HDFC Life Insurance Company Limited (HDFCLIFE) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HDFC Life Insurance Company Limited Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vibha Padalkar, MD and CEO, HDFC Life. Thank you, and over to you.

Thank you for joining us for the call today to discuss our acquisition of Exide Life and its subsequent merger with us. Our press release and deal rationale presentation is available on our website as well as that of the stock exchanges. I have with me Suresh Badami, Executive Director; Niraj Shah, CFO; Srinivasan Parthasarathy, Chief Actuary; Eshwari Murugan, our Appointed Actuary; and Kunal Jain from Investor Relations. I will run through the contours of the transaction and would be happy to take questions post that. While we continue to grow faster than the overall life insurance market, we have always been actively seeking opportunities to supplement that with inorganic growth. Our key considerations while evaluating potential targets have consistently included a high-quality back book, addition to our distribution capability, ease of execution, amongst other factors. In line with this thought process, we are pleased to announce the acquisition of 100% stake in Exide Life Insurance from Exide industries. The acquisition is being done via issuance of 87 million shares at an issue price of INR 685 per share and a cash payout of INR 726 crores, aggregating to INR 6,687 crores. Upon completion of the transaction, Exide Industries will hold a 4.1% stake in HDFC Life. This transaction is expected to be a 2-step process with the merger of Exide Life into HDFC Life being initiated on completion of its acquisition. The entire transaction, including both the acquisition and subsequent merger is subject to obtaining the relevant regulatory and other approvals. The proposed transaction will strengthen our distribution network and give customers access to a wider bouquet of products as well as sales and service touch points. Employees and agents will also benefit from a larger, stronger organization that realizes the synergies arising out of complementary business models built on similar ethos. This amalgamation will unlock significant value for all stakeholders. Over the recent years, we have consistently articulated our focused approach in building a high-quality agency channel. As a recap, our agency channel grew by 49% in quarter 1, contributing 15% to overall new business and had a 13-month persistency of more than 90%. We added the most number of agents amongst private life insurers in quarter 1. On successful completion of this transaction, Exide Life will add 40% to the top line of HDFC Life agency business and 35% to our agent base. We will also benefit from some deep relationships in their other distribution channels, including broker, direct and cooperative banks. Exide Life complements HDFC Life's geographical presence and has a strong foothold in South India, especially in Tier 2 and 3 towns, thus providing access to a wider market. Further, a good quality, predominantly traditional and protection-focused business will augment the existing embedded value of HDFC Life by approximately 10%. The embedded value of Exide Life as on 30th of June 2021 is INR 2,711 crore, implying the combined EV to be more than INR 30,000 crores. HDFC Life scale, market-leading digital and product innovation capabilities and prudent risk management strategy relayed in optimizing cost and achieving higher margins for the acquired business. We expect to realize these synergies over a period of 18 to 24 months. The private market share is expected to get a boost of over 1% and assets under management of HDFC Life is expected to increase by approximately 10%, taking it beyond INR 2 trillion. This transaction will enhance value for all stakeholders by improving new business margins via operating leverage and product mix optimization. We look forward to the completion of the proposed transaction in the coming months. Details with respect to the proposed transaction have been uploaded on our website. We are happy to take questions now.

[Operator Instructions] The first question is from the line of Dhaval Gada from DSP.

I had 1 question with 2 parts to it. The first part is related to the business. So if you look at Exide, I mean, it has a track record of almost flattish premium growth for last 3 and 5 years, whichever CAGR you want to see. If you look at WISE growth, it's been about 5%, 6% CAGR, EV growth about 6%, 7%, market share declining. So what really has excited in this business for you to choose Exide? So that's part one. And the second part is on the valuation. If I just take a step back and in your earlier attempt to acquire inorganic, which was Max, at that point of time, you were willing to pay about approximately 6x WISE. In this case, you're almost saying like 4x WISE on the book for a business which is seeing market share degrowth, decline. And if overall business -- there are no strong points, at least from a financial standpoint to look for. So what's the rationale on the valuation side? Yes, those are the 2.

