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PB Fintech Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '23 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. [Operator Instructions]
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 owing 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, which is the highest we've ever achieved. There is 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 feedback of 86%. It is indeed a massive change in the number of appreciations that we're 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 claims ratios, which essentially allow our insurance partners to settle a higher percentage of claims than they do through many other channels. We grew at 105% year-on-year. And our existing business has now been profitable for the last 3 quarters. In the last quarter, our interest income exceeded our adjusted EBITDA loss. This is the first quarter that's happened in the last couple of years. From our existing business, our adjusted EBITDA increased by INR 60 crores for the quarter, and INR 98 crores for the first half of the year. If some of you may recollect, in the last quarter 4, I had tried to explain, more from a layman perspective, that looks our adjusted EBITDA should keep growing at roughly about INR 150 crores to INR 200 crores every year. As you would appreciate, this INR 98 crores in 1 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 '19. The reason I explained this is because a lot of people asked what happened during COVID. See, COVID came, COVID went. Now COVID is over. But these are 2 good years to compare this first half of this year and the first half of that year. We are about 5.3x bigger. By the way, I wanted to say this in a funny way, our valuation was about the same as it is today. So anyway.
Our core businesses, the insurance marketplace, Policybazaar, and the credit marketplace, Paisabazaar, grew at 55% year-on-year to INR 410 crores. Of this revenue, the credit-linked revenue was INR 101 crores for the quarter. For our existing business, we had an adjusted EBITDA of INR 18 crores for the quarter. For complicated products like health or life insurance, we have been extending our customer connect beyond remote calling by giving consumers the convenience to have physical meetings at the convenience and 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 crores of disbursals, and 0.5 million credit cards issued on an annualized basis. Over 31 million customers accessed 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. And as we reported last year, 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 to market and 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. We said our existing business -- yes, so while there has been a general slowdown in the retail protection sales, we delivered 34% growth in health insurance premiums and 29% in life insurance premiums new business. And just for any of those who are confused, there is this new renewal -- the new and renewal for health are pretty much in line with each other. It's 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 2x to 5x of the industry, thinking about just the core business.
We stay confident of being adjusted EBITDA positive by the last quarter of this year. It's actually very 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 initiatives. The new initiatives will basically go down of 30% and the core will basically go up to 50%. So you should comfortably be adjusted EBITDA positive. So there's not much surprise there.
And for the next year, we should be full year PAT positive in 2023, '24. That's the goal. But 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 cost -- charges, which, by the way, a few years from then will not be there. So that's 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, will grow as well.
So with that, happy to take questions now. Thank you very much.
[Operator Instructions] We have our first question from the line of Sachin Dixit from JM Financial.
Congratulations on great results. I think the top line looks good, the EBITDA losses and everything. I had a quick question regarding the breakdown of premium. If you can help with that between, say, how much it is POSP and how much is renewal, if that's possible?
Just give us a second here. So POSP is INR 458 crores for Q2 this year. The core Policybazaar is INR 2,026 crores. That's what we disclosed. I already told you both the health and life business grew at approximately 30% on the new side and the renewals, both.
Sure. Sure. And I assume the core business also includes corporate insurance there?
Yes, it does.
Right. Okay. And on the term side of it, which I think continues to look weak even now, and some of the insurers have been commenting probably H2 will look better. Do you have any views on how that's shaping up for you in terms of the growth side of term?
So 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 that, 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?
Yes. 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. And this growth rate is at what we mentioned right now. And for the industry, there were swings towards certain players, et cetera. Increasingly, those are settling down, but we don't comment too much on individual players and who gets market share. But on the whole, we think the industry has been about flat. So the numbers we have is the industry has grown -- 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 declined. So we're obviously growing in that backdrop.
Sounds good. Just one final question on the cash balance side. We have this INR 5,000 crores cash, that's obviously helping us with the interest income that we are generating. But what's the plan for this going forward?
