HDFC Life is making a second attempt at an inorganic deal with acquisition of Exide Life for Rs66.87bn valuing the company at 2.5x current EV. The rationale for the deal has been (i) strong agency business (adds 40% to agency top line), (ii) better protection (mix of 11% for Exide) and (iii) presence in southern tier-2 & 3 locations. In our view, Exide’s acquisition has minimal compliments to HDFCLI given a smaller size, it has been losing market share and immediate margins & opex synergies are on lower side which will be have to be worked upon, compared to 2.5x multiple to current EV. Deal adds 10% to HDFCLI’s EV, while stock consideration creates 4% dilution.
OutlookWe retain HOLD with TP of Rs725 (unchanged) based on 3.6x Sep-23 EV.
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