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PB Fintech Ltd
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Ladies and gentlemen, good day and welcome to the PB Fintech Earnings Conference Call for Quarter 3 Financial Year 2022-23.We have with us, Mr. Yashish Dahiya, Chairman and CEO, PB Fintech; Mr. Alok Bansal, Executive Vice Chairman and Whole-Time Director, PB Fintech; Mr. Sarbvir Singh, President, Policybazaar; Mr. Naveen Kukreja, CEO, Paisabazaar; Mr. Mandeep Mehta, Group CFO; 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, Mr. Dahiya.
Thank you very much. Welcome, everybody.I, first of all, just wanted to make a very small correction. Sarbvir is not President of whatever. He's the Joint Group CEO, that happened a month ago. So that obviously needs to be published out. But before we begin our performance update, I would like to obviously welcome all of you and especially the ones who joined us for the first time and like to reiterate how our business is structured.Policybazaar and Paisabazaar, which jointly classified as existing businesses are India's largest marketplaces for insurance and credit products. These contributed to almost all of our revenues till the full-year 2021. In FY '22, we expanded into new areas and geographies, and collectively referred to all those activities as new initiatives. So, our revenue in the first 9 months of this year is 5.2x our revenue in the same period 4 years ago, which was 2019. The revenue grew at 91% year-on-year, and our existing business has now been profitable for 4 straight quarters.For the quarter, our revenue grew to INR610 crores, up 66% year-over-year. While the PAT losses have reduced to just under 1/3 of what they were, which were INR298 crores, they're down to about INR87 crores now. Our existing business adjusted EBITDA has increased by INR67 crores for the quarter year-on-year, and INR164 crores for the 9 months of the year as compared to the same period last year. The reason we explained this a bit is because we had a one-time sort of given a soft guidance of INR150 crores to INR200 crores incremental EBITDA happening almost automatically every year.I just wanted to clarify that, that's been happening pretty much every quarter in the last 3, 4 quarters.Now, what is the growth driven by? This is driven by 3 things. First is the growth in renewal income and the reason I mentioned that, first, is because that's the most secure part of the business, then growth in new business and growth, and then the higher efficiencies on new business. So just to explain last year for the same -- at the same quarter, our ARR on renewal revenue was INR210 crores. Now it's INR315 crores.I just want to spend 30 seconds on this. You can see that it has grown by INR105 crores in the year. So it took us the first 14 years of our existence to get to INR210 crores and then 1 year to increase it by INR105 crores. So, ideally, this should not be a flat increase. This should start to become an exponential increase as time progresses. But even at this flat increase because the operating expense -- margins are over 85% for this. This has given almost INR90 crores delta just because of this aspect and that should keep happening, right?We are now at an annual run rate of about INR12,000 crores of insurance premium and we continue to improve our efficiency, which is on the premium per inquiry, which has reached INR1,563 for the 9 months period which is the highest ever. I think the biggest heavy lift that's been happening in the company is on the servicing and the claim support. We have a CSAT of 88%, but this is -- while this is great, it is not really representative of the amount of customer appreciation. See, insurance usually tends to be a compliants category, but the number of appreciations we receive for the claim support is quite extraordinary.Our existing business, the insurance marketplace, Policybazaar and the credit marketplace, Paisabazaar, grew to INR425 crores for Q3. And of the total revenue, credit-linked revenue of this was INR107 crores. The credit business has continued to grow well, and we are very happy that it's broken even in December 2022. We are now at a run rate of INR12,700 crores of disbursals and 5.2 lakhs or about 0.5 million credit cards issued on an annualized basis. 33 million customers have accessed the credit score on our platform. 75% of the cards issued in Q3 were end-to-end digital, which really helps us in improving margins. Co-created products like Step UP Cards, Duet Cards are continued to gain traction.Talking about our new initiatives. We are 3.7x of last year on revenue, but our adjusted EBITDA loss is pretty much the same as it was last year. And if you -- those of you who followed us would know that in Q4 last year, we had peaked and we had reached losses of almost INR90 crores, actually more than INR90 crores on this. We are down to INR54 crores. I think this should keep declining.PB Partners, our agent aggregator platform continues to lead the market in scale and efficiency of operations. It has the highest proportion of non-motor business in the country out of all the competitors it competes with and is now present in 14,300 pin codes across India. The UAE business has grown 167% year-on-year. So it's grown to 2.67x. We have said -- I've already explained this that our EBITDA has grown at INR164 crores for the first 9 months of the year. Please notice that the PAT has grown or whatever, the PAT loss has reduced by more than INR200 crores, but that is not really reflective of the business reality. The business reality is this. This is the thing that's going to consistently keep changing, right? We stay confident of being adjusted positive, EBITDA positive for Q4 this year and deliver the first full year of PAT in '22 -- in '23-'24.Happy to take questions now.
[Operator Instructions] The first question is from the line of Shreya Shivani from CLSA.
Congratulations for a good set of number.
Ms. Shivani, sorry to interrupt you. The audio is slightly low. Please increase the volume of your line.
Is this better?
We can hear you loud and clear here.