I think once we get profitable, once we deliver INR 100 crores 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 crores of profit before we start concluding that this cash will never be utilized, so to say.
Yes. So basically, our cash plus receivables will not go down from here. It just will always stay about the same number. So we are not losing cash. That's all.
So last quarter also, we've not lost cash.
We have our next question from the line of Nikhil Agrawal from VT Capital.
I just had a few questions about certain products. So there was added line product that was mentioned last quarter. 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. So is that product being continued? Is there any color on the product?
Sorry, could you just repeat the question once more? Naveen is looking at...
So 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 disallowed by the regulator.
Yes, right. And there was a credit line product that we used to issue till quarter 1. So have we discontinued that product or how are you working around that?
Our product is different. We run the product with the bank. There is absolutely no impact on that product. It's a credit line product, which works like a personal loan. So 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. And our partner in that case is a bank.
So if I'm understanding this correct, we'll partner with the bank and when the person or the customer takes the credit line out, it becomes the term loan with the bank. So the risk is with the bank and then it's between the bank and the customer. So we don't have any impact on us.
Absolutely. And the funds were always going from the bank to the customer bank account, that continues to be the process.
Right. That is in line with the guidelines. So one more question about -- last quarter, there was this mentioned that our take rate had improved in one of the core businesses. So can you please give us 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?
Yes. It continues to be high. I think we didn't disclose it. 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 the last quarter and it's not continuing this quarter. Overall, it continues to be the case.
Just one more question about the investments in the new initiatives. So any trajectory on what kind of investments are we going to see in the new initiatives going forward?
I think our -- 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. Our focus is on a single number, which is INR 1,000 crores of profit in '26, '27. To me nothing else matters. And I don't think we are interested in making investments in too many companies.
No, I think they're talking about new investments.
No, new initiatives.
New initiatives. Investments in the new initiatives to generate business.
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 3 and quarter 4.
And I'll just go back to the credit question that you asked. See what you need to understand is what we do as a credit business is just a marketplace. And since we are a marketplace, a lot of the new regulation which came in the last 4, 5 months related to BNPL or FLDG or a lot of other stuff, it actually is not impacting us. We do work with a lot of partners with our bank for NBFC. And since we are a marketplace, we only connect or 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 the stuff that you see. And in the deck also that we have circulated, we have mentioned specifically about the regulation from the credit side this time because 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, totally different. It's not getting impacted at all from any of those changes.
Correct. Got it, sir. And sir, on the investment part that you mentioned, you said that it will be lesser than this or -- so right now, this quarter, it was INR 65 crores in the new initiatives. Going forward, it will be at this level or lower than that? If my understanding is correct?
So I clarified in my first opening comments itself that our expectation is, by Q4 it should be in the range of INR 30 crores to INR 35 crores, the next 2 quarters.
Okay. Got it, sir. And sir, just one thing about the POSP business. So we have 2 offline businesses. One is our own full-time employees, who work as PB Fintech employees and who help the customers with whatever issues they have. And 1 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 off-line fronts?
Sure. So I think as Yashish mentioned and we've also disclosed in the presentation, the whole point of having off-line 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 1,500 now for the first half, so this number has been continuously growing. So I think that part is doing very well. It's increasing our conversion.
On the PB Partner side, as we said, we did over INR 450 crores of premiums. The losses in that business -- or our investment in that business has continued to come down. We've actually reduced that over the last 2 quarters. The revenue from that business has grown significantly from Q1 into Q2. So I think even there, it's a healthier business. And I think we are moving very well in the direction that we want to do. One more metric in that business is that our non-motor business -- so the motor business is very commoditized. The non-motor business continues to -- now almost 20% of our business is non-motor, and that is the highest in the industry. So I think all the metrics, both financial and qualitative, of both businesses look pretty good at this point.
I'll just leave with my last question. Can you please give some clarity on how -- can you please give us some color on how the ESOPs will look going forward? This is my last question.
