Housing Development Finance Corp’s general insurance arm HDFC Ergo is in advanced talks to acquire Apollo Munich Health Insurance for an approximate valuation of Rs 2,600 crore, said two people aware of the development.
Apollo Munich — a 51:49 joint venture between Chennai-based Apollo HospitalsNSE 1.30 %, promoted by Prathap C Reddy and his family, and German reinsurance company Munich Re — is the second-largest standalone health insurance provider in the country.
Munich Re will exit the company after the sale, said one of the people cited above. “Apollo will own a marginal stake in the merged entity with HDFC Ergo,” the person told ET. Ergo, the German insurer that holds 49% stake in HDFC Ergo, is owned by Munich Re.
Arpwood Capital is the exclusive advisor to the proposed deal between HDFC Ergo and Apollo Munich.
Apollo Munich, HDFC and Munich Re didn’t respond to queries.
ET had first reported on April 9 that discussions are going on between HDFC and Apollo Munich for a possible merger.
HDFC, which raised Rs 13,000 crore through a qualified institutional placement (QIP) earlier this year, has been looking at opportunities to grow its businesses, including subsidiaries through acquisitions.
Apollo Munich has a 0.97% market share of India’s health insurance market. The company’s gross premium income grew 32.89% on year to Rs 759 crore for the six months ended September.
HDFC Ergo General Insurance, a joint venture between HDFC and Ergo International AG, had in 2016 acquired L&T General Insurance to become the third-largest private sector general insurer in the country.
This will be the second deal in the health insurance sector this year. Safecrop Holdings, a consortium of West-Bridge AIF, Rakesh Jhunjhunwala and Madison Capital, had bought Star Health & Allied Insurance Co for Rs 6,500 crore in August.
Health insurance companies have seen interest from investors, especially for those with niche capabilities. Also, the listing of a few general insurance companies is leading to focus on profitability and talks about consolidation.
“While health insurance is among the fastest-growing insurance segment, they have a narrower scope to play with, which eats into profitability,” said Rahul Sakia, an investment banker. “The reason for consolidation is that health insurance policies can be written by life, general and standalone health insurance companies. They need to focus on cost and economies of scale in health. Consolidation is happening faster than other insurance segments.”
Apollo Munich has 1,100 employees in 40 offices. The Apollo Munich plans can be availed of in about 4,000 hospitals, including the 53 Apollo Group hospitals, in 831 cities and towns. The health insurance market has been growing at a CAGR of over 35% for the last three years. In the last financial year, the industry has registered a growth of over 30%.
Source: Economic Times