PB Fintech: Ambit sees IRDAI commission hit even as BofA raises target price

PB Fintech is facing two very different readings from brokerages after the proposed insurance distribution reforms by IRDAI. Ambit Capital expects a sharp near-term hit to Policybazaar’s commission economics if the IRDAI proposals are implemented in their current form. Meanwhile BofA Global Research says the company’s core insurance business continues to gain scale, with renewals and new initiatives improving the longer-term earnings profile.

The divergence comes down largely to the time frame. Ambit is focused on the immediate impact of lower commission caps and the need for PB Fintech to reset costs and growth assumptions. BofA, meanwhile, has raised its earnings estimates after seeing stronger-than-expected traction across the insurance business, but continues to retain a ‘Neutral’ rating because of regulatory uncertainty.

Ambit Capital has retained its ‘Buy’ rating on PB Fintech with a target price of Rs 2,305, even as it sees the proposed IRDAI distribution rules creating substantial pressure on the company’s commission income.

The brokerage estimates that the proposed commission caps could cut PB Fintech’s blended commission rate by around 40% in FY28, taking it to roughly 10% from the levels built into its earlier estimates. Ambit said the company’s current cost structure would then be higher than the potential commissions it could earn, making a faster growth trajectory and cost reset necessary.

“Thus, the first-order impact of these proposals will be materially negative,” Ambit said, adding that profitability could move close to break-even in FY28 against its earlier adjusted EBITDA estimate of Rs 1,979 crore.

The brokerage sees health insurance as one of the areas facing the sharpest pressure. Its estimates suggest that retail health commissions could fall materially under the proposed framework, while the lower upfront payout on term insurance could be partly cushioned by a proposed 7.5% renewal commission.

Ambit also sees a possible benefit for Policybazaar from the relative impact on competing distribution channels. It said lower commissions could hurt higher upfront commission-led channels more severely, potentially making Policybazaar more attractive to insurers. The brokerage noted that the platform currently has around 20% market share in retail health and about 25% in term life.

“The proposed sharp commission cuts could hurt higher upfront commission-led channels more, especially agents in health and banks/NBFCs in life, improving PB’s channel attractiveness and aiding market-share shift to PB,” Ambit said.

The brokerage also expects any benefit from lower customer pricing or reduced advertising costs to take time to emerge. It said greater customer pull could eventually help Policybazaar reduce its advertising burden, which currently accounts for around 25-30% of its revenue.

BofA Global Research has retained its ‘Neutral’ rating on PB Fintech but raised its target price to Rs 1,970 from Rs 1,800 after increasing its FY28 and FY29 earnings estimates by 7-12%.

The brokerage’s latest annual report analysis points to a broader revenue base for Policybazaar. Life insurers, which accounted for more than 60% of revenue in FY22, now contribute less than a third, while general insurance accounts for 48% and standalone health insurers for 21%.

BofA also sees renewals becoming increasingly important to the business. It estimates renewal premiums could grow at a 39% CAGR between FY26 and FY29, compared with 29% for new business. The brokerage said the improving renewal mix should support profitability because renewal business carries lower acquisition and selling costs.

“Policybazaar is moving toward a more attractive economic model, with renewals growing faster than new business, supporting long-term profitability,” BofA said.

The brokerage is also tracking the expansion of PB Partners, international operations and reinsurance broking. It sees reinsurance broking as a fee-based adjacent business that can use PB Fintech’s insurance ecosystem and data without taking underwriting risk.

BofA has raised its FY28 revenue estimate to Rs 12,268 crore from Rs 11,639 crore and its adjusted EBITDA estimate to Rs 1,592 crore from Rs 1,417 crore. For FY29, it now expects revenue of Rs 16,158 crore and adjusted EBITDA of Rs 2,255 crore.

However, the brokerage continues to see regulatory uncertainty around insurance commissions as an overhang. Its valuation now uses 35 times FY28E EV/EBITDA for the core business and 4 times FY28E EV/sales for new initiatives, resulting in a DCF value of Rs 2,202 and an SOTP value of Rs 1,738.

The two brokerages therefore differ mainly in how they weigh PB Fintech’s operating momentum against the proposed commission changes. Ambit sees a sizeable earnings challenge if the rules remain unchanged, while BofA is giving greater weight to the company’s renewal growth, broader insurer mix and expansion of newer businesses.

The proposed framework would lower commission caps across several insurance categories and also bring down expense-of-management limits for insurers. For Policybazaar, the effect is particularly important because its economics are closely tied to commissions earned from distributing insurance products.

BofA’s assessment also points to a broader Policybazaar franchise than in earlier years. Its analysis shows that the platform is becoming less dependent on a small group of insurers, with United India Insurance, Axis Max Life and Niva Bupa among the larger contributors across general, life and health insurance.

The next phase for PB Fintech will therefore involve both sides of the equation: how quickly the core insurance business can grow and improve its renewal mix, and how the company adapts its cost structure if the proposed commission framework takes effect.