Yes, thanks for that. We have to look beyond the obvious because the obvious is anyway what everyone is going after. And agency channel is like in my opening comments that I mentioned, key is building your own. And what Exide Life has done very well is build their agency channel. And like I mentioned, it is a very meaningful increase, anything between 38% to 40% based on the number of agents and the volume of this business. And also, if you were to look at geography, so it complements our geography. And that's where, Dhaval, the nuanced approach to growth starts becoming even more essential than like I mentioned, the obvious aspect to growth. And that's why when we looked and -- look a little bit deeper, they were present in geographies, especially in the south, in several places having market leadership and beyond the metros, so Tier 1 and Tier 2 towns. To your point on -- their market share has largely been steady at about 1.3%. So no concerns on that front. Like with a lot of smaller companies, scale starts becoming an issue beyond the point. And that's exactly also the reason for us to get into this transaction. Also, if you were to look at synergies, their variable costs are very much in line with the fixed cost because of, again, scale issue. And the combination of that -- combination of being able to offer our products to their distribution eventually post regulatory approvals and thereby increasing on productivity, we connect with their distribution and so on. So that's as far as what was the rationale part of it. In terms of your valuation, I think comparing with some deals that might have happened 4, 5 years ago, I think market has moved significantly. So today, the deal has happened at a 35% discount to market multiples, and this is excluding HDFC Life in that bucket of companies. So excluding HDFC Life, the listed players and proxy listed players, it's a discount of 35%. Also, they have 10 lakh customers. And number of policies that they have is fairly formidable. And also, that's the point in terms of number of customers. So being able to -- with our ability to cross-sell, upsell various products as they are rolled out of our stable and which don't exist in that company today is really the USP of this team. Niraj, anything you want to add?

No Vibha, you covered it. I think in terms of agency, we'd all realized in terms of how challenging it can be build -- to build a balanced agency franchise that we have with a lot of work over the past few years. And a 40% accretion to that is not a small number. It would have organically taken a fair bit of time, anywhere between 18 to 24 months to build that kind of scale and that kind of quality. So you need to put that in perspective as well.

The next question is from the line of Suresh Ganapathy from Macquarie.

FY '21.

Suresh, are you there?

Yes, I'm there. Are you able to hear me?

Yes.

Yes, what is the operating ROEV for FY '21 for Exide Life? Hello?

Yes. Suresh, some of these numbers are not in the public domain. And as you'll appreciate, until the deal is done, it would not be right to put some of those numbers in the public domain.

Yes. Yes. The reason, Vibha, I am asking this question is because if you're saying you are paying a 30% discount, I have to look at it at a -- in the context of ROEV. For example, you guys generate 18%, the other players also generate a good 17%, 18%. So we just wanted to have a like-for-like comparison because we want to know whether the business is actually profitable or not therefore that metric becomes very important, yes.

Yes. Right. Right. So rather than ROEV, I think if I can share that the new business margins last year have been accretive, for a company of that size, it's in the positive zone. The pre-overrun margins are very much in line with our pre-overrun margins. And so -- and the context of what I mentioned, if you look at the cost ratios, the cost ratios are about 60% higher than our cost ratios. So just in terms of scale benefits that can start coming through and thereby reducing the overrun and given the robust nature of their pre-overrun margins, they should be accretive. Our operating variances are negligible, very much under control. And that's, I guess, your answer in terms of the ROEV.

Okay. The other question is because, of course, it looks like the biggest reason for acquiring this company is the agency channel, right, and the scale that you get in the subsequent benefits. So can you clarify -- again, can you give comparisons as what has been the agent productivity, agent persistency, all the comparable metrics for Exide, sorry, I'm asking these details because these are very important from an acquisition merit point? Yes, yes.

