Good afternoon, everyone. This is Vijit Jain from Citi Research. Welcome to PB Fintech 4Q FY22 earnings call. From the management at Policybazaar, we have Mr. Yashish Dahiya, Chairman, Executive Director, and CEO, PB Fintech. We have Mr. Alok Bansal, Vice Chairman and Whole Time Director, PB Fintech. We have Mr. Sarbvir Singh, President, Policybazaar. Mr. Naveen Kukreja, CEO, Paisabazaar, and Mr. Mandeep Mehta, Group CFO. I'll now hand over the call to Ashish and Alok for opening remarks, and then the operator will open it up to Q&A. Thank you.
Thank you very much. Good afternoon, everyone. Before I get into some of the details, I will still take a minute to highlight a certain unique characteristic about our industry. The salient fact about Policybazaar is that our customers come to us on our website or app to research and buy insurance. While this is a very normal thing in most industries, it is unique in insurance, because in insurance it is a fairly intensive effort, it's intensive sales process, where people physically go and scout for customers, and that is how a bulk of insurance in the country is done. The productivity of these people who go and physically scout for business is typically under about 100,000 INR per month. While for us, the same productivity is upwards of 1 million INR per month.
The primary reason for this difference in productivity is not because we have any superhumans in our system who are doing something very different from the physical agent. It is just the inbound nature of these consumers, because once the consumer comes to you, his conversion rate is much, much higher because he's himself or herself decided to purchase the product. Further, the customer who researches and buys has high disclosure levels and lower churn. They usually know what they are buying, so don't feel the need to churn as much. This allows us to build a high quality book for our partners. Better customer segmentation and data analytics allow for continued improvements in conversion rates, risk assessment and fraud detection. We continue to lead digitization as well as product and process innovation for the industry.
This is reflective in the 84% CSAT, which has grown well over the last year, owing to our efforts in the area of customer service and claims assistance. Just to give you an idea of the scale of some of these operations, we now have more than 150 people providing claims assistance alone, and almost 2,000 people providing post-payment customer service, including on-ground support in over 100 cities. All these costs of all these people are included before we calculate our contribution margins. Our core business, the insurance marketplace, Policybazaar, and the credit market, Paisabazaar, combined grew at 45% year-on-year and broke even for the quarter with an adjusted EBITDA of INR 10 crore, and we will continue this journey of higher and higher profitability, scalability and growth.
Out of the total revenue, credit-linked revenue was INR 215 crore for the year. For our insurance business, we had an adjusted EBITDA of INR 28 crore for the quarter. We mentioned about extending our customer connect beyond the remote calling, which we have historically followed. We did this in our last quarterly call. We are happy to mention that consumers have accepted this wholeheartedly, and the early results are encouraging. Customers can research online and for complicated products like health insurance or investment products, they have the option to have a physical meeting at their convenience and in their local language. Currently, we are taking physical meetings in 57 cities in 12 languages. The cost of this entire expansion is also built into our core business contribution margins.
Our renewals book provided INR 222 crores of revenue in the last year, and most of this all flows directly to the bottom line. Renewal book is built on the cumulative business done over the years and will continue to grow. We also had INR 88 crores of deferred revenue on 31st of March 2022. These are revenues from customers who have chosen to pay by a non-annual payment mode. While most of the effort from our side is done, because the customer's payments will come over the remaining part of the year, we will be recognizing this revenue over the coming quarters. We also recognize that there are opportunities beyond our core business, and thus we have three new initiatives. We are happy to say we have built rapid scale in these and leadership position.
PB Partners, our POSP venture, grew from a zero base in July 2021 and did over INR 200 crore of premium in March 2022, making it the clear market leader in the category. PB MSME and corporate insurance vertical, along with our investee company, Vistara Health, has built a very well-regarded platform for enhancing engagement and service capabilities with MSMEs and corporates. They now have 1.5 million customers being serviced. PB UAE has achieved market leadership in some categories and is a close second in a few others, and is growing much faster than the market leader. Should be a market leader soon. We continue to be convinced of the opportunity on all three, perhaps even more so than in the past. However, growth now onwards will be balanced with higher efficiency.
You would appreciate that, you know, as we have mentioned, these businesses from a revenue perspective have grown about 37x in the last one year. That is very, very rapid expansion. I think expecting both efficiency and such expansion to go hand in hand is a tall order, and thus there will be higher focus on efficiency going forward. Another important point to note is that we have more than INR 5,000 crore in cash reserves, and we are very well capitalized to, of course, invest in these initiatives and take them towards fruition. Our belief is that the cost of these investments will be less than the interest that we earn on our cash reserves. Paisabazaar continues to be the leading credit marketplace and has rebounded strongly from COVID.
We have improved contribution margins over the last two years and thus are now chasing scale to break even or rather, chasing break even through scale. We now service over 27 million customers with the credit score program and have been able to sharply segment for creating pre-approved products. The business is also co-creating products with partners in loans and credit cards to expand credit coverage and digitize processes faster. Given the rapidly changing times, we actually recently went out to some of our investors representing more than 90% of our shareholding, and we are very glad to have received the feedback from all of them. We are also very happy to share that their feedback has been incorporated in our thinking and our direction forward, which we have presented today to you.
