Digit

[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, 2024 by glider3834

[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. 

[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

[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

[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, 2024 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, 2024 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, 2024 by nwoodman

[SafetyinNumbers]

56 minutes ago, nwoodman said:

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

 

Is there any analyst coverage yet? Maybe that will bring the quants in

[dartmonkey]

On 6/14/2024 at 9:46 AM, nwoodman said:

 

 

Muddy Waters in February said Digit would not go public and was worth $1.5b, not the implied $3.5b value as per the carrying value of Fairfax’s stake.

 

But the IPO did happen, in May, with about 6% new shares issued at 286 INR (market cap $3.1b). With shares at 363 today, the market cap is grazing $4.b.

 

This was the holding that MW thought FFH had overmarked the most, but if FFH carried it at market value, at today’s price they would actually have to mark it up by about 15%…

[Haryana]

 

https://www.instagram.com/virat.kohli/p/C80EI7NNDFK/ (over 21 million likes, Asian record)

 

 

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

[nwoodman]

FWIW

 

Citi On Go Digit General Insurance

Initiates Buy Call, Target Rs 425

Valuing Company At 8x, FY26 Book On RoE Rising To 15-16% In FY26-27 From Nearly 7% In FY24

Expect Stable 13% Decadal CAGR In Ex-crop Non-life Premiums, Aided By Health & B2B-Oriented Biz

 

If anyone has the note available, please post or PM me.  Thanks in advance

[A_Hamilton]

10 hours ago, nwoodman said:

FWIW

 

Citi On Go Digit General Insurance

Initiates Buy Call, Target Rs 425

Valuing Company At 8x, FY26 Book On RoE Rising To 15-16% In FY26-27 From Nearly 7% In FY24

Expect Stable 13% Decadal CAGR In Ex-crop Non-life Premiums, Aided By Health & B2B-Oriented Biz

 

If anyone has the note available, please post or PM me.  Thanks in advance

LIke what is FFH's play here? You are trading at 8x book, do they just exit this thing? But then the runway is so long and it is so difficult to take material stakes in financial services in India. Just a wild situation. Also I realize they likely have a lockup given the recent IPO. What a great situation.

Edited July 19, 2024 by A_Hamilton

[TwoCitiesCapital]

16 minutes ago, A_Hamilton said:

LIke what is FFH's play here? You are trading at 8x book, do they just exit this thing? But then the runway is so long and it is so difficult to take material stakes in financial services in India. Just a wild situation. Also I realize they likely have a lockup given the recent IPO. What a great situation.

 

Best play would probably be to pull a Tesla. 

 

Issue stock, convertible bonds, etc as much as the market will bear. Turn that into capital that provides a floor to the valuation and invest it in growth, acquisitions, or pay a portion back out as dividends. 

 

Fairfax may not capture 8x BV this way, but they can absolutely lock in some of the benefit while maintaining control and long term exposure. 

[SafetyinNumbers]

2 hours ago, TwoCitiesCapital said:

 

Best play would probably be to pull a Tesla. 

 

Issue stock, convertible bonds, etc as much as the market will bear. Turn that into capital that provides a floor to the valuation and invest it in growth, acquisitions, or pay a portion back out as dividends. 

 

Fairfax may not capture 8x BV this way, but they can absolutely lock in some of the benefit while maintaining control and long term exposure. 

Selling quality with high growth rates ahead usually leads to regret for me. I hope they hold on and enjoy the ride. 

[nwoodman]

3 hours ago, A_Hamilton said:

LIke what is FFH's play here? You are trading at 8x book, do they just exit this thing? But then the runway is so long and it is so difficult to take material stakes in financial services in India. Just a wild situation. Also I realize they likely have a lockup given the recent IPO. What a great situation.

Yes it all seems quite frothy but not when the industry you are playing in is growing at high single digits. Their ability to grow premiums has varied but I would say it is closer to 20% CAGR off the current base say 2-3 x’s the industry.  We also haven’t seen what they can do on the investing side.  
 