Okay. Yes. So congratulations on a good set of numbers. I have 3 questions. First is on the -- first is the data keeping question. Can you give us the breakup of the insurance premium of INR3,028 crores into PoSP and existing business premium? And within the existing business, can you give a breakup of the new and the renewal? This is the first question.Second question is on the PoSP business specifically. The contribution margins have been quite good this quarter at -- like it's reduced quite a lot at only at minus 15%. So, where do you see the margins settling in the next couple of quarters?And my last question is more to do with the structural change in the industry. With the new tax laws coming in and non-par savings getting taxed above INR5 lakhs premium, can you give us a little detail about what is the share of your savings business, particularly on non-par business which was large ticket?
So since all of these related to Policybazaar, I will pass the mic to Sarbvir here.
Yes. In terms of the breakup of the -- I think the first question was on the breakup. Our PoSP business was about INR500 crores. Dubai was about INR80 crores, and our corporate business was about INR300 crores. So, I think that's the level of breakup that we normally share. So, that will allow you to kind of see. The growth was fairly strong across businesses this quarter.
Sure.
And the second question, sorry, was?
PoSPs at minus 15%. So, there has been some margin improvement. Where you see this in the next couple of quarters?
So we -- if you notice, we have been sequentially every quarter improving our margin profile. Two things are driving this. One is that a proportion of non-motor business, which is health and life business and commercial lines continues to grow. And now we are a significant market leader in that part of the business. On our motor business also, we are becoming increasingly more and more efficient. And I think you should see this sort of improvement into Q4 and as we go forward into next year. At some point, obviously, the rate of change will not remain the same, but the idea is very much to put the business on a very sustainable path.
The last was a structural change from the tax regime, which is not crystal clear yet, but what is our share of business coming from that?
Our share of the business? See, we are a company which caters to the middle class. Our share of the business from these policies is very small. They are like sub-1%. And for us, there is -- on the PoSP side, we do have some high-value policies, but again, it's not a very material thing when you look at the overall number. For us, this is not going to be big one way or the other. Neither is it going to be big from a share perspective, nor will we have an impact when this rule comes into play.
I think we did some check. There were 762 policies or something, which was more than INR5 lakh for us in the year or whatever period. So it's not a very significant number for us. We don't really cater to the wealth segment. We mostly cater to the middle class. And I don't think middle-class people pay INR5 lakhs premium.
Got it, sir. Sir, just one question got left. The PoSP agent count right now? Last quarter, it was at 1,000 -- 1 lakh agents, I guess?
It's a little more than that. It's grown from that number. But honestly, beyond a point, the agent count is not necessarily reflective of anything if you ask me. Yes, what we really want is number of agents who do repeat sustainable business with us. I think that is the number which is the most important number. And we can take this offline. Maybe Rasleen can help you if you have any other questions.
The next question is from the line of Subramanian Iyer from Morgan Stanley.
Congrats on a good set of numbers. A few more data keeping questions. So one is, if you can split your core revenues into credit and insurance. So, I think your core revenues is about INR425 crores. So if you can split into credit and insurance?
So that we already did. INR107 crores was the credit-linked revenue. The rest is all insurance.
Got it. Sorry. I probably missed it. The other question I have is on the adjusted EBITDA as well. So, your existing adjusted EBITDA is INR26 crores. So how does it split into insurance and credit?
So, credit is less than INR1 crores, both ways. So what I'm saying is, it's less than INR1 crores negative. It's about INR40 lakh, INR50 lakh negative. So basically -- and in December, it was positive. So yes, it kind of made a loss for the first 2 months and then in the last month it made profit. So it's almost all insurance. So INR26 crores is the insurance, whatever, EBITDA -- adjusted EBITDA.
Yes. And lastly, sir, you mentioned that the premium under the new initiatives is about INR880 crores, which translates into the existing business being about -- roughly about INR2,150 crores odd. Can you just split it into new and renewal that will help?
Yes, we don't do it, but it's almost equal. Maybe little more in renewal, whatever, but little more in new, but it's almost equal. It's been almost equal for quite some time and the growth rates are also similar. So, I'll give you some things, right, which you guys can -- which are important for you, rather than kind of worrying about exactly each number. See, we focus on health and life.So, I think that part is important to you, that on health and life, we have grown at about 30%. Very, very, close. Whether it's 29 points or 30 points something, it's about 30%. That was relevant in the industry scenario where things are not been -- so we've grown at more than double the rate of the industry. I think the rest of it is fairly immaterial, if you really think about it from many perspectives. And we will disclose more. We've told you. We will disclose more from kind of next year.
Sure. Got it. Yes. I mean the only purpose of asking that was because we need to connect. So, your renewal commission is about INR80 crores odd. So, we needed something to connect it to. Yes. So that was the purpose of asking that.And the other question is how is your offline business doing, the one that is connected to your online lead generation in terms of contribution to the main business?
I will pass that to Sarbvir.
Yes. So the offline business is now contributing in the relevant areas, which is life and health again. About 20% of our premium comes from the offline business. We now have presence in almost 60 cities. We have centers in 7 -- big centers in 7 cities. And I think last time also we spoke, we have about 1,000 people deployed on the offline side. And right now, we did a -- we basically invested in this over the last 3 quarters and now we are basically trying to or we are improving the productivity of this fourth. And so far, I think it's going really well and it's doing what we wanted it to do, which is to deliver incremental conversion over and above what we can convert from the call centers.
