Go Digit General Insurance is a digital full stack non-life insurance company, leveraging technology for enhancing product design, distribution and customer experience. The company, incorporated in December 2016, catered approximately 82.5% or Rs 6680 crore (9MFY2024) of the GWPs written by digital full stack insurance players including Go Digit, Acko and Navi, making it the largest digital full stack insurance player in India.

Go Digit offers motor insurance, health insurance, travel insurance, property insurance, marine insurance, liability insurance, and other insurance products. The company has designed its underlying business model to minimize dependency on any single line of business.

The company has launched 74 active products across all business lines. It has achieved a significant market share of 6.0% in the motor insurance segment. In addition, the focus is on product innovations to satisfy real unmet insurance needs. The company was one of the first insurers to offer group illness insurance covering Covid-19 hospitalization costs. It has created an acquisition funnel resulting in multiple opportunities to attract customers. The company has significantly scaled business, improved underwriting performance and generated consistent investment returns.

The company maintains a broad distribution footprint across 24 of the 36 states and union territories in India. It had relationships with 61,972 key distribution partners, including 58,532 POSPs, as well as individual agents, corporate agents, brokers and others. The company also offers products directly to customers through its website and through web aggregators.

The company is one of the first non-life insurers in India to be fully operated on cloud. It has developed application programming interface (API) integrations with several channel partners. The company also utilizes artificial intelligence and machine learning to increase automated processing of applications and claims. The use of technologies enables underwriting in an efficient manner, a differentiator among insurers.

Further harnessing its technology platform, the company has developed predictive underwriting models to leverage the insights gathered by data bank. The predictive underwriting model aid in determining and targeting the more profitable markets and customers and allows to accurately price coverage.

The company views young people as an important customer group to build long-term relationships as they progress through normal lifecycle events, their potential insurance needs grow and encompass higher-value products.

Go Digit General Insurance focuses on making it simpler for customers to understand products and to customize those products to fit their needs and budgets. It leverages front-end technology that customers are familiar with to make it easier for them to file and check on the status of claims.

In the back end, the company deploys software developed in house to speed up underwriting and claims processing times. It collects and deploys data to help to understand customers and to mitigate claims risks.

Assets under management increased to Rs 14909 crore end December 2023.

The Offer and the Objects

The initial public offer (IPO) consists of fresh issue to raise Rs 1125 crore through issuance of 436.05 lakh equity shares at the lower band of Rs 258 per share (face value Rs 10 per share) and 413.6 lakh equity shares at the upper band of Rs 272 per share.

The issue also consists of offer for sale (OFS) of 547.66 lakh equity shares to raise Rs 1413-1490 crore. The promoter, Go Digit Infoworks Services, has offered 547.56 lakh equity shares for sales through OFS.

The promoter shareholding in the company will decline to 73.6% post- IPO from 83.3% pre-IPO.

The issue is through the book-building process and will open on 15 May 2024 and close on 17 May 2024.

The company proposes to utilize the net proceeds from the fresh issue towards maintenance of solvency ratio by investing in instruments in the manner prescribed under the IRDAI Actuarial & Allied Regulations, 2024. Its solvency ratio stands at 1.6x end December 2023 as against the regulatory requirement of 1.5x. The solvency ratio post-issue is expected to increase to 2.37x.

Strengths

The company is redesigning insurance products and processes by offering relevant, transparent, and customizable products, creating simple documentation and jargon-free language for most products, and developing straightforward, paperless processes powered by technology.

The company has combined its expertise in the motor insurance market with a data bank to build extensive underwriting models to accurately assess risk and predict losses for motor insurance products at a granular level helping to better manage costs.

The company has built technology-enabled solutions enabling to achieve efficient underwriting, a major differentiator among insurers. The platform is entirely cloud-based, making the system agile, connected, and scalable.

The focus on technology and straightforward and streamlined processes contributes to a scalable and lean business model.

The focus on supporting all partners through technology enables onboarding and working with them in a cost-efficient manner, reducing the need for substantial operations to support distribution partners.

The use of technology and AI-driven microsystems, or bots, to streamline major operations across the onboarding, underwriting, servicing, and claims processes allows to deliver a simple and tailored customer and partner experience while keeping employee base lean.

Consistent returns are generated on investment book through a conservative investment approach.

The company serves the non-life insurance market in India, the world’s fifth largest economy as of 2023. The overall market is estimated to record a CAGR of 15-16%, reaching the value of US$66-69 billion from FY2023 to FY2028.

Despite its size and growth, the Indian non-life insurance market remains highly under-penetrated and fragmented. The insurance penetration rate of 1.0% provides significant room for improvement, driven by a burgeoning middle-class, rising awareness about insurance protection, innovative products, growth in associated industries, and a favorable regulatory landscape.

Weaknesses

The regulation relating to the insurance sector is evolving. Changes can impact the business.

Due to the inherent uncertainty in estimating reserves for losses and loss adjustment expenses, there can be no assurance that the ultimate liability associated with such reserves or expenses will not exceed the amounts reserved.

Maharashtra, Karnataka and Delhi, combined, accounted for 54.5% of revenues in 9MFY2024. Any decline in local economic conditions may have an impact on business. Any catastrophic event in such locations may significantly increase catastrophic reinsurance premiums and significantly increase the level of claims and claim payouts.

Inability to verify and ensure the accuracy and completeness of information provided by customers may lead to fraud, misrepresentation and other similar risks

The predictive underwriting platform may not operate properly impacting policies underwriting and claims processing.

The company uses technology in almost every aspect of business. Success and growth of business depends upon the ability to maintain and improve technology systems.

The business could be negatively affected by changes in search engine logic or regulations of search engines and social media platforms.

The company expects to continue to make significant investments to further develop and expand the business.

The expansion of coverage and increased prevalence of government-funded health insurance schemes in the future may impact demand for private health insurance.

About 95.7% of total health insurance premiums (accounting for 14.9% of total GWP in 9MFY2024) was generated through group health insurance.

The general insurance market in which the company operates is highly competitive.

The insurance sector is subject to seasonal fluctuations in product mix, operating results, and cash flow.

Valuation

Go Digit General Insurance is a fast growing and a leading digital full stack non-life insurance company. The company has continued to gain market share, improving to 3.2% in FY2024 from 2.9% in FY2023. The company turned profitable in FY2023 and improved profitability further in 9MFY2024.

EPS on post-issue equity for TTM ended December 2023 works out to Rs 1.7. At the price band of Rs 258 to Rs 272, P/E works out to 153 to 161 times of EPS for TTM ended December 2023.

Post-issue, the book value (BV) including fair value change account-shareholders will be Rs 49.5 at the upper price band. The scrip is being offered at price to BV multiple of 5.5 times at the upper price band.

Among listed non-life insurers peers, New India Assurance is trading at P/ BV multiple of 1.3 times (consolidated basis) and ICICI Lombard General Insurance at 7.2 times (consolidated basis)

In terms of PE, New India Assurance is trading at 40.0 times its EPS for TTM ended December 2023 and ICICI Lombard General Insurance at 45.2 times (consolidated basis).