PB Fintech should have gone public four years later: Chairman Yashish Dahiya

After a stellar listing last year, shares of PB Fintech, the parent company of Policybazaar and Paisabazaar, have come under pressure amid a global tech rout and have been in the news whenever the founders have offloaded stake. However, Yashish Dahiya, Chairman and CEO of PB Fintech, the parent company of Policybazaar and Paisabazaar, and Alok Bansal, Co-founder & Executive Vice Chairman, PB Fintech, say they are not worried about the valuation as long as the company is headed in the right direction.

The story of building Policybazaar and Paisabazaar is not very intuitive for a lot of investors, they say. So it takes time for people to absorb exactly what is the business model and what sort of value this business is creating for the industry, they added.

In an interview with Moneycontrol, Dahiya and Bansal said they are focused on the three-to-five-year perspective. Edited excerpts:

You are going to complete a year soon as a public company. What has this year been like for you?

Alok Bansal: Fundamentally nothing has changed, to be honest, in terms of the business. The proposition that we had for our customers, and our suppliers stays exactly the same. So from that perspective, as a company and management team, we are very well sorted where we want to head to in three years’, five years’ timeframe.

What has changed? Yes, there is high media scrutiny. There is a very widespread investor interaction. Earlier you were talking to a few investors, but having very, very deep conversations. Now you get one hour per quarter at the most with one investor. And for investors who don’t know you from the past, for them to become comfortable with not just the business model and the numbers, but also with the thinking of the management, the value system and the culture of the company that will take some time.

And, yes, there has been a lot of noise from outside in terms of how the US markets have played out, what the digital or the infotech space coming up specifically in the US. That creates a little bit of noise, which is uncontrollable. But from the business perspective, we are heading in the right direction from growth, profitability and working on the moat.

Every time you go to sell your shares there’s a problem, right? What is it that people don’t understand?

Yashish Dahiya: Earlier we probably had 10-15 financial investors, and they spent a lot of time understanding the business. So there was a fairly common and shared understanding about where the company is headed, what the company is trying to do and what our individual deeds are in that situation. So that understanding was at a fairly high level.

In the public world that is due to us, that look, you’re actually not talking to 10 people, you’re talking to thousands of people, and everybody does not know you as an individual. But at the same time is making a judgment about you.

Just now, I was speaking to somebody, and they said, ‘What is your shareholding in the company?’ And I actually did not know, but I said ‘I’ll ask Alok and let you know’. But I think it is about 5.6 percent, about that. But the relevant question to ask, perhaps, is how much of everything I owned in the world is in this company. That number is about 85 percent? I have friends who might own 85 percent of a company, but it may be 15 percent of their total wealth. So are they more passionate about their company? Or is someone like me who owns 5.5 percent odd, but at the same time, that’s 80 percent of already 5 percent of what they owed?

Are we going to be bought? I don’t know. And I’m not looking for an answer. But my point is that the world starts to judge you from many perspectives. As far as the share price, etcetera is concerned, there are a lot of technicals. It almost doesn’t have any large volume of trade, right? So what I see is typically about five lakh shares traded a day. So if there is any buyer or if there is any seller, it would move very sharply.

The other part is, when do you communicate you’re about to sell? The point is an hour earlier, five days earlier, or 20 days earlier, and how much. And how do you know you are going to sell that much? The first time we went out to sell, I had said we’re selling 70 lakh shares. But only 33 lakhs got sold. So my point is that the communication part and the legalese of it, this would not be the case when we were a private company. We would have spoken with everybody. Everybody would have understood why something is happening, whether it’s tax reasons or personal reasons or whatever it is. I think that communication becomes very legal. And that’s perhaps right also because millions of people are trusting you with their money. So to some extent, you have to be more legally oriented. But yes, that’s the difference.

Alok Bansal:  The insurance business has been profitable for quite some time now. The lending business is getting there soon. And we have already declared that as part of the earnings call. What people see is basically two things. One is, there are initiatives we are taking, and these initiatives we started just last year. They are typically first year, second year of initiatives, or two or three things that we’re doing. Those initiatives will go through an investment curve. We believe these are important enough for us to put some energy and some capital behind today.

