Digit

[dartmonkey]

7 hours ago, nwoodman said:

https://finance.yahoo.com/quote/GODIGIT.NS

 

First day of trade..for posterity.  Ended at around 5x’s GWP

 

 

Some recent contemporaries, take it or leave it in terms of relevancy

 

 

My take (but really what a bunch of smart people who actually matter):

 

Fairfax (Digit) gets one chance to do this right and be accretive to all stakeholders.  I think they have threaded the needle.

 

 

 

The whole process seems downright mediaeval to me, with its price bands, its GMP (grey market premium), its alotment dates, its public and private subscriptions, the 55 share block requirement (why on earth 55??), the concern about whether the IPO is 'successful' or not because it pops on day 1, etc. I know this is not so different from North American IPOs, but why so much drama? Why not just offer blocks of shares on the market, with a bid and an ask, and do it at the price that settles, like an auction? Does it have to be this complicated?

[MMM20]

1 minute ago, dartmonkey said:

Does it have to be this complicated?

 

Welcome to India!

[SafetyinNumbers]

7 minutes ago, dartmonkey said:

The whole process seems downright mediaeval to me, with its price bands, its GMP (grey market premium), its alotment dates, its public and private subscriptions, the 55 share block requirement (why on earth 55??), the concern about whether the IPO is 'successful' or not because it pops on day 1, etc. I know this is not so different from North American IPOs, but why so much drama? Why not just offer blocks of shares on the market, with a bid and an ask, and do it at the price that settles, like an auction? Does it have to be this complicated?

The actual ceremony was very dramatic! A few songs (including the Indian national anthem), lots of speeches and a candle lighting ceremony. 
 

The replay is available in the link below.

 

 

Edited May 23 by SafetyinNumbers

[SafetyinNumbers]

1 hour ago, gfp said:

 

I wouldn't expect much, if any, change to FFH book value from the Digit IPO.

I assume we’ll see an increase in fair value over carrying value but for the most part investors don’t care about that yet. 

[nwoodman]

2 minutes ago, dartmonkey said:

 Does it have to be this complicated?

Isn’t it crazy and looking back over the last three years it was infuriating.  I’ll bet in the next 3 years it will be why bother.  Then in 5 years that was a no brainer triple or 5 bagger.  It is the way.

[dartmonkey]

6 minutes ago, SafetyinNumbers said:

The actual ceremony was very dramatic! A few songs (including the Indian national anthem), lots of speeches and a candle lighting ceremony. 
 

The replay is available in the link below.

That IS impressive, I love it! 

 

I don't at all mind the ceremony, on the contrary, but the business end of it, it is the setting the price of the IPO that seems archaic to me. Does anyone think such  a process wil be around when companies issue shares in a hundred years? It seems like a lot of work for nothing, not even getting the best price for the issuing company and not properly insuring that everyone has an equal access to buying the shares they might want to buy.

 

As woodman points out, what is important is how the company does in the next 3-5-10-20 years, not whether it came out at 250 rupees or 300, and whether it popped 10% the first day or the first month.

 

Anyway, file this away as a pointless gripe, it is what it is, and the company seems to have navigated through this complex landscape in a satisfactory way.

[A_Hamilton]

What is everyone's understanding of FFH's ownership in the Digit assets?

Here's what I understand

-FFH owns 49% of GoDigit Infoworks Services Private Limited ("GoDigit Insurance" - not GoDigit General Insurance LTD ("Digit") which is a sub of GoDigit Insurance. Digit is the entity that went public not GoDigit Insurance.

-Upon a change in Indian Law to allow foreign ownership, FFH can own up to 68% of GoDigit Insurance. 

    Questions: How is the increase from 49% to 68% priced? Just a pure conversion with no cost, or per some preestablished valuation mechanism?

Also, If FFH owns 49% of this entity, could it sell down to say 45% and then top position back up to 49% and then have a contingency to only be able to own up to 64%?

-On pg 73 of its annual, FFH notes a Fair Value for GoDigit Insurance of $477.2 million and a carrying value of $146.6. This is seemingly in direct contrast to page 18 of the annual (prem's letter) which states a cost of $154 million and a 12/31/2023 of $2.265 billion. I suppose the difference is the convertible preferred?

