Financial services group Sanlam has bought a controlling stake in the two Indian businesses in which it first invested in the mid-2000s in a move that it says will deliver strong dividends in the medium to long term.
The group said it had increased its stake in Shriram General Insurance Company from 40.25% to 50.99%, and in Shriram Life Insurance Company from 42.38% to 54.40%.
The deals are worth R2bn. Sanlam said the transactions increased the group’s exposure to the “underpenetrated and fast-growing” Indian insurance market.
“The Sanlam board recognises India as a core market and strategic pillar to achieve long-term earnings’ growth and sustainable shareholder value creation for Sanlam. This transaction will enable Sanlam to further enhance its position in this important market and drive growth,” said the company.
“The transaction is expected to have a marginal positive impact on net result from financial services and a marginal negative impact on dividends in the initial years. Both net results from financial services and dividends are expected to grow strongly in the medium to long term. The transaction is expected to deliver an internal rate of return on capital deployed well in excess of Sanlam’s internal hurdle rate.”
The relationship between Sanlam and Shriram started in 2004. At the time, the Cape Town-based group was eager to expand its presence outside Africa, and the two countries that came out on top were China and India.
Sanlam group CEO Paul Hanratty told Business Day in 2023 that India’s economic tailwinds driven by domestic consumption and investments would result in Sanlam reaping the rewards for years.
“We have always said we have three legs to our strategy: the first one was to build a fortress position in SA, the second one was to build a strong position on the rest of the continent, and the third one was to strengthen our position in India,” Hanratty said in September.
“The growth rate in India means that even if we don’t invest further in that country, it will still be a significantly big part of our business.” Sanlam was lucky in having probably a better partnership in India “than any of the other foreign players”.
The deals come as Sanlam’s three-pronged strategy to grow its dominance in its home market, expand in the rest of the continent and build a scalable nonbanking financial institution in India takes shape.
The IMF expects India’s economy to grow more than 6% over the next few years and to eventually be the world’s third-largest economy.
In the six months to end-June 2023, India accounted for R384bn of the group’s R453bn credit book size.
Sanlam’s share price closed 0.95% lower at R64.95 on the JSE on Friday.
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