Having said that, these are very controlled initiatives. And as we declared in the earnings call, the total investment in these initiatives is broadly going to be equal to our interest income. So as a company, we started the year around the IPO time also, and we had a particular cash balance. That cash balance is not moving because the bigger part of the EBITDA loss that people see is actually the issue of charges. That’s the cost taken by the private investors pre-IPO. It was part of our RHP. It’s just that counting will happen over years, over the next five years.

So obviously there is a negative dent in the EBITDA because of that. But on a cash basis, we are exactly where we were. We are never hopefully looking at raising more money. In fact, as we become overall cash positive, we will add to that cash balance. So by the end of this year itself, which is March 2023, we should actually be breaking even on EBITDA, after ESOP cost, including our initiatives.

So the ESOP cost has got some criticism. And it’s not just you guys. All start-up companies coming to the public markets have these. 

Alok Bansal: When you look at the fully diluted cap table, these shares are already accounted for in the valuation.

Yashish Dahiya: Look, the counting is happening, but we only get them at a certain price. That price is very close to the IPO price anyway, it’s not very different. That (ESOP) price is actually within 10 percent of the IPO price. And we get it over five years. So till that happens, we don’t get anything. And I’m sure other companies have similar clauses. They may or may not have disclosed them, but we have disclosed that clause also. So I think people like to go for the number, but nobody’s getting anything till that valuation is achieved.

And what’s the timeline for a $ 5 billion valuation?

Alok Bansal: There’s no timeline. If we do not have that valuation, then you don’t get it, and they will just keep on getting postponed. The actual thing is the market valuation, whether it $ 5 billion or whether it is $ 2 billion or whether it is $ 20 billion, it’s not in our control. But as I said, if the company continues to grow, becomes more and more strategically important, and delivers more value to customers, that valuation is a by-product. At some point, it will start to reflect in the price also. So we are, as a management team, not worried about whether the valuation is x or y today till the time we know that the company is headed in the right direction.

The story that we have, as we built up Policybazaar and Paisabazaar is not something which is very, very intuitive for a lot of investors. So it takes time for people to absorb exactly what is the business model and what sort of value this business is creating for the industry. But as that gets created, and that comes out more and more in media and through investor analyst reports, I think it will start to correct.

We’re not overly worried about that part today. We’ve always thought about what is the right way to look at the business from a three-to-five-year perspective. Are we heading in that direction? Totally. Is the team stable? Yes. We had three-four strategic imperatives when we started the year. Are we progressing on those strategic imperatives? Definitely. So from that perspective, we’re very confident.

What is the investors’ lack of understanding if that’s what you’re saying is happening?

Yashish Dahiya:  As I speak with investors, as I speak with analysts – I am talking about sophisticated investors and sophisticated analysts – what are the pieces most of the time even they miss? Forget about the retail investor? See, 97 percent of the business in this industry, in the insurance industry, is done by paying somebody x and then they go and find a customer and they do that business. If that x is not paid, the business stops. We are perhaps one of the very, very few places where the customer is coming on his own to the platform. Today, if I stopped all my marketing spend totally, 85 percent of them will still come. That’s the reality, right? That’s what a platform is for over 14 years.

The second part, as we grow, we have a certain contribution margin, our core businesses make about 35 percent margin per se. So if you look at last year to this year, our core business will grow by about Rs 500 crores revenue. That means the core business is adding Rs 150 crore of contribution. As long as my fixed costs don’t grow at the same rate, I’ll be making profits over a five-year period, as a minimum that adds up to Rs 750 crore. There is no rocket science in this. I think that’s the least understood part because everybody is – when I speak to analysts also, they are used to seeing companies in static. So they say, Okay, this is the volume, this is the cost, etc. So let me put another thing to you. We started a new initiative last year at about the same time as we did the IPO. If we did not do them, we would have been profitable for the last two quarters as a company. So here’s a company that is not chasing profits because that’s the easiest way for me to have turned profitable. And that’s what you would see the easiest way for anybody to turn profitable is to switch off new initiatives, is to switch unprofitable initiatives.

But wasn’t your IPO the public – the money you raised, a large part of it was for some of the new initiatives?