-FFH also owns 24.2% of digit life. It isn't clear to me if this is a sub of either entity above?

 

Anyway, this is a homerun for FFH but I wish the annual were a bit clearer on what is owned and how any convert of compulsory prefs might work.

 

 

Edited May 23 by A_Hamilton

[SafetyinNumbers]

1 hour ago, A_Hamilton said:

What is everyone's understanding of FFH's ownership in the Digit assets?

Here's what I understand

-FFH owns 49% of GoDigit Infoworks Services Private Limited ("GoDigit Insurance" - not GoDigit General Insurance LTD ("Digit") which is a sub of GoDigit Insurance and is the entity that went public. 

-Upon a change in Indian Law to allow foreign ownership, FFH can own up to 68% of GoDigit Insurance. 

    Questions: How is the increase from 49% to 68% priced? Just a pure conversion with no cost, or per some preestablished valuation mechanism?

Also, If FFH owns 49% of this entity, could it sell down to say 45% and then top position back up to 49% and then have a contingency to only be able to own up to 64%?

-On pg 73 of its annual, FFH notes a Fair Value for GoDigit Insurance of $477.2 million and a carrying value of $146.6. This is seemingly in direct contrast to page 18 of the annual (prem's letter) which states a cost of $154 million and a 12/31/2023 of $2.265 billion. I suppose the difference is the convertible preferred?

-FFH also owns 24.2% of digit life. It isn't clear to me if this is a sub of either entity above?

 

Anyway, this is a homerun for FFH but I wish the annual were a bit clearer on what is owned and how any convert of compulsory prefs might work.

 

 

 

This is what I came up with but I’m not 100% sure.

 

[Haryana]

On 5/23/2024 at 7:58 AM, SafetyinNumbers said:

The actual ceremony was very dramatic! A few songs (including the Indian national anthem), lots of speeches and a candle lighting ceremony. 
 

The replay is available in the link below.

 

 

 

I was unable to get the X link working but found their video on YT -

 

[zhuanquan]

On 5/24/2024 at 2:16 AM, A_Hamilton said:

What is everyone's understanding of FFH's ownership in the Digit assets?

Here's what I understand

-FFH owns 49% of GoDigit Infoworks Services Private Limited ("GoDigit Insurance" - not GoDigit General Insurance LTD ("Digit") which is a sub of GoDigit Insurance. Digit is the entity that went public not GoDigit Insurance.

-Upon a change in Indian Law to allow foreign ownership, FFH can own up to 68% of GoDigit Insurance. 

    Questions: How is the increase from 49% to 68% priced? Just a pure conversion with no cost, or per some preestablished valuation mechanism?

Also, If FFH owns 49% of this entity, could it sell down to say 45% and then top position back up to 49% and then have a contingency to only be able to own up to 64%?

-On pg 73 of its annual, FFH notes a Fair Value for GoDigit Insurance of $477.2 million and a carrying value of $146.6. This is seemingly in direct contrast to page 18 of the annual (prem's letter) which states a cost of $154 million and a 12/31/2023 of $2.265 billion. I suppose the difference is the convertible preferred?

-FFH also owns 24.2% of digit life. It isn't clear to me if this is a sub of either entity above?

 

Anyway, this is a homerun for FFH but I wish the annual were a bit clearer on what is owned and how any convert of compulsory prefs might work.

 

 

 

Hi there, I think most of this information is set out in the Digit Prospectus (search for "CCPS") (https://www.godigit.com/content/dam/godigit/general/investor-relations/euclid/project-euclid-prospectus-may-17-2024-final-filing-version.pdf). Some interesting points to note:

 

"The issued, subscribed and paid-up share capital of Go Digit Infoworks Services Private Limited as on the date of this Prospectus is as follows: Particulars Aggregate value at face value 1,022,934 equity shares of ₹ 10 each 10,229,340 7,800,000 CCPS of ₹ 1,000 each 7,800,000,000 Total 7,810,229,340*"

 

- this is a big difference from the estimated FV of the CCPS in Fairfax's books but note that Fairfax's methodology uses a DCF, which given the high discount rate (12%) would imply that their estimates of cash flow are very high - which we can compare vs the financials set out in the prospectus.