We want to thank you all for the support and candid feedback and very happy to take questions now.
Thank you. Operator, can we read out the instructions for Q&A and then open it up to that?
Yeah.
We'll now begin the Q&A session. If you have a question, please press the raise hand button, which can be found at the bottom of the Zoom interface. If you are dialed in via telephone, press star nine to raise your hand. I request you to please limit yourself to maximum one question. Thank you.
Thank you. Operator, can we unmute the line of Arpit Shah?
Arpit, request you to unmute yourself.
Yeah. Hi. Congratulations on the strong set of numbers. I actually have three questions for you all. We have seen a very large increase in our revenues despite the premiums remaining same. We saw INR 540 crores from INR 386 crores in last quarter, whereas the premium has stood at INR 2,200 crores broadly for this quarter. We saw a very big jump in revenues despite the premiums remaining same. What are the reasons for that? That's my number one question. My number two question is, how do we make money in PB Partners and PB Corporate? What are our typical take rates and what are the typical unit economics that we are following over there?
What kind of expenses, direct and indirect, we have in those businesses, and what kind of revenues we share with our our agents that we have for our POSP business. My third question is, can you share the direct and indirect costs for employee expenses and marketing expenses for FY 2022?
Sarbvir will be taking those questions as they relate to Policybazaar.
Yeah. Hi, hi Arpit. I think the first question that you had was around the quarterly change in revenue. That is largely because the mix has changed. Last quarter we had a higher share of corporate revenue, corporate APE in our mix. Corporate business typically has lower margins. In this quarter, we have a larger share from PB Partners where the revenue margin is much, much higher. That is the reason why it may appear to you that the revenue has grown much more rapidly sequentially than the APE has grown. That was point one. Point two was on unit economics of corporate and PB Partners. The corporate business tends to have lower take rates. I don't want to go into the specifics right now, but they have lower take rates.
They also have higher fixed costs. What happens over time is that as the book improves, and especially as the retention book goes up, the first full year of operations for us in corporate was last financial year. As our retention book goes up, you'll find that the fixed cost will remain large, more, will not grow as fast as revenue, and that will help us cover the, you know, costs and we'll have profit over time. You must also appreciate that the corporate business, we have some very well-entrenched players who are large brokers who have been around for a long time. It will take us some time to, you know, break into these accounts and, you know, win those businesses. The second part of your question was around PB Partners.
Here, at this point, the take rates are quite attractive. However, we also end up, as we establish the business, paying, you know, our agents also, relatively well. This dynamic will change as we go along. Now we have almost, I think 30,000 plus agents who are, you know, sort of POSP partners. Now, as we go forward, these agents will start again building a renewal book and will start becoming used to working with us on our platform. As that happens, the take rate or the amount that we have to pay them over what we get paid will start reducing. You will see that in succeeding quarters now that our volumes will remain where they are, but the, you know, the losses will start to come down.
On your question on direct and indirect cost of people, see all costs that are related to a transaction, whether they be sales, service or claim support when they're related to, you know, if the number of transactions go up, we need more of that particular cost. Those come under essentially your pre-contribution margin costs and your other people costs will be those costs which are, you know, if our business grew 20%, they don't need to grow. They may not grow at all. You may even see them sometimes, you know, growing without business growth. They are not related to business growth. Of course, at some level they are in the sense, if you become 10 times larger, you might need a larger team to manage things.
You might need some, you know, more HR people, et cetera. But they are not. You appreciate, right? The direct cost is the one that is related to volume, and the indirect cost is the one that is not related to volume. That's how we've kind of broken it out.
Okay. Just one last question I just wanted to ask you all. Like, today we are at an ARR of INR 9,600 crores on the premium side. At what scale the J curve will start in our business? Like if I said EBITDA positive gross of ESOP cost, at what scale will it come at INR 15,000 crore premium, INR 20,000 crore premium or INR 25,000 crore premium? At what scale you will see that J curve happening in your business?
I don't know what you mean by J curve, but I believe what you are saying is, at what stage do you start to break even, et cetera.
Yeah.
See, I will not speculate on the future, but I will, you know, we of course have our internal understanding of how this goes. If you think about it, our margins are today at about 40%. We are fairly confident these will inch upwards into the future. I don't talk about one, two quarters. I say when some of our things that we are talking about, like our physical people who are servicing in the physical appointments, et cetera, are well embedded, I think there'll be a significant increase in that margin. You're gonna get contribution margin increase from two pieces. One is the scale of the business going up. The second would be the, you know, the contribution margin itself going on, going up on the existing, you know, business scale.
Both of those will come in. On the ESOPs, I think we explained quite well that, you know, over time, the quantum of those ESOPs will keep coming down because we are having a bit of a pre-accrual of those, that because of our reporting, we shared that we are taking on 46% in the first year. I think by the time you get to the second, third, fourth year, they start to become quite small, relatively. I think those ESOP costs will become smaller over time.
