Creating a `value-perception’ and selling that `dream’ at a huge profit is the new paradigm invented by start-ups floated by professional-founders! When will Sebi wake up from its slumber to stop this `trading of losses’ by the scheming fatherless-motherless start-ups?
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PB FINTECH OFFER AT A GLANCE |
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| Offer Type | Book Built |
| Platform | Main Frame |
| Offer Size | Rs 5710 Cr |
| Fresh Issue | Rs 3750 Cr (3,82,65,306 equity shares) |
| Offer for Sale | 1,99,97,092 equity shares (Rs 1960 Cr) |
| Face Value | Rs 2 |
| Price Band | Rs 940 – 980 |
| Mkt/Bid Lot | 15 Nos. |
| Implied M-Cap | Rs 44050.98 Cr |
| Implied Equity Cap | Rs 89.90 Cr |
| Free Float | 100% |
| Lead Manager | Kotak Mahindra, Morgan Stanley, Citigroup Global, ICICI Sec, HDFC Bank, IIFL Sec and Jefferies India |
| Registrar | Link Intime |
| Listing | BSE, NSE |
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INDICATIVE ISSUE SCHEDULE |
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| Opening :01-Nov-2021 | Closing :03-Nov-2021 |
| Allotment :10-Nov–2021 | Refunding :11-Nov-2021 |
| Demat Credit :12-Nov-2021 | Trading :15-Nov-2021 |
The Offer
Owner of the popular websites Policybazaar and Paisabazaar, PB Fintech Ltd (PBFL) is entering the capital market with an IPO of Rs 5710 Cr (582.65 lakh shares at the upper price band). The offer comprises of a fresh issue of Rs 3750 Cr and an offer for sale of Rs 1960 Cr. The offer is being made through the book-building route with a price band of Rs 940-980 for Rs 2 paid-up share.
Applicants for the IPO should bid for a minimum lot of 15 shares and multiples thereof. The shares are proposed to be listed on the main frame of BSE & NSE on November 15, 2021. Kotak Mahindra Capital, Morgan Stanley India, Citigroup Global Markets, ICICI Securities, HDFC Bank, IIFL Securities and Jefferies India are acting as the lead managers to the offer. Link Intime is the registrar to the issue. The bidding opens on Monday, November 1 and closes on Wednesday November 3, 2021.
The company proposes to utilize the net proceeds from the fresh issue towards enhancing visibility and awareness of the company’s brands (Rs 1,500 Cr), new opportunities to expand growth initiatives and increase the consumer base including offline presence (Rs 375 Cr), funding strategic investments and acquisitions (Rs 600 Cr) and expanding the company’s presence outside India (Rs 375 Cr).
Lineage
The Gurgaon-based PBFL is a start-up founded by Yashish Dahiya (49) and Alok Bansal (45) in the year 2008. The company reportedly received an investment of US$ 4 million from Info Edge same year. The company claims to have commenced health insurance related activities in 2010 and registered one of its subsidiaries as an insurance web aggregator with the IRDAI in the year 2012. Three years later, it registered Paisabazaar as an investment adviser with SEBI. The company built an in-house actuarial analytics team in respect of retail customer sales in the year 2018 and reportedly attained the US$1 billion valuation mark!
Though the two `founders’ are still associated with PBFL, the company claims to have no identifiable promoter. In fact, listed entity Info Edge is presented in the offer document as a group company. FBFL’s equity capital, which was just around Rs 4 lakh in March 2021, has now bulged to more than Rs 82 Cr due to massive conversion of preference shares and a whopping 499:1 bonus issue in June 2021. Twenty large shareholders control more than 88% of the present equity. Of this, the largest chunk of 14.56% is held by Info Edge’s subsidiary Makesense Technologies Ltd, followed by SVF Python II (Cayman) 9.45%, Tencent Cloud Europe 9.16% and others.
Notwithstanding the mega funding (about Rs 3,000 Cr) by private equities, venture capital funds and body corporates, FBFL failed to earn profits even after 13 years of existence. The company’s consolidated losses have now mounted to nearly Rs 1,200 Cr which is more than the company’s revenue. Though the company’s top line is close to Rs 1,000 Cr, employee costs and advertising/promotion expenses eat away more than 95% of the revenue! Before finding a bottom line the company is making a fresh public issue of Rs 7.65 Cr equity at a steep premium of Rs 3,742 Cr.
