Shares of PB Fintech swung 12% from their day's high to trade 5% lower to Rs 1,115 on the BSE, a day after the stock suffered a brutal sell-off, plunging 36% in a single day. The sharp decline came after the Insurance Regulatory and Development Authority of India (IRDAI) proposed a ban on ‘dark patterns’ on insurance websites, including practices that require customers to share personal details before accessing product features and pricing information.
The proposed Irdai reforms could weigh on insurance stocks by pressuring the economics of distribution. Lower Expense of Management (EoM) limits would restrict how much insurers can spend on commissions, distribution and other operating expenses. This could make customer acquisition more expensive.
Read More: PB Fintech shares crash 36%, bloodbath wipes off Rs 31,426 cr from m-cap after IRDAI’s reform plans. What Citi and Jefferies are warning
Should you buy, sell or hold PB Fintech shares?
Jefferies has cut its target price for PB Fintech to Rs 1,540 from Rs 2,050, implying 28% upside from the current level, while retaining its Buy rating. The brokerage said PB Fintech indicated that non-life NPV could fall to 33-40% of the original NPV if IRDA's proposed commission cuts in health and motor insurance are implemented. Life insurance NPV, however, is expected to remain broadly similar to current levels, supported by higher renewal commissions in term insurance.
Jefferies estimates that a 10% cut in new business commission rates could translate into a 10-12% decline in earnings. It said the proposed regulations could have a material adverse impact on near-term earnings if implemented, although the consultation paper could still change after feedback.
Jefferies has kept its earnings estimates unchanged but cut Policybazaar's valuation multiple by 30% to 18x FY30E EBITDA due to uncertainty around take rates. The company could slow hiring and reduce marketing in the near term.
Morgan Stanley says that PB Fintech's health business NPV could decline 60-70% under the proposed framework, while life insurance NPV is expected to remain broadly stable. The brokerage said the company is evaluating manufacturing, reinsurance broking and new products, and is seeking MGA regulation that could reward quality distributors. It flagged a risk to the top line of PB Partners' POSP business, while the company plans to reduce losses at Paisabazaar and in its UAE operations.
Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
