ET Now: Just going by the fact that the offline healthcare foray is something that PB Fintech has been looking at for the past many years in terms of this new foray, how are you looking at this backward integration with hospitals as to what it could potentially mean?
Manas Agrawal: Media broke the story, and the company has not denied it. Yashish has spoken about it in the previous concalls as well. So, it seems like they want to do this. Now, how they go about doing this is the question, is it going to be capital intensive or it will be a partnership of sorts, it seems like that is the big question that is weighing on the stock because people bought into the story for PB Fintech for its strong growth, its capital light business model. I think investor communication on that front would be helpful in cooling off speculation. And I think the stock has now stabilised. But the last three days have been very volatile. So, clarity on that front will be helpful. We have written a note today, which talks about the key questions for the management. Essentially, what is the business plan? It is good for the consumer and probably good for hospitals and insurers and therefore good for Policybazaar, but then at what cost does all of this come up, that is the key question at this point in time in my mind.ET Now: They have spoken about it being less capital intensive, which is something that you guys have flagged off in the note as well. Do you think they will be looking to build their own hospitals? Will there be partnerships with existing hospitals? And more importantly, what would be the more lucrative method that they should adopt?
Manas Agrawal: That is exactly the question that we have. One way to approach capital light would be to do partnerships with existing hospitals. The other way to do capital light would be to partner with investors and then you go and acquire or build hospitals, whatever. So, option A versus option B, that is the key question. The other question to answer is who is going to spend time from the management team on the hospital business, how does that impact management bandwidth on the insurance distribution piece, that is one question I am getting from investors. The other thing is, does this mean that Policybazaar in its current form becomes a capital intensive business going ahead or is it going to remain capital light and what that means for free cash flow generation?
So, many questions, few answers, but investors would be happier if it was less capital intensive than more capital intensive and I think investors would be happier if there was more clarity around all these questions.
ET Now: What this would mean in terms of how it could really help health insurers along the way. How beneficial according to you, once we have more clarity as to how it is going to work, as to how beneficial it is going to be for consumers?
Manas Agrawal: Sure, it looks like Yashish has a view and I see what he is trying to get at that. The problem right now is hospitals look at the bed inventory as a driver of revenue and therefore pricing per bed is high and for their business model, it makes sense. But what it means is consumers end up paying more, insurers end up paying more than probably they should have to or at least what makes the affordability better for the consumer and for the insurer.
So, if consumers are able to get access to treatment at lower costs and better claim experiences, that is good for the consumer. If it does entail lower cost, it means lower claims for medical insurers, so that is better for insurers as well. And then if Policybazaar can drive better claims experiences for insurers, they could probably build a business model around that with commissions on the insurance distribution business side, so that is what it looks like.
ET Now: Have there been any such backward integration cases globally? Do you think that we can expect the same from PB Fintech? How has that really worked out?
Manas Agrawal: Not many precedents to go by. We are also actively looking for precedents, but we have seen cases in the US or in Australia for that matter, where insurers have worked with hospitals or healthcare indirectly or directly. There are some examples in the US where a healthcare player became an insurance player eventually. But it is very difficult, at least at this point in time, to point out examples where an insurance distributor has gone back and backward integrated with the hospital piece or the healthcare piece to drive a better customer outcome. In India, insurers are not at that scale on the medical insurance side or they do not have the intent at least to do that.
Regulatory capital requirements are also constrained, so probably Yashish takes up the mantle and does that.
ET Now: When it comes to financials, what is your take on how this could potentially boost the profitability, and boost the margins at the cost of giving up an asset-light model if they decide to go investment-heavy?
Manas Agrawal: The first thing that will happen is the cash on the balance sheet which contributes meaningfully through interest income to the bottom line, that will get deployed and your interest income should contract, at least in the near term. If and when this gets deployed, if it gets deployed properly, it may generate returns on capital in the long run. But near term, your profitability or cash flow generation will take a backseat and that is what is weighing on the stock to be honest.