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Motilal Oswal
HDFC (Buy)
CMP: ₹2,198.75
Target: ₹2,450
HDFC to acquire 51.2 per cent on Apollo Munich Health Insurance for ₹1,345 crore. Further, Munich Health Germany (Existing JV partner) to pay ₹294 crore to Apollo group to support the transaction. Effectively the company is valued at ₹3,200 crore.
Apollo is a standalone health insurance entity. Gross Written Premium (GWP) of the company in FY17/18/19 stood at ₹1,300 crore/ 1,720 crore/ 2,194 crore. The market share in FY19 stood at 4.4 per cent and 9 per cent 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 per cent in overall General insurance business. The deal will make HDFC Ergo the second largest private health insurance company in India with the market share of 8.8 per cent.
HDFC is sitting on a excess networth of atleast ₹45b+ which we were valuing at 1x PBV. Part of this excess networth will be used to fund the acquisition.
In our SOTP (some-of-the-parts analysis), we have valued HDFC Ergo at 4x PBV FY21 (Effectively 5.1x PBV FY19), ₹25/share (about 1.2 per cent of SOTP).
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