Yes. So their persistency has been steadily increasing, especially the 13-month persistency. Their 61st month persistency is still being worked on. There is a lag versus -- and I think comparison with the top 3 listed players also within their set of -- or size of companies, they're very much in the zone. The 13-month persistency that's in the public domain anyway. So that is -- you can see that it is steadily continuing to increase. So it is right now at about 73%. I forgot what your other question was. Yes. So in terms of productivity, their productivity is higher. So when I say that this is going to add 40% to our APE -- sorry, 38% to our APE and 40% in terms of the agent. The agent productivity is slightly at a lower clip. And that's where we see opportunity also given the bouquet of products for us to be able to offer that to the agents and increase the productivity. So whether it is in terms of persistency, whether it is in terms of expense ratio, whether it's in terms of productivity, we see a delta that is reasonably low-hanging fruit, and that is the rationale for us looking at this transaction. They have also been profitable for the past 6, 7 years. Their embedded value that we have -- they have also disclosed. We have -- that has been validated by Towers Watson. And -- so reasonable amount of comfort on the back book to your question, back book unwinding as well. So therein lies the upside. Because if you look at it, if there's an entity that is very similar to where we are today, then the economics become very different. The whole rationale for this is we see that upside post merger.

Sorry, one last question, Vibha, if i can squeeze in. Have you done the due diligence with respect to COVID-related claims on the book, which obviously you have done, but I'm just asking, is it well provided for fully captured in the INR 2,700 crore embedded value?

Yes. We have looked at the COVID claim very similar to what the industry has gone through and well provided for, yes. And not taking into account wave 3, similar to us, if there is a wave 3.

The next question is from the line of Deepika Mundra from JPMorgan.

Sir, just 1 thing. You mentioned the difference between the pre-overrun margin and the actual VNB margin. Can you outline a time frame and plan to basically converge the 2 and bring it in fold with HDFC Life margin?

So let me just put the time line. We are expecting maybe a 6-month time line before this -- getting regulatory approval for it to become a subsidiary because the day 0 happens at that point in time. So if you're looking at day 0, I mean around Jan, Feb, then we expect over a period of time between 12 to 15 months kind of a time frame for normalization to happen. Somewhat -- some level of stretch is there, but that's the kind of time frame from today. So from today, 6 months and thereafter 12 to 15 months for the normalization. But it is 10% of our business. So we do expect us to any way -- meaning HDFC Life stand-alone to anyway continue on its trajectory of margin expansion.

Okay. So basically, if I got that right, after you've merged it about 6, 8 months to get the margin in line with the HDFC Life reported margin?

No, it will be closer to 12 to 15 months thereafter. Yes, because the merger will happen -- so 6 months from now is when we are hoping it will become our subsidiary, but full synergies will start coming through once the actual merger happens. So that's why -- so earlier 12 months, outer limit 15 months.

Okay. And you mentioned that they're primarily in traditional and in the protection segment. So given that it's an agency-dominated model only, how do you -- or what is the plan for further product mix enhancements from Exide?

So they have astonishing level of -- I mean, for a relatively smaller company, they have about 11% of protection. So they have done pretty well on that. So roughly about 70-odd percent is par, about 13% non-par protection. Like I said, 11% in unit-linked is very small 5%. And that's why, again, the attractiveness of the way they've run their product mix would continue to see -- once it becomes our subsidiary, then it's just, like I said, again, becomes easier. But until then, I think they will continue on their product mix the way they have done, increasing protection, I would assume, continuing to grow on that front and keeping -- otherwise, the product mix is fairly similar, keeping a lid on unit linked and thereby ratcheting up in terms of their new business margin.

Okay. And just last question from my side, given that we've been more cautious on adding the protection business. You're comfortable with the overall pricing underwriting in the past for Exide in the protection line?

Yes, because they actually retain lesser risk than we do on their books, so they reinsure more.

[Operator Instructions] The next question is from the line of Abhishek Saraf from Jefferies.

