PolicyBazaar chief calls SoftBank-backed expansion a ‘mistake’

The chief executive of PolicyBazaar, the $1.65bn Indian insurance aggregator, has said that a huge expansion pushed by investors including SoftBank was a “mistake” that led the company to run at a loss.

In 2018, PolicyBazaar announced a $200m funding round led by SoftBank’s Vision Fund and boosted capacity by hiring call centre and operations staff to win more users. But in a video interview with the Financial Times, Yashish Dahiya said that the strategy was misguided.

“There wasn’t . . . rational thinking about it. We had a lot of capital, a lot of capital, and there was a lot of push from our investors,” said Mr Dahiya.

This month, SoftBank closed the fundraising round with a stake of $130m in PolicyBazaar’s parent company Etechaces Marketing and Consulting. The investment, which makes it the second-largest investor in the company with a 15 per cent stake, is a mix of $50m in new shares and $80m in secondary stock from other investors at a higher valuation.

To win more customers, PolicyBazaar sunk money into advertising and promotion, but the user numbers failed to materialise and the company swung to a loss. It expects to return to profitability by the end of the year after cutting down on marketing and focusing on core products, such as health and motor insurance.

“The point is you don’t double capacity suddenly, it doesn’t help,” said Mr Dahiya. “It was a mistake and we have learnt from it.”

Mr Dahiya dismissed the hype around some other Indian tech start-ups, warning over their long-term lack of profitability. “We never believed in the super-high valuations that happened during the last four, five years,” he added, rejecting suggestions that coronavirus will trigger the collapse of some companies.

“Coronavirus is just an excuse, the shakeout would have happened anyway,” Mr Dahiya said. “When you don’t make profits after 10 years in operation, something is wrong.”

With plans to go public by the end of 2021, PolicyBazaar has stood out from other unicorns for being profitable at a time when many of its high-profile peers, such as budget hotel chain Oyo and payments platform Paytm, are lossmaking.

The company, whose investors include Info Edge (India) and Temasek, has been a beneficiary of the coronavirus pandemic, with health insurance sales doubling since last year as India’s growing middle class seeks protection.

According to a source familiar with SoftBank’s India operations, PolicyBazaar is “highly regarded” in the conglomerate’s India portfolio, along with logistics company Delhivery, eyewear retailer Lenskart and Firstcry, an online shopping store for children’s products.

As India’s unicorn stable has grown to more than 20 companies — the third-largest in the world behind those of China and the US — there are growing questions over which ones will successfully translate the country’s 1.37bn potential users into profits.

The spectacular implosion of WeWork last year cooled investors on cash-guzzling companies with high valuations and promised future profits. Reflecting a new focus on profitability after WeWork’s failed IPO, Oyo and ride-hailing giant Ola were among Indian start-ups that restructured and laid off staff even before Covid-19 hit.

Yet the company was not immune to the pressure caused by coronavirus. More than 1,500 staff were laid off from the call centre of PaisaBazaar, a digital lender owned by PolicyBazaar’s parent company.

PolicyBazaar is part of a non-profit initiative with other start-ups and tech companies, including Infosys co-founder Nandan Nilekani, creating an app helping Indians during the virus emergency by digitising records and connecting Covid-19 patients with doctors and hospitals.

Neil Shah, a Mumbai-based analyst at Counterpoint, said insurance remained an undertapped area in India. On Tuesday, Paytm announced that it had acquired insurance firm Raheja QBE for $76m to “democratise general insurance” and expand its financial services products.

“Always after a flood, flood insurance goes up, after a fire, fire insurance goes up. That’s why everyone is running towards the insurance business,” said Mr Shah.