 

- I wonder how the IPO would change the FV of the CCPS given there's now an indirect public MTM (since the CCPS can be converted into Digit's (listed) equity. The conversion ratios suggest a very big mark down of the FV of the CCPS - though the FV would then be the higher of the equity conversion and the face value of the CCPS.

 

"The key terms of the CCPS are: (i) the CCPS holder is entitled to cumulative preferential dividend of 12.3% per annum on the face value of the CCPS in each financial year, however to the extent any CCPS are converted into equity shares of GDISPL, there is no dividend which is due or payable on such CCPS, (ii) if GDISPL declares any dividend or other distribution to its holders of equity shares, the CCPS holder is also entitled to the aggregate amount of dividend or other distribution which it would have received if it were the holder of the maximum number of equity shares into which its CCPS can be converted, on the record date for such distribution, (iii) no dividend or distribution will be paid or declared in respect of any equity shares of GDISPL if, and to the extent that, as a consequence of such dividend or distribution, any CCPS holder would be entitled to dividend greater than the maximum amount permitted to be paid in respect of CCPS of an Indian company held by a non-resident under applicable laws; (iv) the maximum tenure of the CCPS is 20 years from the date of issuance, unless extended by the CCPS holder, subject to applicable law; (v) in terms of the JV Amendment Agreement, the CCPS has a fixed conversion ratio for conversion into equity shares of GDISPL being (i) 2.324 CCPS for each equity share, for 6,300,000 CCPS; and (ii) 3.55 CCPS for each equity share for the remaining 1,500,000 CCPS, subject to the maximum permissible limit under applicable laws and the provisions of the JV Agreement, and would be cumulatively converted such that the CCPS holder holds equity shares of GDISPL representing up to a maximum of 82.07% of the share capital of GDISPL. Further, consequent to conversion of the CCPS, the indirect shareholding of FAL in our Company (on a fully diluted basis) will be a maximum of up to 68.65%. Further, upon conversion of the CCPS, none of our Promoters shall cease to act as promoters of our Company."

 

 

Edited May 29 by zhuanquan

[Haryana]

1 hour ago, zhuanquan said:

 

Hi there, I think most of this information is set out in the Digit Prospectus (search for "CCPS") (https://www.godigit.com/content/dam/godigit/general/investor-relations/euclid/project-euclid-prospectus-may-17-2024-final-filing-version.pdf). Some interesting points to note:

 

 

I notice the acknowledgement of their mistake as a clerical error for which they got fined -

"Ratio 1 was inadvertently recorded as one CCPS for 2.324 equity shares, as against the correct and agreed upon conversion ratio of 2.324 CCPS for each equity share of GDISPL, which has now been recorded by way of the JV Amendment Agreement."

"The IRDAI by way of its order dated May 2, 2024 has levied a penalty of₹ 10.0 million on our Company. Our Company has paid the foregoing penalty, however, this may adversely affect our reputation."

 

[glider3834]

8 hours ago, zhuanquan said:

 

Hi there, I think most of this information is set out in the Digit Prospectus (search for "CCPS") (https://www.godigit.com/content/dam/godigit/general/investor-relations/euclid/project-euclid-prospectus-may-17-2024-final-filing-version.pdf). Some interesting points to note:

 

"The issued, subscribed and paid-up share capital of Go Digit Infoworks Services Private Limited as on the date of this Prospectus is as follows: Particulars Aggregate value at face value 1,022,934 equity shares of ₹ 10 each 10,229,340 7,800,000 CCPS of ₹ 1,000 each 7,800,000,000 Total 7,810,229,340*"

 

- this is a big difference from the estimated FV of the CCPS in Fairfax's books but note that Fairfax's methodology uses a DCF, which given the high discount rate (12%) would imply that their estimates of cash flow are very high - which we can compare vs the financials set out in the prospectus.

 

- I wonder how the IPO would change the FV of the CCPS given there's now an indirect public MTM (since the CCPS can be converted into Digit's (listed) equity. The conversion ratios suggest a very big mark down of the FV of the CCPS.