Do I think it will be trading at 8x’s book in 10 years absolutely not. Can I see it at 2x’s book and multiples of its current size, absolutely. Based on Fairfax’s history, are they likely to use their shares as cheap currency, if the price is really ahead of itself, probably. 
 

A great situation indeed

[SafetyinNumbers]

1 hour ago, nwoodman said:

Yes it all seems quite frothy but not when the industry you are playing in is growing at high single digits. Their ability to grow premiums has varied but I would say it is closer to 20% CAGR off the current base say 2-3 x’s the industry.  We also haven’t seen what they can do on the investing side.  
 

Do I think it will be trading at 8x’s book in 10 years absolutely not. Can I see it at 2x’s book and multiples of its current size, absolutely. Based on Fairfax’s history, are they likely to use their shares as cheap currency, if the price is really ahead of itself, probably. 
 

A great situation indeed

Issue 10% of shares at 8x BV and increase BV by ~63%. That’s decent growth!

[nwoodman]

7 hours ago, SafetyinNumbers said:

Issue 10% of shares at 8x BV and increase BV by ~63%. That’s decent growth!

+1, that works

[Dinar]

Q1 FY 2025 results are out.  Look fine to me, although it would be nice to see combined ratio to decline further below 105 closer to 100. 

[dartmonkey]

Go Digit General Insurance (GODIGIT.NS; "Digit Insurance" in Fairfax's reports) just closed at a new high, 373.9, putting the insurance company's market cap back over $4b ($4.01b). The IPO price was 286.

 

It's a complicated calculation to see how much of this belongs to Fairfax. Here is my understanding, but I would appreciate it if someone could correct/complete this analysis.

 

Fairfax owns 49% of the shares of Go Digit Infoworks Services Private Limited ("Digit"), and in the Q2 report, they gave this a fair value of $485.5m and a carrying value of $268.7m. 

 

Go Digit Infoworks owns 73.6% of the insurance company, which they call "Digit Insurance". So I would think that would mean that Fairfax owns .49*.736 = 36.06% ; that would mean that Fairfax's stake in the insurance company was worth .3606*$3.7b = $1.33b on June 30 and .3606*$4.01b = $1.45b now.

 

Fairfax also owns some compulsory convertible preferred shares in Digit, and a proportion of whatever else Go Digit Infoworks owns, apart from Digit Insurance. I presume the preferred shares come with some arrangement for purchasing additional shares of Go Digit Infoworks, although as far as I know, the details of this arrangement have not been reported.

 

Anyways, it doesn't seem to add up. $485.5m fair value as reported in Q2 seems way below the $1.33b that the insurance company alone was worth on June 30. I understand that the carrying value could be way below the fair value, but isn't the fair value now based on the share price? They state this explicitly for the value of the convertibles, but wouldn't it also be true of the shares?

 

the company's investment in Digit compulsory convertible preferred shares ("CCPS") was transferred from preferred stocks classified as Level 3 in the fair value hierarchy to Level 2 as the fair value of the CCPS is now principally determined through the traded market price of Digit's general insurance subsidiary, Digit Insurance, whereas the fair value was previously principally determined through an industry accepted discounted cash flow model.

 

Can anyone explain what appears to be a discrepancy here?

 

[gfp]

Google equity method accounting

[dartmonkey]

5 minutes ago, gfp said:

Google equity method accounting

Clearly they need to use equity method accounting, but I thought that was the 'carrying value' number, not the 'fair value' number. 

 

I found this on the intertubes:

 

Using the equity method, a company reports the carrying value of its investment independent of any fair value change in the market. With a significant influence over another company’s operating and financial policies, the investor is basing their investment value on changes in the value of that company’s net assets from operating and financial activities and the resulting performances, including earnings and losses. https://www.investopedia.com/terms/e/equitymethod.asp

 

Since Fairfax owns more than 20% but less than 50% of Digit, they would need to present carrying value based on their historical cost, adjusted by dividends received for instance. But when they present 'fair value', isn't that just their best estimate of the real value, based on objective inputs?