Mumbai: HDFC Life has agreed to buy Exide Life Insurance for Rs 6,687 Crore, which RS 726 Crore will be paid in cash.
The rest will be paid by issuing 8.7 crore shares of HDFC’s life to the parent target company.
This makes it the largest insurance agreement in India.
Announcing the acquisition, CEO of Life Insurance HDFC Vibha Padalka said that the core reason behind the agreement was the decision to foster its ownership distribution channel.
HDFC Life has developed a large scale behind the strength of the HDFC bank distribution.
While at first the bank was allowed to sell only one company policy, IRDAI has relaxed the rules in recent years.
“Adding 40% for the strength of our agency will take 2-3 years.
At present, our propriety channel is 15% of our business and we want to increase it to 30-35%.
If you see other parts of Asia, exclusive channels dominate.
During the period Certain time, dependence on bancassurance has fallen and the company has built their bound agent model.
That is the essence of this agreement …
to grow our own exclusive channel, “said Padalkar.
The acquisition will add 10% to HDFC Life’s Embedded Value (EV) – size for the value of a life company that takes into account future income from policies issued by the company.
The price of acquisition is less than 2.5 times the EV of off life.
Also, given that doing life has a good solvency position of 225%, it will increase the solvency of HDFC Life.
However, cash payments, when that happens, will have a 15% impact on the solvency margin.
“There is an advantage if someone is trading on expensive assessment.
Obtaining the company using your stock becomes less fit and less than obstacles …
So, HDFC Life, trading around 6x Trailing EV, mostly used shares, generate only 4% dilution and get a life 10% added to EV, “said the capital research analyst Macquarie Suresh Ganapathy.
According to Padalkar, the company has a good assessment as an average assessment of registered companies and proxies (not including HDFC Life) is 3.5 times their EV, while the values ​​of agreement are more than 2.5.
He said that the business would complement HDFC’s life in terms of geographical distribution as well, because life faster present in Tier-3 cities where this acquirer has not made a breakthrough.
He said that the company was open to more acquisitions as long as it has a credible distribution, a decent-sized EV and strong risk management in his DNA.
Padalkar said that the first stage of transactions – changing life into a fully owned subsidiary – will take place in December-January.
After that, he hoped the consolidation took 8-9 months.
The Exide Life Insurance has the origin of Vysya’s life insurance.
The company lost their second promoter, which decided to leave several years after the global financial crisis in 2013, and Vysya Bank which was acquired with Ing and then by the Mahindra Bank box.
After coming out, branching the Auto Rajan Rahja battery maker became the owner of the Exide Life Insurance.
The company is seen as the target of acquisition for several years because it has not managed to reach the scale.
Exide on Friday told the stock exchange that the total investment company in a subsidiary was Rs 1,679 Crore.