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The government increasing the foreign direct investment cap to 49 per cent from 26 per cent in the insurance sector has not only benefited large conglomerates in the financial services space but also other businesses that have insurance subsidiaries.
Tube Investments of India, a part of the Murugappa Group with multiple businesses ranging from diversified auto-ancillary products, bicycle to financial services and insurance, is one of them.
After the company announced a 14 per cent stake sale in Cholamandalam MS General Insurance last Friday, the stock zoomed 12 per cent on Monday. With this sale to its joint venture partner Mitsui Sumitomo Insurance Company, Tube Investments’ stake in the insurance business will come down to 60 per cent from the existing 74 per cent.
Deal consideration
At a deal consideration of Rs 882.67 crore, the sale pegs the value of the entire Cholamandalam MS General Insurance business at about Rs 6,300 crore.
In the general insurance space, the implied valuation of the companies are at about 14-16 times their estimated one-year forward earnings or at one to two times their one-year forward gross written premiums.
Tube Investment’s stake sale going by the industry norm, has fetched a higher price. The deal values the business at about 3.3 times and 2.8 times 2014-15 and 2015-16 gross written premium, respectively. The company’s gross written premium grew about 12 per cent year-on-year for the half-year ended September 2015.
HDFC’s recent 23 per cent stake sale in HDFC ERGO valued the entire business at about 1.5 times its one-year forward gross written premium. Max India’s 23 per cent stake sale in Max Bupa during this year valued the health insurance business at 1.5-1.9 times its one-year forward gross written premium.
ICICI Bank’s stake sale in the general insurance business more than a month back valued the insurance company at over two times the 2014-15 gross premium.
Value unlocking
For Tube Investments, this will help unlock value in its subsidiary. At the current deal value, the company’s remaining 60 per cent stake in the insurance business works out to about Rs 200/share of Tube Investments. This is about 45 per cent of its current market price.
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