So just wanted to add there. Sorry, Sarbvir. We have 62 locations where we have a physical office or presence. But otherwise, we are present in 125 cities we cater to. There's lot of definitional issues here. What is the city, what is THE town, et cetera, et cetera. But suffice to say, 125 locations is where we do sales and in 114 cities, we are serving claims. I really think and I'm emphasizing this again.I covered it in my main speech also, the big heavy lift that's happened in the last one year has been in the claims support area. And some of those are quite telling. When we are receiving those appreciations from people, they are very, very telling. And they are helping the morale in the company as well and of course, eventually this will lead to very good word of mouth as well.
The next question is from the line of [ Sachin ] from Bank of America.
Congratulations on a good set of numbers. I have 3 questions. First question is on your costs. Clearly, employee expense and advertisement is lower. I presume employee expense is lower mainly on the back of ESOPs, or is there anything else which has led to that decline in employee expense?
I think it would be ESOPs. There is no material -- and that's more ESOP accounting, which we were telling you guys last year also that, look, our ESOP essentially go like first year 700, second year 350, 400, third year, they become 160, then they become 70, then they become 30. So, yes, that would be the biggest impact. Otherwise, there is no material change in number of employees or their compensations.
And then is it fair to assume that both employee expense as well as your advertisement will remain low or relatively low as a percentage of revenue going ahead?
I think we are doing a -- we've said this repeatedly, we are doing a certain amount of advertising and that is more like a platform approach that we do for certain amount of advertising every quarter. You don't need more than that. You just don't need it. So to some extent, we've always said that you can treat our -- because our advertising is just a way of communicating to the customer that we exist and to keep reminding them. See, in insurance, you need to keep reminding people that you are there and it's an important product, both. It's an important product and Policybazaar, an important place to be and similarly for the credit guys, right.So to a large extent that tends to become a fixed cost from here onwards. So the changes you'll see would be sometimes 5% down, sometimes 5%, 10% up, but it's not like you need to increase in line with revenue. And I think that's becoming very clear as we proceed because you can see, right, we are growing our core businesses at double the rate of the industry. It's not like our growth has slowed down. It's not like anything, but those costs are not increasing or in fact, might be actually declining by a few percentage points.
That's clear. Second question is on the Paisabazaar EBITDA margin being positive. Just wanted to understand any one-offs are there in this quarter and should we see a sustainable positive EBITDA margin at Paisabazaar going ahead?
Naveen, please?
Yes. No, no, this is very much sustainable. December is the first month where we hit the breakeven point. So, you should see that in the next quarter we'll have some positive and then it will continue to increase as a percentage and both absolute number also. So very much sustainable.
And Naveen, can you help us get a little bit more idea or drivers in terms of what drove that profitability and the comfort on sustainability?
Okay. So in terms of the drivers, I think Yashish has referred to that from an insurance perspective, the similar drivers are playing out. If you see in the last 12 months, 15 months since the COVID fear has subsided, the credit industry has started growing back at a pre-COVID rate, which was about 20% or so, give or take, for the overall credit industry. And what's happened, which is different from pre-COVID and that's helping a platform like us is that digitization has started to become real on the ground.So the percentage of one of the metric that we mentioned was 75% of the cards that were issued in the quarter was end-to-end digital. This number was almost 0 as we go 3 years, 4 years back. What happens is that as things become more and more digital, we see lesser drop-off as a customer doesn't needs to move from one platform to another platform or needs to go physical. That improves our conversion. And as we have increased our credit score customer base, that's allowed us to go work with the lenders to create better, more seamless pre-approved programs, which also converts and gets approved at a better rate.So overall, which -- you will be seeing that in the improvement in the margin. If you look at 2 years before or even 1 year before, the percentage margin has gone to a fairly healthy 40s kind of range. And as we grow our overall revenue at which is growing at about 87% or so, if you look at 9 months data and if the margins stays healthy at 40 plus percent and your fixed costs, which Yashish referred to are growing at a much lower ratio, the money flows down to the EBITDA, which is what we are seeing from a 9 months perspective.
See, I will like to give you this picture very clearly to every person because all of you need to appreciate the business. Our revenue, let's say 9 months -- so let me give you a quarter view and a 9 months view. If you look at a quarter view, our core business only, I'm not talking about the new initiatives. Let's leave that out. Because that will complicate the picture from a building-up perspective. Our revenue increased about INR108 crores in the quarter, right, year-on-year. But INR61 crores was the increase in contribution. Now, our contribution margins are not 55%. They are closer to 44% for the core business. So where that extra 15%, 16% comes from? That has come from the renewal expansion, right? So, one is the renewal expansion.Second is the growth in new business. Of this, roughly half has come from new business. Half has come from renewal, roughly. But what you see next is, of the INR61 crores, INR67 crores has flowed into EBITDA. So that means your fixed costs have reduced by about INR6 crores. Now that doesn't give you the full picture. Because if you look at year-on-year, you have got INR392 crores growth in revenue and INR248 crores growth in contribution. Again, you notice, it's just about 60%, same story.Our contribution is 44%. So where the extra 16% coming from? It's coming from the growth of renewals because renewals are 85% margin. So the renewals have grown obviously and that's showing up there. But then of the INR248 crores, INR164 crores have gone to your EBITDA. That means almost 2/3 of the contribution is flowing to your EBITDA. So, yes, there is a fixed cost increase, but the fixed cost increase is INR80 crores. And that's broadly what we've been saying all along, that look where this business has flexed, it has renewal growth which will keep improving the overall margins. And it has -- the fixed costs are generally fixed here. That's all.
