‘Do or die’ situation: Brokerage halves PB Fintech’s target price on IRDAI proposals
PB Fintch: Bernstein retains ‘Outperform’ but says the next 18 months are critical for Policybazaar parent.
PB Fintech faces a sharp target price cut from a brokerage after IRDAI proposed sweeping changes to insurance distribution economics.
New Delhi, PB Fintech: Bernstein has cut its price target on PB Fintech by 53 per cent to Rs 1,085 from Rs 2,310, while keeping its ‘Outperform’ rating, and says the Policybazaar parent faces a do-or-die situation over the next 18 months.
The revision, detailed in a Bernstein report titled “PB Fin: Max pain”, follows the insurance regulator’s proposal for commission cuts that the brokerage called harsher than expected, and it comes days after the company’s shares fell sharply. At the centre of the reassessment is IRDAI’s proposal to cap commissions and reduce insurers’ expenses of management.
PB Fintech: General insurance under pressure
The brokerage’s concern is general insurance. Bernstein said PB Fintech’s reduced take-rates in that business cannot cover current costs, meaning the company will either scale back from general insurance or find alternative models to capture the lost revenue. Analysts are weighing whether the company will need to significantly alter its operations, such as reducing its reliance on the point-of-sale-person (POSP) network.
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Bernstein still sees a path out. It said PB Fintech retains a high-growth, expanding-margin profile beyond what it called a damaging FY28, and its revised forecasts assume sharp cost cuts in the core business that year.
PB Fintech: Target close to market price
The new target is close to where the stock already trades. The old target implied roughly 34 times Bernstein’s earlier FY30 earnings forecast, while the new one sits almost at the current market price. On Wednesday, the stock was trading 2.25 per cent lower at Rs 1,056.70 on BSE.
PB Fintech: What investors should watch
Bernstein was frank about the unknowns. It said it does not know whether IRDAI will modify the proposed caps, or what mitigation PB Fintech will ultimately adopt. For investors, the most critical thing to watch is the finalisation of the IRDAI regulations, which will determine the actual impact on profit margins. Other brokerages have also turned cautious since the regulator’s consultation paper.
HSBC downgraded the stock to ‘Hold’ from ‘Buy’ and cut its target to Rs 1,150 from Rs 2,100, while Motilal Oswal maintained ‘Neutral’ with the same Rs 1,150 target. Bank of America Securities retained ‘Neutral’ but lowered its target to Rs 1,410 from Rs 1,970, and Jefferies kept its ‘Buy’ rating while cutting its target to Rs 1,540 from Rs 2,050.