Firstly, one of my questions pertain to the product mix itself, which you answered earlier. So I just wanted to understand, do you also see some -- like there is obviously a benefit on the agency side that you mentioned. On the product side, is there anything probably Exide is bringing to the table? Or is it mostly we have a similar kind of product? So you obviously dwelt about the product mix as such in terms of percentage. But are there any products which probably we might be adding to our HDFC Life's table? And second, if you can just give us some details on their distribution mix. So I understand it's more agency level, but if you can give me some specific percentages around that, that will be very helpful.

Yes. Sure. On the products, yes, we also have some aspects to learn from them once the CCI approval comes through. But from an outside in perspective, they do have some interesting products, especially in terms of term ROP. Also, they have a similar product with some variations to our Sanchay Plus product. So over a period of time, every company does build from the base. So if HDFC Life has been the one to introduce a product construct like Sanchay Plus, then building from that continues to happen, and that's exactly what we see in Exide Life as well. So some features which are enhancements over the base that we have will always be there. In terms of their -- your question on distribution. So currently, about agencies around 60%. The broker channel is about 23%, corporate agency like an SVC and others is 7% and direct channel is 10%.

The next question is from the line of Adarsh Parasrampuria from CLSA.

Question on like if I go back to what HDFC Life is trying to do with Max, it was trying to enhance agencies. So that was one of the rationales along with the size of they've done. And now one of the rationale is agencies. And there's been a lot of time transpired between the 2, right? Organically, where have we gone in terms of ramping up that business because just going by this agency or the business embedded, we've been a little behind. So I just wanted to understand how organically the agency has been built? And how much of a hold does it is plug for us? Or how much of a gap does it pin for us?

So I'll start off, and then I'll request Suresh to add. The agency channel amongst the top 4 or 5 players is in 2 parts. The top 3 players sell significantly more unit-linked products, anything between 50% to 75% and upwards. We have always believed that each one of our channels have to be stand-alone company level margins, and that's exactly what our agency channel. It's a high-quality margin NBM equivalent to company level or slightly higher. So -- and by that construct, what it means is that we might be in the #4 position, but we are -- as a strategy, that is the intention. So you will find a steady growth like I just covered, wherein we have been growing anything between 40% or thereabouts in our agency channel, even against the pandemic. And if you look at the CAGR, we have grown at a fairly respectable 20% CAGR while ratcheting up on our persistency. Our persistency of agency channel today is better than our company level persistency, above 90%. And that was not the case during the period that you were mentioning, which is about 5, 6 years ago. Our persistency was significantly lesser. So holistic growth of our agency channel in terms of both APE growth, persistency, product mix and hence, growth in VNB and having company-level margins, so that was the objective and to have a balanced product mix. So we do believe that we have stuck to the strategy that we had amongst ourselves articulated. And in our experience, it is not that difficult to grow any channel, why only agency channel, if one is focused on the top line growth. It is infinitely more difficult to grow it sensibly. So that one is not yo-yoing in terms of back and forth on reducing anything, it could be, for example, a big ticket size cases, which agency channel used to sell a lot of. And then a lot of companies realized that this isn't good business, it isn't persistent business and so on. So rather than that, [indiscernible] getting it right. Also, if you look at the bottoms-up approach in terms of our agent base, that has doubled over the past 4 to 5 years. And like I mentioned, in quarter 1, we were the highest in terms of number of agents added in the private space. So there is a very calibrated approach. And that's why this opportunity makes a lot of sense, because we have brought our agency channel organically up to this point. We will continue to grow by that 20-odd percent CAGR that we have been growing, but this will give us a flip of about 2 to 3 years.

