Ladies and gentlemen, good day and welcome to the Q2 FY 2023 Earnings Conference Call of PB Fintech Limited. We have with us today Mr. Yashish Dahiya, Chairman and CEO, Mr. Alok Bansal, Executive Vice Chairman and Whole Time Director, Mr. Sarbvir Singh, President, Policybazaar, Mr. Naveen Kukreja, CEO Paisabazaar, Mr. Mandeep Mehta, Group CFO, and Ms. Rasleen Kaur, Head Corporate Strategy and Investor Relations. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing Star then Zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Yashish Dahiya. Thank you and over to you, sir.
Thank you. Hi, everyone. I will start by reiterating a few facts about our business. Once more, a majority of health and life insurance consumers in India do their research on Policybazaar. This leads to a higher persistency due to the fact that when consumers research, they know what they're purchasing. Our renewal revenue is now at an ARR of INR 290 crores. We have the best conversion engine in the industry and continue to improve our premium per inquiry, which is now greater than INR 1,500 per inquiry for the first half of the year. This is the highest we've ever achieved. There's continuous improvement in customer onboarding, service, and claim support, which has led us in the last few months to receive more than 10,000 appreciation letters from customers every month and a CSAT of 86%.
It is indeed a massive change in the number of appreciations that we are receiving from consumers. Higher customer disclosure along with strong data analytics and fraud detection mechanisms that we've developed over the years lead to better claim ratios, which essentially allow our insurance partners to settle a higher percentage of claims than they do through many other channels. We grew 105% year-on-year, and our existing business has now been profitable for the last three quarters. In the last quarter, our interest income exceeded our Adjusted EBITDA loss. This is the first quarter that's happened in the last, you know, couple of years. From our existing business, our Adjusted EBITDA increased by INR 60 crore for the quarter and INR 98 crore for the first half of the year.
If some of you may recollect, in the last quarter call, I tried to explain more from a layman perspective that looks our Adjusted EBITDA should keep growing at roughly about INR 150-200 crore every year. As you would appreciate that INR 98 crore in one half of the year is very much in line with that. Our revenue in the first half of this year is about 5.3x our revenue in the same period in the full year 2019. The reason I explain this is because a lot of people ask what happened during COVID. See, COVID came, COVID went. Now COVID is over. These are two good years to compare this first half of this year with the first half of that year. We are about 5.3x bigger.
Which by the way, I wanted to say this in a funny way. Our valuation was about the same as it is today. Anyway. Our core businesses, the insurance marketplace, Policybazaar, and the credit marketplace, Paisabazaar, grew at 55% year-on-year to INR 410 crore. Of this revenue, the credit-linked revenue was INR 101 crore for the quarter. For our existing insurance business, we had an Adjusted EBITDA of INR 18 crore for the quarter. For complicated products like health or life insurance, we have been extending our customer connect remotely beyond remote calling by giving consumers the convenience to have physical meetings at their convenience and in their local language. We are happy to mention that consumers have accepted this wholeheartedly. We continue to extend this in 114 cities.
Paisabazaar continues to grow very well and has rebounded well since COVID. We are now at an annual run rate of INR 12,000 crore of disbursements and 0.5 million credit cards issued on an annualized basis. Over 31 million customers access the credit score platform from 824 towns. 73% of all cards issued in Q2 were end-to-end digital. Co-created products like Step-Up Card, Duet Credit Card are gaining traction. As we reported last quarter, we still expect our credit business to be adjusted basis EBITDA positive by Q4 of this year. To update on new initiatives, PB Partners, our seller aggregation platform, leads the market in scale and has the highest proportion of non-motor business and has started increasing efficiency, as you will see from the numbers. Our UAE business has grown by 110% year-on-year.
While there's been a general slowdown in the retail protection sales, we delivered 24% growth in health insurance premiums and 29% in life insurance premiums new business. Just for any of those who are confused that it is new renewal, the new and renewal for health are pretty much in line with each other. They're about the same percentage, so there's no games being played here in terms of disclosure. This essentially means we have been growing at about 2-5x of the industry, just being able to support business side. We stay confident of being Adjusted EBITDA positive by the last quarter of this year. It's actually fairly straightforward if you think about it. There's INR 18 crores of profit in the core business, and there's INR 65 crores of loss in the new initiative.
The new initiative will basically go down to 30, and the core will basically go up to 50. You should, you know, comfortably be adjusted a bit positive. There's not much surprise there. For the next year, we should be full year PAT positive in 2023-24. That's the hope. I just want to point out one little thing there, which is actually quite telling. We'll be doing that while taking on about INR 310 crores of ESOP costs, charges, which by the way, a few years from then will not be there. That's, you know, pretty much telling you that even if nothing happens to our business, that INR 310 crores of profit will be there pretty much in a guaranteed manner. Of course, we'll grow as well.
With that, happy to take questions now. Thanks very much.
Thank you. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Sachin Dixit from JM Financial. Please go ahead.
Hi, Yashish and team. Congratulations on great results. I think the top line looks good. The EBITDA loss is narrowing. I had a quick question regarding the breakdown of premium, if you can help with that between, say, how much is it, POSP and how much is renewal, if that's possible.
POSP is INR 458 crores for Q2 this year.
Mm-hmm.
The core, Policybazaar is INR 2,026 crore.
Mm-hmm.
That's what we disclosed. I already told you, both the health and life business grew at approximately 30% on the new side and on the renewals, both.
Sure. Thanks for that. I assume the core business also includes corporate insurance there.
