Awareness and security for the family being an important factor, that need only get accentuated. From an access standpoint, while 65% of our population is in rural India, which accounts for 45% of GDP, only 2% of our life insurance branches are in rural areas. That is where we have a real opportunity to create a model that can be distinct and, therefore, give us a much greater market presence. The critical success factors in this space are, one, brand and trust.
Trust is probably the most important factor because insurance is taken by someone who is not likely to be there when the insurance benefits are paid to the person's family. They need to be certain that the company that gives me insurance is going to take care of my family. Control over distribution is an important factor, and that is where Mahindra Finance comes in. It also requires capabilities that enable strong underwriting, that enable a product set that is right for the customer base, at the same time one that makes sense from an insurance standpoint.
That is where Manulife comes in as a top-tier global insurance company, a company that also has significant capabilities in reinsurance, and that will also help the business significantly. Over and above that, as everywhere, execution excellence is something that is critical to be able to achieve success and something that we have been able to demonstrate across multiple businesses. Let's talk a little more about Manulife. This is a leading Canadian life insurer and asset manager.
In Asia, it is among the top three and understands global markets very well. Globally, it has INR 1.1 trillion in assets under management, 36 million customers, and has done extremely well in multiple markets around the world. Expertise in managing agencies, very strong reinsurance capabilities, and it has delivered consistent returns with a 16.2% core ROE in 2024. We have a partnership with Manulife already in our asset management company, and they're wonderful partners. It's something that I think will be very, very positive for the Mahindra Group overall.
You heard me say this before: we need a strong right to win. What we mean by right to win is, why would a customer select us versus anyone else? They have all the choices. In this case, our right to win is offered by both partners: the brand and trust that Mahindra brings, the existing customer base in tier two and three cities, and actually even beyond that, a ready distribution and branch network with Mahindra Finance, treasury relationships to Anarock Banker, and we have some of them that will come into play.
Manulife brings a product know-how, underwriting, risk management, reinsurance, and very strong experience in Asia in particular, in agency management. Both together will bring leadership in technology, digital, and AI, because both Mahindra and Manulife are leaders in that space. This helps add to our financial services footprint with lending, asset management, insurance, broking, and life insurance. A detailed slide here, but I will just go over the key points.
I've started with our aspiration earlier. How we're going to go about this is have a strong protection focus. That's what the Mahindra brand stands for from a trust standpoint as well. Mahindra Finance's distribution has 1,345 branches, deep rural and semi-urban consumer coverage, and access to 2.5 million+ live customers. To add to this also is the Mahindra network and the synergies we will have across all our businesses in terms of being able to access customers.
We have Mahindra One customer database, with customer permissions, to be able to offer products, and this is a product that fits exactly into what customers will want. Add to that a premium agency network that we would build, given some of the strengths that Manulife has in that space as well, and create a digital-enabled ecosystem, in some ways lead with digital. Our aspiration there is to be a leader in the digital space, thereby creating a very sharp and focused strategy that will enable us to be both effective and efficient in this space.
The important question here is, what are the financial returns? Yes, that often is the first question that we ask. As we have done some very detailed work, to start with, the capital commitment is roughly INR 250 crore a year for the first five years, with a total of INR 3,600 crore for 10 years. This is again from a Mahindra perspective. From a JV perspective, Manulife will contribute the same amounts. The global reinsurance expertise can potentially help bring it down further as well.
That is something that we will see over time. This can result in a valuation for this business of INR 80,000 to 30,000 crore in 10 years. These we feel are conservative numbers. There is potential upside to this. If a composite license is allowed, then that valuation can increase fairly significantly. There are other things that we have in play that have not been tested as yet, and therefore we have not added them to the business plan.
This is a plan we feel we can execute, and others will only add to the upside. As you know, insurance is a long-term business, and we're building this business for the future. As we go beyond 10 years, this is very well positioned to create a lot more value. In the short run, it is a creator for Mahindra Finance ROA. Very, very compelling from a financial standpoint.
In summary, these are the four points that we had put up in the investor meeting we had in June 2024, that we would look at these four points before looking at any opportunity. That is a strong right to win, meaningful potential. We feel we can achieve market-leading returns here, and we have a strong ability to execute. That, in summary, is a synopsis of our foray into life insurance. We can now open it up for questions.
Thank you, Anish. Dear all, you may please raise your hand, and we will unmute your line for the questions. Alternatively, you may type in the Q&A chat box. Ajax, please go ahead.
Hi, sir. Thanks for the opportunity. A couple of questions, sir. One is, where does this sit? Does it sit under the Mahindra Finance or under our Mahindra?
