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 subsequent merger of Exide Life will see the firm’s promoter get a 4.1% stake in HDFC Life. Mortgage lender HDFC’s stake in HDFC Life will reduce to 47.9% from 49.9% whereas other investors’ in the life insurance venture will see their combined stake come down to 48% from the earlier 50%.
ET was the first to report on the deal in its Friday print edition.
The deal could mark 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 is an acquisition target with nearly 40,000 agent advisors as well as a sizable distribution network that can help HDFC Life extend its sway, as well as strengthen its presence in South India where Exide Life has a strong market share.
“We believe that this amalgamation can result in value creation for customers, employees, shareholders and distribution partners. It gives us an opportunity to realise synergies arising out of complementary business models, and further bolster our proprietary distribution network,” said chief executive of HDFC Life Vibha Padalkar in a statement.
Bengaluru-based Exide Life’s embedded value (EV) was Rs 2,711 crore, the person added. EV is a key financial metric used by bankers to calculate the corporate value of life insurance companies attributed to shareholders.
The merged entity will have a 1.4 lakh strong agent network as well as a consolidated AUM of Rs 2 lakh crore. It will also have a total premium of Rs 41,000 crore and an embedded value of Rs 30,042 crore.
“This is a landmark transaction, first of its kind, in the Indian life insurance space. It would enhance insurance penetration and further our purpose of providing financial protection to a wider customer base,” said Deepak S. Parekh, Chairman, HDFC Life.
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 Rs 1,485 crore.
“The focus of Exide Industries has always been to enhance the value for its stakeholders. The proposed transaction is another step taken by Exide to meet the above stated objective. It is likely to be a win-win situation for all stakeholders, since our subsidiary, Exide Life Insurance, is going into the hands of HDFC Life Insurance, which has an established track record of value creation,” said Rajan B Raheja, Vice Chairman, Exide Industries Limited.
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 Rs 302 crore from last year largely on the back of Covid-specific additional provisions worth Rs 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 a year earlier, according to data from the Insurance Regulatory and Development Authority (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 Rs 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 Rs 18,381 crore and in FY21 a total premium income of Rs 3,325 crore, as per disclosures made on its website. The firm also has a claim settlement ratio of 98.5%.