JOIN US‘Exide’s decision to hive off insurance biz to reinforce focus on core activity in battery segment’
Exide Industries’ move to hive off its insurance business to HDFC Life Insurance will be “positive” for the country’s largest lead-acid battery maker as it reinforces its commitment to remain a market leader, and the deal may help fund new emerging technologies, an analyst said.
HDFC Life Insurance on Friday announced its decision to acquire a 100 per cent stake in Exide Life Insurance from Exide Industries in a deal worth Rs 6,687 crore. The process of merger of Exide Life into HDFC life will be initiated on completion of the acquisition, the insurer had said.
"Exide's decision to hive-off insurance business is positive and iterates focus on its core activity which is making batteries. The deal will help to fund their new technology projects that are under consideration," Angel Broking AVP ( research) Amarjeet S Maurya told PTI.
The timeline of the deal coincides well with the city-based Exide Industries’ plans to foray into manufacturing Advance Cell Chemistry Batteries, commonly referred to as lithium-ion batteries, for its expansion into the next-gen storage battery business.
Exide Industries MD & CEO Subir Chakraborty had said it was waiting for details of the Productivity Linked Incentive (PCI) for the sector and the long term viability of the technology. The company may take 5-6 months to arrive at a final decision. The Centre recently approved a PLI scheme on such batteries. The scheme outlay of Rs 18,000 crore is intended to establish 50 Giga Watt Hour (GWh) of advanced cell chemistry, and 5 GWh of niche advanced cell chemistry. PLI was not the deciding factor though it is a "sweetener," he had said.
HDFC Life said it will six months to bring Exide Life into its fold as a subsidiary. Exide Industries is supposed to get Rs 725 crore in cash and the balance by way of issue of over 8.70 crore equity shares. "The cash flow from the transaction will give a better comfort zone in deciding upon Capex in new technologies that will help retain Exide as a market leader in the industry," sources said.
The company has already set up Exide Leclanche Energy, a JV with Swiss firm Lechlance, for manufacturing lithium-ion batteries in India with imported cells. It will now assemble cells to make only modules and the final battery pack.
The Covid-19 pandemic has delayed the completion of the 1.5 GB capacity plant which is likely to become fully operative by the end of the fiscal. Meanwhile, the acquisition by HDFC Life is at 2.5 times the embedded value and 30 per cent cheaper in price earning multiple in terms of valuation to other listed life insurers.