Go Digit IPO – Can King Kohli weave magic off the field

The good news is that high profile companies are reviving their IPO plans. Go Digit General Insurance, which is promoted by Fairfax of Canada and Indian cricketer Virat Kohli, has filed its draft red herring prospectus (DRHP) with SEBI. The SEBI approval process typically takes around 2 to 3 months so we should see the approvals coming in around October or November. The million dollar question is whether the IPO can weave the same magic as King Kohli did on the cricket field. We surely will have to wait for that.

The total size of Go Digit IPO is expected to be in the range of Rs5,000 crore. Out of this Rs1,250-crore will be raised by way of fresh issue in the IPO. The balance Rs3,750 crore will be raised via an offer for sale (OFS). As per the details filed in the DRHP with SEBI, the promoter entity Go Digit Infoworks Services will offer a total of 10,94,34,783 (10.94 crore) equity shares in the OFS. Early investors will also sell an additional 6,778 shares as part of the IPO. The OFS will account for approximately 75% of the overall issue size.

Go Digit Insurance was founded in the year 2016 by insurance industry veteran Kamlesh Goyal. Goyal has spent many years with Allianz group and the Fairfax group in its insurance venture. It is largely a technology based insurance company which sells a complete range of insurance covers straddling health, auto, travel, liability and other kinds of commercial and non-life use cases. The promoters bring in senior management expertise, team bandwidth as well as deep domain skills to the role.

Till date, Go Digit Insurance has already raised $580 million from several marquee investors. Some of the early investors include Sequoia Capital India, IIFL Finance, TVS Capital, A91 Partners and Kunal Shah, among others. In its last round of funding in May 2022, the company was valued at around $4 billion so it is already a Unicorn many times over. Ahead of the IPO, Go Digit Insurance is also planning a pre-IPO placement of Rs250 crore, in which case, the size of the actual IPO will be reduced proportionately.

The fresh proceeds of Rs1,250 crore (net of issue costs) will be used by the company to augment the capital base of the insurer and for maintenance of solvency levels. ICICI Securities, Morgan Stanley India Company, Axis Capital, Edelweiss Financial Services, HDFC Bank and IIFL Securities have been appointed the book-running lead managers (BRLM) for the issue. Insurance is generally a capital hungry business and needs a perpetual infusion of capital to spruce up its capital base.

For the financial year ended March 2022 (FY22), Go Digit Insurance had reported net loss of Rs295 crore. However, the company also reported total income higher at Rs3,841 crore. For the full fiscal year, Go Digit Insurance had gross written premium of Rs5,268 crore. The gross written premium has grown at a CAGR of 52.9% over the last 3 financial years. The losses have more than doubled in the last one year, but that is understandable considering that general insurance is a business wherein there is a lot of front-loading of costs and expenses.

Go Digit operates in a rather competitive segment called, InsureTech. Some of its closest competitors are digital insurers like Acko and Policybazaar. Th experience of insurers and InsureTech has not been too encouraging. Previous general insurance IPOs like that of New India Assurance and GIC RE were successful in terms of subscription but post listing performance has left a lot to be desired. Other players like Star Health Insurance got undersubscribed while the stock of Policybazaar has fallen sharply post the IPO listing.