PB Fintech shares can rally 91% after 2-day bloodbath, says Bernstein. Here’s why it remains bullish
The positive view comes after PB Fintech shares suffered a sharp 39% decline over two trading sessions following the Insurance Regulatory and Development Authority of India’s (IRDAI) proposal to ban ‘dark patterns’ on insurance websites. The proposed rules include practices that require customers to share personal details before they can access product features and pricing information.
The brokerage said the proposed framework could result in a 40% reduction in insurance take rates for PB Fintech, translating into a potential 36% cut in FY28E consolidated revenue, with Paisabazaar cushioning some of the impact. A shift in term plans towards a trail-based structure could also defer cash flows, creating an initial working-capital drag.
Management indicated scope to rationalise growth-linked costs in FY28, particularly call centre hiring, variable payouts and performance-marketing spends. Under its scenario analysis, Bernstein assumes organic premium growth for PB Fintech, currently estimated at 35-40%, will reset to a lower level in FY28E, with lower customer pricing partly offsetting the impact through higher volumes.
The brokerage has also factored in a potential 4% cut in FY28E premium growth, although it noted that the range could be wide, alongside the 40% reduction in take rates. As a result, its scenario analysis points to a potential 36% reduction in FY28E revenue growth compared with its previous estimates.
Bernstein expects core-business direct costs to be reduced meaningfully in FY28E as the focus on growth moderates, before normalising from FY29E as growth-related spending resumes. It has also factored in a phased rationalisation of indirect costs across FY28E and FY29E.
Taken together, the scenario analysis points to a potential 34% cut in FY28E PAT compared with the brokerage’s previous estimate. Bernstein now sees FY28E profit at Rs 1,100 crore, below its FY27E PAT estimate of Rs 1,250 crore despite the cost-control measures. Earnings are expected to recover to Rs 2,000 crore by FY30E, compared with the earlier estimate of Rs 3,200 crore.
What did IRDAI say?
The regulator proposed replacing the existing complex and fragmented distribution structure with three broad categories of entities: Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs).
It proposed a set of structural reforms aimed at lowering insurance costs, expanding coverage among underserved sections and putting the sector on a sustainable growth path. The draft paper focuses on several key areas, including rationalising Expenses of Management (EoM), reintroducing segmental commission limits and prohibiting “dark patterns”.
Under the proposed framework, insurers would have to disclose product and pricing information without requiring customers to share personal details. The paper also proposes disclosing commission rates on policy documents and streamlining motor insurance.
Other distribution-related proposals cover the types of policies banks can sell, a ban on incentives to agents, enabling insurers to use Market Infrastructure Institutions (MIIs) for insurance sales, and prohibiting compulsory bundling of insurance products, such as credit life insurance.
At present, the public can access product features and pricing information only after providing personal details. IRDAI said this is one of the ‘dark patterns’ frequently seen on insurer and distributor websites and is also against guidelines issued by the Central Consumer Protection Authority under the Consumer Protection Act, 2019.
The regulator defines dark patterns as practices or deceptive design patterns using user interface or user experience interactions on any platform that are designed to mislead or trick users into doing something they did not originally intend or want to do.
IRDAI has proposed recalibrating the commission framework alongside these changes. Rather than applying a uniform approach, commission limits would factor in the segment, line of business, distribution channel, product complexity and the effort involved in selling and servicing the product.
Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.