We'll take the next question from the line of Sachin Dixit from JM Financial.
Congratulations on great set of results. I had some questions regarding the omnichannel play, right? So now we are getting leads online and we are able to convert offline as well, which has helped our premium per inquiry go up significantly over the year. Can you talk a bit about how are these -- basically, this improvement in conversion is resulting in some savings? And how does it compare to the cost of doing the offline business?
Okay. So let me just take a few minutes before I hand over to Sarbvir. And my answer will be more at a philosophical level, and Sarbvir can probably answer it at a more granular level. So, see, we are there wherever the customer wants us to be there. First of all, we advertise and we let the customer know that he needs to buy, he or she needs to buy insurance. They come to the website. Once they come to the website, most customers have said, this is not an entertainment site. So they've said, yes, we are interested in insurance. We want to buy insurance. But that does not mean we will buy insurance, right. And so then starts the process of converting them.Now some people will buy on the website. Some people will buy through the call center and some people will say, no, I actually want to meet physically. There are also other examples. I gave this example a few quarters ago on the call itself, while I was visiting Bangalore and I spoke to one of our top performers. He said the person was ready to spend, buy a policy for, let's say, X rupees on the call. But then when I went and met him, I sold him a policy of INR36 lakhs. Now that doesn't happen all the time. That is an exceptional example. So that also happens.Then people talk about, when you go and meet somebody, that person also says, I've got 3 more references. For my family, I also wanted to buy this and that. So, all those things are happening. Now please understand, we have run the call center operations for 15 years. We have run the physical operation for just about a year. So, obviously, we are early in this. Our people are early in this. But on productivity, it is already beating the call center model. And you have to take vintage into account before you kind of start to judge things.Sorry, Sarbvir.
No, I think Yashish covered all the points. I would just say that right now in Q3, I mean, if you look at the numbers, you can see that our contribution margin is going up despite the fact that we are spending on the offline expansion. So, that basically means that the improvement in ATS, improvement in multi-year policies is more than covering the cost of operations. And I completely agree with Yashish that right now, we are not the most efficient in FOS operations.I think we are very efficient on call center operations. We will become more efficient in FOS, and I think that will only make this picture better. So over the next 12 months, you will see that helping us. But right now also, we have absorbed. The total offline rollout have been absorbed in the core business, and you can see that the core business continues to do well. So, that should give you an indication that, that part is also becoming more and more powerful.
So, sir, what I basically wanted to understand was that there will be some savings in marketing cost because the conversion is going up, right? And there will be some incremental cost of doing the offline business. So is net-net, are these costs comparable? Is one significantly higher than the other currently? I understand that FOS is still nascent.
So I'll explain. See, our marketing cost is before the channel comes into play. That is to generate the inquiries on the website and all the inquiries are generated on the website or the app. We do not have people going and meeting anybody or saying, please buy insurance. We don't do all that, right? No cold calling. No cold knocking on doors, nothing. And that's where a lot of people get confused [ when compared ] with the agency model, and all those things, right. So the marketing cost does not get changed at all. But, yes, your premium expands because -- higher premium per inquiry because you are using for further channel, which can convert even better, right, or are at a higher premium per inquiry it can convert.Now on a cost basis, the operating cost is there and the operating costs does increase. But as a percentage of premium, the operating costs has not been increasing. It's actually either been flat or coming down. So that is what I said. The efficiency of the physical meetings is already higher than the efficiency of the call center, while we are -- as we say, you're [ mastans ] in our call center. We are novices in the physical world. So the improvement from here onwards will be much higher in the physical world. You won't see as much -- like you can't see a doubling of productivity in the call center, but I think in the physical world, you'll probably see a tripling of productivity. So don't take those as guidances, but that's largely what's going to [Technical Difficulty].
And, Sachin, see one important thing. We had mentioned in the past that according to our research, roughly 2/3 or little higher than 2/3 people who were buying term and health, they come to Policybazaar before [ they kept buying ]. But that doesn't mean that we have the 2/3 market share of those 2 categories. So, there's is lot of leakage which happens. Now when you want to stop that leakage or reduce that number, so today we believe about 25% of buyers who have come to us would have bought through us. We want to move this 25% towards 35%, 40%, 50% over next few years. And how do we do that?We have to work on the product. We have to work with the customer to make the buying process easy, which includes this omnichannel strategy that we have. We have to also build more trust around the claims and handholding of the customer post-purchase, and we are investing in all 3. And this is a continuous process. It's not something which is like a one-time go. Out of these 3, the build-up for the omnichannel is something which Sarbvir mentioned has happened to some extent. Now, it will be incremental from here onwards, but the first one here was trying to establish these offices, these 1,000 people. And now that you have got this in place, we want to work on efficiency from now onwards.
Efficiency, quality, all those factors.
Makes sense. Very helpful. I'll move on to the second question. So, my second question is with regards to -- so recently, today itself I saw a media article wherein PB is launching a wholesome insurance product, right. There is a combination of savings, term, as well as health. Can you talk about the process of creating such products like how are we working with the insurers, who is getting the approvals, how are these products been created?
