HDFC Life m-cap comes to Rs 66000 crore: Santosh Singh, Haitong Securities

In a chat with ET Now, Santosh Singh, BFSI & Head Research, Haitong Securities, says the reverse calculation on Rs 14500 crore, the 2.2:1 swap and between Max Life and HDFC Life you have to adjust for that to get the valuation of 66000 crore for the combined entity. Edited excerpts

ET Now: Now as per your ballpark calculations what is the value of the newly listed entity that is HDFC Life?

Santosh Singh: See if you do the reverse calculation according to the new swap ratio the number comes to around Rs 66000 crore. So that should be the market cap if the entity were to be listed today.

ET Now: But if you look at the current market cap of MFS, it currently stands at about Rs 14500 crore. So what is the implied value that you are getting for HDFC Life and the implied price or the embedded value multiple here?

Santosh Singh: Yes, so that is what you do the reverse calculation on Rs 14500 crore, the 2.2:1 swap and between Max Life and HDFC Life you have to adjust for that to get the valuation of 66000 crore for the combined entity. My EV projections will suggest whichever have the published EV projections that will suggest that it is trading at around three times FY18 NIMs.

ET Now: So how beneficial is the deal for Max Financial Service holders and for HDFC Life and what are the merger synergies in terms of the product mix, the distribution mix etc.?

Santosh Singh: Eventually if this deal goes through and the chances are very high that it will go through, then what we are looking at is that the two entities will have one of the best distribution channels in the form of Max’s agency, HDFC and Axis as a bank partner which is the mostly top two private sector banks in India. So they are great distributions followed by highly efficient synergies on the expense side, so highly efficient insurance companies. So you will have highly efficient insurance company with very high quality of distribution so that will mean that your return on embedded value should move up.