The company has raised around $400 million over the last 13 years, and has about 60-70 percent of that money parked in bank accounts, says Dahiya.
“I think I could have had a simple, alternate life as an army person,” Yashish Dahiya says.
The co-founder and CEO of PB Fintech, the parent of insurance marketplace PolicyBazaar and lending platform PaisaBazaar, was the first person in his family to not join the Defence Forces. That said, joining the Army was his only goal till college, since it was the only life he had seen.
But destiny had different plans for Dahiya, who went on to start PolicyBazaar in 2008. The IPO of PB Fintech will open on November 1 and close on November 3, 2021, at a price band of Rs 940-Rs 980. It is raising over $800 million at a valuation of $6 billion. In its 13-year history, it has raised $400 million, 60-70% of which is still in the bank. It recently received an insurance broking license, allowing it to foray into the offline insurance selling industry.
Dahiya and his co-founder, Alok Bansal, who is the CFO of PB Fintech spoke to Moneycontrol on the business opportunities ahead, likely risks, path to profitability and his approach to entrepreneurship.
Your Red Herring Prospectus (RHP) laid out the focus areas going forward. You will look at offline, health insurance, corporates, small and medium businesses as well as neo lending. Of these, what are your priorities going to be and where will the bulk of your investment be deployed?
Dahiya: I think our focus will continue to be singular, which is protection for the middle class against the financial impact of death, disease, and disability. That has been our focus for the last 13 years, it will continue to be our focus for the coming 13 years too.
In addition, we will do a lot of other activities, which strengthen our primary case. And those may be motor insurance, they may be savings products, they could even be credit cards and personal loans.
A lot of the focus would be around insurance. In the future, for example, if we procure an account-aggregator license that again would be focused on the lending vertical. So our primary brands remain Policybazaar and Paisabazaar, and other activities support them.
On the proceeds front, the company has raised around $400 million over the last 13 years. We still have about 60-70 percent of that money parked in our bank accounts. We have built both Policybazaar and Paisabazaar at about $70 million each. Now I know there were times when Info Edge built out the entire business with just Rs 7.3 crores and that is an exception, but that was a different time. In these times building out a consumer internet brand with about $70 million is not a bad result. We will continue to be frugal in the future also, but the focus will stay on growth.
Bansal: There are four main deployment areas from our IPO fundraise. One is continued investment in increasing awareness in a way that consumers start to think of insurance as part of their financial planning. Next is expansion into physical stores, which gives the option to customers to meet us. This is more about service and increasing the convergence rather than scouting for business.
The third area would be investing in our international business. We already have a presence in Dubai for the last couple of years, where we have taken baby steps. Now we are ready to expand with a bit more aggression. The fourth area will be scouting for investment or acquisition opportunities. If there are any specific complimentary tech skills, our team will be happy to look at those options. These will be more strategic in nature… not really looking at market-share acquisitions.
Can you give us some more details on your offline expansion plans? How will it complement your online presence?
Dahiya: Today health insurance and life insurance sales happen through a lot of conversations. Once a customer has decided on buying a product, they can either buy the policy on our website or through our call centre. But the customer may also prefer meeting representatives before buying a policy.
In Delhi, where we have most of our team, we started putting in place some ability to go and meet the customer. It gave very good results, with much higher conversion rates than before. There are a million agents today, and the biggest pain point that an agent has is that he doesn’t have too many customers. They don’t know how to expand beyond their small circle of customers.
I can compare this model to that taxi driver who was in your neighborhood but did not know that you were going to the airport and needed a cab. What Uber did was just connect these two. So, with Policybazaar adopting this model, what has changed is that instead of meeting two or three customers a week, the agent is probably meeting 10 ready customers every day.
Bansal: And this automatically started to play out without a lot of planning due to work from home and Covid-19. Because when our staff went back home during lockdowns, they realised that they can actually meet customers and they started assessing the impact it can have.
What are your plans on the lending vertical? It is quickly becoming a crowded space, so how will you look to grow there while ensuring that the customers you deal with are not over-leveraged? And how will the revenue growth pan out from this vertical?
