HDFC Life acquires Exide Life Insurance in Rs 6,687-crore deal

Move will augment the embedded value of HDFC Life by 10%

In one of the biggest deals in the insurance space, private sector life insurer HDFC Life on Friday announced it was acquiring a 100 per cent stake in Exide Industries-promoted Exide Life Insurance for Rs 6,687 crore, in a bid to enhance its proprietary channel. The acquisition will add about 40 per cent to HDFC Life’s agency business and 30 per cent to its agent base.

Of the Rs 6,887 crore, Rs 725 crore will be in cash and the balance by issuing 87.02 million equity shares of the company at Rs 685 per share to Exide Industries. The acquisition will augment the embedded value of HDFC Life by approximately 10 per cent and take its assets under management to over Rs 2 trillion.

Exide Industries’ investment in Exide Life as of now is Rs 1,679.59 crore. After the acquisition, it will hold 4.1 per cent in HDFC Life, and mortgage lender HDFC Ltd, which holds 49.9 per cent in HDFC Life, will see its stake come down to 47.9 per cent.

Shares of the life insurer dropped 3.21 per cent to close at Rs 734.45 on the BSE after the announcement of the deal while Exide Industries’ shares surged 6.34 per cent to close at Rs 189.55. The deal is structured in two stages. After the acquisition, Exide Life will become a subsidiary of HDFC Life and subsequently it will be merged with it.

“By making it an intermediary, we will gain control of the business sooner and value preservation becomes easier,” said Vibha Padalkar, managing director and chief executive officer, HDFC Life. “We do not require any further capital at this point in time,” Padalkar said.

The company said had it taken the other route, which was to merge with Exide Life, it would have gained control of Exide Life’s business after 18 months or so. The company is hoping that the first stage of the deal should happen in five months. And, the deal should fructify nine months after the first stage.

This marks the beginning of consolidation in the life insurance sector, which has 23 private entities but is dominated by five or six.

An industry expert said insurance by nature was a capital-guzzling business so it was the management’s call whether to infuse capital into the company at regular intervals or exit the company.

With foreign direct investment in the insurance sector increased to 74 per cent, “we may see promoters of smaller companies exit the space by selling their stake to foreign companies”.

HDFC Life had intended to acquire Max Life but the deal did not go through because of regulatory hurdles. Experts said this deal, however, was not expected to face any such obstacles.

“While we have continued to grow faster than the overall life insurance market, we have been seeking opportunities to supplement that with inorganic growth,” Padalkar said, adding that once this transaction was done, HDFC Life would continue to look for opportunities for inorganic growth.

Exide Life complements HDFC Life’s geographical presence and has a strong foothold in South India, especially in Tier 2 and 3 towns. HDFC Life’s agent base will grow to 144,605 from 107,895 now.

“We have been growing our proprietary channel by about 20 per cent on a CAGR (compound annual growth rate) basis. But, adding 40 per cent to our agency channel, which is what it is tantamount to after the acquisition, would have taken us three years. Today our proprietary channel is about 15 per cent and we want that to be 30-35 per cent of our business,” Padalkar said in a media call.

HDFC Life added the highest number of agents among the private life insurance companies in Q1FY22.

The company expects to realise the synergies in 18-24 months. “New business margins will improve as operating leverage and product mix changes kick in. There is also slight scope to improve Exide Life’s agent productivity and persistency,” Axis Securities said in a note.