Private sector life insurer HDFC Life on Friday said it’ll acquire a 100 per cent stake in Exide life assurance Company for Rs 6,887 crore from Exide Industries Ltd (EIL) and subsequently, it’ll be merged with HDFC Life, subject to regulatory approvals.
This marks one among the primary and therefore the largest acquisitions within the life assurance space, which has 23 private players and one state-owned insurer – life assurance Corporation (LIC). Previously, HDFC Life had intended to accumulate Max Life but the deal didn’t undergo due to regulatory hurdles. Experts said this deal will, however, isn’t expected to face any such regulatory hurdles.
Earlier, Reliance Capital, the NBFC arm of the Anil Dhirubhai Ambani Group, had acquired the whole stake in AMP Sanmar from Australian insurer AMP and therefore the Sanmar group in October 2005 for a touch over Rs 100 crore. HDFC Life’s proposed acquisition will mark the primary acquisition within the past 16 years within the life assurance space.
Of the Rs 6,887 crore that HDFC Life are going to be paying to accumulate Exide life assurance , Rs 725 crore are going to be payable in cash, and therefore the balance by issuing 87.02 million equity shares of face value of Rs 10 of the corporate issued at a price of Rs 685 per share to Exide Industries Limited, the company of Exide life assurance . EIL’s total investment in Exide Life as on date was Rs 1679.59 crore.
Post the acquisition, Exide Industries will hold a 4.1 per cent stake in HDFC Life and mortgage lender HDFC Ltd, which holds 49.9 per cent stake in HDFC Life, will see its stake come right down to 47.9 per cent.
In a statement, HDFC Life, one among the most important private insurers within the life assurance space, said, “The proposed transaction will accelerate the expansion of the agency business of HDFC Life. Exide Life complements HDFC Life’s geographical presence and features a strong foothold in South India, especially in Tier 2 and three towns, thus providing access to a wider market”.
HDFC Life’s agent base will get augmented by 36,700 agents post the acquisition and its agent base will grow to 144,605 from the present 107,895 agents.
Also, the great quality of predominantly traditional and protection focussed business will augment the prevailing embedded value of HDFC Life by approximately 10 per cent. As of June 30, the embedded value of Exide Life is Rs. 2,711 crore and
The date of completion of the sale depends on the time taken for receiving all approvals, including those from concerned regulators. However, it’s estimated that the sale are going to be completed before June 2022.
“The proposed transaction will give customers access to a wider bouquet of products and repair touchpoints. Employees and agents will enjoy a bigger , stronger organisation that realises the synergies arising out of complementary business models built on similar ethos”, HDFC Life said during a statement.
In FY21, Exide life assurance earned premiums to the tune of Rs 3,325 crore. It’s asset under management was to the tune of Rs 18,870 crore as of June 30, 2021. Exide life reported revenue of Rs 4,937.46 crore within the year ended March 2021 with a net worth of Rs 1,481.42 crore.
On the proposed acquisition, Deepak Parekh, chairman, HDFC Life said, “This may be a landmark transaction, first of its kind, within the Indian life assurance space. it might enhance insurance penetration and further our purpose of providing financial protection to a wider customer base.”
Vibha Padalkar, MD&CEO, HDFC Life said, “We believe that this amalgamation may result in value creation for patrons , employees, shareholders and distribution partners. It gives us a chance to understand synergies arising out of complementary business models, and further bolster our proprietary distribution network”Shares of HDFC Life are trading 3 per cent lower at Rs 735.90 post the announcement of the acquisition.
HDFC Life had reported a 33 per cent decline in standalone net profits at Rs 302 crore in Q1FY22 thanks to higher claim payout by the corporate and better provisions being put aside to mitigate the impact of upper claims due to the pandemic. it’s found out a further reserve of Rs 700 crore to service further claims. The solvency ratio of the insurer at the top of Q1FY22 stood at 203 per cent, above the regulatory requirement of 150 per cent.
An industry expert said insurance naturally may be a capital-guzzling business so it’s the management’s call whether to infuse capital within the company at regular intervals or exit the corporate completely by selling it lock, stock, and barrel. With foreign direct investment within the insurance sector increased to 74 per cent, we may even see promoters of smaller companies exit the space by selling their stake to foreign companies.