Dahiya: See, insurance and lending are almost opposite categories, although they are quite similar in many ways. Both require a lot of data and a lot of analysis because you’re taking risks in both. However, insurance is actually a bigger risk than lending because claims can be high. At the same time, consumers don’t want to get up and buy insurance in droves. But they may take a loan easily, so the demand for credit is higher. That is the reason why Paisabazaar has almost double the traffic of Policybazaar.
So, on one side it’s an easy product to give to customers, but then a big challenge is that no one supplier can cover the entire market. There is a vast array of segments of consumers for lending. A marketplace is best suited to cover that entire market because it creates a panel of suppliers who can cover every need. There is also a neo-lending element to it. I think as time progresses, you will see us do a lot more white-label partnerships. We have already seen some of them come through.
And yes, it is a crowded market, everything is crowded today. And maybe in India for the next 10 to 15 years it is going to stay that way.
Let’s talk about the risks. One is the risk that a lot of the insurance partners now want to own the stack end to end, including distribution and data. We have seen the likes of HDFC Ergo delisting from your platform. The other is there are a lot of niche insurance providers who are coming up with bite-sized insurance policies. So where do you see Policybazaar positioning itself amidst the changing landscape?
Dahiya: Policybazaar is essentially focused on first of all customer education, that the customer must be educated about the need for health and life insurance. To me, that is the biggest requirement right now for the entire industry. So what does this education do? It makes customers come to us in large numbers. That gives an advantage to any insurance company promoting its product to such a large customer base on our platform. So, it is a symbiotic relationship. Even if more than one company wants to become the only platform to sell their product, the aggregator model becomes quite important. Because the customer requires the aggregator to compare the products. and who is going to provide that independent comparison, everybody will obviously say good things about their product?
The policy we sell is not ours, the claim we pay is not with our money. So, we can be trusted to provide independent advice. As a consumer, you may prefer to deal with somebody who doesn’t have that conflict.
Your losses reduced by half from Rs 304 crore in FY20 to Rs 150 crore in FY21. When do you see the company turning profitable?
Dahiya: Genuinely, profitability is a choice which we can achieve any quarter we wish to. It is not a priority. Because right now we are in an underpenetrated market. In that situation, do you try to become profitable for the 20 percent that is buying health insurance or try to convince the remaining 80 percent to also buy health insurance? I think the answer is quite clear. You try to convince the 80% to also buy health insurance.
We are in a phase where we are growing the market for the next seven to 10 years. There is a long journey ahead. On a unit economics basis, the business is profitable. Every time we do business, we are prudent, we do not lose money. And another proof of it is, that we have not spent 70 percent of the money that we have raised. That tells you that just because we have access to a large sum of money does not mean we start spending. Prudence. You know Info Edge co-founder Sanjeev Bikhchandani says it very well, that the best companies in the world built over decades are the ones that have focused on return on capital employed. And that is what we believe is the true value. We have burned $150 million, which is a lot of money, but the company’s valuation is at $6 billion. That’s a decent return on capital. All our investors have done well.
Unlike many other companies?
Dahiya: No no, I did not mean it that way. Everybody has their own reasons. It’s very hard to build these businesses. You know, honestly, many times it’s very easy to comment. It’s very hard to build.
Yashish, you are also an unusual entrepreneur. You come from a very different background; I remember you saying once that you’re perhaps the only civilian in a family that has had a lot of members in the Armed Forces. You’ve done the Ironman triathlon. So all these life experiences, how did they shape you as an entrepreneur and in the way you have built PB Fintech in the last decade?
Dahiya: So there is a mission aspect to me. It’s not just the financial aspects, I think I could have had a very simple alternate life as an army person. The mission purpose is quite deep, I usually find that I’m able to focus on the core purpose, which is, in this case, health and life insurance for the middle class in India, and keep that primary and not get distracted from it.I think also my experiences have given me a unique perspective because when we were in the army till I became an adult, all my costs were covered by the military hospitals. It was when I became an adult that I realised that as a civilian, you have to pay for all these things! Also in my stint in the United Kingdom healthcare was always there. So to me, the fact that we don’t think about these issues is strange, that people don’t think enough about the fact that they will be a health crisis. I’ve always thought this, ever since I was a civilian, that (an employer can) deduct a share of my salary, but (must) give me the same benefits as a government job. Which is, give me a pension and health care. But I don’t think people appreciate it as much as I do. Because I come from a world where that was the norm.
