Digit Insurance files for IPO, joins loss-making Indian startups looking to go public

India’s Digit Insurance, backed by the Canadian billionaire Prem Watsa’s Fairfax Group, has filed the draft red herring prospectus (DRHP) for its initial public offer (IPO) with the market regulator Securities and Exchanges Board of India (Sebi), on Tuesday.

According to media reports, the size of the IPO is likely to be around $440 million. The company will disclose the total IPO size in its Red Herring Prospectus.

Digit Insurance’s IPO consists of a fresh issue of shares worth Rs1,250 crore ($157.5 million) while existing shareholders will sell up to 109.4 million shares, as per the DRHP. The company said it may sell around Rs250 crore of shares in a pre-IPO placement, therefore, share sale in the issue will be lower if the pre-IPO happens.

Digit Insurance was started by Kamesh Goyal, an ex-Allianz executive who led the German insurer’s business in India, with backing from Watsa’s Fairfax in 2017. The startup had then started with a capital base of around Rs350 crore. Fast forward to May 2022, Digit was valued at close to $4 billion when it raised a tranche of funding.

It has so far raised more than $400 million from Sequoia Capital, A91 Partners and Faering Capital, besides Fairfax.

A general insurance company offering health, car, bike, and travel insurance, Digit became the first unicorn of 2021 after it raised $18 million from existing investors at a valuation of $1.9 billion. The company is also backed by Indian cricket star Virat Kohli, who is its brand ambassador.

In an interview with the website MoneyControl, less than a month ago, Goyal had said Digit Insurance would assess the timing of its IPO based on market conditions after the company completes five years since its inception in October.

From the proceeds from the IPO, Digit will enable augmentation of its capital base and expansion of business and improve solvency margin and consequently solvency ratio. According to the insurance act, the firm is required to maintain a minimum solvency ratio of 1.5x. As of March 31, 2022, its solvency ratio was 2.01x.

ICICI Securities, Morgan Stanley India Co., Axis Capital, Edelweiss Financial Services, HDFC Bank, and IIFL Securities will manage the issue.

Another loss-making startup going public

Digit Insurance may soon join a host of loss-making companies such as Paytm, Zomato and Delhivery, to have made a market debut in India. All three companies are currently trading way below their IPO prices.

For FY22, Digit Insurance’s net loss widened over 140% from the previous year to Rs295.86 crore. The company declined to comment when asked for its profitability timeline.

The insurance sector in India, crowded by the likes of Acko, LIC and PolicyBazar, has seen a sharp growth in recent times as the pandemic made more people realise the need for financial protection and insurance coverage.

The past year has seen a rise in funding for insurance startups in India, with participation from a host of global investors.

Earlier this year, Loop had raised $25 million from General Catalyst and Elevation Capital (formerly Saif Partners) while ClaimBuddy raised $3 million from Chiratae Ventures and Rebright Partners. The insurance arm of Aditya Birla Group,

Aditya Birla Health Insurance (ABHI), is also raising $83 million from a wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA).

This year also saw the biggest IPO in the history of the Indian markets — the Life Insurance Corporation of India (LIC), which debuted at an IPO price of Rs949 per share in May, valuing it at around Rs5.7 trillion. The company’s stock is now trading at Rs699.5.

The insurance industry in India is estimated to be worth $280 billion, according to the India Brand Equity Foundation (IBEF). Digit is trying to capitalise on India’s under-penetrated general insurance market, which remains below 5% across the country.

Bring stories like this into your inbox every day.

Sign up for our newsletter - The Daily Brief
Subscribe to Newsletter

You have 3 free stories remaining for the month. Register to continue reading our content