PB Fintech shares suffer Rs 37,000 crore shock in 4 days but Jefferies, Bernstein see up to 100% upside

PB Fintech shares crashed another 6% to a day’s low of Rs 1,082 on the BSE on Tuesday, taking their four-session fall to 42% and wiping out Rs 37,000 crore in market value.

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 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 earnings impact to around 30%, although the valuation would remain high at around 57x earnings.

Should you buy, sell or hold PB Fintech shares?

Jefferies has 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 IRDA'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.

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

Wall Street major Bernstein reiterated its Outperform rating on the stock and a target price of Rs 2,310, indicating a potential 100% upside from the previous close. Bernstein expects core-business direct costs to be reduced meaningfully in FY28E as the focus on growth moderates, before normalising from FY29E as growth-related spending resumes. It has also factored in a phased rationalisation of indirect costs across FY28E and FY29E.

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Morgan Stanley says that 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.

What did IRDAI say?

The regulator proposed replacing the existing complex and fragmented distribution structure with three broad categories of entities: Insurance Distribution Entities (IDEs), Insurance Distribution Persons (IDPs) and Market Infrastructure Institutions (MIIs).

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

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.