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Review By Dilip Davda on May 11, 2024
• The company is one of the leading digital full stack non-life insurance company.
• It is just seven years old and has turned the corner from FY23.
• The company has posted growth in its business and scaled up its GWP.
• Based on annualized FY24 earnings, the issue appears aggressively priced.
• There is no harm in skipping this pricey bet.
ABOUT COMPANY:
Go Digit General Insurance Ltd. (GDGIL) is one of the leading digital full stack non-life insurance companies, leveraging its technology to power what the company believes to be an innovative approach to product design, distribution and customer experience for non-life insurance products. In the nine months ended December 31, 2023 and Financial Year 2023, the Company catered for approximately 82.5% (equating to Rs. 66.80 billion in the nine months ended December 31, 2023) and 82.1% (equating to Rs. 72.43 billion in Financial Year 2023), respectively, of the GWPs written by these digital full stack insurance players which, in addition to Company, includes Acko and Navi, making us the largest digital full stack insurance player in India, according to the RedSeer Report which has been commissioned and paid for by the Company exclusively in connection with the Offer.
Since the inception of its insurance operations in 2017, it has significantly scaled business, improved underwriting performance and generated consistent investment returns. As of December 31, 2023, it maintains a broad distribution footprint across 24 of the 36 states and union territories in India. As of December 31, 2023, it had relationships with approximately 61,972 Key Distribution Partners, including approximately 58,532 POSPs, as well as individual agents, corporate agents, brokers and others. An insurance agent is a representative of the insurance company whereas an insurance broker is an intermediary between the insurance company and the customer.
It also offers products directly to customers through website, as well as through web aggregators. This distribution strategy allows it to capture customers' interest during key life moments, such as the purchase of a new car or home and mitigate geographic limitations. Its dispersed granular distribution network complements digital capabilities and digitally enabled network partners across 24 states and union territories in India as of December 31, 2023. Its product portfolio is comprised of traditional and innovative solutions. It has established a broad suite of insurance lines targeted to meet the various needs of growing customer base. The company launched 74 active products across all business lines.
It aims to make insurance simple. Through innovation and transparency, it believes in delivering a seamless customer experience journey in a significant financial product an individual would purchase in their lifetime. The company offers motor insurance, health insurance, travel insurance, property insurance, marine insurance, liability insurance and other insurance products, which the customers can customize to meet his or her needs. According to the RedSeer Report (page 34) which has been commissioned and paid for by the Company exclusively in connection with the Offer, the digital full stack insurers that have implemented technology beginning from underwriting, claims management to distribution have been able to capture approximately 3.3% of the overall non-life insurance market during Financial Year 2023, which has increased to 4.3% estimated as of the nine months ended December 31, 2023 measured by GWP written by public and private general insurance companies (excluding standalone health insurers and specialized PSUs). As a digital full stack insurance company, it deploys a combination of insurance and technology solutions to assist in enrolment, insurance claims processing, underwriting, policy administration, data insights and fraud detection. As a testament to its success, according to the RedSeer Report (page 35). GDGIL is the fastest growing insurer among private non-life insurers by GWP from Financial Year 2022 to Financial Year 2023, growing by approximately 37.5% over the period while the private non-life insurers (excluding standalone health insurers) overall grew by approximately 20.1% during the same period. As at December 31, 2023, there were 43.26 million people who were its customers or people who have availed the insurance benefits under various policies it issued since the inception of insurance operations in 2017. Of this 43.26 million, 27.74 million customers acquired in motor insurance product, 14.97 million customers acquired in health insurance products (including personal accident & travel) and 0.55 million customers acquired in other insurance products. It has an established track record of delivering growth.
GDGIL's GWP was Rs. 66.80 billion and Rs. 52.88 billion for the nine months ended December 31, 2023 and the nine months ended December 31, 2022, representing a growth of 26.3% and was Rs. 72.43 billion, Rs.52.68 billion and Rs. 32.43 billion in Financial Year 2023, Financial Year 2022 and Financial Year 2021, representing a CAGR of 49.4% from Financial Year 2021 to Financial Year 2023. As of Financial Year 2024, Digit Insurance has a Google rating of 4.7 out of 5.0 with over 0.22+ million reviews, and a Facebook rating of 4.9 out of 5.0 with over 27,000+ reviews.
The company aim to make insurance products so simple that even a 15-year old can understand it. Incorporated on December 7, 2016, it began journey to change the way non-life insurance products are understood and experienced by consumers and distributors in India.
Due to its limited operating history and the rapid growth profile since it began operations, its future operating results may be hard to predict, and historical results may not be indicative of, or comparable to, future results. Although it has an established track record of delivering growth, there is no assurance that such rate of growth would continue in the future or that it would be indicative of future business prospects.
ISSUE DETAILS/CAPITAL HISTORY:
The company is coming out with its maiden combo IPO of fresh equity shares worth Rs. 1125.00 cr. (Approx. 41360275 shares at the upper band), and an Offer for Sale (OFS) of 54766392 equity shares (worth Rs. 1489.65 cr. at the upper cap). Thus the overall size of the IPO shall be of 96126667 shares worth Rs. 2614.65 cr. (at the upper price band). The company has announced a price band of Rs. 258 - Rs. 272 per equity shares of Rs. 10 each. The issue opens for subscription on May 15, 2024, and will close on May 17, 2024. The minimum application to be made is for 55 shares and in multiples thereon, thereafter. Post allotment, shares will be listed on BSE and NSE.
The issue constitutes 10.48% of the post-IPO paid-up capital of the company. From the net proceeds of the fresh equity issue, the company will utilize the funds as per IRDAI regulations towards maintenance of solvency ratio by investing in instruments.