So yes, this is a great question and I'm glad you asked it. We're really proud of the work that our team has done to develop this product. It's a product which looks at both the health needs -- health protection needs of a customer, as well as some life insurance and then a savings component as well. So, we had this thought that we wanted because, again, we hear a lot from our customers that they are concerned about what they are saving for, right?One of the main things that people are worried about is that in their old age, will they be able to take care of health emergency? So, we conceptualized this idea. Along with, in this case, we have gone with two partners, Tata AIA and Niva Bupa. The team worked with both the insurers to not only conceptualize the product as to how it would work, but also to tie up the buying experience.I think as Alok just mentioned, one is the product, which we conceptualized over here. The second is the buying experience. So that the person when they go through this -- and I would encourage you to buy this policy because what you'll find is that the entire underwriting process is seamless. Minute the savings product will be issued, you will get the health policy right away. Everything will come in one jacket for you. You can pay it together for it, any service issues that you have. There is a Relationship Manager. The Relationship Manager will handle both health claims or any questions that you have on the savings side.So it's a completely fully stepped up journey with two insurance partners, and it shows, I think, what Paisabazaar can do because at this point, as you know, this is the only way that you can have this product. And we have tied this whole thing together. And we are really positive and very hopeful that this product will do well. But more than this specific product, I think it's the thinking that matters, which is that we saw this problem that a customer's problem is not health insurance or savings, it's actually a mixture of the two. And we have conceptualized something for it.And I think this is not a one-off thing. We have done this for many products in the past also, and I feel this is now going to open up a whole new set of opportunities for us where we will combine. This time, we've done health and savings, whereas we are working on products in other health, plus term and things like that. And you will see some of those initiatives coming out.
If you think about at a conceptual level, most middle-class families when they are going through life at some point, they become -- an individual becomes a family and then they have children. And that is the point where they start to require things like term insurance and the health insurance requirement is also there. Now as the family keeps growing and the children get through college, et cetera, the term insurance remains very, very critical. But at some point one of the children starts earning, term insurance does not remain important and this is about 7 years, 8 years in the middle before you retire. And when the person retires, the only needs become the pension and the health. And now, why is this crystal clear to me?I grew up as an army officer's son and all of these requirements was taken care of for my father in the family. And when I came to the civil world, I said, okay, how do these people live because those are very critical, critical requirements, right? And I asked a lot of people and they all said, we would be happy to get 20, 30 years salary if these requirements were taken care of. That is the basic difference in India, if you really think about it from a government job to a private job, et cetera, et cetera, right? So, this has been a deep thing which has been going on for like at least more than a decade in terms of...Now, I'm not saying this particular product will be hugely successful or not successful because it's the first attempt and it's not in the perfect shape. But I think what Sarbvir said is very important that it's been brought together through multiple organizations, through us and various things, right? And I think we will keep working in this direction, but the approach is eventually to solve this problem for the middle-class, health, debt, pensions in a holistic manner. And I'm sure at some point it will get solved. It will take a lot of effort, but at some point it will get solved.
The next question is from the line of Nischint from Kotak Institutional Equities.
When I look at -- I'm looking at sequential trend in your insurance premium and your revenues. And I think you shared some data on the PoSP premium. I believe the rest of the growth comes in essentially on the core business, on new business premium and it's a fairly large sequential growth in premium in the digital -- in the core business. If I compare that with the revenue of the core business on a sequential basis, that's gone up only something like 3%, 4%. So, I think what that effectively means is that the calculated yields in the core business has come down. I'm just trying to understand this trend.
I'll clarify to you. I think looking at quarter-on-quarter growth and each percentage point genuinely does not make sense. Our invoicing, it tends to be a little, not as granular as you would imagine, it tends to be a bit lumpy. So INR10 crores moving from one quarter to the other happens on a fairly regular basis, not a big thing. I think you should look at this over a few quarters. So even if you look at just 2 quarters, the growth in revenue is also about 15%.So, you will come to the right answer. But just look at it over a little longer period than just one quarter and one can't be that accurate in that every quarter it has to grow at 7.5% and grow at 30% for the year. That is not a very feasible expectation. So 2% to 3% up, down, does keep happening. But as you correctly pointed out, it is not that the premium has not grown, and I have explained that the premium has actually -- so whichever way you look at it, year-on-year, the growth is 34% and 30% for the life and health, fresh business. So we've given you those clarifications. But, yes, the revenue can be a little here or there at times.
No. Fair point. So I think my...
Some incentive from somebody, which came in one thing, which did not come in the next quarter. So don't get too stuck up on 1 percentage points, 2 percentage points. Just look at it over a few quarters. That's all.
No, no. Fair point. So, my question essentially was that from a business composition point of view, was the second quarter and third quarter very different or it was pretty much the same and it's just the adjustments which are making the...
No, no. It's just pretty much the same. There has been no material change that anybody needs to be aware of, or even we are aware of.
Sure. And if I look at the....
[ You might not be aware of ] these actually happening. There is nothing.
Sure. And if I look at the non-core expenses, this number has actually come down both sequentially and on a year-on-year basis. It's a couple of crores here and there, but is there anything specific that we should read in this? I mean, are you cutting any fixed expenses? Because we would have normally expected this ratio to -- I mean, this absolute number to go up at a maybe much lower pace than your revenue, but to actually go up.
