Published on 20/06/2019 10:18:17 AM | Source: Motilal Oswal Securities Ltd

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HDFC to buy stake in Apollo Munich

Will merge it with HDFC Munich post stake acquisition

* HDFC to acquire 51.2% on Apollo Munich Health Insurance for INR13.45b. Further, Munich Health Germany (Existing JV partner) to pay INR2.94b to Apollo group to support the transaction. Effectively company is valued at INR32b.


* Apollo is a standalone health insurance entity. Gross Written Premium (GWP) of the company in FY17/18/19 stood at INR13b/17.2b/21.94b. The market share in FY19 stood at 4.4% and 9% in overall and private health insurance market respectively. Company has 186 outstanding branches and 4000+ employees.


* On a Performa merged basis this will create combined market share of 6.4% in overall General insurance business. The deal will make HDFC Ergo 2nd largest private health insurance company in India with the market share of 8.8%.


* HDFC Ergo is a JV between HDFC ltd and Ergo International AG, primary insurance entity of the Munich Re Germany. Apollo Munich is the JV of Apollo Hospitals and Munich Health, Munich Re Health business segment. Hence postmerger the shareholding of HDFC and Munich Re is unlikely to change.


* HDFC is sitting on a excess networth of atleast INR45b+ which we were valuing at 1x PBV. Part of this excess networth will be used to fund the acquisition. In our SOTP we have valued HDFC Ergo at 4x PBV FY21 (Effectively 5.1x PBV FY19), INR25/share (~1.2% of SOTP). At the deal valuation Apollo is valued at 7.5x trailing BV. If we were to value the combined general insurance venture (HERGO+Apollo) at the deal valuation (7.5x trailing BV) and remove the excess networth by INR13.45b, our SOTP will see a positive impact of INR9-10/share (+INR15 for GI and –INR6.5 for reduction in excess networth; Post holdco of 20%).


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