Yes. So on the ESOP part, as we've 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 basically spread out over 2 financial years because of that. So 6 months of last financial year and 6 months of this financial year. And then it comes down for the next 12 months and continues to come down every 12 months. So the number that we have for this year is about I think INR 600 crores plus/minus a bit, but it's a new grant amount. But if you look at next year, this number should come down to somewhere between INR 300 crores to INR 350 crores, and then it continues to come down very drastically post that. So basically, of the total grant, about 60% gets kind of expensed in first year.
70%.
No, I'm saying by March '23, 60% of it would have got expensed. So then in the next 3.5 years, you've only got 40% more to be expensed. So as I said, our objective of becoming profitable next year with INR 300 crores, INR 310 crores or whatever crores of ESOP grant implies that at some point in the very near future that ESOP cost will not be there. So you'll obviously see that advantage.
[Operator Instructions] We have our next question from the line of Sagar Sanghvi from ADD Capital.
I have only one question. So if we look at the Slide 11 of your presentation, there is a mention of Bima Sugam. So if you can just help us understand what could be the disruption that can be caused by this proposal or discussion of Bima Sugam or something? And how would you plan to mitigate the same?
See, I think if you make a correlation to the travel business, which I used to be in long time ago, we used to have global distribution systems there, likes of Amadeus, Galileo, Sabre, Worldspan. And those were very critical in powering the travel businesses. So 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 were giving them all the integrations and everything else. So 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 help other distributors grow, whatever product they were selling, whether they were selling motor or health or term. So I think it will be a very positive move for the industry overall. And 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. So I think it's a fairly positive move for us.
So you mentioned you will have access to a lot of data layers. So do you plan to enter into KRA business that is KYC registration agency kind of business as you handle lot of customer data or something like that?
So I'll tell you, 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 have met with the regulator, and we asked for clarity also at this point, and that was with the distribution department. And there didn't exist so much clarity in terms of us starting to get to think about it from an operational perspective that, what does it mean. But that's the reality of the situation right now. But 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. So we have to wait it out and see how it goes.
But to me, the analogy is the GDSs and the travel businesses, which I used to run one of them, which were re-bookers, that's why I understand that analogy very well. And if you think about it, flights as a business has really moved on to GDSs, but hotels still stays somewhat out of the GDSs, packages stays out of the GDSs. So I think I think these things take time. They just -- yes, so you get the story, right? It doesn't suddenly magically just happen in 1 month.
Got it. Yes. And one more related questions to your financials. So you are talking of about INR 1,000 crores of PAT by FY '26, '27, right? So that would also help throw a free cash flow of about INR 1,200-odd crores a year post that. And you are already sitting on a pretty large cash balance. Do you plan to enter insurance manufacturing -- selling of insurance, not just...
No, we've no such plan. 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 cores, INR 6,500 crores of cash that we will have at that stage. And that's the reality. And I think we will be in a position where this question -- see, right now the question to us is, guys become profitable, tell us that you're not making this scrap up, right? You're actually going to be profitable. That's step one. I think once we do that, the next question is going to be, okay, guys, what are you going to do with this cash that you have? Now that you're profitable, you're cash flow positive, and you don't really want to make acquisitions, what are you going to do with this cash? And I think at that point -- let's get to that point first, right? We are in class 1 right now. Let's get to class 4 before we take the exam of class 4.
I think this is the time for us to be heads down and executing rather than thinking too far into the future about what we're going to do with this beautiful amount of cash that we had lined with us. But yes, of course, we will not waste it. So yes, we'll see. Maybe we'll return it to you guys. Return to the investors. I don't know whether you're investor or an analyst. But we should return...
Investor and analyst, both. That's helpful. And great set of execution in this quarter.
[Operator Instructions] We have our next question from the line of Adarsh Parasrampuria from CLSA.
Question is on the savings business. If you can just throw some light on what's been done in the last 6 months and the 3 months.