Yes, it does.
Right. Okay. On the term side of it, which I think continues to look weak even now, and some of the insurers have been commenting probably H1, H2 will look better.
I'll just answer that.
Do we have any views on how that's shaping up for you in terms of the growth side of term?
The total for premium for term insurance grew at 57%, but the fresh premium grew at roughly about 20% for the quarter. Is that okay?
No, no. I was asking, like, generally, do you have a view on how the term industry is functioning? Like, it continues to be weak, so do you see H2 being much better than how H1 has been?
Yeah. There is definitely a better growth now than the last quarter. If I remember correctly, the last quarter was lesser than this. It was about 60% of this growth rate. This growth rate is at, you know, what we mentioned right now. For the industry, there were swings towards certain players, et cetera. Increasingly, those are settling down. You know, we don't comment too much on individual players and, you know, who gets market share. On the whole, we think the industry has been about slack. You know, the numbers we have is the industry has grown at a, you know, either declined. For the first half, the industry has declined a little bit.
If you look at the second quarter, the industry is probably flat to a little bit decline. You know, we are obviously growing in that backdrop.
Sounds good. Just one final question on the cash balance side. We have this INR 5,000 crore cash that's obviously helping us with the interest income that we are generating. What's the plan for this going forward?
I think once we get profitable, once we deliver INR 100 crore of profit, we will also discuss what we do with this cash. I think it's too early. Let's get there. Let's deliver at least the first INR 100 crore of profits before we start you know concluding that this cash will never be utilized, so to say.
Sure.
Or-
Good. Thank you. Thanks for answering.
Yeah.
The cash that you're doing never able to-
Yeah. Basically our cash plus receivable will not go down from here. It just will always stay about the same number. We are not losing cash. That's all.
Great.
I'm pretty sure we just saw it. Last quarter also we've not lost cash.
Great.
Thank you. We have our next question from the line of Nikhil Agarwal from VT Capital. Please go ahead. Mr. Agarwal? We are unable to hear you.
Am I audible?
Yes. Please go ahead.
Right. Thank you so much for taking my question. I just had a few questions about certain products. There was a headline product that was mentioned last quarter. Is this still, after the directions that have been issued, is it still going forward? Because, as far as the credit line thing is concerned, we are not allowed to give a credit line without actually having the balance in the instrument. Is that product being continued? Is there any color on that product?
Sorry, could you just repeat the question once more? Naveen is looking at me. I'm confused.
No, no. Sorry, sir. I think if I understood the question correctly, your question is related to the regulation which came out on credit line when it was linked to PPI. Was this allowed by the regulator?
Yes. Right. There was a credit line product that we used to issue till quarter one. So have we discontinued that product or, how are we working around that?
That is different. We run the product with a bank. There is absolutely no impact on that product. It's a credit line product which works like a personal loan. As a consumer, if you want to draw out any amount from that credit line, it converts into a term loan. There is absolutely no impact on that product being issued by a bank. Our partner in that case is a bank.
If my understanding is correct, we partner with the bank and, when the person or the customer takes the credit line out, it becomes a term loan with the bank. The risk is with the bank, and then, it's between the bank and the customer, so we don't have any impact on it.
Absolutely. It was always the funds were always flowing from the bank to the customer bank account. That continues to be the process.
Right. That is in line with the guidelines. Second question about last quarter, there was this thing mentioned that our take rate had improved in one of the core businesses. Can you please give some color on which business that was? And are we sustaining that? Is the take rate still high in that business? How is it contributing to the overall take rate?
Yeah, it continues to be high. I think we didn't disclose. We don't want to go into take rates by business, but it's a structural change in that business. It's not that we did something in last quarter and it's not continuing this quarter. Overall, it continues to be the case.
Right. Thank you so much. Sir, just one more question about the investments in the new initiatives. Any trajectory on what kind of investments are we going to see in the new initiatives going forward?
I think we would be subdued on any investments at least till we put a reasonable amount of profit on the books. I'm very focused on a single number, to be brutally honest. I'm focused on single number, which is INR 1,000 crore of profit in 2026, 2027. To me, nothing else matters, and I don't think we're interested in making investments until when it comes.
Investments in new initiatives.
New initiatives. No, I'm, I think they're talking about new investments.
No new initiatives. See, getting new initiatives, investments in the new initiatives to generate business.
You know, we have stated in the past that our new initiatives investment for the current year is going to be somewhere near to our interest income, and that continues to hold. It's come down from the last quarter, and it will continue to become more and more efficient as we look at quarter three and quarter four. I'll just go back to the, you know, credit question that you asked. See, you need to understand is what we do as a credit business is just a marketplace. Since we are a marketplace, a lot of the new regulation which came in last four to five months related to BNPL or FLDG or a lot of other stuff is actually not impacting us.
We do work with a lot of partners which are banks or NBFCs, and since we are a marketplace, we only connect or, you know, provide a platform where the handshake can happen. So that's what the business model we had had almost minimal impact or no impact from all that stuff that you see. In the deck also that we have circulated, we have mentioned specifically about the regulation from the credit side this time, because, you know, those were a lot of action happening on that side from RBI, and we wanted to very clearly state that our business model is totally different. It's not getting impacted at all from any of those changes.
Correct. Got it, sir. Sir, on the investment part that you mentioned, you said that it will be lesser than this. Right now this quarter it was INR 65 crore in new initiatives. Going forward it will be at this level or lower than that, if my understanding is correct, right?