This would sit under Mahindra. We debated that a fair bit. It will obviously have a very strong Mahindra Finance tie, and a distribution agreement has been signed with Mahindra Finance. The reason for it to sit in Mahindra is that it is much easier to access the synergies across the group. More importantly, from a regulatory standpoint, the NBFC regulatory landscape is evolving significantly.
As you see, insurance companies that multiple NBFCs have, all of them are held by the parent and not by the NBFC for that reason. At the same time, we are conscious of the fact that we have to maintain that discipline in capital allocation. Therefore, the way we look at this is, we would earmark one-third of the dividends we get from Mahindra Finance as investments that we would make in this JV.
Perfect, sir. Just to follow up to your answer on capital allocation, and your initial comments on protection being a purpose, you must be aware that protection is a capital-intensive business. What are the basic maths you are building with on this INR 250 crore? If more protection ramps up, there's a necessity of allocating more capital, right?
The INR 250 crore accounts for the fact that we're going to have much higher protection than anyone else. Protection also is more profitable, and it has a greater persistence and therefore sustainable long-term as well. The capital aspects of protection, the fact that protection is going to be a higher percentage for us, those are all in the business plan right now.
Okay. Got it. Perfect, sir. That's it for me. Thanks.
Thank you.
Manus, you can go ahead.
Hi. I am actually an insurance analyst, not a M&M analyst, but wanted to understand from that perspective, typically takes a good decade to give your first accounting profit and then even longer to cover up losses. That is one question: how are you guys thinking about gestation of this business? Second, you're trying to do protection in a rural, semi-rural setup, which practically very few people have tried. Where do you think that execution or need for that product in the customer lens sits? Those are two questions.
Manus, first, you're right. It will take 10 years for us to break even, possibly even slightly longer than that. That is the nature of the insurance business. The embedded value is what creates valuation for the company. That's what we're looking at here. This is a company we're building for the next 20, 30 years. This is not something we're doing for 10 years. We see much greater value in there. Protection is going to be a focus for us, but not the only thing. We will obviously offer the products as well.
We see protection as being important even in rural and semi-urban, first for folks who take loans, because our customers always are very concerned about what happens, what will be the outcome if something happens to me. Therefore, life insurance being added to a loan is something that we do in a number of cases today, and something that will continue. Beyond that, one, protection is much easier to sell. The premiums are much lower, and that's something we feel that just has not been done well enough in rural areas right now.
As I showed earlier, only 2% of life insurance branches are in rural and semi-urban areas. As we talk more about the product, we see incomes rising there, and we feel that insurance will have an important play there. Some will want products besides protection, which we will offer as well. We just feel that if we can offer a very strong protection product, it's a spike for us in that sense. For rural and semi-urban, it's going to be a range of products. For urban, we will play more on the protection side.
Understood. So, it'll be credit life rather than pure protection. Is that the right way to think of it?
That is the right way to think of it. Correct.
Got it. Thank you.
Kapil, you're unmuted.
Hi. Can you hear me?
Yes. Go ahead, please.
Yeah. Morning, sir. Sir, you've always talked about the fact that, you know, you will continue to fund the businesses as long as they are meeting certain metrics as far as performance is concerned. Now, this, because this takes a long time to break even, what are the metrics that, you know, we should track for performance of this business? And pardon my lack of understanding of the segment, but, if you could give some color here.
Yeah. Kapil, that's a great question. That's one thing that is very important for us. What we would track is, are we on plan with regard to the business that we want coming in? What is the market share that we have in certain areas? What is the embedded value that's being created? Is it being created at the returns that we want? The investments in the short term will create a longer gestation period in that sense for profits.
There are various other metrics that we have outlined, as I just talked about, that will tell us that, is this business being created the right way? Will it therefore have the value that we can show our shareholders in a 10, 15, 20-year time period? We're not going to wait, as you rightly said, for 10 years to see if there's value. This is something that we would actually look at every month as we monitor the business.
Sure, sir. The second was on the, you know, we've talked about building a comprehensive financial services offering. Can there be more things that you would also look at as opportunities? Are you looking at more things?
Yeah. So, we will.
For example?
Go ahead, Kapil.
Yeah. I mean, for example, it could be general insurance or wealth. I'm not asking you to announce something, but just understanding your thought on the same.
If the insurance regulator allows a composite license, then general could be a good upside for this business as well. And general, again, there are lots of synergies we have across the group. In terms of wealth or other areas, I would say we have not been looking at that closely. What we are looking at closely is diversification within Mahindra Finance. As we look at the next phase for Mahindra Finance, it's a business that, I would say, has completed its first phase. We'll talk a lot more about that at our investor meet next week.
