Here’s why HDFC Life Insurance shareholders aren’t excited about the buyout of Exide Life

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Here’s why HDFC Life Insurance shareholders aren’t excited about the buyout of Exide Life
BCCL
  • With the proposed buyout deal, HDFC Life Insurance is said to enhance its agency business and benefit from Exide Life's strong presence in south Indian cities.
  • Shares of HDFC Life Insurance were down 3% after the announcement of the acquisition as investors were not pleased with the huge deal.
  • Meanwhile, shares of Exide Industries were up 7%.
HDFC Life Insurance has made plans to consolidate its business by acquiring another life insurance company Exide Life Insurance for ₹6,687 crore. This is said to be one of the largest acquisitions in India’s life insurance space, which has 23 private insurers.

However, this deal has not impressed investors given the shares of the company slipped 3% and those of Exide Industries were up 7% as of 11:35 a.m., on September 3.

Here’s why HDFC Life Insurance shareholders aren’t excited about the buyout of Exide Life
Flourish

On Thursday, September 2, shares of HDFC Life Insurance had surged 6% hitting a record high on expectation that the private insurer is likely to raise ₹1 billion from investors as per a report by Economic Times. This was because on Tuesday HDFC Life had announced that its board will meet on Friday to raise funds through issue of equity shares on a preferential basis.
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Analysts feel that it is a good deal for Exide Life in terms of valuation, but a not-so-good deal for HDFC Life as it might be paying more.

“There is little as such to gain for HDFC Life in the short term (in terms of this deal) and it will have to turn it around [towards] profitability over the next 12-15 months, which is why the stock (HDFC Life) has corrected. Market feels HDFC Life is clearly paying more, which is also why Exide’s stock is higher,” said an analyst at a broking firm on condition of anonymity.

HDFC Life has a market share of 8% as of 31 July in terms of new business premium while Exide has a market share of 0.34%. New business premium is the premium acquired from new policies in a particular year.
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Here’s why HDFC Life Insurance shareholders aren’t excited about the buyout of Exide Life
Flourish

HDFC Life expects Exide Life to add 40% of topline agency business and 35% of agency pays, said a report by CNBC-TV18.

Exide’s strong foothold in south India, especially in tier 2 and 3 towns will provide access to a wider market.

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In the past, HDFC Life had reportedly intended to acquire Max Life Insurance, but the deal did not go through because of regulatory hurdles.

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