Engineering-to-financial services conglomerate Larsen and Toubro Ltd (L&T) has decided to divest its general insurance business by selling it to HDFC ERGO General Insurance Co. Ltd (the non-life insurance arm of housing finance company HDFC Ltd) for a consideration of Rs 551 crore.
According to a statement issued by L&T after market hours on Friday, its general insurance arm had a gross earned premium income of Rs 483 crore in fiscal 2015-16, with a net worth of Rs142 crore as on March 31, 2016.
“The share sale is part of the company’s strategy of exiting from its non-core activity,” L&T’s statement said.
“Considering the importance of scale in the insurance business, consolidation within the insurance industry is inevitable,” HDFC chairman Deepak Parekh said in a statement, also issue after market hours on Friday. “This transaction marks the beginning of this consolidation phase. The acquisition will help HDFC ERGO to further strengthen its presence in the market. The combined size and expertise will result in improved cost efficiencies in the merged entity and benefit policy holders and other stakeholders.”
Arpwood Capital Pvt. Ltd was the exclusive financial advisor to HDFC ERGO, a 51:49 joint venture between HDFC and ERGO International, Germany, for the all-cash transaction.
Sale of the general insurance business is the latest in a series of transactions executed by L&T in the recent past to monetize non-core businesses. In May 2014, the AM Naik-led company sold its stake in the Dhamra Port (along with the stake held by Tata Steel in the same asset) to Adani Ports for Rs 5,500 crore. Then again in November 2015, L&T announced that it was selling the port it owned in Kattupalli (where the company also has a shipbuilding yard) for Rs 2,000 crore, again to Adani Ports.