As I clarified in my you know first opening comments itself that our expectation is by Q4 it should be in the range of INR 30 crore-INR 35 crore by this year.
Right. I would, I would've missed that one. Sorry.
By the next two quarters.
Okay. Got it, sir. Sir, just one thing about the POSP business. In that business, we have two offline businesses. One is our own full-time employees who work as PB sector employees and who help the customers with whatever issues they have. One business is PB Partners, where third-party agents can come on the app and become agents and we share the commission that we get from the insurers with the agents, right? Sir, can you just give us some color on how the business is going on both the offline fronts?
Yeah, sure. I think as Yashish mentioned and we've also disclosed in the presentation, the whole point of having offline presence in the first part. I think you understood the model very well. In the first part where existing Policybazaar customers have a choice to meet someone in person. That part is adding very well to our business. We have almost 1,000 people now deployed in that business. The APE per lead, which we disclosed, I think has been disclosed at over INR 1,500 now, for the first half. This number has been continuously growing. I think that part is doing very well. It's increasing our conversion.
On the PB Partners side, as you said, we did over INR 450 crore of premium. The losses in that business or our investment in that business has continued to come down. We've actually reduced that over the last two quarters. The revenue from that business has grown significantly from Q1 into Q2. I think even there it's a healthier business and I think we are moving very, very well in the direction that we want to do. One more metric in that business is that our non-motor business. The motor business is very commoditized. The non-motor business continues. Now we are almost 20% of our business is non-motor, and that is the highest in the industry.
I think all the metrics, both financial and qualitative, of both businesses, look pretty good at this point.
All right, sir. Thank you. I'll just leave with my last question. Can you please give some clarity on how it will work?
Sir, next in the queue, sir.
Right. I will. I'll just finish. This is my last question. Can you please give us some color on how the ESOPs will all going forward? This is it. This is my last question. Thank you so much.
Yeah. On the ESOP part, as I mentioned earlier, the cost continues to come down every year. See the ESOP grant happened in October last year, and the first year, in fact, it will spread out over two financial years because of that. Six months of last financial year, six months of this financial year. Then it comes down for the next 12 months and continues to come down every 12 months. You know, the number that we have for this year is about, I think INR 600 crores plus minus a bit.
Right.
With some new grants and all. But if you look at next year, this number should come down to somewhere between INR 350 crore and then it continues to come down very drastically post that. Basically, of the total grant, about 60% gets kind of expensed. 70% in first two years. No, I'm saying by March 2023. By March 2023, 60% of it would have got expensed. Then in the next three and a half years, you only got 40% more to be expensed. As I said, our objective of becoming profitable next year with INR 300 crore, INR 310 crore or INR 340 crore whatever of ESOP grants implies that at some point in the very near future that ESOP cost will not be there.
You'll obviously see that advantage.
All right. Thank you so much, sir. Congratulations on the rest of your portfolio.
Thank you.
Thank you. Ladies and gentlemen, in order to ensure the management is able to answer all queries, kindly restrict your question to one at a time. We have our next question from the line of Sagar Sanghvi from ADD Capital. Please go ahead.
Yeah, thanks for the opportunity. I have only one question. Please look at the slide 11 of your presentation. There's a mention of Bima Sugam. So if you can just help us understand how what could be the disruption cost can be caused by the proposed Bima Sugam or something? How would you plan to mitigate the same?
I think if you make a correlation to the travel business, which I used to be in a long time ago, we used to have global distribution systems there, the likes of Amadeus, Galileo, Sabre, Worldspan, and those were very critical in powering the travel businesses. If you look at Expedia, the reason Expedia went worldwide and could expand very rapidly was because they essentially had a tie-up with Worldspan, and Worldspan was giving them all the integrations and everything else. To an extent, I see that kind of role being played by Bima Sugam as an exchange, because that would be the UPI moment for the industry and that would make it, you know, help other distributors grow. Whatever product they were selling, whether they were selling motor or health or term.
I think it will be a very positive move for the industry overall and, you know, for us per se as well because it would get us access to a lot of data layers which we may or may not have access to today, because Bima Sugam will have those. I think it's a fairly positive move for us.
You mentioned you'll have access to a lot of data layers. Do you plan to enter into KRA business, that is KYC registration agency kind of business as you had a lot of customer data or something like that?
I'll tell you know, I'm not trying to be cagey about it. There's very little we can say because we don't have so much clarity yet. In fact, we met with the regulator, and we asked for clarity also at this point, and that was with the distribution department. There didn't exist so much clarity in terms of us starting to get to think about it from an operational perspective and what does it mean. That's the reality of the situation right now. I guess as it evolves further, right now there's a lot of conversation in the media, but that's not what is flowing through operationally to us.
You know, we have to wait it out and see how it goes. To me, the analogy is the GDSs and the travel businesses, which I used to run one of them, which was ebookers. I understand that analogy very well. If you think about it, flights as a business has really moved onto GDSs, but hotels still stays somewhat out of the GDSs. Packages stays out of the GDSs. I think these things take time. They just. You get the story, right? It doesn't suddenly magically just happen in one month.
Got it. Yes. One more related question to your financials. You're talking of about INR 1,000 crore of PAT by 2026, 2027. FY 2026, 2027. That would also help throw a free cash flow of about 12 million or 14 million a year post that. You are already sitting on a pretty large cash balance. Do you plan to enter insurance manufacturing with selling of insurance?