 

"The key terms of the CCPS are: (i) the CCPS holder is entitled to cumulative preferential dividend of 12.3% per annum on the face value of the CCPS in each financial year, however to the extent any CCPS are converted into equity shares of GDISPL, there is no dividend which is due or payable on such CCPS, (ii) if GDISPL declares any dividend or other distribution to its holders of equity shares, the CCPS holder is also entitled to the aggregate amount of dividend or other distribution which it would have received if it were the holder of the maximum number of equity shares into which its CCPS can be converted, on the record date for such distribution, (iii) no dividend or distribution will be paid or declared in respect of any equity shares of GDISPL if, and to the extent that, as a consequence of such dividend or distribution, any CCPS holder would be entitled to dividend greater than the maximum amount permitted to be paid in respect of CCPS of an Indian company held by a non-resident under applicable laws; (iv) the maximum tenure of the CCPS is 20 years from the date of issuance, unless extended by the CCPS holder, subject to applicable law; (v) in terms of the JV Amendment Agreement, the CCPS has a fixed conversion ratio for conversion into equity shares of GDISPL being (i) 2.324 CCPS for each equity share, for 6,300,000 CCPS; and (ii) 3.55 CCPS for each equity share for the remaining 1,500,000 CCPS, subject to the maximum permissible limit under applicable laws and the provisions of the JV Agreement, and would be cumulatively converted such that the CCPS holder holds equity shares of GDISPL representing up to a maximum of 82.07% of the share capital of GDISPL. Further, consequent to conversion of the CCPS, the indirect shareholding of FAL in our Company (on a fully diluted basis) will be a maximum of up to 68.65%. Further, upon conversion of the CCPS, none of our Promoters shall cease to act as promoters of our Company."

 

 

I have edited this post 

 

Here is my take below  (opinion not advice) - feel free to correct me guys

 

if we base it on current Digit market value I don't agree there is a big FV mark down here - FV looks to be around US$100M or just under 5%  less than FV at 31 Dec'23 if we factor in value of GDISPL (Go Digit Life Insurance Pvt Ltd) stake in Digit Insurance plus proceeds GDISPL receives from IPO - also I am not factoring in how Go Digit Life 24.2% stake is being carried by FFH because I am not clear on this.

 

i am unsure post Digit insurance IPO if Fairfax will use DCF/mkt price hybrid valuation method or use just mkt price for FV now we have gone to public listing on primary exchange.

 

Also Fairfax is carrying Digit stake at $1.94B which is below aggregate fair value at 31 Dec23 because they are carrying equity portion at cost  (CCPS at 1.79B and equity at 0.15B) 

 

GDISPL owns approx 73.6% of Digit Insurance post float or 674.8M shares in Digit Insurance (owned 729.5M share pre float, sold 54.7M shares in IPO) 

 

Digit Insurance - current mkt cap US$ 3.3B  (current share price INR 300 or USD 3.60 (USD/INR 83.2)

Digit Insurance shares outstanding post float 917M (876M pre float + 41M fresh issue)  

 

GDISPL current stake value US $2.42B in Digit Insurance

 

Assuming there is conversion of CCPS (see below), FAL would own 82.07% of GDISPL - ie indirect ownership of 60.3% of Digit Insurance valued at US $1.99B)

 

'subject to the maximum permissible limit under applicable laws and the provisions of the JV Agreement, and would be cumulatively converted such that the CCPS holder holds equity shares of GDISPL representing up to a maximum of 82.07% of the share capital of GDISPL.'

 

plus

 

GDISPL sold 54.7M shares in Digit Insurance @272INR (USD 3.26) raising approx pre-tax US$178M less taxes

 

Add these together & you get US$2.17B (less any taxes) for  which is approx US$100M below FV of US $2.26B at 31 Dec-23

 

BTW I am unclear if Digit Life 24% stake is included or excluded in fair value for Digit?

 

 

 

 

 

Edited May 29 by glider3834

[Haryana]

Digit mostly escaped the market drawdown -

https://www.screener.in/company/GODIGIT/

[Hoodlum]

Go Digit jumped over 10% in the last hour of trading but I couldn’t find anything as to why. We will find out tomorrow if this holds. 