So Vibha, if I can add, I think you have broadly covered it, but I mean just to kind of give the background that we have been speaking on, our idea has been to kind of diversify our distribution. So the focus on the proprietary channels has been considerable over the last 4, 5 years, especially on the agency channels. And like Vibha mentioned, we have managed an absolute CAGR growth on agency. The number of new and active agents has been consistently increasing, the quality of the agency book has been improving. Of course, in parallel, we have ensured that our banca partnerships continue to grow as well as new partners on the bancassurance side. So even with that, the way agency has grown, they have shown a marginal increase in terms of percentage contribution to our overall business. What the Exide distribution will bring to our end, there's clearly a number of new active and vintage agents who are available. We can leverage their existing product as well as our product rates. There are a lot of agency-led programs that we have running, we've learned agency. If you remember, at the time of the Max merger, our agency was much smaller and probably even in consideration to Max. But now we are among -- we are the #1 non-dwell agency business in the market and a very profitable and high quality one that at 90% persistency. So we do believe that given the distribution, which will come in, in markets where we would want to have a further presence with the kind of programs and, of course, not to say even Exide has been running a fairly good agency model. So the best practice of both will come into play. Product mix, like we have always mentioned, will be balanced. So we'll continue to focus on the core products. They have a fairly good bar and protection business, which comes in. So all in all, you would think that organically, we will be able to continue our growth in all the other markets. It's not that even organic -- in south, for us, will not grow, we will continue to grow that. But clearly, a fresh distribution channel, which comes in will increase our agency presence overall.

The next question is from the line of Sanketh Godha from Spark Capital.

Just Vibha, given the full story is about cost significantly improving in Exide Life and probably you're bringing it at par with HDFC Life in next 12 to 18 months after the merger gets done. I just wanted to understand what are the low-hanging cost levers you can see in Exide Life, which can be substantially improved to bring back it to the singular ROEs? What you are reporting are -- singular VNB margins what you're reporting? That's 1 that I have. And the second thing which I wanted to have is that is -- whether Exide Life has the lock-in period after the deal, the 4 percentage what they will effectively be owning? And finally, what's the logic of paying cash again, given you could have easily done a share swap deal? Any reason why we are paying some INR 700-odd crores cash for the deal? Yes, those are the questions I had.

Sure. Thanks, Sanketh. I'll answer the questions 2 and 3, and Niraj can address the cost issue. In terms of the lock-in, there is the 1-year lock-in for them. But what we understand from the counterparty is that they're very happy to stay as our shareholders. And there's a huge opportunity -- untapped opportunity in insurance, and they're very happy to continue into the foreseeable future. But this is really a question for them, right? Second aspect is on the cash. What the sellers wanted and had requested is that they would like to be cash neutral as far as the tax outgo. There will be a tax outgo for them. So this is just back-solving for the tax that they would have to pay for the transaction. Niraj, do you want to take the aspect on cost synergy?

Yes. Sure. So Sanketh, clearly, like we've discussed the rationale for this is a complementary geographical presence as well as accretive distribution. The focus primarily is going to be to, of course, get all the regulatory approvals in place and consummate the merger while preserving value. Along the way, synergies will get realized. Vibha did mention about the difference in cost structures because of the scale. That is something that will find its way in the mergeco over a period of time. Primarily as you would be aware, there would be synergies around common operating costs on infrastructure. There will be around logically, any sort of synergies that could come along the way in terms of once the mergeco takes effect in terms of human capital over a period of time. So some of these things will pan out in the course of the time that we've mentioned. Primarily, the idea is to be value accretive. For that, there will be 2 aspects, operating synergies, of course, but also in terms of product mix optimization. So these are the 2 levers, which will be used to try and get -- while the VNB accretion will happen from day 1, there will be time to get the margins close to the level that we are at. And that's going to be a factor. These 2 things will be -- play a role there.

Got it. But Niraj, any branch rationalization or employees related stuff, which you can highlight that walk probably which could significantly improve our -- I mean bring costs -- Exide Life's costs ratio similar to our numbers?

Yes. So clearly, there are opportunities in the areas that you mentioned, Sanketh, but we will have to spend time to try and get through that over a period of time. As you would appreciate, priorities definitely would be to first get in the relevant regulatory approvals and put in the business in motion without losing any value. Alongside that, all this happens, there are areas that you did mention apart from what I spoke about, that will work in tandem with the opportunity to optimize product mix to be able to get the value to where we would like it to be.

