Emkay Opens Digit Coverage With ‘Sell’ Rating; Sees 31% Downside On Stock

Shortly after making an underwhelming public market debut, insurance tech unicorn Go Digit General Insurance’s (Digit) has now been tagged with a Sell rating by brokerage firm Emkay. 

Initiating its coverage on the startup’s shares, the brokerage was particularly bearish on how Digit compares to the existing listed insurance players. 

Emkay gave Digit a price target (PT) of “INR 210/ish”, which it estimates to reach by June 2025. The PT indicates a 31% from the company’s current share price of INR 300.25 (as of 4 PM on May 24).

The brokerage’s primary reasoning for a negative anticipation are the price-earnings ratio (P/E) and price to book (P/B) ratio that Go Digit’s shares are trading on. Its estimated P/E for FY26 stands at 49.6X, and its P/B stands at 5.9X. 

This is a substantial premium in comparison to its listed peers ICICI Lombard (FY26E P/E of 29x; P/B of 5.3x) and Star Health (FY26E P/E of 25x; P/B of 3.9x). 

“Given the daunting task at hand for Go Digit’s management, of balancing growth with improvement in profitability, we do not see any fundamental justification in ascribing such substantial valuation premium to GODIGIT versus ICICIGI [ICICI Lombard] or STARHEAL [Star Health], which have established business models with a long track record of profitable growth and a much stronger retail franchise,” it said. 

Further justifying its negative stance on the company’s stocks, the brokerage gave three key factors. 

Firstly, Emkay believes that Go Digit is just another general insurance (GI) player with no clear competitive advantage or differentiation from the competition. 

The brokerage also believes that the startup’s growth over the past few years can be attributed to “sigma” events like Covid-19 and thus, profitability-related issues could surface in the near-to-medium term.

It also picked apart Digit’s current business focus, pointing out a scant effort on building a sustainable brand or distribution prowess. Emkay said that the company seems to be focused on quick growth segments in the insurance space like reinsurance, motor (third party), general liability, property, and group health cover. 

In fact, much of Digit’s business is based on motor insurance. This vertical accounts for 61% of its business, while health insurance comes in second at 14% of the gross premium received by the company in FY24.

Emkay highlighted that the Digit’s growth in the segment was catapulted by  profitability of the industry and leading players due to the pandemic-led reduction in mobility of vehicles leading to reduced accident frequency driving lower claims ratio in both. 

Further, the growth was also led by the implementation of the mandatory 3Y/5Y (three year/ five year) Motor TP (third policy) policy leading to reduced share of uninsured vehicles on road.

Interestingly, Digit had a gross written premium (GWP) of INR 7,941.1 Cr in FY24, which is nearly 30% higher than the INR 6,160.08 Cr it recorded in FY23. For the uninitiated, GWP is the total amount of money an insurance company collects from its customers in exchange for its insurance policies. 

The brokerage said that the company’s improving underwriting performance over the years can be attributed to external tailwinds as with its gaining scale and making product mix choices

“All in all, Go Digit seems to be targeting only faster growth in the B2B or B2B2C segments, rather than building its own brand & distribution for developing into a retail franchise. The intermediary-driven distribution approach also means that there is little operating leverage in non-claims expense ratio that helps profitability with rising scale of operations,” it opined.

It is pertinent to note that Digit’s shares are also moving in a downward trajectory since listing. 

The insurance tech company listed at INR 286 per share on NSE, a 5.1% premium of than the issue price of INR 272. However, the stock rallied by 12.4% on Day 1, ending Thursday’s (May 23) trading session at INR 305.75 on the BSE.