No, we have no such plan. In fact, to be brutally honest, we don't have any clue what we will do with this roughly INR 6,000-6,500 crore of cash that we will have at that stage. That's the reality, and I think we will be in a position. See, right now the question to us is guys become profitable. Tell us that you're not making this crap up, right? You're actually gonna be profitable. That's step one. I think once we do that, the next question is gonna be, "Okay, guys, what are you gonna do with this cash that you have? Now that you're profitable, you're cash flow positive, and you don't really wanna make acquisitions, what are you gonna do with this cash?
Exactly.
I think at that point, let's get to that point first, right? We are in class one right now. Let's get to class four before we take the exam of class four. I think, you know, I think this is the time for us to be heads down and executing, rather than thinking too far into the future about, you know, what we're gonna do with this beautiful amount of cash that we have lying with us. Yeah, of course, we will not waste it. Yeah, we'll see. Maybe we'll return it to you guys.
Okay.
To the investors. I don't know whether you're an investor or an analyst, but to the shareholder.
Investor and analyst, both. That's helpful. Great set of execution in this quarter. Thanks. Thanks a lot.
Thank you. A reminder to participants to press star and one to ask a question. We have our next question from the line of Adarsh Parasrampuria from CLSA. Please go ahead.
Hi, Yashish. Alok and team. Thanks for the call. Question is on the savings business. If you can just throw some light on what's been done in the last six months or the three months.
Sir, I'm sorry to interrupt. Can you speak louder, please?
Correct. My question was relating to the savings business momentum. This year was supposed to be a big year for savings.
Sir, it is still low. Can you use the handset, please?
We've understood the question.
Sure.
Yeah. I think Sarbvir will answer.
Yeah. I think in sales, our momentum in the savings business continues, I think in the same way that we planned. Both last year was a very good year for us, and the first two quarters have also been very good. I think the best way to think about it is that there are two things that have happened. One is that the premium is growing very rapidly, and also there has been a structural shift in terms of the kind of products that we sell. The main product that we sell is a capital guarantee solution, which ensures that the capital that the person has invested is safe and we have an upside due to the market. So they have a ULIP upside. This solution has been really well received.
With the fact that now we have offline agents also who are going to meet customers, we are able to increase the ticket size. Just to give you a sense, the ticket size offline is almost 50% higher than the ticket size online. As you can see, this business is benefiting from all these tailwinds. One is our business momentum. Second, higher ticket size. Third, the fact that offline is improving our conversion. I think in this forum that's all I'd like to say. This is one of our fastest growing businesses and now the economics of this business are also very good.
Any ballpark number of premiums in the first six months?
Sir, ballpark and exact is not very different. We obviously know the exact numbers. We decided not to disclose these here.
Got it, Yashish. My second question was relating to expenses beyond the contribution line and, you know, ESOPs growth there that you would expect, Yashish. Anything changing to make that growth or that's gonna be inflation linked, we shouldn't see a lot of very high growth in that part of expense which is beyond the contribution.
Naveen and Sarbvir, please answer. You are the guys who grow costs. You grow costs. Nobody else is gonna grow costs.
No, no. I think. See, as Yashish said, the objective is very clear. We want to deliver profits. I think we are focused on that. Those costs will increase, you know, as low as possible is all I would say because there is an inflation in the market. There is natural increase in that. The idea is to keep them much lower than our revenue growth rate.
Sorry, I'll just go back with one more question on that capital guaranteed products. When you're doing these products and they're doing well, just wanted to check, are the take rates for you selling these products in the first year low? We get feedback from a couple of insurers that, you know, the guarantees are quite high in some of the products and, you know, their offset is basically partners not taking a lot of upfront premium. Just wanted to understand your take on that.
Yeah. It's so just to be very clear, it's a combination of a non-par guaranteed plan and a ULIP. And if you think about it, clearly, you know, the mixture is reasonably. See, we are not a commission first shop to begin with, right? We are not trying to sell things which have the highest commission. We are trying to sell the best solution for the customer. In this case, as you can imagine, a combination of a non-par and a ULIP has a better return, a better commission profile than just a ULIP. I think that's really the change that has happened for us. It depends on where you start, right? We were selling more ULIPs. Now we are selling a combination of ULIP and non-par. Clearly the commission is better for that.
You know, we are not by any stretch of imagination, we are not maximizing the commission in our savings business.
On the previous one, I wanted to give you a straightforward answer. I don't think we will see our fixed costs going up by more than 10%-12% in a year.
Okay.
Obviously, Paisabazaar was coming from a COVID year when their operations were very small. Okay. That's it.
Perfect. Thanks, Yashish, Alok, and team.
Thank you. We have our next question from the line of Subramanian Iyer from Morgan Stanley. Please go ahead.
Hi. Thanks for the opportunity. I had a few data questions. One is, basically you gave the number for GWP, which is about INR 2,026 crores. Can you please split it into new and renewal and also give the same numbers for the last year, second quarter as well? The other question I had was, in the previous quarter, you used to give this number of credit-related revenues. You used to split your revenues into credit and insurance-related. If you could do this for this quarter as well and give it for the same for the second quarter last year as well.
I just wanted to understand the progress on basically your contracts with your partners on getting renewal revenues, in the sense that you were a debt aggregator previously and you are not entitled to renewal revenues. How is the progress on that?
Remind me if I missed any of your questions. Okay. First thing I picked up was you wanted to know what is our new versus renewals split. It stays very similar to how it has been in the past. There's no real change in that. Okay. It's roughly half and half. About 50% is new, about 50% is renewals, right. 101 crore of our core revenue was credit linked. You had a total core revenue of INR 410 crore, of which 110 crore was credit linked, and the rest would be all insurance linked. 101 crore is credit linked, and the rest will be all insurance linked. Is there anything I'm missing in your question? Sorry, because they came together, so I may have missed something.
