Digit Insurance To Refile DRHP For IPO As SEBI Flags Compliance Issues

The Securities and Exchanges Board of India (SEBI) has reportedly returned the draft red herring prospectus (DRHP) filed by insurtech unicorn Digit Insurance for its initial public offering due to compliance issues.

The Mumbai-based startup now plans to refile the documents for its $440 Mn (INR 3,595 Cr) IPO, it told news agency Reuters. 

In a January 30 letter, the markets regulator said Digit Insurance was ‘not eligible’ for an IPO over concerns around issuance of stock appreciation rights to its employees, the report said. 

Stock appreciation rights enable employees to earn a bonus equal to the appreciation in value of the company’s stock over a period of time. SEBI bans the grant of such employee options for companies looking to go public. 

Meanwhile, the report cited sources as saying that Digit Insurance’s IPO will be on hold until it changes its stock appreciation rights to employee stock option plans (ESOPs) and refiles documents with the SEBI. 

The insurtech giant also confirmed the same to Reuters saying it was “currently evaluating amendments to its employee stock appreciation rights scheme”, adding that it would refile its DRHP with the regulator in due course.

However, the company did not specify a timeline for re-submitting its draft prospectus. 

Another Roadblock For The IPO

Founded in 2017 by Kamesh Goyal, Digit Insurance offers insurance policies for customers across segments such as car, bike, health and travel insurance verticals. The startup is backed by big names such as Canadian billionaire Prem Watsa, venture capital firm Sequoia, cricketer Virat Kohli, actor Anushka Sharma, among others.

The startup filed its DRHP with the markets regulator in August last year. The DRHP stated that the offering would comprise fresh issue of shares worth INR 1,250 Cr and an offer for sale (OFS) of 109.45 Mn shares. 

Ever since then, it has been a bumpy ride for the company. In September 2022, the market regulator kept the insurtech startup’s proposed IPO in ‘abeyance’.

In November, the startup received approval from the Insurance Regulatory and Development Authority of India (IRDAI) to go public. However, the green light from SEBI has eluded the company till now. 

With this, Digit Insurance has joined traveltech startup OYO, which has also been directed by the markets regulator to refile its DRHP. 

Digit Insurance saw its net loss widen to INR 295.86 Cr in the financial year 2021-22 (FY22) from INR 122.7 Cr in FY21. 

The company largely competes with giants such as ICICI Lombard, Acko, and Allied Insurance. 

Digit Insurance operates in the highly under-penetrated insurance space in India. With the advent of new-age insurtech companies, the space has seen a massive rejig as these startups have deployed technology to reach the remotest parts of the country while slashing capex associated with it.

As per an Inc42 analysis, insurtech is expected to emerge as the second biggest sub-sector within the fintech sector and is expected to grow to an estimated market size of $339 Bn by 2025.