PB Fintech’s Revenue Muddle Amid Healthcare Foray

SUMMARY

A report this past week claims PB Fintech’s management has not been completely transparent in its disclosures to investors and analysts

What’s brewing at PB Fintech? That’s the question many are asking this past week after the release of a curious report by Mumbai-based Trudence Capital.

The PB Fintech analysis by Trudence questioned past revenue recognition practices by the company, as well as the role of Paisabazaar, PB Fintech’s lending arm, and even allegations about misleading analysts and investors in post-earnings calls by PB Fintech.

In a report titled ‘Premium Promises and Discounted Truths’, Trudence claimed that since March 2023, there has been a sharp increase in total commission paid to insurance distributors to secure new customers. In the following fiscal year i.e FY24, PB Fintech saw a three-fold jump in brokerage commission earned.

But this does not track with what the company’s management has told investors and analysts in public disclosures, Trudence claims. So where exactly is the gap?

The Revenue Muddle At PB Fintech

But surprisingly, PB Fintech chose to downplay this growth in back-to-back post-earnings calls, first in Q4FY23 and then in Q1 FY24. Both times, CEO Dahiya told analysts there was very minimal impact on revenue from these changes and the take rate for PB Fintech did not see any material shifts or changes.

However, the financial disclosures for PB Fintech show quite a different picture. In FY23, the total income including commission and outsourcing income came to INR 1267.85 Cr or 10.9% of total premiums collected, but this increased to INR 2,750 Cr or a commission take rate of 17.3% on the total premiums collected.

It must be noted that PB Fintech’s Policybazaar is the largest digital insurance aggregator in India.

Clearly, there was a broad jump in commissions, so why did PB Fintech claim that take rates did not have a material shift in early FY24?

Trudence believes that the key to understanding this lies in PB Fintech’s Paisabazaar

business, which is its lending vertical.

This revenue stream grew from INR 188.3 Cr in FY21 to INR 1,224.9 Cr in FY23, before somehow plummeting to INR 585 Cr in FY24, despite higher disbursals in FY24. This is largely down to a massive decline in online marketing and consulting income, by 95% or around INR 800 Cr (see below).

Given this, the PB Fintech management commentary on take rates is only accurate if the online marketing and consulting income of Paisabazaar is clubbed with commission income in the previous year i.e FY23.

Further Trudence questions why, if at all, the revenue streams of Paisabazaar have crept into the insurance business of PB Fintech, despite Paisabazaar not being registered with the IRDAI. “But what management commentary is suggesting, it is likely that PolicyBazaar’s revenue was being recorded in Paisabazaar. Is this a normal business practice, or has PB circumvented the law in this manner?” Trudence asked.

Naturally, being a listed company, PB Fintech has to disclose any material changes pertaining to revenue recognition. Failing to do so could attract further scrutiny for the company, which has been under regulatory scrutiny in the past few weeks already.

PB Fintech did not respond to Inc42’s questions on the Trudence Capital report.

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Corporate Governance Challenges & Rejigs

Even before the Trudence Capital analysis, which has ruffled some feathers, PB Fintech was among the headlines this year for a number of wrong reasons.

The company’s shares crashed by over 5% to hit an intraday low of INR 1,322 apiece on the BSE on Thursday, March 13, before finally finishing the week at INR 1,327.80. News around potential revenue red flags will not ease the pressure on the stock.

Incidentally, PB Fintech is now trading close to the March 2024 levels, after hitting its peak in January.

The year began with a tax raid in January on PB Fintech’s offices in Gurugram and a major rejig in management was announced in late February.

In this top-level reshuffle, Naveen Kukreja, the cofounder of Paisabazaar, stepped down from the role of the CEO. Meanwhile, Ashutosh Mishra resigned from the role of the CFO of Policybazaar as well as another subsidiary. Mishra will be replaced by Vivek Audichya, who was earlier Paisabazaar’s CFO. Instead, Neeraj Tripathi will lead the finance role at Paisabazaar.

Then in early March, the company’s CEO Yashish Dahiya settled a case with the Securities and Exchange Board of India for alleged failure to disclose unpublished price sensitive information about an overseas acquisition. Dahiya proposed to settle the proceedings against him without admission of guilt or denying the findings of the case,

Most recently, the insurtech major also announced plans to infuse INR 829 Cr (around $95 Mn) in a new healthcare business, which is yet to begin operations. PB Fintech will own up to 33.63% stake in this healthcare subsidiary, with the rest being owned by PB Fintech cofounders Yashish Dahiya and Alok Bansal, along with three key managerial personnel.

The investment in the healthcare business is a vital cog in PB Fintech’s plan to bring in revenue diversification, but there’s more in store. The group also incorporated a wholly owned subsidiary PB Pay last year to foray into the payment aggregator space to shore up its top line.

But the questions raised in the Trudence analysis are not likely to go away any time soon. In fact, we expect the Q4 results in April to address these concerns head-on, or at the very least, clarify any doubts pertaining to revenue recognition.

The timing of this could not be worse for PB Fintech. Most tech stocks have been under tremendous pressure after not meeting revenue guidance in the previous quarter. Any deviation from the standard in this regard will have an even adverse impact on the PB Fintech stock, so a lot rests on PB Fintech’s Q4 results.

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“This transition means tighter governance, more regulatory compliance and a higher expectation for transparency. Fortunately, as a debt-listed entity, we have a solid foundation to cope with these changes. On a personal level, public listing means adopting a more structured leadership approach, balancing agility and stability while ensuring we continue to innovate.”

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