policies, commissions could fall to a third. Renewal commissions in health insurance could also decline by 50-67%, while the proposed limit for term insurance renewals would increase from 2% to 7.5%.Another issue being discussed is whether the proposed commission rules would apply only to new business or also affect existing arrangements.Jefferies said PB Fintech is seeking clarification from IRDAI on whether the changes would operate prospectively or retrospectively. At the same time, the brokerage does not expect insurers to withdraw from contracts that are already in place.“We note insurers had passed on the loss of ITC to distributors even on existing contracts. Niva indicated on a later call that the new commission regulations will apply retrospectively,” it said.According to Jefferies, PB Fintech’s management is examining avenues such as the managing general agent (MGA) model. The new Insurance Act recognises MGA as an intermediary. PB Fintech is already helping insurers generate new business and keep health insurance loss ratios under control, functions that are similar to those performed by MGAs. The international brokerage, however, pointed out that MGAs also take on underwriting risks.The company is also considering newer products, including credit life insurance, Jefferies said. PB Fintech has indicated that the possibility of setting up its own insurance company has also increased. In addition, it could explore ways to monetise services such as PB Wheels and PB Garages, among others.
What lies ahead?
Jefferies cautioned that if IRDAI’s proposed regulations are implemented in their current form, they could materially hurt PB Fintech’s near-term earnings. At the same time, the brokerage pointed out that the proposal is still at the consultation stage and could be revised after feedback from stakeholders is considered.Jefferies left its earnings estimates for PB Fintech unchanged, but reduced the valuation multiple assigned to Policybazaar by 30% amid the uncertainty surrounding the proposed rules. It also lowered its target price to Rs 1,540 per share from Rs 2,050. The revised target represents around 28% potential upside from the stock’s previous closing price.(Disclaimer: Recommendations and views on the stock market, or any other asset classes or personal finance management tips given by experts and analysts are their own. These opinions do not represent the views of The Times of India.)