I think if you wanted a direct answer to the question, if I was to just say, if I look today, we are at a contribution of INR 470 crore and I'm talking adjusted EBITDA right now, because as I said, the ESOP will not stay at the same level as it is today, but the loss is about INR 111 crore. I think you want only 25%-30% more scale to cover it. My guess is when this contribution is INR 600 crore, it would have crossed over the EBITDA loss at the adjusted level. As the ESOPs reduce, they'll become less and less critical. Now, why am I confident of that? We obviously have our renewal book, which is continuing to add on, and we are also extremely confident.
You know, this activity we are doing of putting people who can meet people is having very good results for us in terms of premium per inquiry going up and the overall direct cost as a percentage of revenue coming down. That gives us the confidence. Plus, we will also be rationalizing on our initiatives. Look, this was our first year of initiatives, and you would appreciate, right, going from zero to, you know, the scale that we achieved. In the last quarter, we have INR 150 crores of revenue from new initiatives. That obviously means that speed would have lacked some efficiency. We will be correcting that. I think those multiple pieces will take care of this profitability.
Honestly, it's not something that, you know, I would worry about too much in terms of, okay, when does it become profitable? I honestly wouldn't worry too much about it. I expect with the renewal book becoming bigger and bigger, plus our deferred revenue coming in, you know, that automatically flows down to the bottom line. When we take a decision as a management team and the board, we typically look at these revenues to have been already accrued when we look at the cost side decisions. Obviously, from accounting perspective, these will flow over time only. As investors and analysts, our request is to look at the total value of that transaction for which major effort has already been put in.
Okay. Thank you. The next question is from the line of Sachin Salgaonkar. Operator, can we unmute him, please?
Sorry. Yeah, my answer was slightly wrong there. I just wanted to clarify to you that the adjusted EBITDA loss was INR 282 crores. What you're talking about is maybe about a 50% higher growth will take care of it, because we don't expect the initiatives, the new initiative losses to be growing. Yeah. Okay. Sorry, please go ahead to the next question.
Thanks. Thanks, Vijit, for the opportunity. Guys, congratulations on a good set of numbers. I have one question and one follow-up, perhaps through Yashish's opening remark. The follow-up question to the opening remark is, you know, Yashish would, you know, like to actually understand in terms of, what you meant by higher focus on efficiency. Would that mean, that, you know, perhaps slightly lower growth, but in return perhaps a faster path to breakeven? Does that mean that, you know, at some level is it possible for you guys to give a guidance? The other listed fintech has given a timeline of breakeven on adjusted EBITDA. If you have something like that.
The question is, you know, if you guys could help us with a bit of a break-up in premium this quarter between, let's say, autos, general, corporate, life, et cetera. Thanks.
You are right. Efficiency means on the new initiatives, you are unlikely to see the growth that we have seen in the past in the new year. Now, we are not talking about, the existing business, we're only talking about the new initiatives. Yes, you will see us identifying, which we have already done quite a bit of, which areas within the new initiatives we want to grow, which areas we want to curtail, et cetera, et cetera. You will see all of that come through. No, we will not be giving a guidance in terms of when we will, you know, we've decided and our board has not allowed us to give a guidance in terms of when we, you know, become EBITDA positive, so we will stay with that.
I don't think we are giving the break-up of how much we do in auto, general, life, et cetera. We have decided not to do that. Please appreciate, you know, we operate in a competitive environment and these calls and their recordings are also heard by our competitors. We have to be careful about how much we disclose.
Sachin, if we look at the profitability for the quarter, see the core business already was profitable in the last quarter. This business is established over years. The business model is almost set, so we can now work for more and more in a confident manner on this one. It is an initiative which we believe will be important going forward as well, where we want to invest. As Yashish mentioned in the opening remarks, with INR 5,000 crore plus of cash balance, it will be not prudent for us not to invest in new opportunities, whether it is POSP, whether it is corporate business, these are large opportunities. We are mindful of how much we invest, but trying to keep it to a level where these are very, very near to our interest income actually.
Yeah, that is not by design. That just so happens to be the case. If things need to change, of course, we will keep everybody informed, and things will change if they need to change.
Thank you. The next question, there's a question on the text. I'll just read that out for you, Yashish Dahiya, Alok Bansal. What would be the broad take rate on renewal premium? This question is from Dev Jyotsna.
Naveen Kukreja, we don't disclose take rates. I'm sorry about that.
Sure. The next question is from the line of Arjun Vikas. Arjun, please unmute yourself.
that said, it's common knowledge, right? What take rates. See, everybody in the market knows what take rates are for the different lines of businesses. I think this is common knowledge. It doesn't need to be explained.
Sorry. I think the question was if I was not clear. I think it was on renewal premium specifically. I don't know if that changes your answer.
We've disclosed the renewal revenue.
Okay.
I think that I know. I get it, Navi. We've disclosed the renewal revenue. Most of it is health. The revenue, most of it is health. You can calculate the amount that you need for health. The rest you don't really need to matter. The rest of it is very low renewal revenue, so don't worry about it.
Great. The next question is from the line of Sachin Dixit.
Yeah. Thanks, Vijit, for the opportunity and congratulations everyone for the great results. I just wanted to follow up on the renewal part itself. I do understand that renewal rates would matter. If there is any color on the renewal rates that you guys are seeing or how they have been trending over the past few quarters? Secondly, on the contribution margin that we talk about in renewal revenue, which is like 90% plus, my understanding was that probably you will need to spend some money on performance stuff like messaging, emails and all. And the take rates might also be slightly lower. And if I also bake in some payment gateway charges, I'm struggling to come up with that 90% number. That's my first question. I'll follow up with the next.
