Digit

[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%…

[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?

[MMM20]

Interview with Sumeet Nagar of Malabar Investments  https://economictimes.indiatimes.com/markets/expert-view/go-digit-to-be-a-great-compounding-story-for-next-10-15-years-sumeet-nagar/articleshow/112674261.cms?from=mdr

 

Q: Let us talk about Go Digit. Now it is a manufacturer. It is manufacturing insurance. I am just bringing it for our viewers, but it is selling that product digitally, that is the difference. But insurance is a brutally competitive space. And if I look at, let us say, the general insurance space, I understand a bit, there are about 20 players and only top five players are making money. How can a small player, which is only selling insurance online can actually make money?

 

A: So, the Go Digit name may be somewhat misleading. So, while they are using technology very well and their internal backbone is all on new tech, it is very-very digital. The selling of insurance in India, if you want to be mainstream, has to be done through agents. But again, technology can allow you to do that a lot more effectively. So, from that perspective, they are like any other traditional player, but just technology is allowing them to do everything far more effectively. So, their ability to come up with new policies, new designs, that is better than everybody else because of the technology benefit, their ability to provide flexibility to agents on pricing, for example, is far better than other insurance companies and because the company was built during this new tech stack, it is far more efficient compared to the others and that is why despite the size, they have been profitable for quite some time. And I think there, the important thing is to look at the IFRS accounting because the GAAP accounting actually does not do a good justice to insurance companies where you are investing or getting customers for many years, but you expense that upfront. So, it sort of depresses your profitability. They have been the fastest growing insurance company. Insurance is a business that is still very under-penetrated in India, has a long runway for growth. It has a huge TAM and within that, you have one of the fastest growing players. So, we think this is a great compounding story for the next 5, 10, 15 years and that is the reason why I had invested while the company was private. We added more into the IPO and then post that.

 

Edited August 28, 2024 by MMM20

[Luke]

5 minutes ago, MMM20 said:

Interview with Sumeet Nagar of Malabar Investments  https://economictimes.indiatimes.com/markets/expert-view/go-digit-to-be-a-great-compounding-story-for-next-10-15-years-sumeet-nagar/articleshow/112674261.cms?from=mdr

 

Q: Let us talk about Go Digit. Now it is a manufacturer. It is manufacturing insurance. I am just bringing it for our viewers, but it is selling that product digitally, that is the difference. But insurance is a brutally competitive space. And if I look at, let us say, the general insurance space, I understand a bit, there are about 20 players and only top five players are making money. How can a small player, which is only selling insurance online can actually make money?

Sumeet Nagar: So, the Go Digit name may be somewhat misleading. So, while they are using technology very well and their internal backbone is all on new tech, it is very-very digital.

 

A: The selling of insurance in India, if you want to be mainstream, has to be done through agents. But again, technology can allow you to do that a lot more effectively. So, from that perspective, they are like any other traditional player, but just technology is allowing them to do everything far more effectively. So, their ability to come up with new policies, new designs, that is better than everybody else because of the technology benefit, their ability to provide flexibility to agents on pricing, for example, is far better than other insurance companies and because the company was built during this new tech stack, it is far more efficient compared to the others and that is why despite the size, they have been profitable for quite some time. And I think there, the important thing is to look at the IFRS accounting because the gap accounting actually does not do a good justice to insurance companies where you are investing or getting customers for many years, but you expense that upfront. So, it sort of depresses your profitability. They have been the fastest growing insurance company. Insurance is a business that is still very under-penetrated in India, has a long runway for growth. It has a huge TAM and within that, you have one of the fastest growing players. So, we think this is a great compounding story for the next 5, 10, 15 years and that is the reason why I had invested while the company was private. We added more into the IPO and then post that.

Very exciting stuff...!

[gfp]

6 minutes ago, dartmonkey said:

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?

 

Sorry, I misunderstood your question.  I think it probably relates to Fairfax's 49% ownership being of that intermediate company and that intermediate company consolidating its ownership of publicly traded Digit.  At this point, only the converts get marked to market but we can pencil in Fair Value for ourselves

[Viking]

Go Digit General Insurance completed their IPO on May 23, 2024 at a price of INR 272/share. This valued the company at about US$3 billion. At June 30, Digit's share price closed at INR 338. This valued Digit at $3.7 billion. As of today, Digit's share price closed at IRR 373.90. This values Digit at $4.1 billion. 

 

So over the past 3 months Go Digit General Insurance has increased in market value by about $1.1 billion. Not too shabby. 

 

Now what exactly does this mean for Fairfax? Fairfax owns a significant amount of Digit. So the market value of Fairfax's position is up, and by a lot.

 

How much exactly? Not being an accountant, I am not sure. Is it possible to estimate Fairfax's ownership position in Go Digit General Insurance? Is 65% too high? Or too low? Or is this the wrong way to look at Fairfax's current ownership position (too simplistic)? Perhaps others can wade in and provide an estimate/some clarity. 

 

How much of the value creation that has happened at Digit over the past 3 months has been captured captured in Fairfax's current book value? Again, I am not sure. But my guess is there is likely a sizeable gap building up (between market value and carrying value). 

 

I do find Fairfax's ownership structure with Digit to be confusing.

 

And as @glider3834 has pointed out in the past, Digit also has a early-stage life insurance business that is worth something.

 

Bottom line, I like that Digit General Insurance is now a publicly traded entity. This will allow us to use a market price to value the business. I also look forward to when Fairfax's ownership position has been simplified/clarified.  

 

Edited August 28, 2024 by Viking

[dartmonkey]

20 minutes ago, Viking said:

Is it possible to estimate Fairfax's ownership position in Digit General Insurance? Is 65% too high? Or too low? Perhaps others can wade in and provide an estimate/some clarity. I do find Fairfax's ownership structure with Digit to be confusing.

A first stab at this would be to separate it into 2 components, the equity and the convertible preferred shares. 

 

Fairfax owns 49% of Digit’s equity as regular shares, and Digit owns 73.6% of the publicly traded Digit Insurance (note 1, p.14, Q2 report), so that makes $1.33b as of June 30 and $1.45b at yesterday’s close.

 

We can get a pretty close estimate of the value of the preferred shares because the Level 3 non-Canada non-USA preferred shares went from $1989.9m on Dec 31st to $1.9m on June 30, so that was almost certainly about $1988m worth, and we know they realized a $43.6m gain on those shares. This squares fairly well with the fact that Level 2 assets in the same line went from $286.6 on Dec 31st to $2125.8m on June 30, for an increase of $1839m.

 

So it looks like the full stake would have been worth $1.33b+$1.84  = $3.17b on June 30, and estimating that the preferred shares gained value by the same proportion, $1.45b+$2.01b = $3.46b now.