HDFC ERGO has agreed to buy 100% stake in L&T General Insurance (L&TGI) in an all cash deal of INR 5.51bn. The deal is subject to regulatory approvals. On completion of the transaction the two companies would be merged. In addition, HDFC has also completed the sale of ~22% stake in HDFC Ergo to Ergo. HDFC proposes to create additional provisions from this one-off gain.
HDFC Ergo believes that the acquisition will enable it to gain additional top line growth by having access to the distribution channels of L&TGI and also lead to margin improvements at L&TGI by leveraging HDFC Ergo’s expertise in reducing operating costs.
In Dec 2015, HDFC had announced that it is selling ~22.9% stake to its JV partner Ergo International in HDFC Ergo. The deal values HDFC Ergo at INR 49bn (4.7x FY16 P/B). The deal has now been concluded resulting in pre-tax profit of INR 9.22bn (post tax INR 7.25bn) for HDFC. Post the transaction HDFC now owns 50.73% in HDFC Ergo and Ergo owns 48.74%.