Just to explain, renewals don't just do renewals. Renewals also have upsell and cross-sell that happens with it. Many of those costs get covered in that upsell and cross-sell. In fact, to be brutally honest, our renewal effort pays for itself in terms of the additional premium it generates over and above the renewal that happens. I would encourage you to, you know, the way we read it, stay with that thought of, you know, a pretty high contribution margin on the renewal side. On renewals growth, see, this is mostly health business, and so it is related to what health we did in the past. Our renewal rates haven't changed. In fact, they've grown. Our renewal rates have gone up by about 5%-6%.
Yeah.
Sarbvir Singh, why don't you answer this and-
Sachin, what we are seeing is, as Yashish explained, the value of the renewal book is largely from the health business. In our health business, we have a lot of focus on both first-year renewals and later stage renewals, and both those numbers are going up. We have done a lot of work. A lot of work that we've done on the customer experience front helps improve the renewal rate. There is a clear trend upward. We have also become better at cross-selling, you know, other products to the renewal base. Overall, the renewal story is continuing to strengthen as we go along. As you can imagine, there is a lot of focus in the company on that stream of revenue. I think you know, you'll find it going in the right direction.
You know, one last thing. The last two years with COVID is that it's very tough to actually understand each quarter and how its movement compares to the last quarter or the last year same quarter. So as Sarbvir mentioned, it's a very, very high priority item for us. The customer already bought in the first year, which is the heavy lift we have done. We would not want customers to let go of the renewal benefits. So we obviously do whatever we can in terms of reaching out to the customers and helping them continue with the policy. See, guys, we're not trying to be cagey about this renewal piece, huh. It'll cause more confusion if we give you answers because there is life renewal, there is motor renewal. They have very different take rates.
Sometimes life renewal, you know, our recording philosophy on life renewals has been changing over time. All I'm saying is, we could spend the entire conversation, discussing this and it'll, the more answers we give, the more confusion it will cause. Just stay with the fact that a bulk of it is health. In health, yes, the take rates are about two-thirds of what they are for fresh business. That will give you. Like when I say bulk of it, more than 90% of it is health here. You know, don't worry about the rest. The rest of it, yeah, the renewal may happen, may not happen, but it doesn't really matter. Like, from a commercial perspective, of course, it matters.
Thank you. There's another question on the text. I'll just read that out. Can you please talk about what is the moat and right to win for Paisabazaar? The related question to that, your competitors like Turtlemint, RenewBuy, et cetera, have also raised capital. Will there be telecom sector like price war competition in POSP business?
We don't comment on competition, and we will hold our cards close to our chest because we wouldn't want competition to know what we are going to do. We are in the market, and we are the market leaders there. Naveen will answer the question on the Paisabazaar.
Yeah. On the moats, in fact, we've in the presentation, if the person has seen the presentation on page 31, we talked exactly about that in terms of what moats are we working on. Namely scale, economies of segmentation, credit score platform, the way we are digitizing the business and focusing on co-creation and brand. In terms of scale, if I talk about it, we are, you know, at INR 9,150 crores of annualized disbursal run rate. We are not a lender, we are a marketplace. If we were a lender, we would be in the top 20 lenders.
You know, with scale comes our ability to work even more strongly with the partners, working closely with them to co-create the products that we are creating, which are better with better processes and better consumer experiences. We are deep into the credit segment. Because we get consumers across the credit segment and because we're able to now build products across the segments, we are able to monetize much better than any single individual lender or a vertical player. That allows us to feed that back into either consumer process improvement or flows back into our margin. Yashish mentioned, talked about the credit score platform. We have now 27.5 million or so consumers who've taken credit score from us.
We're able to finally segment these customers and work with our partners, 60+ partners, to create pre-approved programs which are not available to any customer outside of the platform. They come with better processes and better terms usually. That we are seeing scaling up fairly nicely. Finally, I think, as we work towards creating new products, we are able to now utilize the digitization that's happening across the industry and is now allowed by the regulator. That's starting to kind of create a much better A experience and B hence the funnel of the consumers who come on our platform.
Thank you. The next question is from the line of Arjun Vikas. Operator, can we please unmute Arjun?
Hi. Thank you for the opportunity. Great set of results, Yashish, Alok, and the team. Just wanna check on the supplier side. Have you added any new partners? I know LIC was a new addition, but have you added, lost any new partners? If you could talk about the supplier side concentration, you know, who are your like, what will be the largest partner share or top five partner share on the insurance side?
Yeah. Arjun, I can take that. Obviously, we don't want to talk about specific partners. The concentration has not changed at all. The top five partners continue to remain, you know, they're not a very large-
We are not overly dependent on anybody. Our overall concentration is quite in pretty good shape, and it hasn't changed at all from year to year.
Great. The next question is from the line of Nidhesh Jain. Operator, can we unmute Nidhesh Jain?
Hello. Am I audible?
Yes, Nidhesh, you are.
