Business Today

Gaining ground in a downturn

Most companies prefer to stand still during a slowdown but, as a clutch of players in financial services have shown, there’s no better time than now to turn the heat on the competition.

twitter-logo Anand Adhikari        Print Edition: March 22, 2009

What’s even better than growing at breakneck speed, piling up the profits and market share, and riding a boom in style? Well, quite simply, growing steadily, posting profits, gaining market share and climbing a position or two when your rivals are unable to do so.

To be sure, growth in gung-ho times is great, but not unexceptional—with a me-too business model, easy capital and eager consumers, you’re pretty much on your way. It’s not quite the same, however, when demand turns fickle, capital is scarce, and your business is enveloped by the dark clouds of an economic slowdown.

It’s during such downturns that yesteryear’s high fliers are prone to fall the hardest. It’s at such times that less risky and more stable business models focussed on profitable growth and long-term leadership come to the fore. Growth may not be spectacular, but often during a slowdown just the ability to hold one’s ground is enough to inch ahead—simply because many of the hot rods are falling behind the pace.

The companies that we talk about in the next few pages—all in financial services—have not just held their ground but also stolen a march on rivals who had raced ahead of them in the good times. They’ve been able to do so because of the uniqueness of their business models, because of their strategic decision not to chase mindless growth when it was there for the taking, and because they’re still in a position to keep their foot on the investment pedal. Read on to know more.

MD & CEO, SBI Life Insurance Company
U. S. Roy
When opportunity knocks
SBI Life has used the changed market conditions to its advantage to grab the #2 position in the private sector from Bajaj Allianz Life Insurance Company.

In the rah-rah days, they were considered the laggards for sacrificing growth for profits and for being slow in utilising the extensive branch network—perhaps, the largest in the world—of its parent, the State Bank of India. That’s why the perception in the market and amongst rivals was that SBI Life Insurance was content trailing as a distant #3 amongst the new life insurance players in terms of annual gross premium. The ongoing slowdown has, however, changed the game in life insurance.

It has also transformed the fortunes of SBI Life, which has displaced Bajaj Allianz Life Insurance from second spot in the April-December period. The catalyst for this change: The crash in equity prices, which has virtually wiped out the demand for unit-linked insurance plans (ULIPs). Latest figures from the Insurance Regulatory & Development Authority (IRDA) for December 2008 reveal that SBI Life is within sniffing distance of leader ICICI Prudential Life Insurance. SBI Life clocked a premium of Rs 398.38 crore compared to ICICI Pru Life’s Rs 428.33 crore in the last month of 2008.

So, what’s contributing to SBI Life’s arrival on centre stage? Clearly, a lot has to do with ULIPs— largest bread earner for private life insurance players in the last eight years—losing their glitter. “Of late, we are selling more traditional products like term policies than ULIPs,” points out U.S. Roy, Managing Director & CEO, SBI Life Insurance. For instance, last March, the ratio of ULIPs to traditional products was 70:30. Today, it is 60:40.

Also, when traditional products are the focus area, the spotlight naturally also shifts to the traditional players. “In today’s market scenario when consumers are shifting back to traditional products, SBI and LIC (Life Insurance Corporation) come first to mind as they are the two most trusted brands for long-term life insurance products,” adds Roy, who took over at the helm in January 2007. Unlike many other insurers, SBI Life has kept its group corporate business on the traditional platform. For instance, retirement funds have not been deployed in market-linked ULIPs,” explains Roy. That has gone a long way in bringing back the confidence of many long-term clients.

SBI Life’s other edge on its rivals is its multi-channel business model that includes bancassurance, an agency channel and a corporate group. This helps bring in a steady flow of business, even during a slowdown. Only a year ago, the company changed its reporting structure by shifting from a centralised head office arrangement to a more decentralised organisation. “We have divided our business operations into eight different regions, with each region covering two states, two SBI circles and an associate bank,” says Roy, who has over three decades of experience in India’s largest bank. “This cohesive approach resulted in the SBI network getting optimised to garner more business,” he adds.

SBI Life’s bancassurance model is also different from those of the others; at most insurance companies, the bank makes a referral and the agent follows up with the booking. So a customer ends up paying a commission to the agent as well as to the bank. “We at SBI Life have been empowering our bank staff to sell policies directly. So, we train our bank employees to sell insurance and that’s the reason why our bancassurance model is taking time,” reasons Roy. In fact, SBI Life’s French joint venture partner Cardiff SA has been a pioneer in selling insurance products through global commercial banks.

SBI Life has a few other aces up its sleeve. For one, it is the least-capitalised amongst the newer players; this offers more headroom for raising further capital. For another, the firm has also been profitable for the past three years, and has no accumulated losses on its balance sheet. Most other life players will take 2-3 years to make profits and 3-5 years to wipe out piled-up losses. “Profits are necessary in life insurance because the company has to sustain itself over the next 20 years to pay back,” says Roy. Being financially sound clearly has its benefits, which are magnified in rough times.

CEO, Religare Enterprises
Sunil Godhwani
Coming in from the cold

Religare Enterprises polevaults to top dog position in terms of market capitalisation amongst firms that have broking as their core business.

Headquartered in Nehru Place in South Delhi, Religare Enterprises is perhaps the only major Indian brokerage that has its base so far away from the hub of the capital markets in Mumbai’s commercial district. But that doesn’t seem to have marred its prospects; in fact, the distance from Dalal Street seems to have helped—the erosion in its stock price is the least compared to other brokerages.

There’s of course more to Religare’s out performance of its sector. More than distance, its relative success has plenty to do with a diversifed business model that goes beyond just broking. The 15-year-old financial services venture promoted by the Malvinder Singh family (of Ranbaxy fame) is in investment mode even as many of its rivals are tightening the purse-strings. “You need courage to put up money in these times,” says Sunil Godhwani, CEO, Religare Enterprises, a holding company for Religare’s businesses in equity broking, wealth management, asset management, life insurance, commodities and insurance broking. The money to be raised through a rights offer will be directed into non-market capital lending businesses such as consumer finance, invesmetnt banking and insurance.


Clearly, Religare sees an opportunity in the current adverse conditions. Late last year, at a time when liquidity conditions were at their tightest in the wake of the bust-up on Wall Street, Religare pounced on Rana Talwar’s Lotus Mutual Fund, which manages assets worth Rs 5,000 crore. Just a year ago, Religare was just another pretender amongst a new breed of broking and financial services firms that had listed on the stock exchanges. These include Edelweiss, India Infoline and Motilal Oswal. In terms of market capitalistion, Religare lagged behind all these names. Today, it’s a different story, with the market seemingly in a mood to give Religare’s appetite for growth a thumbs up.

The 47-year-old Godhwani, for his part, doesn’t give much importance to market cap rankings. “They are not always the best barometer to gauge the true underlying value and fundamentals of an integrated business model like ours,” he explains. “We are not a broking house but an integrated financial services player.”

That explains why investors rate Religare higher than its peers. To be fair to Religare’s rivals, most of them, too, are moving from pure-play broking towards being integrated players. Yet, Religare has been more successful at using the headwinds of the downturn to its advantage. “There is no holding back,” gushes the CEO.

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