[Haryana]

Not of concern to anyone that Digit ended last week at Rs.340 which is precisely 25% (Rs.68) higher than upper limit (Rs.272) of its IPO range. That should be a gain of over half a billion to the Fairfax book value.

[TwoCitiesCapital]

56 minutes ago, Haryana said:

Not of concern to anyone that Digit ended last week at Rs.340 which is precisely 25% (Rs.68) higher than upper limit (Rs.272) of its IPO range. That should be a gain of over half a billion to the Fairfax book value.

 

Probably of concern to Muddy Waters who has this central to it's short thesis

[Haryana]

51 minutes ago, TwoCitiesCapital said:

 

Probably of concern to Muddy Waters who has this central to it's short thesis

 

Right On

 

[gfp]

3 hours ago, Haryana said:

That should be a gain of over half a billion to the Fairfax book value.

 

I don't think that's how it works bud

[Haryana]

1 hour ago, gfp said:

 

I don't think that's how it works bud

 

You mean it will be counted as excess of fair value over carrying value or is it more complicated than that

 

[Redskin212]

No expert here, but if FFH ownership/control is greater than 50% DIgit result should probably be consolidated.  I believe this to be the case as a result of the IPO and conversion of preferred share.  I am sure it will be well documented in Q2 results are released.

[nwoodman]

Digit Earnings for Q4 (31st March 2024). Attached coverage from the Economic Times and the Digit release,

 

USD conversions (assuming an exchange rate of 1 USD = 82 INR):

• Net Profit (Q4): Rs 53 crore (approx. $6.46 million) (up 104% YoY from Rs 26 crore (approx. $3.17 million))
• Gross Written Premium (Q4): Rs 2,336 crore (approx. $284.88 million) (up 19% YoY from Rs 1,955 crore (approx. $238.41 million))
• Net Profit (FY 2023-24): Rs 182 crore (approx. $22.20 million) (up 405% YoY from Rs 36 crore (approx. $4.39 million))
• Gross Written Premium (FY 2023-24): Rs 9,016 crore (approx. $1.10 billion) (up 24.5% YoY from Rs 7,243 crore (approx. $883.41 million))
• Premium Retention Ratio (FY 2023-24):85.8% (previous year: 81.6%)
• Premium Retention Ratio (Q4): 89.9% (previous year: 88.3%)
• Assets Under Management (as of March 31, 2024): Rs 15,764 crore (approx. $192.24 million) (up 24.4% YoY from Rs 12,668 crore (approx. $154.49 million))
• Combined Ratio: 108.7%  FY24 vs 107.4% FY23 & 108.8% Q4 24 vs 102.6% Q4 23  

 

Currently trading about 3.5 x's GWP

 

Go Digit Q4 Results PAT jumps 104% YoY to Rs 53 crore; gross written premium up 19% - The Economic Times.pdf

press-release-q4fy24.pdf

Edited June 12 by nwoodman

[nwoodman]

Digit CC is later today, may be of interest. No mention, that I could find, of a replay or transcript being available afterwards.  

 

Following rego they provide a list of toll free numbers for most countries for dialing in.

 

https://www.godigit.com/content/dam/godigit/general/investor-relations/stock-exchange-disclosures/intimation_pursuant_to_reg_30_earnings_call.pdf

[nwoodman]

Summary of the CC. 

 

• Go Digit General Insurance had a gross written premium (GWP) of ₹9,016 crore in FY2024, representing a 3.1% market share in total insurance and 6% in motor insurance.
• Key performance indicators showed strong growth in GWP, net earned premium, profit after tax, and assets under management compared to prior years. The combined ratio increased slightly to 108.7% in FY2024. 
• The GWP mix shifted towards more motor own damage and health/travel/personal accident, while motor third party declined as a percentage. Overall growth was strong across segments.
• Investment leverage increased as assets under management grew faster than net worth. The investment portfolio is predominantly in sovereign and high-rated corporate debt securities.  
•  Loss ratios increased in health, fire and engineering segments but decreased in core motor segments. The company absorbed ₹69.4 crore of losses from natural catastrophes and large claims.
• The company is leveraging technology and API integrations to automate processes and improve efficiency to support future growth.

