Sell Go Digit Ltd For Target Rs 290 By Emkay Global Financial Services Ltd
Go Digit’s Q4FY26 performance was satisfactory, with a combined ratio of 111.6% (+30bps YoY; Emkay: 109.4%). PAT at Rs1.5bn grew 29% YoY, beating our estimate of Rs1.3bn, largely driven by higher NEP and better-than-expected investment performance. While the claims ratio saw 130bps improvement YoY to 75.2%, the expense ratio (including commission) at 36.4% increased 170bps YoY, owing to growth in the 2W segment. Going forward, the management expects some pricing discipline in Motor OD, while focus remains on profitability in the Fire segment. Further, the management plans to add specialty lines within the commercial business, which is expected to support both top-line and bottom-line growth. The strategic priority remains on RoE and profitability over top-line growth. To bake in the Q4 developments, we have tweaked our estimates, resulting in ~2-3% cut in GWP for FY27-28E, while we have slightly increased our CoR estimates, which results in 2-3% cut in PAT over FY27-28E. We maintain SELL and Mar-27E TP of Rs290, implying FY28E P/E of ~31x
Higher acquisition costs drive elevated CoR
During Q4FY26, GWP at Rs27.37bn (+6.2% YoY) was lower than our estimate of Rs29.37bn and GDPI growth of 21%, owing to a reinsurance inward premium not being accepted in the health segment. Net retention ratio at 77.2% dipped 1.7ppts YoY, resulting in NWP at Rs21.13bn (+3.9% YoY), which was 5.7% lower than our estimates. NEP at Rs23.01bn increased 2% YoY and was ~5% higher than our estimate. Claims ratio at 75.2% improved by 130bps YoY but was higher than our estimate of 73.8%. Expense ratio (including commission) at 36.4% increased 170bps YoY and was 90bps ahead of our estimate, driven by higher acquisition costs in the Motor 2W segment. As a result of higher opex, CoR at 111.6% increased 30bps YoY and was above our estimate of 109.4%. However, PAT at Rs1.5bn increased 29% YoY and was ahead of our estimate of Rs1.3bn, driven by higher-than-expected investment income.
Focus remains on profitability, with new specialty lines as key lever
While the Motor segment witnessed higher loss ratios in FY26, due to increased competition in the Motor OD segment, the management stated that pricing discipline has recently improved in the market. Further, corrective action taken by the company are expected to aid in stabilization of Motor loss ratios from Jul-26. While the Fire segment has seen increased pricing aggression, the management remains focused on underwriting profitable pools of business. The management plans to add new specialty lines in the commercial business, which will support both top-line and bottom-line growth and is expected to scale up to ~Rs10bn in premium over the next 3-5 years. We view the overall market environment for the general insurance industry to be challenging given
1) Increased competition in the Motor OD segment
2) Motor TP hike unlikely to take effect in FY27
3) Increased pricing aggression in the Fire segment.
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