Key Management
The day-to-day management of PBFL is looked after by the so called founders and their nominee. Incidentally, the founder-chairman Yashish Dahiya, who is also the Executive Director and CEO of the company, is residing in London. Co-founder Alok Bansal is designated as a Whole-time Director and CFO of the company. The founders’ nominee Sarbvir Singh is the President of Policybazaar and Non-executive Director of PBFL. The two largest shareholders Makesense and SVF have one nominee director each on the board of PBFL.
Stakeholders
Post IPO, Info Edge’s subsidiary will continue to hold the largest chunk of 13.94%. Investor selling shareholder SVF’s holding will get reduced from 9.45% to 4.6% and its residual cost of holding will be extremely negative. Founder Dahiya’s holding will come down from 4.27% to 4.01% and his residual cost of holding would be only Rs 75.56 a share. Co-founder Bansal’s stake will be reduced from 1.45% to 1.36% and his average cost would be only Rs 68.25 per share.
Business Model
FBFL claims to have built India’s largest online platform for insurance and lending products, leveraging the power of technology, data and innovation. The company reportedly provides convenient access to insurance, credit and other financial products and aim to create awareness amongst Indian households about the financial impact of death, disease and damage. Through its consumer-centric approach, the company seeks to enable online research-based purchases of insurance and lending products and increase transparency, which enables consumers to make informed choices. The company also facilitates its insurer and lending partners in the financial services industry to innovate and design customized products for consumers.
FBFL primarily generates revenue from the following sources: (i) for the Policybazaar business, from insurance commission that it receives from insurer partners, and additional services that the company provides to insurer partners such as telemarketing and other services relating to sales and post-sales services, account management, premium collection and various other services, (ii) for Paisabazaar business, from the commission that the company receives from lending partners, credit advisory and related services that the company provides to its consumers or lending Partners, and marketing services that the company provides to financial services partners and other third parties, and (iii) for the company, from providing online marketing, consulting and technology services to insurer and lending partners.
Financial Track
Despite having received funding in the very first year of incorporation, PBFL’s operations have remained in red even after thirteen years. In fiscal 2021 the company logged consolidated revenue of Rs 957 Cr which resulted in a net loss of Rs 150 Cr. The company’s accumulated deficit at the end of June 2021 amounted to nearly Rs 1,200 Cr. If the current profitability is anything to go by, it will take long time to clear the losses, leave alone declaring dividends.
Without any profit to service the capital, the company was able to collect a massive share premium of over Rs 3000 Cr against a miniscule capital less than Rs 5 lakh! Conversion of preference shares and an unusual bumper bonus saw the equity surging to over Rs 82 Cr in June 2021. Post-IPO, equity capital will be close to Rs 90 Cr and share premium will shoot up to Rs 6,642 Cr.
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PB Fintech Consolidated Financials (Amount in Lakh) |
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| Year Ended |
Mar-21 |
% | Mar-20 | % | Mar-19 |
% |
| Operating Income |
88666 |
77130 |
49225 |
|||
| Other income |
7075 |
8427 |
3656 |
|||
| Total Revenue |
95741 |
100.0 | 85556 | 100.0 | 52881 |
100.0 |
| Employee Cost |
55405 |
57.9 | 52085 | 60.9 | 39762 |
64.1 |
| Network/Internet Cost |
5880 |
6.1 | 5075 | 5.9 | 3173 |
7.8 |
| Advertising/Promotion Cost |
36784 |
38.4 | 44522 | 52.0 | 34585 |
42.8 |
| Other Costs |
6574 |
6.9 | 7437 | 8.7 | 5313 |
7.9 |
| Finance Cost |
1152 |
1.2 | 1192 | 1.4 | 748 |
1.7 |
| Depreciation/Amortization |
4138 |
4.3 | 4730 | 5.5 | 3042 |
5.5 |
| Net Profit/(Loss) |
-15024 |
-30403 |
-34686 |
|||
| Equity (Implied) |
8990 |
4 |
4 |
|||
| Reserves (Implied) |
681070 |
219848 |
112217 |
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| Share Premium |
664185 |
209100 |
103000 |
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| Accumulated Loss |
108660 |
93374 |
63275 |
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| Fixed Assets |
2350 |
4030 |
3190 |
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Valuation
The thirteen-year-old loss making company, whose accumulated deficit exceeds its annual revenue, is asking the investing public to shell out Rs 980 for its Rs 2 paid up share. Effective advertisement and promotion, endorsements by celebrities and experts, the hype created by news channels, social media, etc. may work in favour of such baseless valuations. But, how long will it sustain is the question that investing public should bother about before investing in such companies. When the overdriven markets take a turn, most of these stocks will give shock to the gullible investors.