Battery supplier Exide Industries has agreed to increase its stake in the insurance joint venture, ING Vysya to 100 percent. The company has decided to acquire the remaining 50 percent stake in ING Vysya Life Insurance for Rs 550 crore from its three partners, including ING. Currently, the company holds 50 percent in its insurance subsidiary.
AK Mukherjee, Director of Finance and CFO, Exide Industries told CNBC-TV18, he believes the life insurance business is still evolving and therefore, they recognise the potential to grow in this field. According to him, their involvement with the life insurance business will add value to stakeholders. He also expects the business to breakeven in FY13.
Mukherjee further added that the insurance business does not need any fund infusion in the near term. At the moment, Exide is looking for a partner in the business, he informed. However, there is no clarity about the time when a strategic investor will be roped in, he added. He is also hopeful of improving the financials of ING, but at a slow pace.
Here is the edited transcript of the interview on CNBC-TV18.
Q: Why are you spending so much of the cash on your balance sheet in this insurance buy at a time when core business is under a bit of threat?
A: We at Exide feel that life insurance business is still evolving and we recognize the considerable scope of growth of life insurance business in the country when the large population is still either under-insured or not insured at all. The recent hike in the income level, particularly in the lower level of the pyramid and the recent focus of the central government in this sector gives a considerable growth opportunity for life insurance business.
So taking all this into account, we feel that our continued involvement in the life insurance business will certainly add value to the stakeholders, both in the medium as well as in the long-term. The internal fund generation is quite sufficient to take care of any investment requirement for capacity enhancement in the core business as well as any investment in the life insurance business.
Q: This one-time cost aside, would you need to spend more money from your balance sheet to fund the insurance venture which is still not making money?
A: ING Vysya Life’s performance has improved over a period of time and we expect them to breakeven during this current financial year ending March 2013. There is no fund requirement in the last financial year. Even in the current financial year, there is no further fund requirement. We do not expect any further fund requirement in the immediate future.
Q: What is the plan with insurance? You can use the ING brand for another year, but you have lost your strategic partner. Would you now be looking actively for another strategic player? If yes, how much of stake would you want to give such a player?
A: Exide is committed to identify and induct foreign players in the insurance business, subject to the regulatory approvals in due course of time so that fresh fund can be injected to take care of the future development plan of ING Vysya Life.
Q: Any timelines in mind?
A: It is in the initial stage, so nothing is crystallised now.
Q: Has there been any expression of interest at all from any global player post the deal?
A: As I said, it is just in the initial stage so there is no such development as yet.
Q: Are you confident that you will be able to get a much better valuation than what you bought out ING’s stake for?
A: We definitely expect that.
Q: What kind of valuation would you be looking for?
A: I think it is too premature to comment on that. We have to see how it develops.
Q: Why has ING Vysya been a marginal player in the insurance business? While performance might have improved, it has not gathered the kind of market share that you would have been looking for.
A: I think it will gradually expand to the new markets, new areas and gradually we expect them to improve. Financials have definitely improved and their performance in the recent years is quite appreciable.
Q: If the Insurance Bill gets passed in the budget session of parliament, would you be looking to give out a much larger share than ING had in your business?
A: As I said, that is too premature to comment on. We have to take a call when the situation arises.