Canadian billionaire Prem Watsa-backed Digit Insurance has filed draft documents for an initial public offering (IPO). As per the documents, the company is looking to raise Rs 1,250 crore from a fresh issue of shares and through an offer for sale of 10.94 crore equity shares for an undisclosed amount.
Sources, however, said the total size of the IPO is likely to be around Rs 5,000 crore.
Digit provides motor, health, travel, fire and other small-ticket insurance. Motor insurance makes up more than half of the startup’s gross written premiums. The startup was the first unicorn of 2021, a year that saw 44 companies being valued at $1 billion or more.
The company may sell around Rs 250 crore of shares in a pre-IPO placement and if that happens, the offer size would be reduced, the draft red herring prospectus (DRHP) submitted to the Securities and Exchange Board of India said.
ICICI Securities, Morgan Stanley India Co., Axis Capital, Edelweiss Financial Services, HDFC Bank and IIFL Securities will manage the issue.
The proceeds from the issue will be used for augmenting the capital base and the expansion of business and improving solvency margin, consequently solvency ratio.
According to the insurance act, the firm has to maintain a minimum solvency ratio of 1.50x. As of March 31, 2022, its solvency ratio was 2.01x.
Trimming the stake
As per the DRHP, the shareholders selling stake through the offer for sale include promoter entity Go Digit Infoworks Services Private Limited, which holds around 83.65 percent stake in the startup, Nikita Mihir Vakharia, jointly with Mihir Atul Vakharia, Nikunj Hirendra Shah, jointly with Sohag Hirendra Shah and Subramaniam Vasudevan, jointly with Shanti Subramaniam.
The offer for sale consists of up to 12.55 percent stake stale by Go Digit, up to 4,000 shares by Vakharia, up to 3,778 shares by Nikunj Hirendra Shah and up to 3,000 shares by Subramaniam Vasudevan.
Shareholders of Go Digit Infoworks Services include chairman and founder Kamesh Goyal, Goyal's Oben Ventures, and FAL Corporation which is part of Watsa's Fairfax Holdings.
In FY22, the company’s net loss widened to Rs 295.86 crore from Rs 122.76 crore in the previous year.
Total assets under management increased 68 percent in FY22 to Rs 9,393.88 crore from Rs 5,590.10 crore a year ago. Gross written premiums were at Rs 5,267.63 crore, up from Rs 3,243.39 crore.
In an interaction with Moneycontrol on July 25, chairman and founder Kamesh 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.
The Insurance Regulatory and Development Authority of India (IRDAI) norms do not allow promoters to sell a stake before five years.
Fairfax has a number of investments in India including the Bengaluru International Airport, IIFL companies, Catholic Syrian Bank, National Stock Exchange (NSE), and Thomas Cook India. Digit Insurance is its only startup investment.
On being asked about his plans to unlock value from Fairfax's investment, Watsa had told Moneycontrol, "Kamesh is building a very good company over the long term. So when there was extra money, because the company is so good, there was a whole line-up of people wanting to provide capital and so Kamesh was able to do that. We're not like private equity. This is a company we're building for the long long run under Kamesh's leadership."
Expansion plans
The startup has also applied to the IRDAI for licences to set up life insurance and reinsurance entities, both of which will function separately.
Both companies would have to raise funds separately and have their management teams, Goyal had said.
Valued at $3.5 billion, the company raised a total of $284 million in 2021. Besides Fairfax Holdings, the company counts Sequoia Capital India, A91 Partners, Faering Capital, TVS Capital and cricketer Virat Kohli as its investors.
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