Nischint, you remember, at the start of the year, we had given some sort of, I won't say guidance, but some idea that our investment in all our new initiatives is going to be very near to our interest income. And that number we packed around somewhere between INR200 crores, INR250 crores at that time. And we had taken specific efforts. I mean last year was the first year when these initiatives were launched and we were investing a lot in building the team, learning the stuff around these initiatives. Over quarters once we got to the leadership, we have started focusing a lot more on the efficiency on each of these initiatives.And that's what you're seeing on quarter-on-quarter basis if you look at the JSM and then April quarter and then the July quarter and the October quarter, every time you will see that, okay, it's come down. And that is the focus that's very clearly laid out for ourselves that we want to make initiatives more and more efficient while not letting go of the leadership. And the core business continues to become more and more profitable. It's already at 6%. But if you look at last 3 quarters, it grew from 1% to 3% to 6%. Top line is growing. So multiple things happening, but on this specific one, we definitely want to become more and more efficient every quarter.
And we are also very clear. If you just look at a period over a couple of quarters rather than a single quarter because, again the same thing, right? You may have a particular advertising campaign, which might work on a particular day or the next day. Again, look at it over a 2-quarter period or something of that sort because that can make a big change, right? A INR10 crores advertising campaign running on 1st rather than 25th. Numbers will change basis that. So when you look at on a 9-month basis, you will see that the growth is coming and the profitability is coming from growth. It is not coming from cost reduction, which is not our intention either. Yes, costs can stay flat. What we're saying is fixed costs are fixed. If they were not fixed, there would be variable. They're not variable.
Sure. Got it. Those were my questions. Sorry, just one last question is, of the total outstanding ESOPs, what is the vesting schedule? I mean till when should the ESOPs be exercised and what proportion of -- yes.
Nischint, see, the bulk of the ESOPs that you see, they were given in October '21. So as you know, the accounting happens in a 12-month phase. So every year first 6 months, you see a very different level of charge of ESOP and next 6 months, you'll see a little different, which is apparent in this year's data also that quarter 1 and quarter 2 had a different number and quarter 3 had a little different number, which is much lower because the way accounting works, obviously, it is on a reducing manner.We do have some bit of ESOPs remaining from the original approved share by the shareholders and slowly, slowly, they are being utilized for old staff and for also new hires, but that is not a very big number to make an immediate change. The bulk of the ESOP charge actually was taken on October 21st month itself. And that's why, I mean, every year third quarter, there'll be a significant drop compared to quarter 1, quarter 2.
And we've given some guidance on this that, look, longer term, we expect the ESOP charges -- when I say longer term, I mean beyond the 5 years, beyond the first 5 years, we expect ESOP charges to be roughly about INR100 crores a year. That's my guess, right? And even now, if you take the founders out of it, it will be probably something in that range. It maybe INR150 crores because, yes, there was an IPO and you would have a little additional -- all of it has not been rewarded actually. So, I guess that is really where one should look at it. The remaining is the accounting part, which, of course, feel free to take that into consideration for now because in another one year, it will be....
No, this number INR110 crores that you see right now, INR110 odd crores will become maybe INR65 crores, INR70 crores next year in the same quarter and then it will reduce to maybe INR30 crores. So look, there is nothing that we are doing. It's just the way accounting works.
Sure. Got it. Actually, my question was what proportion of these ESOPs are linked to a particular market price or market cap and especially those which are given to senior management and won't be exercised till you reach the milestone market cap or price?
That would be roughly 55% to 60% of the approved -- as per the October 21 scheme. So, you can assume about, in terms of number of shares, INR1.15 crores to INR1.2 crores, somewhere in that range.
Got it. That clarifies.
But you will separately take this number in case that helps.
Perfect. This helps.
The next question is from the line of Dipanjan Ghosh from Citi.
Congratulations on a good set of numbers. A few questions from my side. First, on your PoSP business, you have mentioned the 12% is non-motor and I would assume that you would have some renewal commissions that you get from the manufacturer in this portion of the business. Just wanted to understand the pass through that you do to the partner on the renewal side, is that renegotiated every year? Or does that get pre-decided at the start?Second on Paisa, your renewal revenue seems to have gained some traction. So just wanted to get some understanding of how the products are structured and what are the contours out there? And lastly, 2 data keeping questions. If you can give your current pass-through rate on the PoSP and the PoSP premium number? I guess I missed it at the start of the call.
So first, I will take the PoSP part and then give it to Naveen for paisa. On the PoSP part, we said that PoSP has done about INR500 crores of premium in this quarter. We, obviously, do not discuss the pass-through rate of PoSP publicly. In terms of the non-motor business, it's significantly more than 12%. So, I'm not sure where the 12% number came. It's much more than that, more than double of that number actually. And I think your question was -- sorry, what was the other question?
How much do you -- I don't think you're going to...
On the renewal, yes.
What is your renewal structure?
So on the renewal, I just want to explain one thing to you that we protect the renewal. So that means if an agent has given us the business, whether the person renews directly from us or comes back through the agents, we protect the renewal fees. But what we pay them, et cetera, et cetera, those are all commercial considerations and I'm sure you would appreciate best not discussed publicly.
Naveen, you also be careful how much you want to discuss publicly. Other people also learning from you.
