Policybazaar IPO compares to a price comparison

A customer walks past an advertisement for a currency exchange service at a bank in Mumbai, August 19, 2013. REUTERS / Danish Siddiqui

MUMBAI, Aug.4 (Reuters Breakingviews) – A price comparison exercise roughly compares to Policybazaar. The online supermarket for insurance and loans is the latest Indian tech company to go public in recent weeks. The money-losing SoftBank-backed company (9984.T) is targeting a huge and underserved market, and its meteoric growth in a country where demand for financial products is exploding helps justify a skyrocketing valuation.

The operating income of the company founded by Yashish Dahiya and Alok Bansal in 2008 was increasing by 57% per year before the pandemic. Customers use its platform to educate themselves, get personalized quotes, check credit scores, calculate monthly repayments, and process complaints. Policybazaar seeks clients for around fifty partners in each of its two business sectors and takes no underwriting or credit risk.

As a market leader, it has one of the characteristics most coveted by investors trying to pick winners. Policybazaar derives more than two-thirds of its income from insurance; it accounts for 65% of all digital insurance sales and has one of the most recognized brands alongside the state-owned Life Insurance Corporation of India (LIFI.NS). There is also a lot of trail. Non-life insurance premiums currently represent 1% of India’s GDP, compared to 2% in China and 6.5% in the United States.

The theoretical valuation of up to $ 5 billion implies that the company will trade at 42 times operating revenue for the year through March. This compares to 11 times for Thai insurance aggregator TQM (TQM.BK) and 4 times for London-listed MoneySuperMarket (MONY.L), which is also embarking on lending. Yet those peers were growing their earnings before the pandemic much more slowly, at around 10% year-on-year, according to data from Refinitiv. In contrast, New York-listed Lemonade (LMND.N), a faster growing digital insurance provider, trades 49 times.

Competitors with stronger distribution networks are entering the Indian market. Paytm, another SoftBank-backed company that has lined up to be listed at an even higher implied valuation, acts as an insurance market and will soon be able to write policies as well. It has 333 million users and 21 million merchants on its financial super-app that offers payments, wealth management and more, compared to Policybazaar’s 48 million registered users. Despite this, Policybazaar maintains cost control while increasing revenue. This puts him on the path to profitability in a market where there is room for many winners.

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– The Indian Policybazaar filed on August 2 an initial public offering to raise up to 60.2 billion rupees ($ 810 million) through the sale of new and existing shares.

– The insurance and loan market could also target an equity placement before the IPO and will reduce the size of the offering if it goes through.

– The company is 15.8% owned by SoftBank Vision Funds. A unit of Chinese Tencent owns just over 9%.

– Kotak Investment Banking and Morgan Stanley are global co-coordinators and lead book managers on the transaction.

Editing by Pete Sweeney and Katrina Hamlin

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