NEW DELHI: India's largest private insurer HDFC Life Insurance on Friday said it would take over the life insurance unit of Exide Industries Limited (EIL) -- Exide Life Insurance -- in a stock and cash deal that will value the enterprise at Rs. 6,687 crore. The deal, which is subject to regulatory approvals, will make it the largest acquisitions in the life insurance space which has 23 private players and one state-owned insurer, Life Insurance Corporation (LIC).
“We have been eyeing this opportunity for quite some time,” Vibha Padalkar, chief executive officer at HDFC Life, said in a call with media on Friday. The buyout, she said, will accelerate the growth of the agency business of HDFC Life and other distribution channels like brokers, direct and co-operative banks. Bengaluru-based Exide Life, with a “strong” foothold in South India, especially in Tier 2 and 3 towns, complements HDFC Life’s geographical presence, and will provide access to a wider market, Padalkar added.
Besides, Exide Life has a solid proprietary agent network, which is expected to bolster HDFC Life’s proprietary channel growth. Currently, the proprietary channel constitutes 15% of the business for HDFC Life. The merger would add about 40% to the topline of HDFC Life Agency over the next 2-3 years, according to the company. HDFC Life’s agent base will grow to 1,44,605 from the current 1,07,895. “The reliance on bancassurance has gone down and companies have built their own models and that is the objective and core rationale of the deal to grow our proprietary channel," said the HDFC Life CEO.
Of the Rs. 6,687 crore that HDFC Life will be paying to acquire Exide Life, Rs. 726 crore will be payable in cash, and the balance by issuing 87.02 million equity shares of face value of Rs. 10 of the company issued at a price of Rs. 685 per share to EIL.
Exide Industries has made a total investment of Rs. 1,679.59 crore in its insurance arm so far. On completion of the deal, Exide Industries will hold a 4.1% stake in HDFC Life and mortgage lender HDFC Ltd, which holds 49.9% stake in HDFC Life, will see its stake come down to 47.9%. The proposed sale is expected to be completed before June 2022.
Analysts expect this deal to fuel further consolidation in the sector where competition is heating up. The proposed acquisition will mark the first acquisition in the life insurance space in at least a decade. Earlier, Reliance Capital, the NBFC arm of the Anil Dhirubhai Ambani Group, had acquired the entire stake in AMP Sanmar from Australian insurer AMP and the Sanmar group in October 2005 for a little over `100 crore. HDFC Life had earlier intended to acquire Max Life but the deal did not go through because of regulatory hurdles.
“The AUM of Exide Life, however, is relatively small for there to be any concerns this time... so it should sail through," Shriram Subramanian, founder and MD of corporate governance advisory firm InGovern said. Exide Life Insurance’s asset under management (AUM) was to the tune of Rs. 18,780 crore as of June 30, 2021.
Pure life covers have seen a renewed interest in the post-Covid-19 world and going forward it should see a boost in demand. Further, with the foreign direct investment in the insurance sector increased to 74%, there could be more such transactions as promoters of smaller companies exit the space by selling their stake to foreign firms.