HDFC Life, India’s largest private sector insurer, has acquired Exide Life in a stock and cash deal worth Rs 6,687 crore.
The 100% acquisition of Exide Life will be through issuance of 8,70,22,222 shares at an issue price of Rs 685 per share and a cash pay-out of Rs 726 crore. The entire process, including the acquisition and subsequent merger, is subject to obtaining the relevant regulatory approvals, HDFC Life said in a statement on Friday.
The deal marks the beginning of a fresh round of consolidation in the industry that’s seeing intense competition amid the rising dominance of digital platforms in distribution. The move also comes at a time when consumers and businesses alike are opting for life cover with increased urgency amid the pandemic.
Exide Life with more than 40,000 agent advisors as well as a sizeable distribution network can help HDFC Life extend its sway.
Bengaluru-based Exide Life’s embedded value (EV) was 2,700 crore on June 30. EV is a key financial metric used by bankers to calculate the corporate value of life insurance companies attributed to shareholders.
“Exide Life has been a profitable life insurance venture with strong agent network and digital distribution capabilities,” said one of the persons ET spoke to on the contours of the deal. “The company’s financials are strong, especially that it has been profitable for nine consecutive fiscals and has a good capital base as well with solvency ratio well over 200%.”
Exide Group promoter Rajan Raheja had previously exited unit Prism Cement’s general insurance joint venture with QBE, selling it to Paytm in a deal worth Rs 568 crore last year. HDFC group’s general insurance venture HDFC Ergo bought a majority stake in Apollo Munich Health Insurance in 2020 for 1,485 crore.
“HDFC Life’s interest stems from its intent to double down on its dominance in the private sector life insurance market ahead of the mammoth IPO of Life Insurance Corp. (LIC) of India later in the year, and such a deal can have helped with good valuation gains,” said the person cited above.
The deal is subject to clearance from HDFC Life’s board as well as India’s competition and insurance regulators. HDFC Life has informed stock exchanges about a board meeting on Friday (Sept. 3), when it’s set to consider a proposal for a preferential issue to raise new equity capital.
The fundraising announcement saw stock prices of HDFC Life spurt 5% Thursday to a record 758.5, aided by speculation that Warren Buffet’s Berkshire Hathaway or UK-based asset manager Baillie Gilford is negotiating to buy into the company. This could not be independently verified. Exide’s stock also rose–by 4.68% on the BSE Thursday.
Much of India’s life insurance industry has been struggling as the second wave of the Covid pandemic in April and May has resulted in a surge in death claims.
In its first quarter of the current fiscal year, HDFC Life’s profit after tax slumped 33% to 302 crore from last year largely on the back of Covid-specific additional provisions worth 700 crore. The private life insurer is a joint venture between HDFC Ltd., India’s leading housing finance institution, and Standard Life Aberdeen, a global investment company.
To be sure, HDFC Life’s solvency ratio was at 203% in the last two quarters, above the mandated 150%. On the other hand, Exide Life had a solvency ratio of 220% at the end of FY21. The latest financials of Exide Life were not immediately available.
With Rs 5,862 crore in premiums already processed in FY22 up to July, HDFC Life has reported a growth of 27% from year earlier, according to data from the IRDAI. The company has a market share of over 8% in India’s life insurance market.
Exide Life on the other hand processed premiums worth 248 crore in this period, reporting a growth of 67%, with a market share of roughly around 0.34%, the data showed. The insurer has assets under management worth 18,381 crore and in FY21 a total premium income of 3,325 crore, as per disclosures made on its website. The firm also has a claim settlement ratio of 98.5%.
