Exide Life’s handsome exit and HDFC Life’s smart move

Exide Life Insurance has had nothing to complain about. For a company with less than a 1 per cent market by way of new business premium, the decision to sell out completely to HDFC Life has been very lucrative. The ticket value of the deal was Rs 6,687 crore and that meant a handy 2.5x of its embedded value. The way the deal has been structured gives it stock in the fast-growing HDFC Life.

There is a bit of a background to Exide Life Insurance before it came to be owned by Rajan Raheja, a businessman with interests in cement and publishing. In 2005, it first acquired a 50 per cent stake in ING Vysya Life Insurance from GMR industries. That deal was struck at just over Rs 200 crore valuing the entity at Rs 400 crore. Other shareholders in the insurance company were the Dutch financial group, ING, investment banker Hemendra Kothari and Enam Group's Vallabh Bhansali. In early 2013, they all sold their holding to Exide for Rs 550 crore, valuing the company at Rs 1,100 crore. The new company was now called Exide Life Insurance, a subsidiary of the battery manufacturer, Exide.

The low market share has been attributed to the promoters not investing enough and also a realisation that insurance was not a core business. According to Vineet Patni, Partner, Wepartner Consult LLP and ex-CXO at Bajaj Allianz and Bharti AXA, insurance continues to be a capital-intensive business with long gestation periods. "It is a great exit for Exide's promoters and gives HDFC Life a solid book and presence in the southern market," he says. Patni is quick to add that "Exide could have remodelled itself and scaled up by focusing on the right product mix and moving digital. Of course, that needs a mindset change."

The icing on the cake is an impressive return over its embedded value, the future profit that a current business can generate, and a 4.1 per cent equity in HDFC Life - at a market capitalisation of Rs 1.48 crore, that is a cool Rs 6,100 crore. There is also a cash component of Rs 700 crore as well. Given how HDFC Life has grown, there is little to suggest that Exide's holding in it will not improve substantially. Much as it gives HDFC Life a critical geographical footprint, the deal has given Exide a lot to cheer about. For a marginal player which did not invest very much, the sellers have laughed all the way to the bank.

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