HDFC ERGO to acquire L&T General Insurance for Rs. 551 cr
HDFC ERGO General Insurance Co. Ltd, the non-life insurance joint venture between HDFC Ltd and ERGO International of Germany, said that it will acquire L&T General Insurance Co. Ltd in an all-cash deal worth Rs.551 crore.
Promoter Larsen & Toubro Ltd (L&T) will exit the general insurance business via the deal.
L&T General Insurance, which began operations in October 2010, sells auto, business, home and health cover. The company, with a paid-up share capital of Rs.705 crore, saw a gross written premium of Rs.483 crore during the year ended 31 March, which is 40% higher compared with the previous year.
The company has 28 offices served by 800 employees. For the year ended 31 March, the company’s net-worth stood at Rs.142 crore.
The decision to exit the general insurance business is part of L&T’s strategy to exit non-core businesses, the company said in a notification to the stock exchanges.
L&T, India’s largest engineering and construction company, has been looking to move to an “asset light” model and plans to sell assets in verticals including roads and infrastructure. It is also looking to dilute its stake in non-core subsidiaries to cut down debt and revive performance. The company is also planning sell up to 15% stake in its information technology services unit L&T Infotech through an initial public offering (IPO).
For HDFC ERGO, the deal helps add scale.
The insurer, a joint venture between India’s largest home finance company and Germany’s ERGO International, is currently the fourth largest general insurer in the country. It is primarily engaged in the business of selling insurance for motor, health, personal accident, home, fire, marine, aviation, liability and crop insurance through 108 offices in the country.
For the financial year ended 31 March, the company’s gross written premium was Rs.3,467 crore and net profit Rs.151 crore.
“Considering the importance of scale in the insurance business, consolidation within the insurance industry is inevitable,” said Deepak Parekh, chairman of HDFC and HDFC Ergo General Insurance. “The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policyholders and other stakeholders,” he said..
The deal was structured by Arpwood Capital Pvt. Ltd. There are 29 general insurers in the country with state-run New India Assurance being the largest.
According to an April 2016 report by India Brand Equity Foundation, the general insurance business in India is currently aRs.78,000 crore ($11.44 billion) premium per annum industry and is growing at a healthy 17%.
“The Indian insurance market is a huge business opportunity waiting to be harnessed. India currently accounts for less than 1.5% of the world’s total insurance premiums and about 2% of the world’s life insurance premiums despite being the second most populous nation. The country is the fifteenth largest insurance market in the world in terms of premium volume, and has the potential to grow exponentially in the coming years,” said the report
This is good decision by L&T since they do not have much of market share and insurance is not a core business for them. Hope the money will go towards reducing the debts. Feel free to share your views.