Sir, I'm sorry to interrupt. Can you speaker louder please?
So my question was relating to the savings business momentum. This year was supposed to be a big year for savings. So...
Sir, it is still low, can you use the handset please.
We've understood the question. Yes. So I think Sarbvir will answer.
Yes, 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 2 quarters have also been very good. And I think the best way to think about it is that there are 2 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 capital guarantee solutions, which ensures that the capital that the person has invested is safe, and they have an upside due to the market. So they have a ULIP upside. And this solution has been really well received.
And with the fact that now we have offline agents also who are going to meet customers, we are able to increase the ticket size. So just to give you a sense, the ticket size offline is almost 50% higher than the ticket size online. So 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. So I think in this forum, that's all I'd like to say. But 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 6 months?
Our ballpark and exact is not very different. We obviously know the exact number. We decided not to disclose these here.
Got it, Yashish. And my second question was relating to expenses beyond the contribution line and the ESOPs, growth there that you would expect, Yashish, anything changing to make that growth or that's going to be inflation linked, you shouldn't see a lot of very high growth in that part of expense, which is beyond the contribution?
[Foreign Language] Naveen and Sarbvir, please answer. You are the guys to grow cost. Nobody else is going to grow cost.
No, no. I think, as Yashish said, the objective is very clear. We want to deliver profit. And I think we're focused on that. Those costs will increase as low as possible is all I would say. The rest, there is an inflation in the market. There is natural increase in that. But the idea is to keep them much lower than our revenue growth rate.
And sorry, I'll just go back with one more question on that capital guarantee 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 the guarantees are quite high in some of the products, and their offset is basically partner not taking a lot of upfront premium. So just wanted to understand your take on that.
Yes. So just to be very clear, it's a combination of a non-par or guaranteed plan and a ULIP. And if you think about it, clearly, the mixture is reasonably -- see, we are not a commission first shop to begin with, right? So 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 nonpar and a ULIP has a better commission profile than just a ULIP. So I think that's really the change that has happened for us. So it depends on where you start, right? So we were selling more ULIPs. Now we are selling a combination of ULIP and nonpar. So clearly, the commission is better for that. But we are not -- by any stretch of imagination, we are not maximizing the commission in our savings business.
So 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% to 12% in a year.
12% is good, Yashish.
We're coming from a COVID year when their operations were very small, but okay. So that's it.
We have our next question from the line of Subramanian Iyer from Morgan Stanley.
I had a few data questions. So one is, basically, you gave the number for core premium, 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? And the other question I had was, in the previous quarters, you used to give this number of credit-related revenues. So you should split your revenues into credit and insurance related. So if you could do this for this quarter as well and give it for the second quarter last year as well? And I just wanted to understand the progress on basically your contracts with your partners on getting renewal revenues, in the sense that you were in the aggregator previously and you were not entitled to renewal revenue. So how is the progress on that?
So remind me if I miss any of your questions, okay? The first thing I picked up was you wanted to know what is our new versus renewal 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. So about 50% is new, about 50% is renewals, right? And INR 101 crores of our core revenue was credit-linked. So you had a total core revenue of INR 410 crores, of which INR 110 crores was credit-linked, and the rest would be all -- INR 101 crores is credit-linked and the rest would 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, yes.
Renewal contracts, you mean in terms of in life insurance receiving more renewals in the future, et cetera?
Yes.
Yes, there's conversations going on there, but nothing material to report in terms of massive changes or anything. But on Paisabazaar, there is a big renewal change, there's a positive surprise for us. Because Paisabazaar historically never had renewals. And it's very heartening to note one thing. If you look at it carefully, Paisabazaar renewal rates have now hit -- trail revenue has now hit the same level as Policybazaar was in 2018. So you can see that, and they're actually growing much faster than Policybazaar trail revenues ever grew. So there is an expectation. And Naveen, correct me if I'm wrong. The expectation is, we would be doing about $700,000 by March per month. So if that happens, there 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 12, et cetera, which is a huge positive surprise because that did not -- so if you asked us what would be Paisabazaar's renewal revenue sitting back in -- about when we were going public, I don't think anybody had the expectation of that.