Hi, Yashish. A couple of questions. One is on renewal. I think it's a very critical piece for the profitability of the company going forward. Can you share EBITDA margin on the renewal revenue?
As I said, a bulk of the renewal revenue comes from health. The renewal rates are high. To give you some sense of it, they are on a blended basis, somewhere around 87% or so. Every year the premium also goes up a bit. It's based on the efforts that we've put in over the last 14 years. We get some revenue. The effort on it also leads to certain cross-sell because, you know, we get a chance to interact with the consumer. In that interaction we, you know, have some other products that get, you know, added on or sometimes the premium gets increased, et cetera. On the whole, I would say somewhere between 80%-90% of it flows directly to the bottom line.
That's the reality here. That number will obviously, whatever business we've done last year, you know, in the first year the renewals are lower. From the second year onwards, they are higher. You know, we measure renewals as R1, R2 and then onwards. Every year the renewal rate keeps going up. You know, from the business we've done last year, roughly 80% of it would renew this year. Then from the past business that we've done, broadly, 88-89% of that would also renew. On a blended basis, that's how the business runs and there is no change. If anything, there is an improvement in renewal rates. That's basically the piece.
I don't know if you had any specific questions, but that's basically it.
Thank you. Is the next question from?
Yeah. Also, I just want to clarify, we don't comment on any partner joining or leaving us. If you notice, we never commented when LIC joined us. Yes, it did join, and there was media, et cetera, but Policybazaar never went and commented that, yes, you know, a new partner has joined us.
Yeah. The next question is from the line of Sachin Dixit. Sachin, please unmute yourself.
Thanks again. Quickly on the offline business, so I understand now that, in, especially in case of life and health, when you are generating leads online and you have a on-ground fleet that goes to customer or visits the customer if needed. Can you elaborate more on that, how that works? Are there different sort of people who are getting onboarded or the POSP partners are being leveraged? How is it working?
Yeah, Sachin, this business is totally separate from the POSP business. We have a team of people. There are a couple of different models. In some cases, the same person talks to the customer and goes there and meets the customer. In other cases, the person who speaks on the phone passes on that, you know, that information to that colleague, who then goes and meets the customer. All of these people who go to meet customers are full-time employees of Policybazaar. There is no, you know, outsourcing or no kind of other arrangement involved. We are building this team up. As Yash has spoken in his opening comments, this team is doing extremely well. We are very encouraged by the results that we are getting.
If you think about it from an economic perspective, the marketing spend remains the same, and we are able to derive greater, you know, revenue and AP from the same leads. That's why we focus on the measure of premium per lead. That number has been continuously going up. That's what, you know, this whole thing is about.
Thank you. The next question is from the line of Nidhesh Jain.
I'll give you guys a rough because there's a lot of you here. Of course, everything I say is official, but don't treat it like, you know, treat it as whatever. I'll give you my thought process in this. Broadly, when we look at net present value, and we do this internally all the time. Broadly, when we look at net present value, about 20% of the net present value goes into marketing costs and about 20% goes into operating costs. Basically, what we're trying to do with our physical piece is take our net present value from INR 100 to INR 150 and our operating cost from INR 20 to INR 30.
What that means is when we do our net present value divided by our direct costs, we will receive a ratio of 3 rather than the 2.5 that we have today. Now, of course, you don't see net present value because we don't disclose net present value. That's why I said that's how I think maybe, you know, if everybody allows, I will start presenting how we really think. We always think in terms of NPV divided by NPV of the transaction, not of what further that customer will do, but of that particular transaction and the direct cost related to that. According to me, we are at a ratio of 2.5 today. We're trying to move to a ratio of 3 and also increase from the same inquiry our premium by about 50%.
That's the basic thing. According to me, if you really wanted to see what's the most critical thing in our business, actually this is the elephant in the room. Rest everything else is fluff. This is the real thing. I think if we deliver this over the next 24 months, 12 months, 18 months, whatever, we actually become a very solid organization because this infrastructure is almost impossible to replicate, if you see what I mean.
We'll take the next question from Sahej Mittal at HDFC Securities. The question is on text, so I'll just read this. What is our policy conversion rate now for health and life business after coming with a supplementary offline model? What man-hours go into selling one policy? Just to understand the scalability of the offline business.
Our premium per inquiry has gone up already by about 20%, and this is across the entire base, right? Only about 13-14% of the sales are... If you remember from the last quarterly meeting, I said by March we will reach a situation where 10% of our high involvement product sales will start happening through the physical model. That number, you know, as of kind of the last few weeks, would be about 13% or so. That number continues to evolve. You know, if you wanted to do your cross-calculation, you could do it out of that. We of course do all these intricate calculations on a regular basis. You know, vintage of people, macros, et cetera, et cetera.
We feel fairly confident of what I just explained in my previous conversation, that we actually see both productivity going up and premium per inquiry going up. Productivity, when we talk about productivity, we mean premium divided by cost of you know those call center agents, et cetera. I think we might refrain from getting to that level of detail, you know.
Yeah.
