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Exide Industries Company Update

Contributed by Angel Broking

Exide Industries (EXID), which currently has 50% stake in ING Vysya Life Insurance Company (IVL), has decided to acquire the remaining 50% stake in IVL for Rs.550cr, subject to the necessary regulatory approvals. IVL is a marginal player in the life insurance business with a market share of ~1% in FY2012. IVL posted a loss of Rs.31.2cr in FY2012.

Key highlights of the deal: EXID will be buying out the minority stake in IVL held by ING group (26%), Hemendra Kothari group (16.32%) and Enam group (7.68%) for a total consideration of Rs.550cr. The company intends to fund the acquisition through internal accruals. The deal value implies a market capitalization of Rs.1,100cr for IVL, which is lower than the valuation of Rs.1,350cr ascribed by us (based on 15x FY2014E NBAP). EXID has so far invested Rs.744.4cr in IVL for its 50% stake. This implies that the company is buying the remaining 50% stake at a discount of ~26% of its investment value. This we believe could be due to the fact that the new business premium for IVL has been declining continuously (down 5% in FY2012) and also owing to the fact that the ING group was looking to exit the business. The ING group had earlier announced its intentions to exit its non-banking business such as insurance and asset management in Asia, including India, as a strategy to pay back the government bailout funds it received during the financial crisis in 2008.

Going ahead, EXID intends to find another strategic partner for the life insurance business which could infuse fresh equity into IVL for future expansion. We would be watchful of the valuations the company gets for its insurance business in the future and the future expansion plans of the insurance business. In the near term however; we believe that EXID will need to make more investments in the insurance business which may be a drag on its cash flow.

Outlook and valuation: At Rs.125 the stock is trading at 15.9x FY2014E earnings. We value EXID’s core business at 15x FY2014E earnings, which along with its stake in IVL yields a fair value of Rs.131 (SOTP basis). We maintain our Neutral rating on the stock.