We have our next question from the line of Prateek Poddar from Nippon India Mutual Fund.
Sir, just one question. I noticed that your core insurance revenue, the take rates have gone up on a quarter-on-quarter basis. Can you help me understand 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.
Yes. So I think it's 2 things. One is that our life and health businesses are a greater proportion of our overall business than they were in the previous year. And the second thing is, as we just discussed in one of our businesses in life, the take rates have increased year-on-year.
And which is this business line item, sir?
We don't want to disclose that exactly. But if you listen to the previous conversation, you would get a fairly good clue.
Okay. Okay. And just one quick clarification. You've talked about absorbing a INR 5 crore loss by the noninsurance business. This INR 5 crores pertains to Paisabazaar? I'm just clarifying.
It pertains to the credit business. All of it is in Paisabazaar. So Paisabazaar has credit revenue and insurance revenue. So all of it is in credit in Paisabazaar. So yes, you're right. So INR 5 crores is the credit business -- so the credit business, see the disclosure is there, right? There's INR 101 crores of revenue, and there is INR 5 crores of losses there. For the quarter, so you can imagine there is no way they're not breaking even in the next 3 months. Like of course, there is some way, but they'll have to be very special to do that.
And 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. But Naveen is doing a very smart thing. He's not telling his scheme to take the renewal revenue into accounts. So he's basically keeping it at the same margin, and the renewal revenues are getting added on. So there is a bit of an interesting thing he's doing from an operational perspective. Naveen, you want to explain?
Yes. 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. And if we execute the trail revenue well, then that comes at a very, very high contribution as it starts to become meaningful. That comes at about 90% contribution.
What cost do you have in that?
It's at 99%.
It's 100%. No, what is the cost that you have in that?
It's servicing and the communication cost investment. So 99%.
Understood. Understood. And sorry, I think you guys missed, one of the previous participants was asking for Q2 FY '22 the same...
[Technical Difficulty]
Sorry, what was that. We got disconnected.
Mr. Poddar, can you repeat your question, please? We'll take the next question from Nischint Chawathe from Kotak.
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. If I look at it, it's getting towards 77%, 78%.
And the contribution of corporate business in the first half would be like how much, very approximately?
There is nothing. Contribution as in contribution...
I'm sorry, share of premium.
That, I don't think we disclosed that, yes.
But should be similar to what was there in the previous year? Or is it kind of goes up, goes down. If you can kind of give some...
Similar. Maybe it's a little lower -- sorry, it's -- If you look year-on-year, it's about flat, yes. It's flat. There's no change in that.
My second question pertains to 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 5 years x 17% per year, and about 80% of the ESOPs were granted last year October, 20% would be granted over time. And for the 4 senior people, including Yashish, myself, Naveen and Sarbvir, there was an added clause that we can only vest once it crosses a certain threshold. But that does not mean it lapse, it just delays the exercise. That's all. So from a practical perspective, you can just say 5 x 20% because that's what goes into the accounts.
No, no. But the point is that when you are issuing ESOPs, there will be some period, right, window up to which you can exercise.
5 years. It's a 5 year and 20% per year. Okay, for exercise, how long?
That's right. I mean if you don't exercise, I believe some of the ESOP expenses can be reversed, let's say, in an eventuality where you don't exercise the ESOPs.
So the question is the vesting schedule is 5 years, 20% each year. And after vesting, there's a period of 5 years for exercise.
Okay. Okay. And the entire ESOP expenses, you will have to -- I mean, will hit the P&L at the time of vesting.
They've already -- 60% of them have hit the P&L by March '23. It's done. See, the rule in the [ India ASA ] is very simple. The day you grant, based on the grant value and the share price at which it has been granted at that time bear a charge in future 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 5 years x 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%.