As you've seen from recent results as well, it has been able to achieve everything we've said it should. The next phase is pivoting to growth and looking at diversification. All of that will happen within Mahindra Finance. In this case, given the regulatory landscape I explained, we had to have this business at the parent level. As we look at mortgage, SME in a bigger way, all of that will happen within Mahindra Finance. That is a diversification we would look at in that business.
Okay. Thank you, sir.
Okay. Thank you.
Rakesh.
Hey, hi. Good morning. Thank you for taking my question. Anish, my first question was looking at the capital deployment plan, which you have. It seems like it's more back-ended, in the initial few years. It's a smaller proportion of the capital which is going. What are the milestones you would be looking at before deploying the incremental capital?
Rakesh, the milestones we would look at is, again, have we been able to create a strong right to win? I define that specifically as will customers buy from us? In terms of metrics, does that translate to the sales that we have for insurance products, the premiums that we bring in? Is that on track versus what we had planned? From a cost standpoint, are we operating at the cost levels that we had planned for? Because that effectively then results in the margin planning that we've done.
Are we growing at the pace that we want it to grow? These are all the things that we would look at to make sure that this is operating in the means that we've laid out. For us, as you've seen, Rakesh, across multiple businesses, the important part is, are we executing well? Are we delivering what we promised? What each business has promised it should deliver? That is exactly what we would look at.
Great. It appears that as Mahindra Group, you want to expand into financial services. Will you be able to share what kind of free cash flow from group companies you would be deploying into these new businesses, like the way you just mentioned about Mahindra Finance dividend partly going into funding the insurance part of the deployment?
Anything from a broader perspective, because your Tech Mahindra business is also turning around, that will also be generating in the coming years much stronger free cash flow. Any plans that you have in terms of how much of those will keep on getting deployed into these new initiatives?
At this point, nothing besides this. We have been very, very careful in terms of how we deploy capital. We have been talking about it for a while as well in terms of the talks that we would put around any potential thoughts that we have in financial services. Any further diversification we would expect to do within Mahindra Finance. As I mentioned earlier, because of the reasons I outlined, we've had to put this entity at the Mahindra level. Any further diversification will happen within Mahindra Finance only.
Great. Thanks, and all the best.
Thank you.
Gunjan, please proceed.
Hi. Can you hear me now?
Yes, Gunjan. Go ahead, please.
Yeah. Hi, Anish. I had two questions, and I'm zooming out a bit. And honestly, to be honest, I don't understand this business so well. So, I'm going to just zoom out a little bit and ask on capital allocation. Two questions. I think firstly, you've often spoken about, you know, we play 70% of the GDP of India. There is, you know, more that we are exploring that, you know, Mahindra as a group can participate in in terms of opportunity.
I just want to understand, from an incremental business diversification perspective, is it a lot of focus mainly on financial services, or is there any other industry that, you know, could still we're sort of exploring and there's more to come in terms of group diversification? That's my first question. The second question is more around how should we see incubation of these businesses? Because, you know, while in case of this opportunity, it's more to do with the regulation that we haven't housed it under Mahindra Finance, and we've taken it at Mahindra level.
But, you know, as we look at other businesses, what is it that will be housed under Mahindra, as a parent? And, you know, what, you know, how should we think about other subsidiaries that are there, listed subsidiaries? You know, what really comes there if there is something? You know, I'm more specifically looking at real estate, hospitality. Those are the opportunities. Those, I assume, would get, sort of housed under, those businesses itself. You know, a little bit color on how these businesses will get incubated.
Sure, Gunjan. Let me just start with the final point you made. You're right. Any investments in real estate will be housed in real estate. And real estate business will make those investments similar in holidays and other listed entities. That does not change. Going back to the starting point and the zoom out that you had, if I just go back over the past few years, we maintained a very strong discipline on capital allocation. We continue to maintain that.
As you see, therefore, this has been one that has gone through a lot of deliberation, even since the time we talked about looking at one to two new areas in June 2024. This is one where we've got a very high degree of confidence in terms of the value we can create, because this can be really meaningful value for our shareholders.
One that requires, in proportion to that value creation, a much smaller amount of capital, which also we feel will literally be about one-third of the dividend that M&M will receive from Mahindra Finance. In that standpoint, it is sort of boxed very nicely in terms of our capital allocation approach. What we also will continue to look at is growing our current businesses as a primary priority. You saw that with SML. There again, we had gone through a very detailed deliberation of why SML, and does it make sense?