Yashish Dahiya: No. None of it was for the new initiative. If you really think about it, it was a very, very small amount of it. Very, very small. And that’s the problem. People assume that people are going to try to over-manage things to deliver numbers. That is not who we are. That’s fundamentally not who we are. We are building an organisation.

That’s what I think is the biggest difference between founder-led companies and not-founder-led companies. Founder-led companies are half-mission and half-profit goals. And in fact, if you ask me, honestly, I think it’s 80 percent mission and 20 percent profit goals. I have said it repeatedly, I need blood every day flowing through my veins. But becoming a blood bank is not my strategy in life. And that is how I treat money. Now the point is, that said, profit is inevitable. It’s inevitable. Because if you have a 35 percent margin, at some point, your volume becomes too big, and that’s exactly what’s happening in the last quarter of this year. What’s happening? When do you see if a company is managing? They will be reducing marketing and sales costs, they’ll be reducing new initiatives. We are expanding all of them. And we are still turning profitable. That’s what you call an honest, straightforward company coming into profits. If something of that sort ever happened to the internet, that company essentially becomes unstoppable.

Tell us about some of these decisions, the new initiative behind which you’re investing money.

Yashish Dahiya: Policybazaar attracts customers as a brand. And the customers who come to Policybazaar can use Policybazaar to buy insurance policies. But the platform can be used by a distributor also. So a distributor can use Policybazaar as a tech platform. And that is the new part, and that gives the Policybazaar platform additional volume, which helps with supplier partnerships.

How did the two years of the COVID-19 pandemic and all the challenges that brought and also the enormous focus on the insurance sector? How did that affect human capital?

Yashish Dahiya: There are two-three very, very telling stories, which will explain what actually happened. I think 20th of March 2020 was the day where essentially we went into no-office, right? And all these 13,000 employees were working from the office, supporting customers morning to evening, making things happen. Now, the fact is, the next day, we had the same sales as the previous day. And that COVID-19 was already there. I am saying we went off. How does that happen with 13,000 people? That implied deep management.

And I’ll tell you why I mean deep management. There is a seller on the phone. He’s working off a system. That entire system is designed for people to work from the office. Suddenly that system is not there. The guy is now suddenly operating from his mobile phone. And the system still works. But not just the system still works, this person is used to coming at 10 o’clock in the office and going out at 7 o’clock at being monitored in terms of calls, etc., how does that monitoring still work? That means his team leaders have been tracking things. Remember this is happening while they are travelling. COVID-19 is on.

There are all kinds of mess going on. But the thing that inspired me the most was our sales on the day after the lockdown was exactly the same as the day before lockdown. That told me something deep about this team’s commitment to getting it done. It wasn’t about one or two people. It was, as I said, deep management. And when I say deep management, I mean hundreds of people managing every part of it and making sure it happens.

The second part, as you rightly pointed out, the demand for insurance increased, but so did the reluctance of insurance companies to issue policies. The processes became hard. Remember, almost 70 per cent of all health and term policies that we were issuing, needed a medical. Which customer during COVID-19 is going to go to a hospital to get a medical done? Again, our numbers did not fall. If you look at our market share, in those categories, health and term, it’s doubled.

Expansion in terms of stores and the human face for selling insurance, is that because of insurance and the products or is it because of India and we Indians need to buy insurance?

Yashish Dahiya: We have two kinds of products. We have motor insurance for two-wheelers, which are automated about 90 percent and they don’t need to talk to anybody.

Let me talk about health and term insurance. Here it’s not just about research, because those customers are already researching with us. It’s eventually about how much time you get conversing with a customer. So I’ll give you one data point. For any customer who speaks to us for 15 minutes, there’s a 50 percent chance they will buy an insurance policy from us. Now the question is how many customers can I have a 15-minute conversation with? Not everybody wants to have that 15-minute conversation only on the call centre. Some people say if you want to have more than a three-, four-minute conversation, you need to come and meet me. So we are doing that as well. But the data is the same.

How unusual is it for a digital company?

Alok Bansal: Don’t look at it as a pivot. It’s just an extension of the same value chain that we do. We have a fulfilment and service channel. Now we are giving options to customers that if you want, we will come and meet you physically. That helps with two things: one, it gives the confidence to the customer that Policybazaar is not just on phone, but it’s also someone I can meet in my own city. Second, a lot of times when you’re calling from Gurgaon or Mumbai, you are talking obviously in Hindi plus English. But the person who’s going to meet typically the local guy, is going to meet and talk in local language, local lingo, and that will build that connect.