No, that's good. The third one was on the progress on renewal contracts and yeah.
Renewal contracts you mean in terms of in life insurance receiving more renewals in the future, etc.?
Yes.
Yeah. There's conversations going on there, but nothing material to report in terms of massive changes of anything. On Paisabazaar, there is a big renewal change. There's a positive surprise for us, because Paisabazaar historically never had renewals. It's very heartening to note one thing if you look at it carefully. Paisabazaar renewal rates have now hit the trail revenue has now hit the same level as Policybazaar was in 2018. You can see that. They're actually growing much faster than Policybazaar trail revenues ever grew. There is an expectation and, you know, Naveen, correct me if I'm wrong, the expectation is we would be doing about $700,000 by March per month.
You know that if that happens, they should be almost, in my opinion, if I was to look forward, that's almost $10 million of renewal revenue next year because there is growth and there is multiply by twelve, et cetera. Which is a huge positive surprise. If you asked us what would be Paisabazaar renewal revenue sitting back in, you know, when we were going public, I don't think anybody had any expectation of that.
Got it. Thank you.
You're most welcome.
Thank you. We have our next question from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead.
Yes, just one question. I noticed that your core insurance revenues, the take rates, have gone up on a quarter-over-quarter basis. Can you help me understand why, how has that gone up?
As we said, one of the products, it's basically a product mix situation and one of the products, the take rates have increased.
Yeah. I think it's two things. One is that our life and health businesses are a greater proportion of our overall business than they were in the previous year. The second thing is, as we just discussed in one of our businesses in life, the take rates have increased year-on-year.
Which is this business line item, sir? Which is it?
We don't want to disclose that exactly, but if you listen to the previous conversation, you would get a fairly good clue.
Okay. Just one quick clarification. You've talked about absorbing an INR 5 crore loss by the non-insurance business. This INR 5 crore pertains to Paisabazaar? I'm just clarifying.
It pertains to the credit business. That is, all of it is in Paisabazaar. Paisabazaar has credit revenue and insurance revenue. All of it is in credit in Paisabazaar. Yes, you're right. INR 5 crore is the credit business. The credit business, see the disclosure is there, right? There's INR 101 crore of revenue.
Yeah. Yeah.
There is INR 5 crore of losses there for that quarter. You can imagine there's no way they're not breaking even in the next three months. Like, of course, there is some way, but they'll have to be very special to do that.
Yashish, just on contribution margins for your credit business, is it very similar to what it was last quarter?
Yes, it's very similar to what it was last quarter. You know, Naveen's doing a very smart thing. He's not telling his team to take the renewal revenue into account. He's basically keeping it at the same margin and the renewal revenue is just getting added on. There is a bit of a interesting thing he's doing from an operational perspective. Naveen, you want to explain?
To your question, the contribution has remained similar, which is about 40% or higher. Yashish was talking about the trail revenue, which is increasing quarter by quarter. If we execute the trail revenue,
That comes at a very high contribution as it starts to become meaningful. That comes at about 90% contribution.
What cost do you have in that? The 90%. It's 100%. No, what is the cost that you have in that?
It's the servicing and the duplication cost of the customer. So 95%. No, I understand.
I'm sorry, I think you guys missed, one of the previous participants was asking for Q2 FY 2022 the same.
Sorry, what was that? You got disconnected.
Mr. Poddar, can you repeat your question, please? I'm sorry, Mr. Poddar.
It's okay. Maybe he'll come back again, yeah.
Yes. We'll take the next question from Nishant Jhawar from Kotak. Please go ahead.
Yeah. Thanks for taking my question. The last quarter you mentioned that, life and health were around 75% of the premium. What would be the ratio like in this quarter?
Slightly higher actually.
Slightly higher.
It's if I look at it's getting towards 77%-78%.
Mm-hmm.
Yeah.
Contribution of corporate business in the first half would be like how much? Very approximately.
There's nothing, yeah.
Contribution.
Contribution as in contribution. We count contribution the money we make.
I'm sorry, share of premium.
That I don't think we disclose that yet.
Should be similar to what was there in the previous year or it kind of goes up, goes down?
Yeah, it's. If you look year-over-year, it's about flat, yeah.
Okay.
It's about flat. There's no change in that.
Sure. My second question pertains to, you know, ESOPs. Now, I was just trying to understand what is the exercise period for the ESOPs once they vest?
See our ESOP policy is very simple. It's five years into 20% per year. About 80% of the ESOPs were granted last year October. 20% will be granted over time. For the four senior people, including myself and Sameer and Shaleen, there was an added clause that we can only vest once it crosses a certain valuation threshold.
Mm-hmm.
that doesn't mean those lapse. It just delays the exercise. That's all.
I see.
From practical perspective you can just say five into 20% because that's what goes into the accounts.
No, the point is that when you are issuing ESOPs, there will be some period right up window after which you can exercise.
five years. It's a five year and 20% per year. Okay, for exercise how long?
That's what I mean. If you don't exercise, I believe some of the ESOP expenses can be reversed in, let's say, in eventuality where, you know, you don't exercise your ESOPs.
Five years. The question is, the vesting schedule is five years, 20% each year, and after vesting there's a period of five years for exercise.
Okay. The entire ESOP expenses you will have to, I mean, will hit the P&L at the time of vesting, I assume.