[Operator Instructions] The next question is from the line of Nitin Aggarwal from MOSL Securities.

[Audio Gap] introduced by HDFC Life, considering that IRDA may now look at the brands with a different lens, considering the pending permission for the deal?

Sorry, I wasn't able to hear the first part of your question. Can you please repeat?

So ma'am, the question is like, will there be any delay now in securing approval for any new product launch that we may want to do given that IRDA will look at the entire transaction closely? And until the time is done, they may like want to keep -- like move things slower?

I don't believe so. These are -- the product launches are business as usual, while an overall capital deal at a company level is on a different track, so I don't expect that.

Okay. And will there be any issue to HDFC Limited in terms of like the future holding considering that they have recently diluted in HDFC Life. So in terms of their stake, any problems with that do you see?

No, none at all.

And lastly, what is the movement in solvency movements with this transaction?

Srini, do you want to take that?

Yes. So their solvency is higher than ours, so we expect it to be broadly similar since their size is slightly 10% of our size. But having said that, there is some cash payment expected to be part of this -- to be paid out as part of the team. So that might have a slight drop in the solvency. But we believe that the cash flows that the company generates will be sufficient to at least partially offset the drop in this one. But we believe it will be broadly a little where we are.

The next question is from the line of Nidhesh Jain from Investec.

So just one question. On the EV accounting, whether you will add EV line by line or there will be acquisition and creation of dividend in the EV post merger?

Niraj, you want to take that in terms of accounting? I think you're talking about EV or you're talking about how the consolidation happens, because line by line means, are you referring to the book consolidation or [indiscernible]?

Yes. I'm not talking about the EV, but EV of the merger entity will be this line by line number of EV or in the adjusted network there could be a possibility of goodwill getting from this?

No. So there are 2 different lenses, exactly like Vibha mentioned. So on the EV basis, it will be largely line by line. Of course, there will be methodology, which will get completely aligned to one. Whatever adjustments need to happen for that will happen. But as you are aware, this EV has been reviewed by Towers Watson on an APS 10 basis. So there is a fair amount of consistency in terms of what we would be doing at our end. As far as on the accounting side is concerned, there is -- there are options that are being evaluated as we speak in terms of how to recognize the transaction because all of that is anyway subject to regulatory approval and later on court approval, so we'll find the due treatment in the next few weeks.

Sure. And just one more question, if I can add, is on the agency side. So these agents will be automatically transferred to HDFC Life company or they will require to take IRDA examination again to become a part of HDFC Life agency?

No, we don't believe that they will require to be recertified.

[Operator Instructions] The next question is from the line of Rishi Jhunjhunwala from IIFL.

Just a couple of quick questions. One was you mentioned that you're able to bring in the margin levels over Exide to -- or HDFC Life level over the next 12 to 18 months post the merger completes. Just wanted to understand, is the difference between both of them only the high cost ratios and the product from a profitability perspective is largely similar otherwise?

Yes. It is largely similar, except for persistency. So the persistency, like I mentioned, 13-month persistency is hovering around 75% versus on a much higher number of 90%. But as that starts going up, it is on new business, margins should start converging once scale economy is slowing.

[Operator Instructions] The next question is from the line of Madhukar Ladha from Elara Capital.

First, can you repeat the channel mix again? And second, you also mentioned that you're adding a lot of cooperative bank relationships. Can you elaborate a little bit on that?

Yes. So the channel mix that I talked about earlier is agency is about 60%, broker is about 23%, corporate agents is about 7%, and direct about 10%. I did not mention that they are adding a lot. I said they have some relationships like SVC, for example.

Yes, what I meant was that you would add them as a result of this merger. So...

I mean, given their strength in the south and also amongst categories like that, yes, as the post regulatory approval, we will, of course, want to make inroads into geographies and in relationships that we haven't, for whatever reason, being present or have not got there or have been more metro focused and so on. And just to add on, there is more than 60% of their business comes from Tier 2 or 3. So that also is an interesting aspect for us.