What percentage of your sales through offline mode?

Yashish Dahiya: 15 percent is through appointments.

Alok Bansal: See there are multiple models, actually.

Yashish Dahiya: There is one thing I want to clarify, because again, one of the biggest confusions– people suddenly say, they have become an agency. See, a typical agent in this country sells about Rs 50,000 of policies in a month. Our person is doing about Rs 15 to 20 lakh a month.

And your person is a POSP (Point of Sales Person)?

Yashish Dahiya:  He is just a seller of insurance. POSP is a totally different model. Forget about that. We’re just talking about a person on the ground who is our employee. These appointments come because those people have researched on the platform. So it is an extension. See, from the call centre, we went to video.

So it’s an extension of the platform with a human connect?

Yashish Dahiya: But it’s not the same as the agency. That’s the important part. I am not expecting anybody to go to a customer and knock on his door and say: Why don’t you buy insurance? That is not what we are doing.

Recently, there was news about Demat accounts for insurance policies, 30 percent cap on insurance, companies’ expenditure…

Yashish Dahiya: We have to always look at it from a macro perspective. What are the regulator’s objectives? The regulator is trying to increase insurance penetration. They’re trying to increase the protection element. They’re trying to make sure that customers know what they’re buying, so there’s lots of research available to them. They’re trying to bring transparency. Overall, we feel very, very aligned with the regulator’s objectives. Micro, see you cannot really get into micro and start to judge long-term situations. Those things will keep happening from time to time.

When you look at the rate at which the market is growing, do you see these initiatives, sort of, collectively bumping up the growth rate and the penetration?

Yashish Dahiya: Of course. I think it’s very, very good. The regulator seems to be very, very focused on growth and development, and is trying to move away from the controlling aspect or, you know, how much do I need to control them? Everything that’s coming out, they’re actually handing back more control to the industry.

What would you say are the biggest roadblocks for people when it comes to buying insurance today? 

Yashish Dahiya: I think people understand the need today. The reason they do not purchase enough is that somewhere they feel a lack of confidence in a very, very simple claim process. That is the biggest barrier by far and away.

Not premiums?

Yashish Dahiya: Clearly not. India has one of the lowest premiums in the world. The customer is very lucky in terms of the pricing. And I have not come across a customer who says if you make insurance 10 percent cheaper, I will buy it in bucket loads. But I have met customers who say, I’ll buy insurance, but I don’t feel confident at the point of claim. From a data perspective, things have been improving. But still, the process stays a bit painful. And I think the biggest service that can happen for this industry is basically an integrated claims experience.

So then how is that getting resolved or getting better? The insurance companies are working on it?

Yashish Dahiya: Insurance companies are working on it. I think the regulator is working on it to create some kind of uniform claims experience. When will a uniform experience come? The day the customer says if I buy from company A or company B? It’s not because their claim experience is different. The fact that it is different implies there’s anxiety around claims. And I think we have some distance to go till we solve that. And the quicker we solve it, the quicker the potential will grow. Because today customers know that they cannot afford healthcare without insurance. And they cannot afford death also without insurance. For a family, death is a very expensive matter. It’s children’s education, it’s the house. So what we do is a very serious business. And if you have asked me, honestly, over the last five-six years, the reason I feel sometimes very agitated is that people don’t talk about that aspect. They talk about where is the valuation, where is this, where is that, whereas the biggest factor is how is health insurance or term insurance in India growing and that is the change. That’s what the purpose of this company is.

Can you talk about Paisabazaar, the other business which is like the other core pillar of Policybazaar? 

Yashish Dahiya: Paisabazaar covers all the spectrums, all the way from pre-approved customers to prime customers to subprime customers, to customers who cannot get credit through the StepUp card, to customers who have a credit issue through Credit Sudhaar. So they have a solution for roughly 80-90 percent of the customer set. A single provider can perhaps not solve all the problems. That’s why we work with 68 partners. So that gives them a lot of advantage in being able to serve the customer, for the customer, what does he want? He wants his solution, which is money. He wants it fast, and then at the right terms. They started to make good margins. They’ve got 35 percent margins. I think credit growth in India has to keep going. In fact, if you think about it, credit is actually a much bigger market than insurance.