No, no, no. They've already 60% of them have hit the P&L by March 2023. It's done. See, the rule in the Ind AS is simple. The day you grant based on the grant value and the share price at which it's been granted at that time, there the charges hit your P&L and the charge is structured in such a way that in the first 12 months 45.67% will come into your P&L for a five years into 20% grant. Because the way it works is very simple. I think in the past we have explained that in the deck also. First year, 20% you have to take 100%. Yeah. First year is 45%. Yeah. 46% in the first year. Yes. The second year is about 24%, 25%, then it is about 13%.
Finally it's like, you know, 3% or something in the last year. Last year 4%. We have to cross very fast. The charges are decided upfront when you grant and it has to be taken from the grant date itself. I also into exercise. There's nothing into exercise. I'll give you an example, right? Like today our share price is below when we granted these ESOPs. The cost that we are facing does not come down. Neither would it have come down if our share price had gone up. It wouldn't have gone up either. Everything is linked to the day they were granted. Now what is happening in terms of accounting is just the flow through.
Yes, if they are, you know, as Alok said, 80% were issued then, were granted then, and 20% may be granted sometime in the future. Those 20% will be priced on the day that they granted. Okay. That's broadly it. I don't know if you need more clarity, but if you want more clarity, you know, one can have a separate session with-
No, I think that's clarified. This clarifies. Thank you very much and all the best.
You're most welcome here.
Thank you. We have our next question from the line of Ansuman Deb from ICICI Securities. Please go ahead.
Yeah, good evening and thanks for the opportunity. My question was regarding the point of sale premiums of around INR 458 crores that you said for this quarter. You know, I remember this was the same, more or less the same number in Q4 of last year, FY 2022. You know, we are not growing this business, PO business, too much now. It is more or less stable. I just wanted to understand that has the objective been achieved what we started to do through this point of sale business. If you could share some of the competitive strategies around this business. Whether we have achieved this target and so now we're focusing more on the premium, on the core business where obviously our margins are very high and we are also growing very good.
If you could just underline your POS strategy to start, in line with the competitive landscape?
Ansuman, I'll share what is possible to share on a public call. I think the first thing that we were very clear about was that we wanted to be leaders in this business. If you remember, we achieved that in January of this year. Within six to seven months of launch we became the number one company. That we have maintained. The second thing that we want to achieve is that we want to build a sustainable business. To us, building a sustainable business means that our agent partners, their income must go up by working with Policybazaar. We are on that path. One of the means, ways of doing that is to ensure that they have non-motor products to sell and they are able to sell them. That's something that we are focused on.
As you rightly picked up, our premiums are not expanding dramatically now quarter on quarter because we are focused on the realization and focused on making the whole business a lot more efficient. That is the phase that we have now entered in, I would say in Q3 and Q4. We have, obviously, a lot more plans for this business which we'll share with you as we go along. The idea is that first to have leadership, then to improve the economics. Thirdly, you know, you'll see us doing things which will be very different from what other POSP players have been doing. Clearly we are not in this business just to do what others are doing, and you will see that coming through in the next financial year.
Right. Lastly, I know I just wanted to, kind of, you know, underline the fact that this INR 2,000 crore of quarterly premiums in the core business, it compares to that INR 4,700 crore premium in fiscal 2021, right? In a like-to-like, that would be the right comparison?
Yes. You're right. Yes. Absolutely. Sorry, I should also comment on the core business that our focus has always been on the core business. We have separate management teams which look at the core business and the POSP business. I would say even at my level, 80% of my time and energy goes on the core business alone. So it has never been the case that we are focused more on POSP at the expense of the core business. I think that is seen in the numbers. As you can see, the core business has been profitable for three quarters straight now. I think you know, the premiums have been growing rapidly. So I think the core business is our main focus and I think we continue in the over the next 5, 10 years.
Right. Thank you for disclosing this number because that really gives us a very good picture about the growth in the core business. Thanks a lot.
You're welcome. Yeah. As we go by we will disclose more and more. Hopefully from April next year we'll be disclosing a lot more than we disclose yet.
We're still learning.
We're still learning, you know.
Mm-hmm. Fair enough. I think thanks a lot.
Thank you. We have our next question from the line of Douglas from DSP. Please go ahead.
Yeah. Hi. Thanks for the opportunity. So just two questions. First is, you know, on the sort of use of cash as you know, move towards profitability. I know you sort of responded that first you want to reach the target before thinking about utilization. Just if you could give some, you know, perspective of, you know, initial thoughts that would be useful. Also the background here is on inorganic we've always been very, you know, cautious from a valuation standpoint. You know sort of chose to build versus, you know, purchase, buy.
Just some perspective on use of cash would be useful. The second question is, I think this was Subbu's question, relating to breakup between credit and, you know, non-credit revenue for same quarter last year. Those are two questions. Thanks.
First of all, I'll share something with you. I think somebody told me the markets react very quickly. I think I had internally thought that this question of what will you do with cash will become a very important question or become the main question for us in about April 2024. Because we would have delivered a year of profits, and that is when people would say, "Okay, now that that is done and we don't have that question anymore, we would like to know what you will do with the cash." You guys react too quickly, you know? You have already assumed we've made profit for next year, and you've started asking us that question today. Give us a little more breathing time.
Generally, you know, in the spirit of disclosure, I have asked Mandeep to already start thinking about strategies for what to do with that cash. At this point our thought process is we should return it to the shareholders over the years to come, one way or the other. We don't know how, we don't know the mechanisms, you know, that is for Mandeep to figure out, because that's why he's the Group CFO. I think, regarding your other question, I think, credit, last year same quarter, I don't think we have those breakups.
