IPO Analysis

IPO: Go Digit General Insurance

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Go Digit General Insurance IPO: All you need to knowAI-generated image

Go Digit, a leading general insurance company in India is launching its IPO (initial public offering) on May 15, 2024. Below is a breakdown of the company's strengths, weaknesses, and growth prospects to help investors make an informed decision.

In a nutshell

  • Quality : Go Digit's three-year average ROE (return on equity) and solvency ratio are -8.4 and 1.9 times, respectively.
  • Growth : Its net premium income and net profit grew by 63 and 51.3 per cent per annum, respectively, between FY21 and FY23.
  • Valuation : The stock is valued at a P/E (price to earnings) of 161 times compared to its peers' median level of 37.8. It is valued at a P/B (price to book) of 10.1 times compared to its peers' average of 3.8 times.
  • Overview : Go Digit is a prominent digital full-stack insurer in India's underpenetrated general insurance market. With the growing Indian economy and rising consumer awareness, the company stands to benefit from the growth in the automobile and healthcare sectors. However, competition from larger industry players could hinder its future growth plans.

About Go Digit General Insurance

Incorporated in 2016, Go Digit General Insurance is a digital full-stack insurance company. It performs all major operations in-house, including sourcing, underwriting, servicing, etc. Go Digit currently offers 74 products under the general insurance category. Motor insurance is its largest segment, with a 61 per cent share in the total gross written premium and an overall market share of 6 per cent as of the nine months ending December 2023. This segment is followed by 15 per cent in health and 11 per cent in property insurance as of the nine months ending December 2023.

Strengths of Go Digit General Insurance

  • Digital presence and aggressive pricing have helped the company gain significant market share, especially in the motor insurance segment, where it has emerged as the fourth largest private player with a market share of 6 per cent as of nine months ending December 2023. Go Digit is also the fastest-growing private player by gross written premium in FY23.

Weaknesses of Go Digit General Insurance

  • Go Digit was a loss-making entity until FY23 when it recorded a net profit of Rs 36 crore. However, its ROE remains in the lower single digits for FY24. Whether the company can make profitable strides going forward remains to be seen.
  • Although underpenetrated and heavily regulated, the Indian insurance industry is highly competitive . Go Digit competes with larger private and government companies in the industry, forcing it to price its products aggressively, thereby squeezing its profit margins. The company's expense ratio of 39.1 per cent as of December 2023 is the highest among its listed competitors in the industry.

IPO details

Total IPO size (Rs cr) 3,740
Offer for sale (Rs cr) 2,615
Fresh issue (Rs cr) 1,125
Price band (Rs) 258-272
Subscription dates May 15-17, 2024
Purpose of issue Offer for sale and investment towards maintenance of solvency ratio

Post-IPO

M-cap (Rs cr) 24,947
Net worth (Rs cr) 3,584
Promoter holding (%) 73.6
Price/earnings ratio (P/E) 161
Price/book ratio (P/B) 10.1

Financial history

Key financials 2Y growth (% pa) Nine months endingDecember 2023 FY23 FY22 FY21
Net premium (Rs cr) 63 5,115 5,164 3,404 1,943
EBIT (Rs cr) - 131 39 -294 -119
PAT (Rs cr) - 129 36 -296 -123
Net worth (Rs cr) 2,459 2,326 1,867 1,135
EBIT is earnings before interest and taxes
PAT is profit after tax

Key ratios

Ratios 3Y average (%) Nine months endingDecember 2023 FY23 FY22 FY21
ROE (%) - 5.2 1.5 -15.8 -10.8
Combined ratio (%) 109.8 108.7 107.4 112.7 109.4
Solvency ratio (%) 1.9 1.6 1.8 2 2
Net expense ratio (%) 38.1 39.1 40.2 38.7 35.4
ROE is return on equity

Risk report

Company and business

  • Are the company's earnings before tax more than Rs 50 crore in the last 12 months?
    Yes. The company reported a profit before tax of Rs 155 crore as of TTM December 2023.
  • Will Go Digit be able to scale up its business?
    Yes. General insurance continues to be a highly underpenetrated industry in India, and Go Digit has emerged as the fastest-growing private non-life insurer by gross written premium in FY23. The company's investment in digital infrastructure, along with a growing awareness of its brand in the market, will help it scale its business in the future.
  • Does the company have recognisable brands truly valued by its customers?
    Yes. Go Digit is one of India's leading digital full-stack insurers. In FY23, it emerged as the fastest-growing private non-life insurer by gross written premium.
  • Does the company have high repeat customer usage?
    No. There is no data available on renewal premiums.
  • Does the company have a credible moat?
    No. The Indian general insurance industry is highly competitive, and Go Digit does not offer anything unique that others cannot.
  • Is the business of the company immune from easy replication by new players?
    Yes. The insurance industry is highly regulated and requires various permissions to enter.
  • Is the company's product able to withstand being easily substituted or outdated?
    Yes. The general insurance industry is under-penetrated. With the growing awareness of insurance, the demand will only increase.
  • Is the level of competition the company faces relatively low?
    No. The company has various competitors in the general insurance industry.

Management

  • Do any of the company's founders still hold at least a 5 per cent stake? Or do promoters hold over a 25 per cent stake in the company?
    Yes. The promoter group will hold a stake of 73.6 per cent post-IPO.
  • Do the top three managers have more than 15 years of combined leadership at the company?
    Yes. The top three managers have more than 15 years of combined experience with the company.
  • Is the management trustworthy? Is it transparent in its disclosures, which are consistent with SEBI guidelines?
    Yes. We have no reason to believe otherwise.
  • Is the company free of litigation in court or with the regulator that casts doubts on the management's intention?
    Yes. The company has 10 litigations against it. But it does not cast doubt on the management's intention.
  • Is the company's accounting policy stable?
    Yes. We have no reason to believe otherwise.
  • Is the company free of promoter pledging of its shares?
    Yes. Promoters have not pledged any of their shares.

Financials

  • Did Go Digit generate a current and three-year average return on equity of more than 15 per cent?
    No. The company reported an ROE of 5.2 per cent as of the nine months ending December 2023. Its three-year average ROE is negative, as the company incurred losses in FY21 and FY22.
  • Did the company increase its premium earned by 10 per cent annually in the last three years?
    Yes. Between FY21 and FY23, the company increased its net premiums earned by 63 per cent annually.
  • Is Go Digit free from reliance on huge working capital for day-to-day affairs?
    Yes. The company does not require huge working capital. As it collects the premiums upfront, it will be able to manage its day-to-day expenses easily.
  • Can the company run its business without relying on external funding in the next three years?
    Yes. The company will utilise capital from the fresh IPO proceeds and won't need to raise additional capital in the near future.
  • Is the company free from meaningful contingent liabilities?
    Yes. The company has zero contingent liabilities as of December 2023.

Valuations

  • Is the stock's price-to-earnings less than its peers' median level?
    No. The company is valued at a P/E of 161 times compared to the peers' median level of 37.8 times.
  • Is the stock's price-to-book value less than its peers' average level?
    No. The company is valued at a P/B of 10.1 times compared to peers' average level of 3.8 times.

Disclaimer: This is not a stock recommendation. Do your due diligence before investing.

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