IPO Size: Rs. 2,615 cr

• Rs. 1,490 cr Offer For Sale (OFS) by promoter company Go Digit Infoworks, 45% owned by Prem Watsa’s Fairfax and 55% by Mr. Kamesh Goyal (83% stake to drop to 74%)
• Rs. 1,125 cr Fresh Issue, to maintain solvency ratio (1.6x to rise to 2.0x, against minimum requirement of 1.5x)

Price band: Rs. 258-272 per share

• 75% reserved for institutions and only 10% retail, as loss between FY20-FY22

M cap: Rs. 24,948 cr, implying 10.5% dilution

IPO Date: Wed 15^th May to Fri 17^th May 2024, Listing Thu 23^rd May 2024

Grey Market Premium (GMP): We are strongly against ‘grey market premium’ as it is an unofficial figure, against SEBI guidelines.

Digital General Insurance Company

Go Digit Insurance is a 6-year-old digital full stack general insurance company, offering motor, health (fast growth post covid), travel, property and marine insurance. Being larger than digital peers Acko and Navi, it has assets under management of Rs. 14,909 cr, as of 31.12.23, enjoying 3% market share in non-life domestic insurance sector and 6% in the motor insurance sector.  

Topline Growing, but Operations yet to Mature

Company’s topline growth has been healthy, with Gross Written premium (GWP) increasing 40% CAGR since FY20 and 9MFY24 GWP up 26% YoY to Rs. 6,680 cr. Motor insurance accounts for 60% and health 15% of GWP.

While topline growth has been healthy, operating parameters still need to strengthen, with combined ratio (aggregate of operating expense, commission and claims paid) of 109% being much higher than ICICI Lombard’s 103% and Star Health’s 97%.

Investment Income Saves the Day

Income from investments helped report bottomline in the black, with 7.4% annualised yield in 9MFY24 (up from 6.2% YoY). However, listed general insurance peers ICICI Lombard, Start Health and New India clocked higher yields of 7.7%, 7.7% and 13.8% respectively.

On Rs. 141 cr income from investments in 9MFY24, doubling YoY, Go Digit’s net profit stood at Rs.129 cr with an EPS of Rs. 1.5 and 7% annualised RoE. Thus, investment income is actually flowing down to net profits and not the underwriting business, which leaves some basic questions unanswered, at the industry level.

Rich Valuation

On 9MFY24 annualised basis, shares are being offered at a Price-to-GWP (P/GWP) of 2.8x and a PE multiple of 125x. General Insurance industry leader New India, with 13% market share, is trading at P/GWP of 0.9x and PE of 35x while private peer ICICI Lombard, with 9% market share, 17% RoE and 262% solvency ratio, is ruling at P/GWP of 3.3x and PE of 43x. Even standalone health insurer Star Health, with Rs. 15,500 cr AUM and 14% RoE, is trading at P/GWP of only 2.1x and PE of 37x. Thus, Go Digit’s valuation is rich for its size and operating parameters. Even if future growth prospects are considered, 1-2 year forward performance is being discounted currently, leaving little room for share price growth over the next 5-6 quarters.

Down Round after 2 years

Between Sep 2021 to Mar 2022, multiple fund raise was undertaken at Rs. 314 per share from financial investors (TVS Shriram, LNM India Internet, Faering, Creek Master among others) and at Rs. 328 per share in May 2022. But do not get lured by IPO at a lower price despite growth of past 2 years, as earlier rounds were probably mis-priced, given euphoria in the private market. Moreover, promoter selling 6% stake in the IPO is also not a good sign.