Yes. First year is 45% -- 46% in the first year. The second year is about 24%, 25%. Then it is about 13%. And finally, it's like 3% or something in the last year.
Last year is 4%, but yes, it's not very far, but the charges are decided upfront when you grant, and it has to be taken from the grand date itself. And are also linked to exercise.
Naveen linked to exercise, so I'll give you an example, right? Today, our share price is below when we had granted these ESOPs, so the cost that we are facing does not come down. Neither it would have come down if our share price had gone up, it wouldn't have gone up either. So 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 -- as Alok said, 80% were issued then or granted then and 20% may be granted sometime in the future. Those 20% will be priced on the day that they are granted. But that's broadly it. I don't know if you need more clarity. But if you want more clarity, one can have a separate session with...
No. I think it is clarified.
We have our next question from the line of Ansuman Deb from ICICI Securities.
My question was regarding the point-of-sale premiums of around INR 458 crores that you set this quarter. So I remember this was more or less the same number in Q4 of last year, FY '22. So we are not growing this business, POS business too much now. It is more or less stable. I just wanted to understand, 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, and whether we have achieved this target? And so now we're focusing more on the premium now -- on the core business, where obviously, our margins are very high and we are also going very good. If you could just underline your POS strategy in line with the competition landscape?
So 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. So within 6, 7 months of launch, we became the #1 company. That we have maintained. The second thing that we want to achieve is that we want to build a sustainable business. And 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 main ways of doing that is to ensure that they have nonmotor products to sell and they are able to sell them. So 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 focus on making the whole business a lot more efficient.
That is the phase that we have now entered, I would say, in Q3 and Q4. And obviously, we have a lot more plans for this business, which we'll share with you as we go along. But the idea is that, first, to have leadership then to improve the economics. And thirdly, 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, sir. And lastly, I just wanted to kind of underline the fact that this INR 2,000 crores of quarterly premiums in the core business, it compares to that INR 4,700 crores premium in FY '21, right? So in a like-for-like, that would be the right comparison?
Yes.
You're right.
Absolutely. I'm 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. And 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 have focused more on POSP at the expense of the core business. And I think that is seen in the numbers. As you can see, the core business has been profitable for 3 quarters straight now. And I think the premiums have been growing rapidly. So I think the core business is our main focus and I think will continue over the next 5, 10...
Thank you for disclosing this number because that really gives us a very good picture of the growth in the core business.
So as we go by, we will disclose more and more Hopefully, from April next year, we'll be disclosing a lot, lot more than we disclose yet.
We are still learning.
We're still learning, you know.
We have our next question from the line of Dhaval from DSP.
So just 2 questions. First is on the sort of use of cash as you move towards profitability. I know you sort of responded that first you want to reach the target before thinking about utilization. But just if you could give some perspective of initial thoughts, that would be useful. So the background here is, on inorganic, we've always been very cautious from a valuation standpoint and sort of chose to build versus purchase buy. So just some perspective on use of cash would be useful.
And the second question is, I think this was Subbu's question relating to breakup between credit and noncredit revenue for same quarter last year. Yes, those are the 2 questions.
So first of all, I'll share something with you. I think somebody told me the markets react very quickly. So 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, but you guys react too quickly. You have already assumed we've made profit for next year, and you've started asking us that questions today.
So give us a little more breathing time. But genuinely, in the spirit of disclosure, I have asked Mandeep to already start thinking about strategies for what to do with that cash. And 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, but 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, but the revenue, we don't -- they were doing about INR 50 crores of revenue. In credit, it is about INR 101 crores now. So broadly, that gives you some answers.
And also, if you see the disbursals -- you always see the disbursal Y-o-Y growth. It usually is a very, very strong coalition with the revenue.
Yes.
So our 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 will grow.
But broadly, they have kind of -- the credit business has kind of done okay. They've almost doubled.
