The Nasdaq meltdown had a rub-off effect on Indian fintech companies and new age companies. PB Fintech stocks are down 50% year to date. Having said that, there is a new trend of these companies going from red to green. Talk to us about that?
For us, nothing has changed. We always said we would be EBITDA positive pretty soon and it is very difficult for us to predict one quarter or the other. But ever since we went public, we became a little more sure about the exact quarter in which we thought it would happen. We went ahead and told the investors in our last earning call. For us, it is just explaining once we become a little more sure about it. But the core business has always been about contribution positive.
It had a contribution of about 35%-40% all along and so as the core business grows, it keeps putting in contribution and our fixed costs do not grow as fast as the core business. So, over time, the EBITDA starts moving. Last year, we did about Rs 1,400 crore of revenue. This year, we would do about Rs 2,200 crore of revenue so that growth is of about Rs 800 crore.
If you do that with the contribution margin of 30% at some level, then you do add about Rs 240 crore of additional contribution. Our overall contribution because of the blend etc. is slightly lower than that but one can add that much contribution while fixed costs do not go up by so much.
Our fixed costs go up by only about Rs 30-40 crore. You add towards the profit pool and that was what we were commenting on. It was not a comment meant for financial analysts. It was more a comment for the media or the retail shareholders that look you know we do believe this is the way to think about profitability and this is the way to think about the company getting there.
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Talking about profitability, you recently said you will see no slowdown for three to four years, you will hit EBITDA breakeven and be in the green in around Q4 this year. What do you mean that all of this is more for retail investors and not so much the financial community?
Most of the financial analysts build their own models which are already quite close to what we were saying we would do as a business. So there was not much difference. But when you think about the retail or the media side, they almost always look at the static picture, a little more than the dynamic picture. In most interest businesses, once they break even, growth and profits happen quite rapidly and that has happened the world over and the reason that happens is because they have high gross margins.
Most of these businesses operate at 40-50% gross margins and that is a difference between the internet businesses and the non-internet businesses. The POSB business built the amount of revenue that the core business took 10 years to build within six months but even 30 years from now, it will not have the profitability or the margins that my core business can have because its gross margins are not so high; they are very low in fact. Its contribution margin will be a few percentage points at best whereas in the core policybazaar business the contribution margin in the last quarter was 45%.
What that means is when you grow revenue by Rs 100, Rs 45 is pretty much close to the bottom line and that aspect is the reason internet businesses typically get valued slightly differently by financial analysts rather than what was your this quarter’s profitability and that is why I have said from the very beginning that sometimes by pushing profitability forward or backwards one could be hurting the business because eventually what you want is growth because growth and high margins will deliver profitability.
Most of the financial analysts using their models, in four-five years see Rs 1,000-crore profit coming through and so it does not matter whether the profits happen in one quarter or the next, what matters is that it will happen four-five years later. That is the point we were trying to make to the retail investors.
You trimmed your stake by about 0.82% and we saw the stock coming under so much pressure. Why did you trim the stake even though you have given a commitment you will not do so for at least one more year?
I just want to clarify. All of us have built a company over 14-15 years. 100% of everything you own is in that company. Outside of the company, sometimes you don’t even own a car. That is not a situation which anybody should be in and specifically me and my family were not prepared to be in that situation.
I sold about 15-20% of my stake for that reason and now there is nothing else to sell. So, 80% of whatever I own in the world is still in the company and I have enough stake in the company and no interest in any short-term price or anything of that sort. For me, it is not a matter of what price you sell at. Is it profitable? Can the price be higher or lower next year? That is not what we think about. We think about family security and there is tax to be paid on exercise of stocks.
By the way, the facts are incorrect because my stake has not actually gone down. It has gone up because I have about 1.1 core shares and I have sold about 70 lakh. My shares have gone up by about 40 lakh shares and that has to be understood very well. When that happens, one also pays taxes and has a financial security element. Keeping both of those in mind, it was the absolute rational thing to do. Now how the markets react is not up to me to decide. Whether they understand what I am doing, whether they do not understand, is their choice.
You are going to finish one year of listing come November 15. Do you understand the stock markets better? The stock market wants to know whether you are listening to it, taking the feedback and if there will be more disclosures?
I do not understand the stock markets at all.
I want to make two explanations very clear; why I am here in the first place, I am not here because of Policybazaar and I am not here because I am listening more to the stock market or anything of that sort. I am here because somebody that I respect a lot, a well-wisher told me that the industry is missing your voice. I am being genuine. He said this two, three days ago and I respect him a lot. I immediately called up my PR. He said you should take the risk and talk to the media. You should not worry about what people think; you have done the maximum for this industry in terms of building health insurance and life insurance in the country and making it popular and not having your voice as part of the ecosystem is a disservice to the industry.
That is the reason I am back and not because I want to communicate something about Policybazaar share price or anything. Now coming to the question about whether I understand the stock market better? The answer is no and I do not even want to, to be brutally honest, I have never invested in a single stock in my life and I do not understand how share prices move up or down.
We definitely do not want to manage share price, we have not shown any indication in the last one year that we do anything to manage share price, we do not have anything of that sort. We communicate with the stock exchange and that is it.
We are happy to speak to the retail investors and try and explain to them our story.If they wish to understand, it is great, if they do not understand it is okay, it is fine. Over time, the company will deliver something which will create indisputable value, indisputable value and one does not have to argue about whether we will grow, whether there will be profits. It is there for everybody to see and I am very confident that will happen. And when that happens, value will flow. That is the mind state we are in.
The company never has to raise more capital, we do not have to sell any stake. Genuinely if the share price moves up or down, that is not something that we over think or worry about quite honestly.
What we have also started seen in recent times and like you are pointing out you are an important stakeholder when it comes to insurance, you are kind of leading the digital story on that front as well for penetration and all of that. What are the other big triggers?
The reason the customers do not buy enough insurance today is because they are not confident of the claims experience. They are not confident of the service experience, the on boarding processes, the claims experience. While they have been improving every year, they are still painful for the consumer.
At some level, we as an industry owe it to the consumer to make those available to the consumer to have a claims layer and a service layer. We must make that available to every insurance touch point, every distributor.
All the data integration that exists like VAHAN data, IIB data, account aggregator data that does not need to be provided to individual players but the layer can have it.
Industry should build a layer which is fraud detection data, claims management, service management layer and make that available to everybody, every agent, every bank, every distributor, every insurance company. That for me will be the UPI moment in the insurance industry from a service point perspective. A lot more people will gain confidence in the product and purchase it.
The second thing is 97% of the sales are done by distributors. The distributors in the industry are usually seen as bad people but if they are contributing 97% of the industry, whether they are agents, banks, insurance companies whatever, brokers, web aggregators, X, Y, Z whatever, they contribute 97% of the premium of this country. We have to
How do you empower them? You empower them with technology. You empower them with flexibility. You empower them with delegated authority, All those things must happen if we want to see very rapid growth. If we as an industry are able to do these two things – develop a beautiful service data layer and free up our distribution to go ahead and have authority to provide the customer great service – that can change the industry dramatically.