Revenue we don't have.
They were doing about INR 50 crores of revenue. In credit it is about INR 101 crores till now. Broadly that gives you some answers.
Also if you see the disbursal, we always do the disbursal Y-o-Y growth. It usually is a very, very strong correlation with the revenue.
Yeah.
Disbursals grew by 94% Y-o-Y for the quarter and 110% for H1. That usually will give you a good indicator of how the revenue grows.
Broadly they've kind of, you know, the credit business has kind of done okay. They've almost doubled.
Got it. Thanks, and wish you all the very best. Thank you.
Thank you so much.
Thank you. We have our next question from the line of Arpit Shah from Stallion Asset. Please go ahead.
Hello.
Hi. Hi, Arpit.
Just wanted to understand what are the kind of contribution margin we are targeting in the new business initiatives, because right now, if I see the contribution margin in the core business, they are around 45% and there are of course more levers to pull over there. But if I see the new business initiatives, you think it will be contribution margin positive by let's say FY 2024 end?
Yeah, absolutely. I mean, by FY 2024 end, new businesses will be contribution positive.
If I heard it correctly, you have said FY 2024 PAT positive even after ESOP cost?
Yeah. Yeah. After ESOP cost, yes. I think it's a very straightforward thing. I'm not talking rocket science here. We will be Adjusted EBITDA positive by the last quarter of this year. Already our interest cost covers our Adjusted EBITDA loss already. Now, what do we have to do next year? Our Adjusted EBITDA would have broken even because you can clearly see, you know, Paisabazaar headed that way and Policybazaar is making more. Core business is making about whatever, approximately INR 200 crore of extra profit this year compared to last year. Call it whatever, right? Call it Adjusted EBITDA, call it whatever margin. Next year that will happen again, right? As that happens, that would take care of. You've got your interest income.
Essentially what happens is your interest income this year was taking care to some extent of some of the new initiatives, et cetera. We are in that stage where interest income is taking care of new initiatives. Next year, the interest income has to take care of our ESOP costs, which is to me a notional cost, but I think everybody believes it's a real cost, so let's treat it as a real cost. We will cover it next year. It will be approximately the same, right? About INR 250-300 crores of interest income, about INR 300 crores of ESOPs, and the rest of the business will be Adjusted EBITDA positive. There's no difference between Adjusted EBITDA and PAT for us in the real sense as I see it.
Got it. Just wanted to understand, you all are having close to 5-5.5 thousand crores cash. If I see the stock price is around 400 levels or so, it's around INR 17,000 crores of market cap. You think this is a good market cap where you can actually prepone your buyback and go for a better capital allocation at current prices rather than when your business is better and your stock price is better where your buyback will be at a lot higher level. You can use the opportunity.
All these interesting conversations are for post-April 2024. You know, let us deliver what we have to do. Let's not get ahead of ourselves. We are very confident of what we are building. I think. See, let's be very clear, right? As we got into the area where the market was much more focused on profits, we as a company did not kind of buckle under that pressure or whatever you wanna call it. We actually started new initiatives, which if we hadn't done, we would have been profitable right now. We actually started new initiatives and all those losses that we've taken this year have actually been recovered because they were the right thing to do for the company. We will continue to do what's right for the company.
At the same time, we are fairly confident of the core strength of our business. I say that with a lot of conviction because I have seen our operations and how difficult it is to do something like we are doing. Yeah, we feel good about it, but let's not get ahead of ourselves. Let's deliver it. You know, confidence needs to be replicated with execution.
Got it. Let's say if the ESOP cost by-
Yeah.
Hello?
Yeah.
Yeah. The ESOP cost, let's say by FY 2025-2026 will be reduced to minimal, let's say INR 100-INR 120 crore or so. You think the PAT of INR 400 crore-INR 500 crore by then is a good number to look at?
26-27 is the only number I'm aiming for, and that's thousand growth PAT.
Got it. Got it.
I'm like, you know, I'd love to do a double or quit with anybody on that, on my entire equity guidance policy with that. Anybody who wants to have that conversation, I'm very happy to have that conversation.
Got it. Just want to understand if, let's say, your PAT goes to INR 1,000 crore, what is the path of that? Let's say you are seeing EBITDA positive by FY 2024, FY 2023 PAT positive, FY 2024. What kind of revenue you are targeting? Because besides the current run rate, we are at around INR 2,000 crore last time.
I think we are very straightforward to predict. All the analysts have done all of that work very well. They're not very far off from what we believe. Somewhere around INR 6,000 crores should be the number. It's okay. Let it let us get there. It's too far right now to get into exact details. Right? We don't usually. I just want to lay out our ambition, right? Our ambition or our thought process. If you look at our last four quarters numbers, the delta has been INR 50 crores plus per quarter from the year before. We're talking about 20 quarters from now. You know, obviously there are different pieces. There are core business, there's tail income, there are experimentations becoming more efficient, the offline thing, hybrid model that we're running.
you know, a lot of these things start to come together. The only thing, the delta over last year for every quarter continues the same way in some form. That itself will answer your question.
Got it. Thank you so much.
There is, you know, Putin and Xi and God. You know, I don't know what else will happen in the world, so it's okay. You know, as far as controllables are concerned, I think we should be fine.
Got it. Thank you so much.
Thank you. We have our next question from the line of Dave Judd from Citigroup. Please go ahead.