We have our next question from the line of Arpit Shah from Stallion Asset.
Just wanted to understand what are the kind of contribution margins you are targeting in the new business initiatives? Because right now if I see the contribution margins, 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 you'll be contribution margin positive, let's say, FY '24 end?
Yes, absolutely. I mean by FY '24 end, new businesses will be contribution positive.
And if I heard it correctly, you have said FY '24 PAT positive even after ESOP cost.
Yes, yes, after ESOP cost, yes. See, 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. So 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, Paisabazaar is headed that way, and Policybazaar is making more, the core business is making about whatever, approximately INR 200 crores of extra profit this year compared to last year. Call it, whatever, right, call it adjusted EBITDA, call it, whatever, margin.
So next year, that will happen again, right? And as that happens, that would take care of -- and you've got your interest income. So 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 at that stage where the interest income is taking care of new initiatives. Next year, the interest income has to take care of our ESOP cost, 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. And yes, we will cover it next year. They will be approximately the same, right, about INR 250 crores, INR 300 crores of interest income; about INR 300 crores of ESOPs; and the rest of the business will be adjusted EBITDA positive. So there's no difference between adjusted EBITDA and PAT for us in the real sense, as I see it, yes.
Got it. So just wanted to understand, you all are having close to INR 5000 crores, INR 5,500 crores cash. And if I see the stock price, it's around INR 400 level. So this is around INR 17,000 crores of market cap. So 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 the stock price is better, when your buyback will be at a lot higher level. You think that is a possibility?
All these interesting conversations are for post April '24. Let us deliver what we have to do. Let's not get ahead of ourselves. We are very confident of what we are building. 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 bulk under that pressure or whatever you want to call it. We actually started new initiatives, which if we hadn't done, we would have been profitable right now. But we actually started new initiatives and all those losses that we've taken this year have actually been because of -- because they were the right thing to do for the company. So we will continue to do what's right for the company. And at the same time, we are fairly confident of the core strength of our business. And 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. We feel good about it. But let's not get ahead of ourselves. Let's deliver it. Confidence needs to be replicated with execution.
Got it. Got it. And let's say, the ESOP cost, let's say, by FY '25, '26, would be reduced to minimal, let's say, INR 100 crores, INR 120 crores or so. So you think the PAT of INR 400 crores or INR 500 crores by then is a good number to look at?
'26, '27 is the only number I'm aiming for, and that's INR 1,000 crore PAT. And I'd love to do a double or quits with anybody on that, on my entire equity held in Policybazaar. Anybody who wants to have that conversation, I'm very happy to have that conversation.
Got it. So just wanted to understand if, let's say, your PAT goes to INR 1,000 crores, what would be the path of that? Let's say, you're seeing EBITDA positive by Q4 FY '23, PAT positive FY '24. So what kind of revenues you are targeting? Because if we see the current run rate, we are at around INR 2,000 crores plus run rate...
[indiscernible] really straightforward to predict all the analysts who have done all of that work very well. They are not very far off from what we believe. Somewhere around INR 6,000 crores should be the number. But it's okay. Let us get there. It's too far right now to get into exact details, right? And we don't usually -- I just want to lay out our ambition, right -- our ambition or our thought process.
See, if you look at our last 4 quarters' numbers, the delta has been INR 50 crores plus per quarter from the year before. And we're talking about 20 quarters from now. And obviously, there are different pieces. There are core business, the retail income, the experimentations becoming more efficient, the off-line thing, hybrid model [indiscernible] range. So a lot of these will start to come together, but the aim is that the delta over last year for every quarter continues the same way in some form. And that itself will answer your question.
Then there are Putin, and she and God. So I don't know what else will happen in the world. So it's okay. But as far as the controllables are concerned, I think we should be fine.
We have our next question from the line of Devjyot from Citigroup.
Just one question from my side. So you mentioned the number of employees in the off-line channel, so it's about 1,000. Could you share the similar numbers maybe for the POSP agents and the other advisers that you have.