Unless perhaps you have some
No, I just want to add only one point, that as we are doing this, you know, we are getting better and better at it. Our conversion on our visits is extremely high. I mean, the conversion rates when a person actually goes to meet somebody is extraordinary. I mean, I don't want to go into those numbers. I think the main thing that we are trying to drive is how many visits is the person doing and what is the mix of online and visits, right? And that is the number that we are moving towards. And I think the fact that the visit conversion is so high gives us a lot of confidence that we are on the right track and that customers are appreciating this new way of doing business.
New way for us, obviously very old way from a customer perspective. I think, we are definitely headed in the right direction.
Thank you. The next question is from a follow-up from Nidhesh Jain. Operator, can we unmute Nidhesh?
Thanks for the opportunity. There were two questions. One is how should we think about ESOP policy going forward? The current ESOP that we have given, we have already set out the charge in P&L that we expect to see over the next three years. How should we think about ESOP charge after third, fourth year? That is one. Second is on the PB Partners. Since majority of the take rate that we are getting, I think will be passed on to the partner. How from economics perspective should we think about that business?
On the ESOP part, see, we had a new grant which was given to a team just before IPO. 80% of that has already been allocated, and the simple allocation is 5 years and 20%. The way accounting works, as we explained last time, was 45.67 has to go into the first year itself. Now, since this was mid-year, half of that came in last financial year, half of that will come in this current financial year, FY 2023. Overall the impact is going to be decreasing. Last year, in fact, if you look at the numbers were INR 607 crores totally at a consolidated level. This will come down to about INR 540 crores, then INR 300 crores, then about INR 200 crores and then INR 100 crores, in that order, roughly.
There are new ESOPs which may be granted and that can change this number a little bit.
only a fraction of these.
Yeah, fraction of these, first of all. Secondly, see, ESOP obviously helps us retain the team and keep them motivated in the right manner. It's not a cash charge for us, so we are very, very comfortable with this number and our board and investors were comfortable and we had disclosed this in our IPO. To be honest, since IPO, it's been more than six months now. We've had almost zero attrition in our management team. Culture has got to do with it, but also ESOP somewhere keep the team motivated. So that's what we are in a very lucky position from that perspective.
Yeah, I would still see this as more of a one-off rather than a continuous exercise. Simply because, yes, you came out of a particular phase and we were going into being a public company. This, and this I'm sure is the same across all companies. Any increases will be on an incremental basis. Also the compensations we are now paying are very market related. We are, you know, in the past, historically, when we hired people, we used to hire people at a discount to market, which is quite rare, but we used to do that. Increasingly, that is not the case. Anyway.
Yeah.
On the PB Partners, Saurabh will cover it. Yeah.
Yeah.
Yeah. On the PB Partners question, as I explained earlier, I just explained the levers to you. The first lever is the fact that right now our book is all new, right? There is a cost of acquisition with the new book, which, as you are trying to, I guess, say, that sometimes that can even be higher than the pay that we get. As we go forward, there will be a retention book that will start emerging, and on that retention book, that dynamic will not be there. I think that is the first thing that we add. The second thing is that in non-motor businesses, the retention is actually positive. We are already the largest player in the non-motor POSP business as well. It's not just that we have scale, we also have relevant scale.
In that case, as that book continues to grow, you will find that, again, the economics will be more attractive. The third thing is that where does POSP fit into our overall story, right? POSP allows us to have scale against suppliers. As we build that scale against suppliers, there will always be some advantages that will accrue to us from that. As those advantages accrue, again, those will help in increasing the profitability. We see as we go forward this year that the, you know, the profitability will keep improving as we go ahead. Over time, we believe that PB Partners will also be a very, large and valuable part of, Policybazaar.
Thank you. The next question is a text from Ranju Shukla. What are the levers of profitability for Policybazaar?
Sure. See, our core business in the last quarter was EBITDA breakeven. It made about INR 10 crores of profit as we have disclosed. It has broadly a 40% gross margin, right? If you look at our core business, we are at about, give or take, about INR 400 crores of revenue, right? Oh, sorry. On the quarter. INR 1,200 crores of revenue, right? For the year.
Mm-hmm.
All right? About INR 400 crores for the quarter. That's what I meant. About INR 1,200 crores for the year. Let's just make this up, right? Let's say, like, we've grown 45%. Let's say we just grew 45% again. If we grow 45% again, and I'm not saying we are planning to grow 45%, I'm just saying that if we grow the same, then that 45% is what? That's roughly about INR 530 crores or so of additional growth. That at 40% gives you roughly about what? About INR 210 crores of additional contribution. Now, please appreciate for any of that, we are not planning to expand our brand costs or other people costs, et cetera, anywhere near 40%.
It may be a 10%-15% increase. You know, let's say those costs are about INR 600 crores for last year. It might go up by INR 100 crores. You've got INR 110 crores of additional EBITDA coming in, which, if that happens, should clearly make the core business profitable for the whole year, if you see where I'm going with this, right? As far as our new initiatives are concerned, as we explained, that may or may not be the right way of thinking about it. From a cash flow perspective, the way I am seeing it in my mind is we have somewhere a peg in our mind of the interest income. On INR 5,000 crores, I don't know what our interest income is gonna be.