The company has allocated not less than 75% for QIBs, not more than 15% for HNIs and not more than 10% for Retail investors.
The joint Book Running Lead Managers (BRLMs) to this issue are ICICI Securities Ltd., Morgan Stanley India Co. Pvt. Ltd., Axis Capital Ltd., HDFC Bank Ltd., IIFL Securities Ltd. and Nuvama Wealth Management Ltd., while Link Intime India Pvt. Ltd. is the registrar to the issue.
Having issued initial equity shares at par value, the company issued further equity shares in the price range of Rs. 11.50 - Rs. 385 between July 2018 and April 2024. The average cost of acquisition of shares by the promoters/selling stakeholders is Rs. NA, and Rs. 13.57 per share.
Post-IPO, company's current paid-up equity capital of Rs. 875.84 cr. will stand enhanced to Rs. 917.20 cr. Based on the upper band of IPO price, the company is looking for a market cap of Rs. 24947.90 cr.
FINANCIAL PERFORMANCE:
On the financial performance front, for the last three fiscals, the company has (on a consolidated basis) posted a total income/net profit/ - (loss) of Rs. - (118.55) cr. / Rs. - (122.76) cr. (FY21), Rs. - (293.64) cr. / Rs. - (295.85) cr. (FY22), Rs. 39.19 cr. / Rs. 35.55 cr. (FY23). For 9M of FY24 ended on December 31, 2023, it earned a net profit of Rs. 129.02 cr. on a total income of Rs. 130.83 cr. The company turned the corner in FY23. The financial jugglery of insurance companies has always been a tricky and difficult to understand at one go.
According to the management, it has posted steady growth in its GWP that increased from 3243.39 cr. for FY21 to Rs. 7242.99 cr. for FY23. For 9M-FY24 it achieved GWP of Rs. 6679.68 cr. against Rs. 5288.39 cr. for the corresponding previous period. This indicates future prospects for the company and the management is confident of maintaining the trends.
For the last three fiscals, the company has reported an average EPS of Rs. - (1.23), and an average RoNW of - (6.32) %. The issue is priced at a P/BV of xx based on its NAV of Rs. 28.12 as of December 31, 2023, and at a P/BV of xx based on its post-IPO NAV of Rs. 39.13 per share (at the upper cap).
If we annualize FY24 earnings and attribute it to post-IPO fully diluted paid-up equity capital, then the asking price is at a P/E of 144.68. Thus issue appears aggressively priced.
The offer document is missing its PAT and RoCE margin info in KPI data.
DIVIDEND POLICY:
The company has not declared any dividends for the reported periods of the offer document. It has already adopted a dividend policy in August 2022 based on its financial performance and future prospects.
COMPARISON WITH LISTED PEERS:
As per the offer document, the company has shown New India Assurance, Star Health and Allied, and ICICI Lombard as their listed peers. They are trading at a P/E of 39.0, 37.1 and 42.7 (as of May 10, 2024). However, they are not comparable on an apple-to-apple basis.
MERCHANT BANKER'S TRACK RECORD:
The six BRLMs associated with the offer have handled 84 public issues in the past three fiscals (including the ongoing one), out of which 27 issues closed below for offer price on listing date.
Review By Dilip Davda on May 11, 2024
DISCLAIMER: No financial information whatsoever published anywhere here should be construed as an offer to buy or sell securities, or as advice to do so in any way whatsoever. All matter published here is purely for educational and information purposes only and under no circumstances should be used for making investment decisions. Readers must consult a qualified financial advisor before making any actual investment decisions, based on the information published here. My reviews do not cover GMP market and operators game plans. Any reader taking decisions based on any information published here does so entirely at their own risk. Investors should bear in mind that any investment in stock markets is subject to unpredictable market-related risks. The above information is based on RHP and other documents available as of date coupled with market perception. The author has no plans to invest in this offer.
About Dilip Davda
Dilip Davda is veteran journalist associated with stock market since 1978. He is contributing to print and electronic media on stock markets/insurance/finance since 1985.
Dilip Davda is a leading reviewer of public issues and NCDs in the primary stock market in India. The knowledge he gained over 3 decades while working in the stock market and a strong relationship with popular lead managers makes his reviews unique. His detail fundamental and financial analysis of companies coming up with IPO helps investors in the primary stock market. Dilip Davda has a special interest in analyzing the SME companies and writing reviews about their public issues. His reviews are regularly published online and in news papers.
(Dilip Davda -SEBI registered Research Analyst-Mumbai,
Registration no. INH000003127 (Perpetual)
Email id: dilip_davda@rediffmail.com ).
The initial public offer (IPO) of Go Digit General Insurance Limited offers an early investment opportunity in Go Digit General Insurance Limited. A stock market investor can buy Go Digit IPO shares by applying in IPO before Go Digit General Insurance Limited shares get listed at the stock exchanges. An investor could invest in Go Digit IPO for short term listing gain or a long term.
Read the Go Digit IPO recommendations by the leading analyst and leading stock brokers.
Go Digit IPO offers an opportunity to buy IPO shares before they get listed at the stock exchanges. Read the Go Digit IPO Notes, Analysis and Recommendations by leading stock brokerage firms and experts in the above answer.
Our recommendation for Go Digit IPO is neutral.
As per the analysis by our lead analyst Mr. Dilip Davda, we are neutral to the Go Digit IPO.
The Go Digit IPO allotment status will be available on or around May 21, 2024. The allotted shares will be credited in demat account by May 22, 2024. Visit Go Digit IPO allotment status to check.
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