I don't think we want to go into this level of detail. I mean, these are -- yes, we have more than 100,000 POSP agents now, yes. Yes, about 100,000 POS agents. But it's really not a relevant number because what's relevant is how many of them are doing how much. So let's not get into that level of granularity, let that be with the management. But yes, we have about 100,000 agents on the POSP.
We have our next question from the line of Rahul from LionRock Capital.
This is Rahul here. I just wanted to talk about the Bima Sugam initiative in a little bit more detail. The way I look at it, I know you guys mentioned that it could be the UPI moment. But on the flip side, 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 the premium while transacting through Bima Sugam and making it a marketplace. So I'm just curious from a market opportunity perspective, how this could impact the business?
I think, as I said, we see it -- there are 2 things, right? I think from a positive perspective, it would 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. But I don't think that as a conclusion, the payment ecosystem as a conclusion, as in, let's say, 3 players having 90% of the market, I don't think that is a conclusion that the regulator is going to prefer. You can think about what that would do to agency, what that would do to -- of course, there are 3, 4 players in the market who have the ability to take that route. And of course, we are one of them. There's no doubt about that. But I don't -- I think I'll leave it there. I think, between my lines, you do realize that this is a regulatory matter. I don't want to speak more than a certain amount on it. But I think that is not a conclusion that the industry, the regulator, is hoping for, with 3 players having 90% market share.
And 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. 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.
And the second thing that you have to remember is that we are in the risk business, right? So the channels which can bring better risk to the insurer, which always have a certain advantage in perspective. So I would just leave you with those 2 thoughts. One is customer experience, and secondly, the risk. The same person is not the same person, right, in insurance. Whereas in payments, it doesn't matter who I am 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 in UPI. Just a quick follow-up here is that when I think about Bima Sugam, 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, where even the claim processes have to be done. So I'm just curious like who would be the counterparty dealing with the customer? Would that be like, if you are part of Bima Sugam, would the customer be dealing with you? Or would, let's say, if HDFC Life or someone else is on the platform and insurance manufacturer is there, so who would the customer be dealing with, even if they're going to the platform, the Bima Sugam platform? That's one last clarification I want.
At this point, given everybody knows a little bit, let's take the analogy of any of the 2, right? Let's take the travel industry analogy where we are talking about a GDS, or let's take the UPI analogy. The customers deal with UPI via the large payment via Google, via FullPay, via Paytm, et cetera, right? Yes, if it absolutely becomes the UPI, still there are players who are doing the front-end interfacing. So let's see, I think it has a lot of evolution ahead of it. I think there's a lot of positive it can do to the industry. And remember, the eventual objective of the regulator is to increase insurance penetration. And if you keep that at the back of your mind and think about what will increase insurance penetration, I think it will give you a lot of answers.
We'll take our last question from the line of Rishi Jhunjhunwala from IIFL Institutional Equities.
Just one quick question. Our ESOP expense for FY '23, can you give some estimation -- I think 1H we have already done INR 340 crores. So could it surpass INR 5,500 crores or even higher?
So Rishi, basically, as we explained, the charges for these grants started from October last year. So the first 6 months of this year was the half of the first year charge, which is roughly 23% of total. The second half is going to be half of the 26%, so 13% of the total. So there may be some new grants, but those are relatively small numbers, which will happen. But you can just see, first half 23%, second half 13%, in that ratio. 23 versus 13.
And just to give you an example, in this quarter, we have had ESOP expenses of about INR 173 crores. In the next quarter, this might be just a shade above INR 100 crores.
So that comes to INR 550 crores.
That basically will give you the indication it has started to decline quite rapidly. If you look at '25, '26, the total ESOP expense for the year might be close to INR 100 crores. And in '26, '27, it might be about INR 50 crores, INR 60 crores.
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. Have a great day.
Thank you. Ladies and gentlemen, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.