So at some point, you see Paisabazaar becoming bigger than Policybazaar over a period of time in the way it’s growing?

Yashish Dahiya: I don’t know, but I just wanted to explain one thing. Pre-Covid, Policybazaar and Paisabazaar were 70:30. Post-Covid, they are at 85:15 because Paisabazaar went through a deep reduction in volume. Today, Paisabazaar is 50 percent more than it was. Policybazaar is two-and-a-half times what it was pre-Covid. So I think Paisabazaar lost that opportunity because of COVID-19 because it went through that negative cycle. I don’t know what the future holds. It’s a great company, it’s a great execution, I feel very good about it. They’re going to turn profitable in a couple of months. They will add more and more profits. Some of the financials I’ve seen are actually quite surprising, in the positive direction. So I think let’s watch.

Alok Bansal: The fundamental strategy is exactly the same, whether it’s Policy or whether it’s Paisa. We basically say, can you get the right product in front of the customer? Can you work with your partners to create those products if needed? Can you use more and more tech to make the life of the customer easy? And can you give better service levels? If you look at these three-four specific pillars, Paisabazaar is approaching the problem exactly like Policybazaar did. The good part is – and we actually feel very proud about it – we have got two dominant businesses building very fundamental solutions in a very large addressable market.

Yashish Dahiya: Both will be separately profitable.

Alok Bansal: And he said that it is going to be profitable in a couple of months. So after that, it’s all very, very good.

It’s all very, very good. I hope your investors are listening carefully…

Yashish Dahiya: I am almost hoping they’re not listening because, you know, I don’t want to influence them either way, either positively or negatively. As I see it, it’s time to basically put the head down, go through four years. I explained it to you very simply. I think a bulk of the investors will see us as a static company only. I don’t think investors will change. We have to change. We have to grow to deserve that respect. With nine investors, you could manage that because they could look dynamically. They could look five years ahead. Our current base, in my opinion, may or may not give us that credit for looking four-five years ahead. So as far as we are concerned, live through this four-five years, don’t try to explain too much, because, actually, the more you explain, the more you’ll be misunderstood. Just deliver. When your static profits are at a level which deserves the valuation, you will get it.

Given that there’s so much pain associated with being a public company, what’s the one thing which is better after listing, life after listing? On what count is it better?

Alok Bansal: The great part is the sort of liquidity it provides, not only just to the investor but even to the employees. People who have been with us for more than 10 years, 12 years, 14 years, when you see them buying a house, you actually feel very good. And this would not have happened without IPO. Yes, life as a listed entity is different. I won’t say painful, it’s different. And as management and founders, we are learning how to live with that. I think it will take us some more time to get adjusted and internalise it.

One of the best things that you think that’s come with life after listing?

Yashish Dahiya: It’s the learning. In my opinion, we should have gone public four years later. That’s my learning from this because I think markets change their view very quickly. And they will always assume they’re rational. They were rational because if you think about it, after the listing, our price actually went up. So they were rational, they’re rational today also. They will always stay rational in their own mind. I think you should go public when your static value is similar because I don’t think the public investors, in general, give so much credibility to future execution.

We are going to give you the last word.

Yashish Dahiya: I have never invested in a single stock. There’s a reason for that. I don’t want to lose money. So I don’t invest in anything. I’ve also done an MBA, I understand that returns keep going up. My father one day came to me and said, you know, everybody’s making so much money in the stock market, I also want to invest, what do you suggest? I said you are watching everybody make money. Are you willing to lose your money? How would you feel if whatever money you invested disappeared? He said, dil ka daura pad jayega. That’s exactly what he said. Maine kaha, phir apne paise ko fix deposit mein rakho. There’s no guarantee once you get into the stock market. That’s my advice to my father. I consider him a retail investor. My view is retail investors should stay away from all individual stocks because there is no guarantee that the stock will only go up or go down. You don’t know. That’s why mutual funds are there. That’s why fixed deposits are there.