[ Nischint ] [sic] [ Dipanjan ], on the trail piece, as you can see from the presentation, Page 47, this is a -- co-created and co-branded products is a strategy that we undertook as lending started recovering from COVID. And because we realized that as a distributor if we had a back book revenue like a lender, that will help us greatly in times of stress or credit turning times. And what happens is in a co-branded or co-created product, our revenue is -- the upfront is, of course, lower and the trail is linked to -- in a credit card like product, it's linked to spend.So, we get a percentage of usage on a monthly basis as a trail. And as you've noted that over the last 12 months to 15 months for credit cards, but last 5 months in personal loans, the percentage of business on trail has increased. And that's reflecting in the increase in the trail revenue, which also links back to the question on profitability being sustained as we built the back book or the trail revenue, that flows at about 90% margin and hence, it adds to the overall profitability.
Sure. Sarbvir, so on the PoSP part, I think my question was not on the numbers. But on your -- and I understand you're renewal commissions are protected irrespective of where the customer renews from. But wanted to get some sense on the pass-through that you do to the PoSP agent in renewals. Is that renegotiated every year?
I would not like to go there. And, honestly, if I were to be very honest with you, I think the answer is not super material to our overall results. It's really more a thing to give the agent confidence that we will never ever do anything which affects their interest. That's the main thing. The rest of the stuff is not super material to the whole business.
Sure.
I just wanted to add one thing on Naveen's answer. I think what you have to note is, Naveen, was in this year, he had committed to breaking even on Paisabazaar and he achieved that, but he achieved that while building the renewal revenue. And what you must appreciate is, as he builds renewal revenue because it's multi-year revenue, that actually reduces his revenue for the current year because this is actually the year when he started to build it out.So from a P&L perspective, it actually adversely impacts him. So if we had not done this, he probably would have had maybe a few crores of extra revenue with the same business and that would have been -- so I'm just explaining the nature of the management that they do think long term, not just that this quarter some profit has to be done. I think that is very important. That is, I think, the biggest thing that you would actually invest in.
The next question is from the line of Srinath V. from Bellwether Capital.
Just wanted to understand the implication of the new tax structure in the income tax. There is a prevailing understanding that a large part of tax payers will move into the new structure. What would be the impact overall on our business when ATC and both life and health lose exemption on investment broadly for us, as well as for the industry just from a premium standpoint? But more to understand, how useful was the exemptions on investment in conversion? Would lead times or conversion times get impacted as these ESOPs have been withdrawn?
Yes. It's a very interesting question. And as you know, this is really a behavioral economics question more than something that we can forecast. But what I'll just share with you are some of the things that we have found out. We have found that people buying for tax reasons has become -- so earlier if you asked 3 years ago or 4 years ago why are you buying health or -- especially health insurance, people -- tax would show up. Today, tax doesn't show up in the top 3, 4 answers. It shows up in the fifth or sixth answer.In savings, yes, it will show up in the third or fourth. So, I think it's really hard to say today exactly what will happen. My personal view is that, yes, there will be some impact, definitely, on the saving side. It may not be very material. I think on the health insurance side, perhaps because of COVID, I think the -- why you buy health insurance has become very deeply ingrained and the tax while welcome, I think it's not a huge factor on the health side.
Health and term. I think health and term will be far less impacted by the -- so protection would be far less impacted than the savings side is our guess, that we have to see.
We have to see here.
Would it be a fair assumption to make that we would be better off compared to the agency channel because of the pull factor?
One, I want to comment on this and I learned something recently. And I should actually mentioned the person whom I learnt it from. So, I was talking to Mr. Tapan Singhel another day who is the CEO of Bajaj General. And I said, sir, you don't get into all this. You are always very encouraging to everybody, and that was mainly a genuine praise. And he said, what we have noticed is when the industry grows, we also grow.So, we also are growing at 2x of the industry here. So if the industry grows, we are all very symbiotic. You'll be very surprised. When agency grows, we also grow. When we grow, agency also grows. Everybody grows together. And if we all don't grow, then we've all got [ debt written ] on our basis. So, I wouldn't worry too much about channel one growing or channel two growing. They're all going to grow together. And to me that was a great lesson. It is not either, or. The customer will buy from multiple places and we all help each other.
The next question is from the line of Arpit Shah from Stallion Asset.
Hello?
Mr. Shah, please proceed with your question.
Yes, I just wanted to understand the contribution margins in the existing business because in the last 3 quarters if you see, the contribution margins has stayed around 45%, despite additions of, let's say, the renewal revenues and the productivity that you've been gaining from the offline business, which is probably higher for the offline business as compared to the call center business. So just wanted to understand, is the 45% contribution margins, that is something peak-ish for us, or you think there are room, there is levers to grow this margin going ahead?
No, no. They will keep growing. I think, again, you are focusing on very few quarters and I think you will start to see something very interesting as we move forward in the next few quarters. There is a lot of mix issues here at Paisabazaar growth, Paisabazaar margins, various things that play into it. There will be some product changes. Savings grew a little faster for us in the year. Savings tends to be a little lower margin than some of our protection products. So, I wouldn't read too much into it. I think I would focus on the year-on-year trend, and I would stay with that. We haven't seen any -- you also please appreciate, this is the year when we built up all the capacity, right? So, I think you should start to see the advantage of that here onwards.
