General insurance startup Digit Insurance, which is backed by Canadian billionaire Prem Watsa’s Fairfax Group, has filed draft papers with the Securities and Exchange Board of India (SEBI) for an initial public offering (IPO) of Rs 1,250 crore via a fresh issue.
The total size of the IPO, according to sources, could go much higher if the offer for sale (OFS) component — the shares that promoters of the company will offload — is accounted for.
Digit Insurance’s promoters are: Kamesh Goyal, who is the founder and chairman of the company; Go Digit Infoworks Services Private Limited, which is its holding company; Oben Ventures LLP; and FAL Corporation, which is part of Fairfax holdings. The promoters of the company will sell nearly 11 crore equity shares as part of the IPO.
According to the draft red herring prospectus (DRHP), Go Digit Infoworks Services Private Limited owns more than 83 per cent of Digit Insurance’s total shares. A91 Partners, TVS Capital Funds, and Faering Capital each own 3.6 per cent of the company. Sequoia Capital holds a little more than 1 per cent in the company.
Digit Insurance was the first startup to turn unicorn — businesses with a valuation of $1 billion or more — in 2021, a year that saw more than 40 startups achieve the coveted status. Last July, Digit Insurance had raised $200 million at a valuation of $3.5 billion. With the IPO, the company is aiming for a valuation of $4.5 billion to $5 billion.
Analysts say that Digit Insurance’s IPO would be an interesting one to come from the startup space because the market that it operates in, general insurance, is mostly dominated by older, and more established corporations.
This was not the case with some other new age companies like Zomato or Paytm, which do not have a direct competitor in the public markets. However, like many of the startups that have gone public so far, Digit Insurance is also not a profitable company.
In its draft papers, the company sounded caution that it might not turn profitable in the near future. “We have a track record of reporting losses, and we may not achieve profitability in the future,” it said. “We incurred a loss after tax of Rs 295.86 crore in fiscal 2022, Rs 122.76 crore in fiscal 2021, and Rs 1,75.24 crore in fiscal 2020. We expect to continue to make significant investments to further develop and expand our business.”
In comparison, ICICI Lombard General Insurance Company reported a jump of about 80 per cent in its net profit of around Rs 350 crore in the April-June quarter. Similarly, state-owned General Insurance Corporation posted a net profit of Rs 690 crore in the June quarter.