What you must know about Go Digit General Insurance IPO?

Go Digit General Insurance Ltd – About the company

Go Digit General Insurance Ltd is a multi-billion dollar unicorn (by valuation) that offers the complete range of non-life insurance products, under the banner of Go Digit Insurance. It is a digital first insurance policy originator with which looks to complete the entire 360 degree insurance solution to the customer via the digital mode only. Currently, Go Digit General Insurance Ltd offers a whole range of non-life products that include auto insurance, health insurance, business products insurance and other insurance products. The company started issuing insurance policies in 2017 and in the last 7 years it has serviced more than 3 crore Indians. It has also simplified the compensation claim process and that too can be digitally done online. It has also tied up with over 6,000 garages across India for providing cashless claim settlement entirely through the digital mode. Apart from a digital claims process, Go Digit General Insurance Ltd is also offering a audio based solutions for claims.

Under the various broad categories of non-life insurance that Go Digit General Insurance Ltd provides to its customers, there are a number of sub-categories of insurance that the company also provides. For instance, under motor insurance, the company provides insurance for cars, bikes, own damage (OD), auto rickshaws, cabs and trucks. Under health insurance, Go Digit General Insurance Ltd offers, plain vanilla health insurance, OPD health cover, super top-up, Arogya Sanjeevani, employee health, port health etc. It also offers business products like D&O insurance (directors & officers liability), election risk insurance, contractors all-risk insurance, workman compensation, marine cargo insurance and Contractors Plant & Machinery (CPM) cover. In addition, Go Digit General Insurance Ltd also provides insurance cover for international travel, property / home insurance, shop insurance, office insurance, fire cover etc.

The fresh funds will be used for funding its digital and omnichannel growth in future and to spruce up its capital base. The promoters of Go Digital General Insurance Ltd are Kamesh Goyal, Go-Digit Infoworks Services Private Ltd, Oben Ventures LLP, and FAL Corporation. The IPO will be lead managed by ICICI Securities, Morgan Stanley India, Axis Capital, HDFC Bank, IIFL Securities, and Nuvama Wealth Management; while Link Intime India Private Ltd will be IPO registrar.

Highlights of the Go Digit General Insurance IPO issue

Here are some of the key highlights to the public issue of Go Digit IPO.

• Go Digit General Insurance IPO will be open from May 15th, 2024 to May 17th, 2024; both days inclusive. The stock of Go Digit General Insurance Ltd has a face value of ₹10 per share and the price band for the book building IPO has been set in the range of ₹258 to ₹272 per share.
   
• The IPO of Go Digit General Insurance Ltd will be a combination of a fresh issue of shares and offer for sale (OFS) component. As you would be aware, a fresh issue tends to bring in fresh funds into the company, but is also EPS and equity dilutive. On the other hand, OFS is just a transfer of ownership.
   
• The fresh issue portion of the IPO of Go Digit General Insurance Ltd comprises the issue of 4,13,60,294 shares (413.60 lakh shares approximately), which at the upper price band of ₹272 per share will translate into a fresh issue size of ₹1,125 crore.
   
• The offer for sale (OFS) portion of the IPO of Go Digit General Insurance Ltd comprises the sale / offer of 5,47,66,392 shares (547.66 lakh shares approximately), which at the upper price band of ₹272 per share will translate into an OFS size of ₹1,489.65 crore.
   
• Out of the OFS size of 547.66 lakh shares, the promoter shareholder (Go Digit Infoworks Services Private Ltd) will be selling bulk of 547.56 shares. The balance 10,778 shares will be sold by 3 investor shareholders in the company.
   
• Thus, the total IPO of Go Digit General Insurance Ltd will comprise of a fresh issue and an OFS of 9,61,26,686 shares (961.27 lakh shares approximately) which at the upper end of the price band of ₹272 per share aggregates to total issue size of ₹2,614.65 crore.

The IPO of Go Digit General Insurance Ltd will be listed on the NSE and the BSE on the IPO mainboard.

Go Digit General Insurance IPO – Key Dates

The mainboard IPO of Go Digit General Insurance Ltd opens on Wednesday, 15th May 2024 and closes on Friday, 17th May 2024. The Go Digit General Insurance Ltd IPO bid date is from 15th May 2024 at 10.00 AM to 17th May 2024 at 5.00 PM. The Cut-off time for UPI Mandate confirmation is 5 PM on the issue closing day; which is 17th May 2024.