The next question is from the line of Ajox Frederick from BNK Securities.

I have just 1 question. They have 60% plus in Tier 2, Tier 3, and we can obviously see that in protection pricing. They're very expensive out there. They have a higher share of protection also. So once you have onboarded them, how will our pricing dynamics move versus what we have right now on short term? And will a higher price impact our demand going forward? That's my question.

So I would say that we are some way away. They do sell predominantly ROP. And that's also something that we sell. So it's not that it is completely an area that they sell something we don't and so there's a very different strategy. That's not the case. I think there's some way away from it, like I mentioned. What we know is that the product strategy and outreach is not something that, like I said, it's not apples and oranges. It's very much in the zone. And we'll have to calibrate it as we -- through our clean teams and until we get regulatory approval to some extent, be on the back burner. And thereafter, for us to be able to look at, for what kind of new distribution relationship, new from an HDFC Life's point of view, what is the product suitability, what are typically persistency ratios, what is the charge traction, margins, all of that. So that homework will happen over a period of time. But from a division point of view, we believe that it's very much in the zone of the kind of products that we have today.

The next question is from the line of Nischint Chawathe from Kotak Securities Limited.

Just a couple of questions. One is that are you really -- what kind of adjustment to EV are we expecting when you kind of sort of actually sit across the table, any broad adjustment, given the fact that somewhere the basis could be a little different? If you could put some color on that. The second is, how do we think about the IRR of this deal? And the third would essentially be that for this particular company or just because maybe an SBU now within a HDFC Life, what kind of -- what maybe proportion or percentage of cost reduction should we really see so that your nominal margins are equal to the net margins? And the net margins are equal to nominal margins?

Yes. On your first question, we don't expect any significant adjustment to EV, maybe 5%, up to 5%, anything between 1% to 3%, something like that, as we get, if at all. It's not that we know of something, but supposing some mortality experience given COVID or aspects like that. So don't expect -- we don't expect a material impact to the EV. On cost reduction, just in terms of numbers, they are somewhere around 20% overall cost to revenue, and we are in the zone of 12-odd percent, 12%, 13%. So it should normalize closer to our numbers.

Sure. And how do you think about the IRR of the deal? I mean I guess when you started evaluating it, how do you think about it?

This is IRR for us or for the deal?

Yes. That's right. So when you -- I'm guessing you would have kind of looked at this company or some other companies, when you looked at IRR of this deal at this valuation, how did you think about it?

Without giving out too many because ultimately, a deal is a commercial closure, right? So this is value accretive for us, and that's how we saw it in terms of -- if we were to -- after taking the steps and like I mentioned, 15-odd months after it becomes our subsidiary for us to be able to eke out those synergies, makes it fairly value accretive. Of course, it's 10% of our business. But that business is value accretive. Also, the multiples, like I mentioned, are at a discount to listed peers, significant discount. And thereby very much in zone. So there is a cost synergy. There is more importantly a productivity synergy or productivity upside that comes in. So all of that put together was accretive, and that's why we're looking at it. But I can't really share in terms of underlying because that might be a starting point, but then there are negotiations.

Perfect. Congratulations on the deal and all the best.

The next question is from the line of Avinash Singh from Emkay Global.

Again, going on valuation, I mean, of course, as you mentioned it's at a material discount for listed peers. So listed peers have a different kind of profitability, a brand and most importantly, the bank as a distribution. Now here, if I were to look at Exide Life, probably the quality of EV is not comparable to them or POs because a large part -- I mean the risk could be relatively low. Additionally, I mean if I look at the market structure of life insurance side, probably below the top 8, almost the rest of the 14, 15 players are struggling and kind of they're for sale. So I mean, it's more or less bias market. And within that also, there would not been many of the top 8 who are currently interested or have the ability to buy out. Now under these circumstances, I mean how do you see this valuation? And then the next question connected to this is that, okay, if you see that Exide Life is recently adding value, then there are -- out of those 14, 15, there are many names. So are you still open to pay out for the more deals?

