Policybazaar IPO stacks up in a price comparison - Reuters

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

MUMBAI, Aug 4 (Reuters Breakingviews) - A price comparison exercise just about stacks up for Policybazaar. The online supermarket for insurance and loans is the latest Indian technology company to file to go public in recent weeks. The money-losing SoftBank-backed (9984.T) outfit caters to a huge, underserved market, and its blistering growth in a country where demand for financial products is exploding helps to justify a head-spinning valuation.

Operating revenue at the company founded by Yashish Dahiya and Alok Bansal in 2008 was expanding at 57% annually before the pandemic. Customers use its platform to educate themselves, get customised quotes, check credit rating scores, calculate monthly repayments, and process claims. Policybazaar is sourcing customers for 50-odd partners in each of its two lines of business and doesn’t take on any underwriting or credit risk.

As a market leader, it has one of the features most coveted by investors trying to pick winners. Policybazaar earns over two thirds of its revenue from insurance; it accounts for 65% of all digital insurance sales, and it has one of the most well-recognised brands next to state-owned Life Insurance Corporation of India (LIFI.NS). There’s plenty of runway too. Non-life insurance premiums currently account for 1% of India's GDP, compared to 2% in China and 6.5% in the United States.

The mooted valuation of up to $5 billion implies the company will trade at 42 times operating revenue for the year to March. That compares to 11 times for Thai insurance aggregator TQM (TQM.BK) and 4 times for London-listed MoneySuperMarket (MONY.L), which also dabbles in loans. Yet those peers were growing pre-pandemic revenue much more slowly at about 10% year-on-year, per Refinitiv data. In contrast New York-listed Lemonade (LMND.N), a digital insurance provider that is growing more quickly, trades at 49 times.

Rivals with stronger distribution networks are entering the Indian market. Paytm, another SoftBank-backed company queued to list at an even higher implied valuation, acts as an insurance marketplace and will soon be able to write policies too. It has 333 million users and 21 million merchants on its financial super-app which offers payments, wealth management and more, compared to Policybazaar’s 48 million registered users. Even so, Policybazaar is keeping a lid on costs while it boosts revenue. That puts it on a path to profitability in a market where there’s room for plenty of winners.

Follow @ugalani on Twitter

CONTEXT NEWS

- India’s Policybazaar filed on Aug. 2 for an initial public offering to raise up to 60.2 billion rupees ($810 million) from the sale of new and existing shares.

- The insurance and loans marketplace may also target a pre-IPO placement of shares and will cut the offer size if it goes ahead.

- The company is 15.8% owned by SoftBank Vision Funds. A unit of China’s Tencent owns just over 9%.

- Kotak Investment Banking and Morgan Stanley are joint global co-ordinators and book-running lead managers on the deal.

Editing by Pete Sweeney and Katrina Hamlin

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

Sign up for a free trial of our full service at https://www.breakingviews.com/trial and follow us on Twitter @Breakingviews and at www.breakingviews.com. All opinions expressed are those of the authors.

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