Go Digit IPO Analysis: Should You Subscribe?

The initial public offer (IPO) of Go Digit General Insurance Ltd, which kicked off today, will close for subscription on Friday, May 17. The Bengaluru-based start-up seeks to raise Rs 2,614.65 crore through its IPO, comprising an Offer for Sale (OFS) of up to Rs 1,489.65 crore and a fresh issue of Rs 1,125 crore. 

The price band for the IPO is set at Rs 258 to Rs 272 per share. Investors can bid in lots, with each lot consisting of 55 shares. To apply for the IPO, the minimum investment is set at Rs 14,960 (calculated as 55 x 272). 

According to market observers, shares of Go Digit are currently trading in the grey market at a premium of Rs 35, i.e. a grey market premium (GMP) of 13% above its issue price of Rs 272. The public offer is anticipated to debut on BSE and NSE on the 23^rd of May, 2024.

Go Digit Anchor Round

Prior to issue opening, on May 14, the Virat Kohli and Anushka Sharma-backed company raised Rs 1,176.59 crore from 56 anchor investors. This anchor round attracted participation from prominent funds such as American multinational Fidelity Investments-backed fund, Goldman Sachs, ADIA, Custody Bank of Japan, SBI MF, ICICI Prudential MF, Axis MF, Mirae Asset MF, Tata MF, HDFC Life Insurance, and Morgan Stanley Asia (Singapore), among others.

Go Digit IPO Subscription Status

As of May 15, 2024, the first day of bidding, Go Digit's IPO has achieved an overall subscription of 0.36 times. Within specific categories, the retail segment saw a subscription rate of 1.44 times, while the Qualified Institutional Buyers (QIB) category recorded no subscriptions. The Non-Institutional Investors (NII) category was subscribed at 0.34 times.

About Go Digit General Insurance Ltd

Go Digit is an insurer offering a variety of customizable insurance policies including health, liability, property, marine, travel, and auto insurance, among others. Presently, the company has 74 active products across its various business segments.

As of December 31, 2023, Go Digit has served 43.26 million customers, representing the total number of individuals who have benefited from its insurance policies since the company began its operations in 2017.

Key Strengths

• Market Leadership: Go Digit is the fastest-growing private non-life insurer, with a GWP growth rate of 37.5% between FY22 and FY23, surpassing the industry average of 20.1%.
• Extensive Distribution Network: As of December 31, 2023, the company has a vast network across 24 states and union territories in India, collaborating with 61,972 Key Distribution Partners, including 58,532 POSPs.
• Robust Asset Growth: The company's AUM has grown at a CAGR of 51% over the past two years, reaching Rs 14,909 crore by December 2023.

Key Concerns 

• Weak Track Record: Go Digit reported profits in the nine months ending December 31, 2023, and FY23, following losses in FY22 and FY21. Its short operating history complicates the evaluation of its long-term business potential.
• Negative Financial Indicators: Over three fiscal years, the company has had an average negative EPS of Rs (1.23) and a RoNW of (6.32)%.
• Product Concentration Risk: Reliance on motor vehicle insurance, accounting for 61% of GWP, presents risks due to potential regulatory, consumer preference changes, or challenges in maintaining a profitable product mix.
• High Valuation: Valued at 9.7x P/BV, Go Digit's valuation is high compared to peers like ICICI Lombard and New India Assurance.
• Legal Risks: Ongoing legal proceedings involving potential liabilities of Rs 292.91 crore could impact operations and financial health adversely.

Final Verdict: Avoid

Although Go Digit saw a turnaround in financials in fiscal year 2023, it continues to face operating losses. Its limited operating history makes it difficult to accurately evaluate future business prospects.

Moreover, the IPO is priced at a Price-to-Earnings (P/E) ratio of 145x based on projected FY24 earnings post-IPO, which seems steep given its past financial performance.

Given these considerations, it might be prudent for investors to refrain from participating in the IPO, as the potential risks outweigh the rewards. Investors should wait and monitor the firm’s financial performance in the ensuing quarters before making investment commitments.

 Read the full report here: Go Digit IPO Analysis

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