Apollo Hospitals Enterprise shares rose by 3.8% in intraday trade on Thursday after the company exited the insurance business by selling its 50.8% stake in Apollo Munich Health Insurance.
The 50.8% stake was purchased by Housing Development Finance Corp (HDFC) for Rs 1,336 crore.
HDFC will also acquire another 0.4% stake in Apollo Munich held by a few employees for Rs 10.84 crore.
The two-stage transaction, which is subject to regulatory approvals, will subsequently lead to Apollo Munich Health Insurance merging with HDFC ERGO General Insurance.
At 10:30 am, shares of Apollo Hospitals were trading higher by 1.2% at 1,368.25 apiece, while HDFC rose 1% to Rs 2,195.
Global brokerages said the decision to sell stake in Apollo Munich Health Insurance to HDFC is positive for promoter Apollo Hospitals as the deal will help it reduce its pledged shares.
Promoters currently hold 34.4% stake in Apollo Hospitals, of which 78.13% is pledged for loans.
American investment banking company Morgan Stanley gave an ‘overweight’ call on Apollo Hospitals with a target price at Rs 1,667 per share.
It said the insurance stake sale, a major liquidity event, should help Apollo Hospitals reduce its leverage.
The deal is in line with management’s guidance and should help the company achieve its pledge-reduction target.
Nomura, the Japanese company, also has a ‘buy’ rating on the Apollo Hospitals stock with a target price of Rs 1,693. The brokerage firm said outstanding pledge for Apollo Hospitals will reduce to 30% following the stake sale transaction.
Global brokerage firm Jefferies said the price HDFC paid for the deal is too high, since the overall impact on the company should be minuscule.
It would be a positive for Apollo Hospitals since the deal provides promoter Rs 1,330 crore in cash and will reduce the pledge by 40%, added Jefferies.
It has a ‘hold’ rating on Apollo Hospitals with a target price of Rs 1,250 per share.
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