BFSI - HDFC Sells Stake in HDFC Life to Azim Premji Trust::Edelweiss report link

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HDFC today sold 0.95% stake in HDFC Life Insurance (HDFC Life) to the Azim Premji Trust for ~INR2bn. The deal translates into business valuation of INR210bn (higher than our INR178bn estimate) and embedded value (EV) multiple of 2.7x (reported H1FY15 EV of INR77.8bn). The transaction, we believe, is one of the first non-strategic insurance stake sales in India (involving a domestic buyer) and will be a benchmark for value discovery for future stake sales.

Stake sale to be done in 2 tranches; business valued at INR210bn

Today, HDFC sold 0.95% stake in HDFC Life (ranked second in terms of individual weighted received premium and first in terms of gross written premium) to the Azim Premji Trust at INR105/share. The deal will be concluded in 2 tranches with ~63% shares to be sold in the first tranche (already completed) and balance to be sold subsequently (no specific time frame). This translate into business valuation of INR210bn (higher than our ~INR178bn estimate) culminating into EV multiple of 2.7x. Currently, HDFC holds ~72.36% in HDFC Life (26% is held by Standard Life of UK and balance by others). With this transaction, HDFC’s stake will be reduced to 71.42%.

HDFC Life Insurance: Stands tall in pecking order

HDFC Life Insurance is one of the largest life insurance players in India with 15% market share as on H1FY15 (on individual weighted received premium basis). Key differentiators are: (1) strong bancassurance partner (HDFC Bank); (2) best-in-class persistency ratio; and (3) industry beating opex ratio. The company has AUM of INR591bn (with 51% being contributed by debt and balance by equity). It has solvency ratio of 204% (higher than the regulatory requirement of 150%), however lower than peer-set.

LINK
https://www.edelweiss.in/research/EdelFlash-BFSI--HDFC-Sells-Stake-in-HDFC-Life-to-Azim-Premji-Trust/27880.html