Maybe it's INR 200 crores, maybe it's INR 250 crores. We will make sure that, you know, that click, we will try and make sure that stays below that. That's the intention. You know, the year after the existing business will grow again, hopefully, and then it'll take care of things. I think I've explained the levers. Now, coming to the basic levers. At a fundamental level, Paisabazaar and Policybazaar core business growing, the renewal book and the delta in margins coming because of the offline outreach are the three that are gonna drive it. See, we have to be very careful as a public company. When we were private, I wasn't so careful. I would have given you answer very straight away.
We have a very clear idea of how much margin improvement we expect because of the physical leg. That will not have an impact on today's revenue. That will have an impact on tomorrow's revenue. That all gives us a lot of confidence here. Those are the levers. Again, to repeat, renewal book, physical leg, and basic organic growth of the core business.
Thank you. The next question is from Nischint Chawathe from Kotak. Without any specific reference to the POSP strategy of Turtlemint or Policybazaar, a generic question. What does it take to succeed in POSP business? Is it agent grab or anything else? How do you penetrate deeper into the country? Besides brand, how does POSP leverage Policybazaar franchisee?
You know what? I'll give you the straight answer. Staying there, that's it. Whoever stays the course will win. It's that simple. Anybody can win. It's a straightforward business. It's a very straightforward business. You have to stay the course. More importantly, you have to train your POSP to do more. See, today, a bulk of what POSP do is motor. You have to train them to do more health, more life, at some point, even more other financial products, credit cards, loans. Why not? You know, they are your legal entity POSP. That doesn't stop them from being the POSP of a Paisabazaar. There is nothing stopping them from doing that. Those are our plans, yeah. At a very basic level, we're not planning anything rocket science. That's basically it. Can we train these people to do?
Sarbvir, you, I think will have a more granular answer.
Yeah, again, you know, obviously, Ashish has covered the main point, but I'll just repeat again. First is growing the income potential of the POSP. If you are earning INR 10,000 from selling insurance, how can I take you to 15? If you're earning 20, how can I take you to 30? That implies having more products and training and et cetera to help you sell those products. That's the first part. Now, to do that, you need to have a very robust technology and product platform. That's the second part, which obviously we have and we are continuing to improve that. The third part is the penetration beyond the top cities. If you keep selling in the larger metro cities, obviously it's very competitive and those agents are extremely smart.
You have to go beyond those cities, which again, we are doing by building a whole organization out there. I think that the success will be to go beyond the tier one cities and do that. The final point, you must understand what is the difference between Policybazaar and others? Number one, Policybazaar is a brand. For an agent, it is very important to associate with platforms that are seen as winners and where they get respect. People want to be with Policybazaar. When they go and talk to their customers, they can say, I am a Policybazaar agent. That is very different from any of the other competition that we have. The second thing is that we have the scale against our suppliers.
Because we are large partners to these suppliers, because we give them a high quality book of business, they are willing to give us opportunities and work with us on products, on propositions, even in POSP. I think in year two of our business, you will find us, you know, using these weapons more and more, and there will be a major difference between PB Partners and competition along these lines, along brand, along product, along processes, service, just like we have on the retail side. Our retail business is very different from other online businesses. In the same manner, PB Partners will also over time become very different from other POSP business.
See, Policybazaar was not the first entrant in the market. We were about the 20th player that came into doing what we do. There was obviously something that got us here, and part of that as well will kind of see us into the future also. Yeah. Any other question?
The next question is from Prateeksha Aggarwal. Set of questions. What do you plan to do with the INR 50 billion? You mentioned some digitization initiatives. Can you please elaborate a few of them?
The first one, I think Alok is the best person to answer. The second one, I think Sarbvir and Naveen both can briefly answer on the digitization aspects.
You see, on this INR 5,000 crore cash reserve, this is a tricky one, to be honest. See, we are not a CapEx business, so whatever we do will be OpEx. It will look like a loss on the P&L. We will look at opportunities to invest in initiatives, as Yashish has been mentioning. We are open to invest into inorganic growth opportunities as well. Typically, we've not found any decent opportunities to deploy that much money in organic growth. We have typically looked at any specific tech services or teams that interest us. Usually, these will be quite early stage.
Just to interrupt, you have just seen what's happened in the POSP business. Our combined loss for the entire year on that business might be $15 million. You know, we are the market leader. You know what the valuations are out there. I'm not saying we obviously can't find those valuations attractive to acquire.
Yeah. That, that's a tough one, too. I think, for time being, no immediate plan to deploy this INR 5,000 crore, but we remain open to look at all opportunities, whether it is inorganic or in-house growth. Again, we had mentioned that a lot of our initiatives will be getting funded just out of the interest income. Yeah, it's a tough one. We have got this money and, that's why we don't burn cash. We are EBITDA positive on the core business.
In times like this, it's a great thing to have.
Yeah.
You don't have to worry about capital. That's a great thing to have, a great position to have in a time like this. I think,
Digitalization.
Digitalization, I think Sarbvir would like to comment.
Sure. Just covering the insurance side, I think we are using advanced technologies across three parts. One is onboarding of customers. We are asking fewer and fewer questions from customers. We are pulling up with their consent, their identity documents, their financial income, their medical history, et cetera. A lot of technology is being used to onboard customers. The second thing we are using is on risk and fraud control. We are working with our partners to give more and more information about the customer that is coming in. In our presentation, we've talked about how we look at authenticity of documents, how we do a video verification. We compare the face with the KYC documents they have submitted.
