HDFC Life insurance has a new tool

HDFC Life insurance has a new tool

in June 2016, news broke that HDFC Life Insurance was to acquire Max Life. the market was thrilled because it meant HDFC Life would list through a reverse merger with Max Life’s parent, Max Financial.

but insurance regulator IRDAI had other plans. Max Financial Services and HDFC Life were questioned on the structure of the deal. eventually, it was called off. 

five years later, HDFC Life has gotten second-time lucky. the insurer has announced the acquisition of Bengaluru-based Exide Life, the insurance unit of battery maker Exide Industries. 

why does it matter?

this signals the first signs of consolidation in the life insurance sector. HDFC Life has paid ₹6,687 crore for Exide Life in a buyout that will improve access to the Southern markets.

HDFC Life’s stock hit a 52-week high of ₹775.65 when the deal was announced. Exide benefited too and its stock hit the day’s upper circuit of ₹196.05.  

the best is yet to come, say some brokerages, projecting a massive 20% rally in the HDFC Life stock post the deal.

however, there are some concerns too. Exide Life, which registered a net profit of ₹54.6 crore in the quarter ending March, slipped to a loss of ₹91 crore in the subsequent quarter. Exide’s distribution network is mostly agents. in insurance, it’s typically not field sales agents but banks that bring the big bucks. bank-led insurers dominate the market.

paying a premium?

usually, life insurance companies backed by large banks command a premium. Exide Life that doesn’t have bank tie-ups, and so the huge valuation has surprised a few people. analysts have also questioned whether the small player which only offers geographical expansion benefits to HDFC Life is worth so much.

right now, HDFC Life has a task at hand. it has to weed out old Exide products, integrate its team, and eventually merge the business. only then can it focus on making a good return on investment by tapping into the promise of new markets.