Investors can apply either through their existing trading account or the ASBA application can be directly logged through the internet banking account. This can only be done through the authorized list of self-certified syndicate banks (SCSB). In an ASBA application, the requisite amount is only blocked at the time of application and the necessary amount is debited only on allotment. Investors can apply in the retail quote (up to ₹2 lakh per application) or in the HNI / NII quota (above ₹2 lakh). Minimum lot sizes will be known after pricing. The credit of shares to the demat account on May 22nd 2024, will be visible to investors under the ISIN Code – (INE03JT01014). This allocation to the demat account is applicable to the extent of shares allotted only.

Promoter holdings and investor allocation quota

The company has been promoted insurance veteran Kamlesh Goyal and others. The promoter stake in the company stands at 83.31%, which will get diluted as a result of the combination of the fresh issue and the offer for sale. As per the terms of the offer, not less than 75% of the net offer is reserved for the qualified institutional buyers (QIBs), while not more than 10% of the net offer size is reserved for the retail investors. The residual 15% is kept aside for the HNI / NII investors. The table below captures the gist of the allocation to various categories.

It may be noted here that the Net Offer above refers to the quantity net of employee and promoter quota, if any. The red herring prospectus (RHP) of the company has been silent on the employee quota allocation. The anchor portion, will be carved out of the QIB portion and the QIB portion available to the public will be reduced proportionately. Normally, in IPOs with QIB allocation of 75%, the anchor portion absorbs between 40% and 45% of the total IPO issue size.

Lot sizes for investing in the Go Digit General Insurance IPO

Lot size is the minimum number of shares that the investor has to put in as part of the IPO application. The lot size only applies for the IPO and once it is listed then it can be even traded in multiples of 1 shares since it is a mainboard issue. Investors in the IPO can only invest in minimum lot size and in multiples thereof. In the case of Go Digit General Insurance Ltd, the minimum lot size is 55 shares with upper band indicative value of ₹14,960. The table below captures the minimum and maximum lots sizes applicable for different categories of investors in the IPO of Go Digit General Insurance Ltd.

It may be noted here that for the B-HNI category and for the QIB (qualified institutional buyer) category, there are no upper limits applicable.

Valuation metrics of the Go Digit General Insurance IPO

It must be noted here that only in FY23, the company has turned around with marginal profits and hence it is not entirely comparable with previous year data when it was into deep losses. Let us turn to the valuations part. On the latest year diluted EPS of ₹0.40 on a fully diluted basis, the upper band stock price of ₹272 gets discounted at a P/E ratio of 680X times. However, this sort of high P/E ratios are normal in the insurance segment in the early stages, and especially this is a digital insurance product, where the wait could be much longer. If you look at the numbers for the first 9 months of FY24, the EPS is already at ₹1.46, so full year EPS can be extrapolated to ₹1.95 per share. It still translates into P/E ratio of 144-145 times, which looks far from reasonable. For now, we will focus more on the intangible story of Go Digit General Insurance, to get a perspective on valuation metrics.

Here are some qualitative advantages that Go Digit General Insurance Ltd brings to the table.

• Go Digit General Insurance Ltd focuses on tailor made customer experiences, which is likely to lead to multiplication of client level business in the years to come. Also, the digital model followed by the company allows scaling up at an economical cost.
   
• The company has been using a lot of predictive underwriting models that are based on artificial intelligence solutions. These can create a strong IP for reducing the underwriting losses in the future for the company.
   
• The entire business has been predicated on a rather sophisticated technology platform, that is not only scalable, but also flexible to adapt changes. The company is relying on this aspect as a unique selling proposition.

The nature of the digital general insurance business is one that takes a substantial time and effort to build up but can give geometric returns in the future, once the customer franchise is in place. Digital first insurance origination and selling is a new idea in India today and hence the risk-reward ratio is quite unclear at this point. However, the global experience is that this could be way to move ahead on this front. That is what the investors can bet on in the IPO. However, investors in the IPO must be prepared for higher levels of risk, regulatory questions, possibility of temporary disruptions and a longer holding period. The IPO would be best suited to investors who are willing to wait for over a year and are willing to assume more of business / sectoral risk. The place is likely like to get crowded in the future and the early bird will surely get the work. How much; is the question?