Tag: Vibha Padalkar

Announcing the acquisition, HDFC Life Insurance CEO Vibha Padalkar said that the core reason behind the deal was its decision to grow its proprietary distribution channel. HDFC Life has developed scale largely on the back of the distribution strength of HDFC Bank. While initially banks were allowed to sell policies of only one company, Irdai has relaxed the rule in recent years.

“Adding 40% to our agency force would have taken 2-3 years. Today, our propriety channel is 15% of our business and we want to increase that to 30-35%. If you look at other parts of Asia, the proprietary channels dominate. Over a period of time, the reliance on bancassurance has gone down and companies have built their tied agency model. That is the core of this deal… to grow our own proprietary channel,” said Padalkar.

The acquisition will add 10% to HDFC Life’s embedded value (EV) — a measure for the worth of a life company that takes into account future earnings from policies that the company has issued. The acquisition price is less than 2.5 times the EV of Exide Life. Also, given that Exide Life has a sound solvency position of 225%, it will add to HDFC Life’s solvency. However, the cash payout, when it happens, will have a 15% impact on solvency margins.

“There is an advantage if one is trading at expensive valuations. Acquiring a company using your stock becomes less onerous and less of a drag…so, HDFC Life, trading at about 6x trailing EV, used largely its stock, resulting in just 4% dilution and got Exide life which added 10% to EV,” said Macquarie Capital research analyst Suresh Ganapathy.

According to Padalkar, the company has a good deal as the average valuation of listed and proxy listed companies (excluding HDFC Life) is 3.5 times their EV, while the deal values Exide Life at less than 2.5. She said that the business would complement that of HDFC Life in terms of geographical distribution as well, since Exide Life is present in tier-3 cities where the acquirer is yet to make inroads.

She said that the company was open to more acquisitions as long as it had a credible distribution, a decent sized EV and strong risk management in its DNA. Padalkar said that the first stage of the transaction — turning Exide Life into a wholly owned subsidiary — would take place by December-January. Thereafter, she expected consolidation to take 8-9 months.

Exide Life Insurance has its origins as ING Vysya Life Insurance. The company lost both its original promoters — ING, which decided to exit a few years after the global financial crisis in 2013, and Vysya Bank which was acquired by ING and later by Kotak Mahindra Bank. After ING’s exit, the Rajan Raheja-owned auto battery-maker Exide became the owner of Exide Life Insurance. The company was seen to be an acquisition target for several years as it had not managed to achieve scale. Exide on Friday informed the stock exchanges that the total investment of the company in the life subsidiary was Rs 1,679 crore.