We compare the voice signature with the, you know, with the voice that has spoken to us. This quarter, we have also introduced a liveness check where we can actually check whether a person who's on video is real or somebody is holding a photo or is using some other kind of impersonation device. So I think that's the second. The third is we have built a fraud graph. For the first time in the industry, there is a payment graph, a fraud graph that has been built. You cannot enter our payment system with anything that has been used ever to do a fraud. So whether it was email address, your permanent address, residential address, phone number, whichever way you try to come, we will be able to trace you if you have come before.
I think the third area that we're using advanced technologies is in marketing and our efficiency of our own internal operations. Who should we target? What is the best product to suggest to this person? What is the next best product for this person? What, you know, range of icons should be shown on the app, et cetera. We are working on personalization, et cetera. I think we are using technology to, like I said, these three things, consumer onboarding, risk control, as well as marketing and targeting of customers.
Naveen, your side?
From a lending perspective, I think it's interesting because when COVID happened in 2020, the whole industry realized that it was not as digital as it could be, and that's why the lending kind of came down drastically for the industry. Since then, of course, with the help of regulator, the entire industry is moving towards digitalization. We have built our own digital stack, and I've shared two examples in the deck that, you know, from the customer coming in to the customer being identified on whether he or she can get an offer from a particular partner, the KYC happening through various means, whether it's CKYC, eKYC, OKYC or video KYC, to underwriting happening digitally to the repayment confirmation through ENACH, et cetera, happening, and finally, the e-contracting through digital agreements. That's all happening digital now.
The couple of examples I've shared, for example, if a customer today is a pre-approved customer with Axis Bank, they come to our platform, we've kind of deeply integrated with them. It's a beautiful journey. The customer comes, gets identified for pre-approved, and gets out within seconds or minutes with loan amount in his or her bank account. The second example that I've shared is the co-created products that we are working on. You know, a step-up card that we have. A customer comes in, and within two minutes or so, the customer has opened an FD with a partner bank, got a credit line against that. The virtual card has been issued, and the customer can actually start using the card digitally.
Any next question, please?
Yeah. There's a question on the line from Hiten Jain. Operator, can you please unmute Hiten?
Yeah. Hi, I have one question. This other expenses that we report which grew 100%, INR 137 crore in this year, FY 2022 versus INR 65 crore last year. Now, this expense, given that it has grown so much, it should be linked to revenues. I wonder, why would you classify this under contribution EBITDA? Even if I look at the breakup, I think around half of it is payment gateway charges. Shouldn't that be directly linked to revenues and be part of direct costs?
See, the way it works, Hiten, is direct costs typically are the direct operating cost and the acquisition cost. This is the way industry has been taking it. Yeah, I take your point. Technically, this should also be part of the cost above contribution margin. Somehow the classification we have seen in across the industry is a little different. We have just gone ahead with the same classification so that there is no confusion when analysts or investors are looking at our numbers.
Okay. All right, thanks.
Okay. We're at 4:00 P.M. That was the last question for this call. I'll just hand this back to the management at Policybazaar for their closing remarks, and then we can close this.
Thank you very much. Thank you for those questions. I know it was a Saturday afternoon. Next time, we will try to do this on a weekday so that, but, you know, very grateful for all your participation and all your questions. I think as a concluding remark, all I would say is, look, this is a prudent management. Of course, definition of prudent can vary all the way because there's a huge spectrum of prudence. We are also a growth company. Nothing about us is going to change from how we have been in the last 14 years. We have been a certain type of organization. We have had a certain amount of burn. We've grown at a certain rate. We've done initiatives in a certain way.
We've done acquisitions in a certain way. Just because we have more capital or just because we have less capital, whatever, you know, our philosophy towards business, the kind of people we are, is not going to change. You know, whenever you think about speculating about what all could happen, one of the best ways is just look at the history of this organization over the last 14 years, because we cannot change our DNA, nor will we. I think I genuinely believe that the existing business, which from an EBITDA perspective, from an adjusted EBITDA perspective, broke even last quarter, should now stay in the positive zone. As I said, as it grows with its margins, it should add further and further to profitability.
Policybazaar is decidedly profitable now with, you know, the insurance business. Let me not call it Policybazaar, the insurance business, with about INR 20 crore, INR 28 crores of EBITDA last quarter. Paisabazaar is fast catching up. I'm fairly confident that soon we should be. When I say soon, I mean at some point, not so much in the near future. We should be able to announce that Paisabazaar has also broken even and that's also profitable. One by one, each of our initiatives will move in the same direction. You know, but I don't know in what order, whether Dubai comes first or POSP comes first. I think Dubai will come before POSP, but let's see.
We intend to stay absolutely focused on all three of these, and do a good job out of them. At any stage we feel, you know, we'd love to have your feedback all along. Thank you very much for joining and have a great rest of the weekend. Bye now.
Thank you, team Policybazaar. Thank you everyone for joining and have a great weekend. This is Vijit. Thank you.