Private life insurer HDFC Life Insurance on Friday said it will acquire Exide Life Insurance from Exide Industries in a deal worth Rs 6,687 crore. The board of directors of HDFC Life Insurance Company (HDFC Life), Exide Industries, and Exide Life Insurance Company approved the transaction involving the sale of Exide Life Insurance to HDFC Life, HDFC Life said in a release.

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This merge will entail a small cash payout and a share swap. Vibha Padalkar, MD & CEO, HDFC Life insurance spoke to CNBC-TV18 to discuss more this deal.

On part-cash, part-equity structure Padalkar said, “The rationale of splitting at 89:11 between shares and cash, was that the sellers wanted to be neutral as far as their tax incidence is concerned. That is it just back solving for the possible tax that they would have to pay when we issue the shares to them. So there is no other thought behind it except for the preference. It could have been very well 100 percent shares.”

On the value of the new business, she added, “Qualitatively like I mentioned earlier it is in the black, last year was in the black and directionally also moving upwards. In terms of longer-term outlook in a post-merger and also extraction of synergies which would take between 12 to 15 months, this should start becoming accretive to our anyway, expanding new business margins, year-on-year.”

On deal, she said, “If you look at what are the listed players and proxy listed players are trading today, and excluding HDFC Life in this, it is at about 3.5 and this deal is happened at 2.47. So we are looking at close to 30% discount to market multiples.”

“Also, if you look at the post over a margin last year they were comfortably positive, which just shows that in terms of upward trajectory, getting into the green zone, and certainly a roadmap that if you were to extract synergies, both in terms of cost synergies as well as top-line productivity synergies, this could become very accretive and also in line with our stated philosophy of wanting to grow our proprietary channel and have a balanced distribution mix.”

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HDFC Life to acquire 100% stake in Exide Life Insurance for Rs 6,687 crore

On operating cost, Padalkar said, “As far as costs are concerned, you are right we are about 60 percent cheaper in terms of, if we were to look at cost percentages, and there we have looked at in terms of what is the construct of cost, and really the what they are struggling with is what every small life insurer in India struggles with which is larger fixed cost base and inability to grow beyond a point. That is where I think deferring those costs over a larger base will become easier. HDFC life does believe in being an inclusive company, we do want the best people best resources, whether it is in human resources, or in terms of infrastructure, resources, and so on and so we will see it in that light. But collectively, we should be able to extract synergies both on productivity as well as costs.”

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