India could eventually surpass South Africa as the largest contributor to earnings at Sanlam, showing the significant growth potential of the market.
Abigail Mukhuba, Sanlam CFO, told Moneyweb in an interview after the group’s annual results announcement on Thursday that the company sees its strongest long-term growth prospects in India and the rest of Africa.
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SA remains a core market
“Geographically, we’re focusing on Asia and Africa,” she says, adding that the group typically describes its strategy in terms of three key growth vectors – South Africa, Pan-Africa and India.
Although South Africa remains a core market, it is also relatively mature, with high insurance penetration compared with many emerging markets.
“We want to grow the Indian business to scale – the opportunities for growth there are immense and much larger than the mature market that is South Africa,” Mukhuba says.
India’s growing contribution
Sanlam’s Indian operations are already making a meaningful contribution to the group’s earnings, accounting for roughly 10% to 15% of its earnings base, according to Mukhuba.
“And we think that will continue to grow.”
Over time, the scale of the Indian business could become large enough to rival – or even surpass – the contribution from Sanlam’s home market.
“Our investment in India is in the credit business, the life and insurance business,” Mukhuba says.
Performance of Indian business
A key example is the group’s stake in Shriram Finance Limited (SFL), the listed credit arm of the broader Shriram ecosystem in India.
“The credit business – Shriram Finance Limited – is listed in India. And that business’s current market cap is bigger than Sanlam’s market cap,” she says.
The scale difference is also evident in the size of the loan books. SFL’s credit book stands at around R600 billion, compared to roughly R5 billion for Sanlam’s South African credit book.
“From a scale alone, we project that in the next 10 years or so one would expect that the India business would be the bigger region – even bigger than SA,” Mukhuba said.
Sanlam currently holds just under a 10% stake in SFL.
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Expansion through partnerships
Sanlam’s growth strategy centres on building integrated financial services ecosystems across its three main regions, often in partnership with local players.
“For us, it’s about the strategic footprint. We want to do integrated end-to-end financial services,” Mukhuba explains.
Once that strategic direction is set, the group then decides whether it can generate returns itself, or with partners.
“In the three regions, we have partners that we work with. In India, it’s Shriram, in Africa it’s Allianz through the Sanlam-Allianz joint venture and in SA our strategic partner is UB [Ubuntu Botho],” she said.
Sanlam’s strategy
Sanlam has also been reshaping parts of its business to support this strategy. One example is its decision to swap certain assets under management for shares in Ninety One, leaving the insurer with an equity stake in the asset manager.
Partnerships are particularly important in markets such as Africa and India, Mukhuba says, where local knowledge is crucial.
“You want to operate with people who actually are closer to the ground and they know the market relative to running things in SA and you’re not close enough to the market.”
This article was republished from Moneyweb. Read the original here.
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