Go Digit IPO Review 2024

Go Digit IPO Review 2024: Go Digit is coming up with its IPO issue of Rs. 2,614.65 Cr which will open on 15th May 2024. The issue will close on 17th May and be listed on the exchange on 23rd May 2024. This article will analyze the strengths and weaknesses of the Go Digit Ltd  Limited IPO Review 2024. Keep reading to find out!

Go Digit IPO Review – Company Overview

The Company is one of the leading full-stack insurance Companies that leverage technology to innovate product design, distribution, and customer experience for non-life Insurance products. Full-Stack Insurers are insurance firms that are fully licensed and controlled by a regulatory authority and perform sourcing, underwriting, and servicing in-house.

Digital full-stack insurers, such as Go Digit are insurance manufacturing companies focusing on integrating technology in their operations. Currently Go Digit 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. 

As a digital full-stack insurance company, Go Digits deploys insurance and technology solutions to assist in enrolment, claims processing, underwriting, policy administration, data insights, and fraud detection. 

According to the RedSeer Report, Go Digit is the fastest-growing insurer among private non-life insurer among private non-life insurers by Gross Written Premium (GWP) in FY22 & FY23. The RedSeer report was commissioned by Go Digit for the sole purpose of creating this RHP.

As of December 31, 2023, Go Digit had 4.3 Cr customers who availed insurance benefits from since the Company’s inception in 2017. Out of the 4.3 Cr customers, 2.8 Cr were customers acquired by offering motor insurance, 1.5 Cr were offered health insurance and 5 Lakh were acquired for other insurance products.

Go Digit IPO Review – Industry Overview

India has one of the largest proportions of young working-age individuals, with people within the age group 15-64 reaching 97Cr, representing approximately 68.0% of India’s total population as of 2023 as per Redseer estimates based on the data from Economic and Social Commission for Asia and the Pacific (ESCAP). 

Indian households are undergoing a notable evolution in their income and consumption patterns, with high-income households projected to grow the fastest between CY23 & CY28, at a CAGR of 7.2%. As per estimates, the count of high-income households is set to reach 58 million by CY28, constituting approximately 16% of the total households in India, a significant increase from their current share of 12.1%. 

As of FY23, the non-life insurance market was US$ 33.30 billion measured by GWP, as per the General Insurance Council. This indicates a non-life insurance penetration rate of 1.0% with significant room for improvement. 

The global average insurance penetration amounted to 4.0% among leading global economies, with the 2022 penetration rate of China and the United States at 1.9% and 9.0%, respectively. 

In addition, the non-life insurance density in India was US$ 23.00 as of FY23, measured by premium per capita, which is the lowest across some of the largest markets in the world with a global average at US$ 499.00 as of CY22. 

Go Digit IPO Review – Financials

As of FY23, Go Digit Insurance reported Gross Written Premiums worth Rs. 7243 Cr, which increased by 38% from Rs. 5268 Cr in FY22. Gross Written Premiums saw a CAGR growth of 49% since FY21.

Net premium on the other hand increased at a slightly higher rate of 41.37% from Rs. 4180 Cr in FY22 to Rs. 5909 Cr in FY23. This is on account of the lower amount of insurance policies rewritten by other insurance providers. 

Go Digit, in FY23 made an operating loss of Rs. 66.27 Cr which dropped significantly from Rs. 375.14 Cr. Meanwhile, on account of lower provisions, the Company finally turned a profit of Rs. 35.5 Cr in FY23, from a loss of Rs. 295.85 Cr in FY22.

The insurance provider reported a Combined ratio of 107%, which is a 530-point drop since last year. The Combined ratio is used to measure the profitability of the insurer’s underwriting abilities. It is calculated as a sum of loss & expense ratio and a ratio above 100% is a clear indication that the Company is paying out more in claims & expenses than it collected in premiums. 

Commission ratios of the Company give us an idea of how much the Company spends in commission to earn Rs. 100 in premiums. As of FY23 Go Digit reported a commission ratio of Rs. 2.4. However, in just the first 9 months of FY24 commission ratio has climbed to a high of 24.7%, as compared to 2.3% in the first nine of FY23.

