Dr Andrew Kuper, President & Founder of LeapFrog Investments said, the company is very excited to form a strategic alliance with Mahindra and they are looking forward to grow Mahindra Insurance Broking further. Leapfrog will help to bring the best global practices to its Indian business as well, added Kuper.
M&M Financial Service has struck a partnership with Leapfrog for their insurance arm. Leapfrog has invested about Rs 65 crore and is buying a 15% stake in the insurance broking venture of Mahindra and Mahindra.
Dr Andrew Kuper, President & Founder of LeapFrog Investments informed that the company is very excited to form a strategic alliance with Mahindra and they are looking forward to grow Mahindra Insurance Broking further. Leapfrog will help to bring the best global practices to its Indian business as well, added Kuper. Besides, he sees India as a favourable place for long term investment opportunities.
In an interview with CNBC-TV18, Bharat Doshi, executive director and group chief financial officer, Mahindra & Mahindra and chairman, Mahindra Finance and Mahindra Intertrade, said the company is looking forward to establishing its mutual funds business further. He added that their latest partnership deal has increased the valuation of Mahindra Insurance Broking to Rs 520 crore.
Talking about the recent spate of reforms from the government, Doshi hopes that it will create a new growth path. Moreover, the auto sector is now eyeing the festive season and it will help to gauge demand in the sector. He is also hopeful of a rate cut from the RBI in the instance of easing inflation in the country.
Here is the edited transcript of the interview on CNBC-TV18.
Q: The valuations of this deal look very lucrative for Mahindra insurance brokers. Tell us about the partnership between Leapfrog and M&M - what you bring to the table and how did you arrive at the valuation?
Kuper: Leapfrog is a profit with purpose fund. We invest in companies that serve low income excluded people, under served people all over the world with financial services and particularly with insurance. We were tremendously excited to form this strategic alliance with Mahindra Insurance Brokers Limited and Mahindra group broadly, because Mahindra for many years has served the rural and semi urban market with value based quality offering of financial services. We are keen to help them take the next leap, growing the Mahindra Insurance Broking opportunity, taking the company to a whole new level. By 2015, we hope to be the leading insurance broker in India.
To that end we have invested USD 15 million for 15 percent of the company. And we view ourselves as bringing not simply that capital but, above all the expertise to the table, best practices from our global experience that will enable the company to succeed and to serve million of people.
Q: How much of a positive will this deal be for Mahindra Broking and what are the growth drivers for M&M financial services going forward?
Doshi: If you see the profile of Mahindra Finance and how it has grown over the years, it started with auto financing; moved into auto and then tractors and focused entirely in rural areas. Today, we have more than 600 branches all over the country. After Mahindra Finance stabilized and grew, we established Mahindra Insurance Broking business. This was a conscious decision and we were looking at the network and pipeline built by Mahindra Finance across the country and additional financial product in terms of insurance to be provided through the broking channel.
We decided consciously not to become agents because that would tie us down to just one insurance company and instead we became brokers, serving customers across the country and all the insurance companies in the country. If you look at this profile and look at what we did afterwards in terms of growth, we are a mutual fund distribution company. We have already license for a set management and we are now working on establishing that business.
We have already established a rural housing finance subsidiary under the banner of Mahindra Finance. And serving with these products we are looking at each of our babies growing. And I must say, Mahindra Insurance Broking which was walking slowly as a toddler, within 8 years has made tremendous growth. With this transaction its valuation is established at Rs 520 crore.
We are not just looking at the tie up with Leapfrog for the investment, if you look at Andrew's background and look at what work Leapfrog has done, we clearly saw that for Mahindra Insurance Brokers' next big leap, Leapfrog is the right partner.
Q: What have you made of the recent reforms by the government? Will they be able to restoke the investment cycle or do you think political instability will be a roadblock?
Doshi: With what we have seen in the last 8-10 months, we have only seen roadblocks and not actually the journey. Our eyes are on the Finance Minister and Prime Minister to now make it happen. I am an optimist and I can tell you, at this juncture, I am hoping that this determination will create a new path inspite of the roadblocks.
Q: What is your view on India, are there any more companies or areas where Leapfrog is looking to invest more aggressively this year? Would you be worried at all about slowdown in the Indian economy that is being spoken about?
Kuper: Leapfrog is excited about India. We view the naysayers, the people who complain of quarterly reductions in growth as not seeing the long-term opportunity that India presents. India is going through a fundamental transformation, adding hundreds of millions of consumers and people to its opportunity set to the economy, people who were previously excluded. We see a real opportunity to invest in businesses, to partner with them and serving those communities.
We see a rising talent pool in India that was once unable to be apart of the great story and can now help drive it. We are extremely keen to continue to invest in India, to work with partners like Mahindra and Sriram and help this country to tap the vast, untapped market for insurance and related financial services
Q: What is your assessment of the auto sector, how are you looking at growth in FY13, the industry has been through a fair degree of slowdown and inventory pile up? Is double digit growth something that we are not going to see for sometime now?
Doshi: If you look at auto sector, it has faced many challenges in terms of the rising crude prices and high interest rates along with a negative economic environment. But what has still worked are the good products brought to the market. One has seen that in terms of individual company performance versus the industry performance.
Industry performance has also been affected by very good growth in the preceding 3 years. If you have substantial growth in the preceding 3 years, one looks at the 4th year to automatically have an overhang and people maybe postponing the purchases. Therefore, you see the pressure on demand and demand is going down.
But, if you had simultaneously looked at individual companies, you have seen that companies with good products have done with more than 20% growth even in the last two quarters. It’s difficult at this stage to make a general comment but, I can say that it will in a way be around the GDP growth rate.
Normally, the auto industry has grown far beyond the GDP growth rate. I used a thumb rule some years ago that it will grow twice the GDP growth rate. But, in the past three years, if it has grown more than that, it shows that there could be a little tampering to ultimately go along with the secular demand.
If you look at the coming quarters, the second quarter is going to get over; October-November-December is the quarter where you have two major festivals. And eyes are on that festival season, whether it is Dusshera, Diwali. People are looking forward to seeing how the auto industry will do in that period and it will be very relevant for the subsequent months as well.
I am assuming right now and it is a big assumption that the global trends on oil prices are not suddenly going to go out of the way and taking it beyond where they are hovering right now. I am also assuming that the various assumptions the government has announced will create a positive environment and while RBI will continuously watch the inflation rate and design its policy measures, I am hopeful that if the general environment is right and inflation comes under control, RBI may also come forward in reducing interest rates and it will help demand.The Great Diwali Discount!
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