Exide has decided to increase its stake in the insurance JV, ING Vysya Life
Insurance (IVL) to 100%. It will pay INR5.5bn for the remaining 50% stake
in the JV which it will acquire from three partners including ING. While
the deal value is attractive at 1x estimated embedded value as against
1.5-2x valuation range for peers, the exit of ING / partners will lay the
onus of supporting and running the business till such time a strategic
partner is roped in. This can drag down the company’s performance in the
near term. Maintain ‘HOLD’ with target price of INR132.
Event: Exide has agreed to acquire the remaining 50% stake in ING Vysya Life Insurance
from the ING Group (26%), the Hemendra Kothari Group (16.32%) and the Enam Group
(7.68%) for an aggregate consideration of INR5.5bn. Post the acquisition, which is
subject to regulatory approval, Exide will identify and induct a new international player
in the life insurance genre to infuse fresh equity into IVL for IVL’s expansion plans. ING's
exit from the Indian life insurance joint venture is part of the previously announced
intended divestment of ING's Asian Insurance and Investment Management businesses.
Background: Exide, which first acquired stake in 2005, has so far invested INR7.5bn for
50% of equity capital in IVL. IVL is a marginal player, having collected a total premium of
INR16.8bn and AUM (as on FY12-end) stands at INR62.6bn. Its estimated embedded
value stands at ~INR1bn.
Analysis: We value IVL at 1.6x embedded value (peers in range of 1.5-2x), against which
the transaction has been in-principle agreed upon at 1x embedded value – which is a
very attractive transaction for Exide. However, in the near term, the business will
require significant financial and strategic support, which may impact Exide, till a
strategic partner is roped in.
Our view: While the exit of ING from IVL was long due and is positive post induction of
a strategic partner, the operations of IVL will require strategic and financial support till
then. This commitment from Exide will likely strain the resources and managerial
bandwidth of Exide. We value Exide at 15x FY14E core EPS of INR7.8, which along with
investments in subsidiaries and stake in IVL, yields an SOTP of INR132 per share.
Maintain ‘HOLD/Sector Performer’.
No comments:
Post a Comment