Go Digit IPO Review – Key Players 

Being a non-life insurer, Go Digit comes under the general insurance category in which it has New India Assurance Company, Star Health & Allied Insurance Company, and ICICI Lombard General Insurance Company as peers.

Go Digit is the smallest Company with a net worth of just Rs. 2325 Cr as compared to the giant New India with a Net Worth of Rs. 20,705 Cr. Out of the three peers, Star Health is the one with the highest Price-to-earnings of 54x and a Price Gross Written Premium of 2.51x.

However, ICICI Lombard has the best Return on Net worth which is a little shy of 17%, and that trades at a Price to Gross Written Premium of Rs. 3.82x.

Strengths of the Company 

1. Simple & Tailored Customer Experience: The customer experience is the core of what the Company does. Go Digit focuses on simplifying the insurance experience which has resulted in high customer satisfaction with a Net Promoter score.
2. Relationship with distributors: The Company has dedicated to establishing time & money to establish relationships with the distributors. These include individual agents, corporate agents, motor insurance service providers, and brokers.
3. Predictive Underwriting Models: Using the data gathered and its expertise in selling motor insurance, the Company can accurately asses risk & predict losses of its insurance product at the granular level. This helps the Company manage costs and even pass on lower premiums to customers.
4. Advanced Technology Platform: The Company uses technology to achieve efficient underwriting. Its entirely cloud-based platform utilizes AI & machine learning and leverages a data bank to enable algorithm-driven strategic decisions

Weaknesses of the Company

1. Lack of Profitable track record: The Company has failed to maintain a track record of consistent profits in the last three financial years as it turned profitable only in FY23.
2. Loss reserves maintained are based on estimates: The reserves maintained by the insurer are based on estimates of future claim liabilities. These can turn out to be inadequate in case of a black swan event.
3. Impact of natural calamities: As a general insurer the Company will always have exposure to catastrophic events such as natural disasters, terrorist attacks, and other events. Any such event occurring to parties insured by them can hurt their financial position.
4. History of warnings by regulator: The Company, in the recent past has received cautions, warnings, and show-cause notices from the IRDAI due to non-compliance with its regulatory requirements.

Go Digit IPO Review – GMP

The shares of Go Digit traded at a 19.49% premium in the grey market on 13th May 2024. The shares in Grey Market traded at Rs 325. This gives it a premium of Rs 53 per share over the cap price of Rs 272.

Go Digit IPO Review – Key IPO Information

Promoters: Kamesh Goyal, Go Digit Infoworks Services Pvt Ltd, Oben Ventures LLP and FAL Corporation

Book Running Lead Manager: ICICI Securities Ltd, Morgan Stanley India Company Pvt Ltd, Axis Capital Ltd, HDFC Bank Ltd, IIFL Securities Ltd and Nuwama Wealth Management Ltd.

Registrar to the Offer: Link Intime India Pvt Ltd

The Objective of the Issue

1. The amount received from the IPO issue will be utilized towards the maintenance of the Solvency ratio of the Company.

Read more: Stocks With High Promoter Pledge In India

Conclusion

In conclusion, Go Digit’s upcoming IPO presents an opportunity to invest in one of the fastest-growing private non-life insurers in India. The company’s focus on leveraging technology, simplifying the customer experience, and establishing strong relationships with distributors are notable strengths. 

However, investors should consider the company’s lack of consistent profitability, reliance on estimates for loss reserves, exposure to catastrophic events, and past regulatory warnings as potential weaknesses.

Ultimately, the success of Go Digit’s IPO and the company’s future growth will depend on its ability to maintain its technological edge, effectively manage risks, and continue to deliver a superior customer experience in the competitive non-life insurance market.

Written by Nasir Hussain

By utilizing the stock screener, stock heatmap, portfolio backtesting, and stock compare tool on the Trade Brains portal, investors gain access to comprehensive tools that enable them to identify the best stocks, also get updated with stock market news, and make well-informed investments.