NDA government managed to get the long awaited insurance bill passed in the parliament thus allowing for 49% FDI in insurance business. Though the increase was highly anticipated but we believe that sheer time it has taken to get this bill cleared and the revived interest in Indian capital markets makes this a significant step. We believe that all insurance companies will benefit from this as insurance is a capital intensive business and the companies will now be able to raise capital by further divesting their stake. Max India & Bajaj Finserv are the only two listed companies with direct play on insurance but other companies/banks with indirect holding in insurance will also benefit.
The valuation of insurance business is likely to re‐rate as investors appear willing to pay higher premium to buy into quality franchisees. Most of the recent investments in the space have happened in range of 2.1x‐2.7x EV, the last deal being 1% stake sold in HDFC Life to Premji Invest for a total enterprise value of Rs209bn. This was almost 25% higher than what we have valued HDFC Life at. Likewise we note that as per media reports ICICI Bank may divest a minor stake in its life insurance subsidiary at total valuation of $6bn. This is ~45% premium to what we are valuing the company in our SOTP estimates. However we believe that sustenance of such steep valuation needs to be backed by improvement in growth and return profile as capital otherwise will not be any constraint for most players.