HDFC, a titan in the housing finance sector, has recently announced its decision to sell a portion of its stake in HDFC ERGO, an eminent insurance entity. This move involves the sale of 44,12,000 equity shares, which represents 0.62% of the issued and paid-up share capital of HDFC ERGO. The decision to divest this stake aligns with the Reserve Bank of India's directive that mandates HDFC to reduce its shareholding in HDFC ERGO to 50% or below.
For the fiscal year ending March 31, 2021, HDFC ERGO reported a total income of Rs 7,557.50 crore. This figure constituted 5.43% of HDFC's consolidated income. Additionally, HDFC ERGO's net worth as of March 31, 2021, was valued at Rs 3,253.55 crore, accounting for 1.96% of HDFC's consolidated net worth. The share purchase agreement for this stake sale was executed on May 8, 2021, with the completion of the sale anticipated by May 12, 2021.
The acquiring entity for these shares is ERGO International AG, the foreign promoter of HDFC ERGO. The agreed share price for this transaction is Rs 536 per share, totaling an aggregate amount of Rs 236,48,32,000.
In terms of valuation, HDFC ERGO had reported a Gross Written Premium (GWP) of approximately Rs 9,700 crore for FY20. While the FY20-21 figures were not disclosed, assuming a 20% growth rate on the GWP, the estimated value for FY20-21 would be around Rs 11,500 crore. With the total outstanding shares as of March 31, 2020, being approximately 60.5 crore and the deal's share price set at Rs 560, the market capitalization of HDFC ERGO is estimated to be around Rs 33,800 crore. This leads to a Mcap/GWP ratio of approximately 2.93x.
This strategic sale by HDFC is not only a compliance move in response to the RBI's directive but also a significant transaction in the financial sector, reflecting the dynamic nature of stakeholding adjustments in compliance with regulatory requirements.