Motilal Oswal has given Neutral recommendation for HDFC Life Insurance with a target price of Rs. 750 in its research report issued on Sep 05, 2021
Motilal Oswal’s research report on HDFC Life Insurance
HDFC Life has announced the 100% acquisition of Exide Life for consideration of INR66.87b, of which INR7.26b would be paid in cash. Furthermore, the company would issue 87m shares to Exide Industries Limited towards the balance amount at INR685 per share. HDFC Life expects to secure all the approvals and complete the transaction by 30th Jun’22. In FY21, Exide Life earned a total premium of INR33.25b (8.6% that of HDFC Life), and total AUM stood at INR187.8b (10.4% that of HDFC Life). The acquisition would enable HDFC Life to increase its market share by ~140bp to 16.5% (15.1% for FY21) as per the total new business APE. This would make HDFC Life the second largest life insurer, while IPRU remains a close third, with market share of 15.7% for FY21. HDFC Life’s market share among private players on an Individual APE basis would improve ~130bp to 16.8%, thus narrowing the gap with private sector leader SBI Life. The acquisition would enable HDFC Life to strengthen its agency channel as Exide Life has a total agent count of ~37k, nearly 34% that of HDFC Life. Exide Life has a strong foothold in southern India, especially in Tier 2 and 3 locations. This complements the overall geographical presence of HDFC Life. The transaction values Exide Life at 2.5x Jun’21 reported EV, which appears expensive in the context of Exide life’s three-year premium and EV CAGR of ~10% and 8%, respectively.
However, given the total size of the transaction, our view on the company does not change. Our EV per share estimates on HDFC Life is likely to increase by 2.5%/~2% over FY22/FY23E as the transaction is completed. Maintain Neutral.