Hi. Thank you for taking my question. Just one question from my side. You mentioned the number of employees in the offline channel, so it's about 1,000. Could you share the similar number like for the POSP agents and the other advisors that you have?
I don't think we want to go into this level of detail. I mean, these are, you know.
Sure. No. that's
We have more than 100,000 POSP agents now, yeah.
Okay.
Yeah, about 100,000 POSP agents. You know, it's really not a relevant number because what's relevant is how many of them are doing how much. Let's not get into that level of granularity. Let that be with the management. Yeah, we have about 100,000 agents on the POSP.
Okay, thanks.
Thank you. We have our next question from the line of Rahul from LionRock Capital. Please go ahead.
Hi, this is Rahul here. I just wanted to talk about the Bima Sugam, combination a little bit more detail. You know, the way I look at it, I know you guys mentioned that, it could be the UPI moment. But on the flip side, a UPI moment has led a lot of payment companies to just do a lot of volume but little revenue. And the regulators talked about reducing a premium, while transacting through Bima Sugam, and making it a marketplace. I'm just curious from a market perspective, from a market opportunity perspective, how this could impact the business.
I think, as I said, we see it. Look, there are two things, right? I think from a positive perspective, it could be a GDS, a distribution system. What you speak about is, in my opinion, a very remote possibility. Of course, everybody has their opinion on this thing right now. I don't think that as a conclusion, you know, the payment ecosystem as a conclusion, as in, let's say, three players having 90% of the market. I don't think that is a conclusion that the regulator is going to prefer. You know, you can think about what that would do to agency, what that would do to. Of course, there are three, four players in the market who have the ability to take that route. Of course, we are one of them.
There's no doubt about that. I think I'll leave it there. I think between my lines, you do realize this is a regulatory matter. I don't want to speak more than a certain amount on it. I think that is not a conclusion that the industry, the regulator is hoping for, with three players having 90% market share.
I also just want to add, if you see some of the things we've been doing, and I think we've spoken about them today, one is the service experience that we seek to deliver. Insurance is a complex product. You know, payments are a slightly simpler product. So the experience that we are delivering, whether it's in terms of post-purchase experience, whether it's in terms of claims, I think that will be a big difference. The second thing that you also have to remember is that this is. We are in the risk business, right? So the channel which can bring better risk to the insurer, which always have a certain, you know, advantage in perspective. I would just leave you with those two thoughts. One is customer experience, and secondly is the risk.
It's not, you know, the same person is not the same person, right? In insurance. Whereas in payments, it doesn't matter who I'm sending the money to.
Just a quick follow-up on this. Like I understand the details are very few, and I completely get your point, like not everything done by government is UPI. Just a quick follow-up here is that when I think about BHIM-Aadhaar, the way the communication has been from the regulator, from the government here has been that they want to create a platform on which anyone can come on and buy insurance products and even kind of act as an online repository and where even the claim processes have to be done. I'm just curious, like, who would be the counterparty dealing with the customer? Would that be like if you are part of BHIM-Aadhaar, would the customer be dealing with you?
Would, let's say, if HDFC Life or someone else is on the platform and insurance manufacturer is there. Who would the customer be dealing with even if they're going through this platform, the BHIM-Aadhaar platform? That's one last question.
Let's take, you know, at this point, given everybody knows a little bit, let's take the analogy of any of the two, right? Let's take the travel industry analogy where we are talking about a GDS, or let's take the UPI analogy. You know, the customers deal with UPI via the large payment with via Google, via you know PhonePe, via Paytm, etc., right?
Yeah.
Yeah. I do, you know, if it absolutely becomes the UPI, there still are players who are doing the front-end interfacing. Let's see. I think it has a lot of evolution ahead of it. There are, you know, I think there's a lot of positives it can do to the industry. If you keep that at the back of your mind and think about what will increase insurance penetration, I think it'll give you a lot of answers.
Okay. I'll leave it there. I think it's, like, probably it can have a lot longer discussion, but I'll leave it there for now.
Thank you. We'll take our last question from the line of Rishi Jhunjhunwala from IIFL Institutional Equities. Please go ahead.
Thanks. Just one quick question. You know, our ESOP expense for FY 2023, you know, can you give some estimation? I think we actually have already done INR 340 crores. You know, could it surpass INR 5,500 crores or even higher?
Rishi, basically, as we explained, the charges for these grants started from October last year. The first six months of this year was the half of the first year charge, which is roughly 23% of the total.
Uh.
The second half is going to be half of the 26%, so 13% of the total. Yes, there may be some new grants, but those are relatively small numbers which will happen. You can just see first half, 23%; second half, 13%. In that ratio, 23 versus 13. Just to give you an example, in this quarter, we have had ESOP expenses of about INR 173 crore. In the next quarter, this might be just a shade above INR 100 crore. You know, so that comes to INR 550 crore. That basically will give you the indication that it start to decline quite rapidly. If you look at 2025, 2026, the total ESOP expense for the year might be close to INR 100 crore and in 2026, 2027 it might be about INR 50 crore-INR 60 crore.
Yes. Yes. Understood. Thank you so much.
Thank you. Welcome.
Thank you. I would now like to hand over the conference to Mr. Yashish Dahiya for closing comments. Over to you, sir.
Thank you very much everyone for taking time out to attend our call. We really appreciate it, and thank you all for your questions. I hope we were able to answer most of them adequately. Thanks very much, and we'll improve upon this as time goes. Thank you. Bye now.
Thank you.
Have a great day.
Ladies and gentlemen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.