Q&A Summary:

• Retail health insurance is a small portion of the health portfolio which is dominated by group insurance. This is a challenging but important segment the company is collecting data on to improve underwriting.
• Solvency ratio will improve to over 200% after the recent capital raise post-IPO. Exact number will be disclosed later.
• The company looks at combined ratios more holistically rather than targeting specific channel or product mix. It aims to be adequately reserved and profitable, and will avoid consistently loss-making segments. 
• IFRS earnings were provided showing a reconciliation to Indian GAAP profits. IFRS-17 insurance accounting standards will have some impact on reported earnings.
• In general, the company is focused on calibrated, profitable growth rather than providing specific guidance or targets. It remains agile to market conditions and opportunities across products and channels.

I think Kamesh did a great job of fielding the questions and providing enough color on the opportunities and the challenges.  Definitely gave the impression that they are only interested in profitable book and will simply walk if it doesn’t make sense. Lots of questions and could have easily run longer than the hour allotted.  Find attached the world’s worst transcription, unfortunately my software did not play nice but attached anyway. cc pres also attached.

GO DIGIT GENERAL INSURANCE LTD Results Call_otter.ai.txt investor-analyst-presentation_q4fy24.pdf

Edited June 14 by nwoodman

[SafetyinNumbers]

31 minutes ago, nwoodman said:

Summary of the CC. 

 

• Go Digit General Insurance had a gross written premium (GWP) of ₹9,016 crore in FY2024, representing a 3.1% market share in total insurance and 6% in motor insurance.
• Key performance indicators showed strong growth in GWP, net earned premium, profit after tax, and assets under management compared to prior years. The combined ratio increased slightly to 108.7% in FY2024. 
• The GWP mix shifted towards more motor own damage and health/travel/personal accident, while motor third party declined as a percentage. Overall growth was strong across segments.
• Investment leverage increased as assets under management grew faster than net worth. The investment portfolio is predominantly in sovereign and high-rated corporate debt securities.  
•  Loss ratios increased in health, fire and engineering segments but decreased in core motor segments. The company absorbed ₹69.4 crore of losses from natural catastrophes and large claims.
• The company is leveraging technology and API integrations to automate processes and improve efficiency to support future growth.

Q&A Summary:

• Retail health insurance is a small portion of the health portfolio which is dominated by group insurance. This is a challenging but important segment the company is collecting data on to improve underwriting.
• Solvency ratio will improve to over 200% after the recent capital raise post-IPO. Exact number will be disclosed later.
• The company looks at combined ratios more holistically rather than targeting specific channel or product mix. It aims to be adequately reserved and profitable, and will avoid consistently loss-making segments. 
• IFRS earnings were provided showing a reconciliation to Indian GAAP profits. IFRS-17 insurance accounting standards will have some impact on reported earnings.
• In general, the company is focused on calibrated, profitable growth rather than providing specific guidance or targets. It remains agile to market conditions and opportunities across products and channels.

I think Kamesh did a great job of fielding the questions and providing enough color on the opportunities and the challenges.  Definitely gave the impression that they are only interested in profitable book and will simply walk if it doesn’t make sense. Lots of questions and could have easily run longer than the hour allotted.  Find attached the world’s worst transcription, unfortunately my software did not play nice but attached anyway. cc pres also attached.

GO DIGIT GENERAL INSURANCE LTD Results Call_otter.ai.txt 40.63 kB · 2 downloads investor-analyst-presentation_q4fy24.pdf 2.04 MB · 2 downloads

Thanks for sharing. My impression of the call is that Indian analysts are definitely more engaged on Digit than NA analysts are on Fairfax! 

[nwoodman]

21 minutes ago, SafetyinNumbers said:

Thanks for sharing. My impression of the call is that Indian analysts are definitely more engaged on Digit than NA analysts are on Fairfax! 

Definitely more engagement than in the largest shareholder go figure.

 

Just putting it out there but can you imagine the multiples for a US based company that grew 36% in a sector growing at 14%. 

 

https://www.gicouncil.in/media/4403/flash-report-may-2024.pdf

 

Edited June 14 by nwoodman