HDFC Life gains after HDFC’s additional stake buy gets CCI’s green signal

More than 50 percent stake by HDFC twins in insurance entities is a significant boost for HDFC Life, according to experts

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After Competition Commission of India’s (CCI) green signal, mortgage lender HDFC can now acquire over 50 percent stake in HDFC Life. The development pushed the stocks of HDFC Life, HDFC and HDFC Bank higher on June 21.

At 9:25 am, HDFC Life was quoting at Rs 651.65 on the NSE, higher by 1.24 percent from the previous close. HDFC, too, was quoting 0.6 percent higher at Rs 2,677.

Eventually, HDFC Bank, which will be the surviving amalgamated entity, after the merger with HDFC, will hold over 50 percent stake in HDFC Life. Similar approval has also come for the combined entity’s shareholding in HDFC ERGO.

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As of March 2023, HDFC held 48.65 percent stake in HDFC Life.

In April, the Reserve Bank (RBI) of India permitted HDFC Bank or HDFC to increase shareholding in both insurance companies to over 50 percent prior to the effective date of the merger. After RBI’s permission, CCI approval is another step forward towards the merger.

According to Emkay and Nuvama Research, the decision by the RBI to hold more than 50 percent stake by HDFC twins in insurance entities is a significant boost for HDFC Life.  The management has not quantified the increase in the stake. The theoretical limit is 100 percent.

“We believe it should be 50-60 percent. The Street had a high probability of this relaxation coming through. Last year, the management had explained that a higher stake would also mean higher cross-sell,” Nuvama said.

Second, the concern of a possible 19 percent stake sale by HDFC-HDFC Bank (which currently holds 48.65 percent stake in HDFC Life) if the RBI had directed them to keep their stake below 30 percent, is now eliminated. It is now confirmed that HDFC-HDFC Bank will acquire fresh or secondary over 1.35 percent stake before the merger completion, an Emkay report said.

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