Got it. I just wanted to understand the seasonality of the business. what is typically the quarter 4 percentage of total yearly revenues?
Yes. Usually, the insurance, we are a little less seasonal than the rest of the industry. So, that's just the reality because the customers somehow is a little more protection-oriented than tax-oriented. But yes, there is seasonality. December usually tends to be a good month. So December and January, February, March tend to be four very good months. March tends to be a little stronger than the other months. Around Diwali, usually tends to be a lean period simply because people are spending on other things.This is a discretionary spend at the end of it. So if you're buying patakas, you don't think about buying insurance at the same time. I think lending is much more non-seasonal from that perspective. And there is a little bit connected to motor vehicles and all which for us is a bit Diwali-oriented. Again, December-oriented, people like to -- and again, January-oriented, people like to buy the new models of cars, et cetera.I won't read, but yes for us, Q4 tends to be the biggest quarter, which is why I think next quarter will be -- you'll like our presentation next quarter a lot more than you'd like the last few presentations. So, we will all get lot of well done from you guys next quarter. But I think -- yes, and after that in Q1, we'll be probably 5% below that quarter, which is what happens every year. And then by Q2, Q3, you catch up with Q4, then you hit the ball out of the court in Q4.
Got it. Can you explain how would we reach the breakeven in the Q4 quarter? Typically, let's say, I think we'll be adding around INR700 crores of revenue in quarter 4 and around 45% contribution margin?
What is our EBITDA loss this quarter? It is about INR22 crores -- INR28 crores. So, our new initiative is going to make less loss. And how do I tell you? I don't even know what I'm allowed to say. But in January, our core business has made enough revenue -- enough profit to cover the loss of the entire quarter of the new initiatives. So, we are fairly, fairly happy about the situation we're in. I think my CFO is telling me I can't speak more, So don't worry.
Got it. Sir, last question. Can you, let's say, guide for FY '24? Would that be....
We had one more thing to share with you. We had a plan for the core business profit. It seems like we'll get 1.5x of that for the quarter. Now, I'm not even telling you what our plan was. I'm not telling you anything. But I'll tell you what the internal story is and why we are sitting very confidently. So it's not even a question. Next quarter we'll be fine.
Got it. Can you explain the quality of recurring revenues in the credit business? How did you get to recurring revenues because couple of quarters back, you had never spoken about this recurring revenues in the credit business?
So, of course, the business on this recurring part was only started a year or a year and a half, maybe about a year ago and the thinking was very clear. You would sacrifice some upfront revenue to create some -- today, if a person takes a credit card and does not use it, we would still get paid then. And if a person takes a credit card and uses it quite a bit, or the same thing on a loan, if a person takes the loan and kind of pays back very quickly or takes 4 years to pay back, there are different implications for the bank, for the NBFC, but there was no implication for us. So we, in a way, got some skin in the game on the usage part.And the good thing, I would say, the safe thing from an investor's perspective or from whatever perspective whoever is an investor here is that, actually, the upfront revenue has reduced. So in the first year, you're seeing the hit of it and that's what I explained that with that hit in a year when Naveen was to breakeven also, I think it's a very commendable thing. He did the right think for the organization because he could have easily not done this and shown a higher revenue. And the benefit of this will come in the next year because these renewal revenues will obviously become large by then. And you can see every month, quarter-on-quarter, this number is growing very fast.
Got it.
Sorry, what is that?
No, no. You can see that on Chart 47 what Yashish was mentioning that we are showing the percentage of disbursals in card issues on how that's growing, percentage on trail revenue. Did that answer your question?
Yes. Got it. Just one last question. In the last con call, you had guided around INR4,000 crores PAT by FY '27. Given the numbers that we have seen in this quarter, that number looks pretty much easily achievable for FY '27. Would you like to revise our guidance, so let's say [indiscernible]?
We only say things, which are easily achievable. Please understand when I say something, my reputation is on the line on that. And I'm not worried about where the share prices, et cetera. It's Yashish Dahiya's reputation on the line, more than even Policybazaar's reputation. So if I'm making a -- however, I will not say it unless I'm like dead sure it's going to happen. Unless, okay, of course, if we get nuked or something, that's a different issue altogether.
Okay. Given your peer who has just done a buyback, are we looking at a buyback?
We don't talk about anybody. So please don't get us into those thinkings.
Because you are already seeing having a roadmap of INR1,000 crores profitability and even cash.
As we said, there is no specific answer on that yet and we've not even considered at any level.
Ladies and gentlemen, we'll take the last question from the line of Prateek Poddar from Nippon India Mutual Fund.
Yes. I just wanted to check with you, if you could give a breakup of your premium. I mean the existing insurance business premium which you called out that the split was 50-50 between new and renewal into protection, health, savings and general insurance?
We don't give those yet. We've told you guys, we will probably start doing it from next year, but this is so far.
Okay.
But if you have any specific questions, Rasleen is the right person.
Surely. Sure.
Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Yashish Dahiya for closing comments.
Thank you very much, everybody, for attending. I know it was a bit late for some people on a Friday evening or Friday morning whatever your local time is. Thank you very much for attending. And yes, we'll speak to you again after 3 months, 4 months, and hopefully have a much more stronger update. Thank you.
Thank you. Ladies and gentlemen, on behalf of PB Fintech, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.