So okay, let me --- just to put things in perspective, while this deal is still a long way away in terms of regulatory approvals, you're aware, there's no deal that's happened in life insurance yet. And there are multiple reasons for that. We have articulated our considerations for a deal, and I would suppose that would be for any rational player in terms of good quality back book, distribution franchise of quality as well as possibility to do a deal given a shareholding structure that could be prevailing in different companies. So there are reasons why deals have not happened yet. And when you look -- put that in perspective, for us, organic growth is something that we have been doing reasonably well at, and inorganic is a way to kind of complement that, as Vibha mentioned. Is this going to be strategy for us on an ongoing basis? I guess short answer is yes. But it is -- we need to be very cognizant of all the steps that are involved in a particular transaction, and we'll take things in due course. And we obviously keep scanning the market for opportunities from time to time. We have continued to do that, and we'll do that in the future as well. To your earlier point in terms of quality of the book, I guess it is always a challenge when for unlisted players, not too much is available in the public domain, so you do end up making judgment calls based on limited information that's available. Having conducted due diligence and taking comfort from an external review of their quality of the back book that has been certified. We believe it's a fairly high-quality business that's been built. There are considerations on scale, which, like you rightly articulated yourself. At a combined entity level, a lot of those constraints will not apply, and that's where the synergies would come in over a period of time.

Ladies and gentlemen, this will be the last question for today, which is from the line of Shyam Srinivasan from Goldman Sachs.

Just one. I'm just looking at agent numbers for Exide and HDFC Life over the years, right? Fiscal '17, both of you had a similar number, around 53,000, 54,000. And you've grown at 20%, and they have declined 9% CAGR, right? Last 3 years have been pretty stark. So given the rationale for the deal is a large part on agency, if you can talk a little bit about what's happening there? Why have they seen this kind of a decline? And maybe possibly going forward, how can this be turned around?

Suresh, you want to take this one?

Yes. Vibha, I got this. So I think there are 2 parts to the overall agency business. One is the incremental number of active agents who we have recruited. The second is the productivity that we are able to kind of get from all the agents who have been previously onboarded. Now at the agency life, over the last 4, 5 years, we've been working on the agency model quite extensively, both in terms of new acquisition and two, in terms of getting the productivity of the existing agents. Now we've learned a lot in terms of how we need to onboard and how we retain and keep them active. The way we look at this business is that, look, there is always an opportunity to grow the agent base. And the equation is fairly simple. We need to get more agents. We need to get more active and we get a higher productivity. The overall value proposition in terms of what kind of products do you sell, how do you train these agents? How do you make sure that they remain active with you, they work on their customer base. A lot of [Audio Gap] which is one of the reasons we are not so consistent in terms of that activity base. We do believe that once we come in, we will be able to work with them and try and also increase their active agents as well as the customer for the active agents. We've run that model. In fact, we have mentioned this in one of our earlier discussions, we have this whole program called Agency Life, which is about actually looking at all the agents in terms of how do they engage with the insurer. We do believe we can replicate some of these programs. So of course, for us, the market is large. We have not -- almost 26% of our agency business is also in the south or active agents. We do believe that this will give us an incremental 15% growth in that particular market. And once our product range comes in, once our programs come in, it will lead to a cycle where we normally get that productivity higher and hopefully, we're able to onboard customers through their sales team. So these are things we -- frankly, for us is incremental and that's the way we have been looking at it. Past really we can't do much in terms of how much incremental financial conservations they have been able to board. But we are fairly confident, given our overall brand, given our product proposition, we'll be able to correct that as we go forward.

Ladies and gentlemen, as this was the last question for today, I would now like to hand the conference over to Ms. Vibha Padalkar for closing comments.

Thank you. We would like to thank all of you for participating in today's call to keep you updated on the progress of this transaction. In the meanwhile, if there are any further questions, do reach out to Kunal Jain of Investor Relations. Thank you, and stay safe.

Thank you. On behalf of HDFC Life Insurance, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.