Diginex Limited IPO: High Losses, Declining Revenues, and an Overvaluation Concern

Diginex Limited (DGNX) has filed for an initial public offering (IPO) to raise $11.25 million through the sale of its common stock, as per an SEC F-1 registration statement. The company, which provides ESG (Environmental, Social, and Governance) information and analytics software to enterprise customers, is struggling with declining revenues, high losses, and burning cash at an alarming rate. Given these factors, the IPO appears overvalued, and the recommendation is to avoid it.

What Does Diginex Do?

Founded in Hong Kong in 2020, Diginex Limited specializes in developing ESG data and analytics software. With offices in Hong Kong, Monaco, the UK, and the US (though the US subsidiary is inactive), the company targets small and medium-sized businesses interested in ESG evaluation and reporting. Led by founding chairman Miles Pelham, Diginex offers several core products:

• diginexESG – ESG reporting platform
• diginexLUMEN – Supply chain risk assessment tool
• diginexAPPRISE – Supply chain performance criteria
• diginexCLIMATE – Carbon footprint calculator
• diginexADVISORY – ESG strategy and advisory services
• diginexPARTNERS – A white-label version of its ESG and LUMEN offerings

As of March 31, 2024, the company had raised a fair market value of $3.8 million from investors, including its chairman, Rhino Ventures, HBM IV, Nalimz Holding Limited, and Natalia Pelham. However, despite these investments, there is no information on the number of customers or client concentration.

Financial Performance: Declining Revenues and Mounting Losses

Diginex’s financials paint a concerning picture. The company’s general and administrative expenses have skyrocketed compared to its dwindling revenues. As of March 31, 2024, its general and administrative expenses were 720.5% of revenue, up from 547.5% the previous year. This means the company is spending significantly more than it earns. The company’s efficiency multiplier—calculated by dividing revenue generated by administrative expenses—was 0x, indicating it generated no additional revenue for every dollar spent on overhead.

The “Rule of 40,” a commonly used metric in the software industry, combines revenue growth and operating margin. Ideally, companies aim for a combined score of at least 40%. Diginex’s performance as of March 31, 2024, was -641%, highlighting severe operational inefficiency.

Market Overview

According to a 2024 report by Grand View Research, the global ESG software market was valued at $940.7 million in 2023 and is projected to grow to $2.87 billion by 2030, reflecting a compound annual growth rate (CAGR) of 17.3%. The growth will be driven by increased regulatory requirements, heightened investor scrutiny, and a corporate focus on sustainability.

Diginex faces competition from several other industry players, including:

• Damaran
• EcoVadis
• NAVEX Global
• Trust
• SAS Institute
• Sustainalytics
• TruValue Labs
• Verisk 3E
• Water Clover

While the ESG software market is poised for growth, Diginex’s shrinking revenues and high losses make its ability to capitalize on this trend uncertain.

Recent Financial Results

Diginex’s financials show declining revenue, rising losses, and high cash burn. For the fiscal year ending March 31, 2024, the company reported:

• Revenue: $1.3 million, down 20.1% from the previous year’s $1.6 million.
• Operating Loss: $(8.06) million, with an operating margin of -620.5%.
• Gross Loss: $(4.88) million, with a net margin of -375.4%.
• Cash Burn: Diginex reported cash flow from operations of $(5.85) million for the year ending March 31, 2024.

As of March 31, 2024, Diginex held $76,620 in cash and $24 million in debt, with free cash flow for the year at negative $(5.9) million.

IPO and Valuation Details

Diginex is offering 2.25 million shares at a proposed midpoint price of $5.00 per share, aiming to raise $11.25 million in gross proceeds. An additional 3 million shares are being registered for resale by existing shareholders, which could significantly impact the stock price post-IPO.

If the IPO is successful, the company will have an enterprise value of approximately $107 million. However, with only 9.7% of its shares available for public trading, the stock is expected to be highly volatile. Diginex is also a “foreign private issuer” and an “emerging growth company,” which allows it to disclose less information to shareholders compared to standard public companies.

Conclusion: Should You Buy Diginex’s IPO?

Diginex is a small company with declining revenues, heavy losses, and high cash burn. The company is seeking public funds to cover its operational needs but is significantly overvalued with an enterprise value/revenue multiple of 82.5x. The combination of a Cayman Islands holding structure, a volatile stock float, and heavy shareholder sales post-IPO adds further risk to this offering.

Given the company’s weak financials, operational inefficiencies, and overvaluation, the recommendation for Diginex’s IPO is sell/avoid.

Expected IPO Date: To be announced.