Bernstein cuts PB Fintech share price target by 53%. More pressure after Rs 37,000 m-cap rout?

Shares of PB Fintech could remain under selling pressure on Wednesday after international brokerage Bernstein slashed its target price by 53% to Rs 1,085 from Rs 2,310. The stock opened 1% lower on the BSE. Bernstein's new target price implies no upside from current market levels, while retaining its Outperform rating on the stock.

The brokerage said lower general insurance take-rates may not be sufficient to cover current costs. It also expects the POSP business to scale down as the model becomes unviable. Bernstein cut its FY30 net income estimate to Rs 2,000 crore from Rs 3,200 crore, while reducing its FY28 EPS estimate to Rs 24.44 from Rs 35.49. Its forecasts assume that the proposed commission caps are not rolled back.

The brokerage expects sharp cost controls in the core business from FY28 and values the stock at around 25 times its FY30 EPS. It sees the next 18 months as a critical period, with a wide range of possible outcomes.

Why is PB Fintech stock falling?

The selloff comes after the Insurance Regulatory and Development Authority of India (IRDAI) proposed a ban on ‘dark patterns’ on insurance websites, including practices that require customers to share personal details before accessing product features and pricing information.

The proposed regulations have led to a 42% plunge in PB Fintech shares in just four trading sessions, wiping out Rs 37,000 crore in market value over the same period.

The proposed IRDAI reforms could weigh on insurance stocks by pressuring the economics of distribution. Analysts say a 20% reduction in employee and advertising costs could limit the impact on PB Fintech's earnings to around 30%, although its valuation would still remain high at around 57 times earnings.

IRDAI has proposed a set of structural reforms aimed at lowering insurance costs, expanding coverage among underserved sections and putting the sector on a sustainable growth path. The draft paper focuses on several key areas, including rationalising Expenses of Management (EoM), reintroducing segmental commission limits and prohibiting "dark patterns".

Under the proposed framework, insurers would have to disclose product and pricing information without requiring customers to share personal details. The paper also proposes disclosing commission rates on policy documents and streamlining motor insurance.

Buy, sell or hold PB Fintech shares?

Last week, Jefferies also cut its target price for PB Fintech to Rs 1,540 from Rs 2,050, implying 34% upside from the current level, while retaining its Buy rating. The brokerage said PB Fintech indicated that non-life NPV could fall to 33-40% of the original NPV if IRDAI's proposed commission cuts in health and motor insurance are implemented. Life insurance NPV, however, is expected to remain broadly similar to current levels, supported by higher renewal commissions in term insurance.

Jefferies estimates that a 10% cut in new business commission rates could translate into a 10-12% decline in earnings. It said the proposed regulations could have a material adverse impact on near-term earnings if implemented, although the consultation paper could still change after feedback.

Jefferies has kept its earnings estimates unchanged but cut Policybazaar's valuation multiple by 30% to 18 times FY30E EBITDA due to uncertainty around take rates. The company could slow hiring and reduce marketing in the near term.

Morgan Stanley says PB Fintech's health business NPV could decline 60-70% under the proposed framework, while life insurance NPV is expected to remain broadly stable. The brokerage said the company is evaluating manufacturing, reinsurance broking and new products, and is seeking MGA regulation that could reward quality distributors. It flagged a risk to the top line of PB Partners' POSP business, while the company plans to reduce losses at Paisabazaar and in its UAE operations.

Disclaimer: This article has been written by Veer Sharma, who is not a SEBI-registered Research Analyst or an Investment Adviser. Veer Sharma and his/her ‘relative(s)’ (as defined under Section 2(77) of the Companies Act, 2013) do not hold any financial interest in the companies mentioned in this article as of the date of publication. The views/recommendations mentioned in this article, wherever applicable, are those of the respective SEBI-registered Research Analyst/brokerage and have been reproduced/reported with due attribution. They should not be construed as the views or recommendations of The Economic Times Digital or the journalist. Readers are advised to consider the original research report and make their investment decisions based on their own assessment. Brokerage disclaimers here.