HDFC Life's Buyout Of Exide Life Ticks All Boxes, Says Vibha Padalkar

HDFC Life Insurance Co. said its acquisition of Exide Life Insurance Co. ticks all boxes, from valuations to business synergies.

The acquisition at 2.5 times the embedded value is still 30-35% cheaper than what other listed life insurers are trading at, including HDFC Life, Vibha Padalkar, managing director and chief executive officer at the acquiring company, told BloombergQuint’s Niraj Shah in an interview.

HDFC Life will fully acquire Exide Life for Rs 6,687 crore. That includes Rs 726 crore cash and the rest by issuing its 8.7 crore equity shares at Rs 685 apiece to Exide Industries Ltd., the parent of Exide Life.

Exide Life's niche distribution is expected to add 40% to HDFC Life's existing agency network, according to Padalkar. While HDFC Life will continue to grow, it would have taken two-three years to expand agency network by this scale organically, she said.

Exide Life also has credible broker and corporate agency relationships and its product mix is ideal for the size of its business, Padalkar said. The company has a strong back book or policies no longer sold but still earn premium, according to her.

Embedded value is 10% of that of HDFC Life and she expects integration "fairly cohesive".

While Exide Life’s has faced cost overrun issues, Padalkar said the insurer's pre-cost overrun margins are similar to HDFC Life’s. They are merely scale of operations issues and the post transaction scale and cost synergies could make it accretive, she said.

HDFC Life plans of further digitise and add products to Exide Life’s existing business, she said.

Watch the full interview here:

• Its revenue (total premium) was Rs 3,325 crore in fiscal 2020-21.

• Assets under management stood at Rs 18,780 crore.

• Embedded value was Rs 2,711 crore as of June.

• It will hold 4.1% stake in HDFC Life post the transaction.

• Exide Life promoters exiting the insurance business.

• There will be a lock-in period of one year.

• The ‘Exide’ brand can be used for two years after the transaction.

• Exide complements geographical presence with a strong foothold in South India for HDFC Life.

• More than 60% business from tier 2 and 3 cities.

• Product mix comprises 11% protection, nearly 70% participating, 13% non-participating and 5% unit-linked.

• The 13^th month persistency is at 73% and improving.

• The management said there is a slight lag in the 61^st month persistency of Exide Life, which needs improvement.

• The transaction will add 38% to HDFC Life’s annual premium equivalent.

• The business has been profitable since the past four to five years.

• HDFC Life anticipates a 15% incremental growth in the southern market after the transaction.

• Exide Life has been retaining lesser risks on their books with regards to protection portfolio and reinsuring more than HDFC Life.

• Covid claims for Exide Life similar to the industry and have been well provided for. Impact of the third wave not considered; policy similar to HDFC Life's.

• The transaction anticipated to take six months for obtaining necessary approvals.

• A time frame of 12-15 months after that will be required to align the operations and high expense ratio with HDFC Life.

• Huge tax outgo on account of the transaction would be offset by the cash payout to make the deal tax-neutral.