Is it at the right valuation? Will it help grow our business? We were convinced by that. As we look back, even over the past three to four months, it's just a fantastic acquisition that really places our trucks and buses business on a very, very strong footing and can grow significantly from here and deliver returns to shareholders that actually will be many multiples, possibly even higher than what we had thought about when we made the acquisition. It's things like this where we feel that this is something that will add tremendous value.
Therefore, our primary focus first is to look at growing our current set of businesses and helping them be much bigger. Our growth gems have grown dramatically, and we've talked about that before. We'll talk in more detail about that next week in terms of the value that we see that the growth gems are giving our shareholders. In many ways, this is a part of that. That is the journey that we're on.
Okay. All right. I'll join back.
Prayesh, please go ahead.
Yeah. Hi. Hi, Anish. This is Prayesh from Motilal as well. I track the life insurance space here. Just a couple of questions there. Now, you mentioned about having a lot of focus on tier two and tier three. You know, whatever we have understood so far, the private players have been, you know, wanting to get into this space but have been very conservative or very calibrated in that approach because of the kind of challenges in that cohort wherein mortality can be different, mortality can be on the higher side, persistencies can be on the lower side.
Having Mahindra as a brand and having a lot of knowledge and information about these kind of customers, do you think you would be in a much better position to underwrite these cohorts in a much better manner versus the competition?
Prayesh, great question. You are right in everything you said. That is where we feel that being present itself gives us a huge advantage. It gives us a much better understanding of customers there, in many ways, an intimate knowledge of customers there. 1,300 branches is the real advantage that we have that many others who have been in this space do not. That is where we feel that we will be able to do a lot more. Also, many of these are our customers. That also is an untapped area that we feel we can work with.
Right. My second question is, again, on the, you know, if I look at the entire private, private life insurance spectrum, the companies that have emerged to be the large ones have become large because of their banking partners, right? Very few of them have been able to really scale up. What is the distribution matrix, right? One, you mentioned about the branches, branch network that you have. You know, there's agency channel, or for that matter, the online channel. What are the, what is the thought process of approaching the distribution mix?
are four main areas. First is the branch network we have, which, given the reach in rural and semi-urban, is stronger than many of the banker channels overall. Second is agency network. Third is banker. We will have a few banker deals, and that is something that will evolve. I cannot talk about that right now. The fourth one will be digital. These are going to be the four channels that we look at as we build this business.
Got it. Thank you so much, Anish.
Thank you.
We'll take two more questions. Harshal and Ashish. Harshal, please proceed. Harshal, you need to unmute yourself. Okay. We'll come back to you. Ashish, just go ahead.
Yeah. Hi, Anish. Good morning. Anish, my question is, you know, you currently, you know, are in a joint venture with Manulife on the mutual fund side, where I'm sure we would have tried to leverage exactly the strengths that you're talking about now, right? How has experience been on that side? And, you know, has our rural exposure really helped us?
If you can, you know, kind of speak about some of the learnings or experience on the, you know, on the mutual fund side to understand how, you know, there the ramp-up metrics or the success metrics have been for us versus what you would have thought, you know, when we got into that business.
There, Ashish, the AMC did not start with the focus on rural and semi-urban by design. Mahindra Finance needed to do a lot of other things as well. Therefore, we did not want to have the branches in selling mode in that space. That has now changed for Mahindra Finance in terms of what it has done. The technology that has been put in has freed up the branches. A lot of central work has been put into Mahindra Finance to enable better controls as well.
Therefore, over the last year, we freed up branches at Mahindra Finance and also got a corporate agency license for Mahindra Finance, for insurance. That is the reason why insurance will go into rural and semi-urban areas. The AMC still will not. It requires a different level of training. It is something that will take longer.
That is one I wanted to separate out in terms of the way each business is going about. Now, coming to the AMC, that is actually operating better than what we had expected. It is among the top 20 now. This, again, is a long gestation business, but has come up well from a performance standpoint, is doing, again, very well among the top few in that space. We feel that this is one business also that will add value for shareholders in the longer run, not very capital-intensive either.
Therefore, one that is part of the overall financial services footprint that we have, but specifically not with a focus on rural and semi-urban as we will have for the insurance business. I also want to repeat once again that while we will strive to be the number one in rural and semi-urban, it's not as if we're going to ignore urban because with the kind of products we have and also with the customer base we have across Mahindra Group, we will have good access to urban.
Realistically, we will not be among the top few there at least for many years. That is why we are not talking about urban a whole lot, but it is very much going to be part of the play that we have here.
Okay. Got it, Anish. Thanks a lot, and best of luck.
Thank you.
Harshal, you want to try once more? Okay. Great. Thank you, everyone, for attending this call today morning. Have a great day.
Yeah. Thank you. Bye-bye.