Ladies and gentlemen, good day and welcome to the Cholamandalam Financial Holdings Limited Q1 FY 2025 earnings conference call, hosted by Kotak Securities Limited. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Nischint Chawathe from Kotak Securities. Thank you, and over to you, sir.
Thank you. Good morning, everyone. Welcome to the earnings conference call of Cholamandalam Financial Holdings Limited. To discuss the Q1 FY 2025 performance of Chola Holdings and share industry and business updates, we have with us the senior management today. The management is represented by Mr. Sridharan Rangarajan, Director, Cholamandalam Financial Holdings Limited; Mr. Ganesh N., Chief Financial Officer, Cholamandalam Financial Holdings Limited; Mr. Suryanarayanan V., Managing Director, Cholamandalam MS General Insurance Company Limited; and Mr. Venugopalan S., Chief Financial Officer, Cholamandalam MS General Insurance Company Limited. I would now like to hand over the call to Mr. Sridharan for his opening comments, after which we'll take Q&As.
Thank you. Good morning to all of you, and welcome for our Q1 earnings call. I would request our Managing Director, Suryanarayanan V., to talk about the performance of the insurance to start with, and then we will take up the question and answer. Since the NBFC is widely covered, and you have already seen their financials, as well as the investor calls and the presentation. This would help us to understand the insurance side of the business and followed by Q&A from you. Thank you.
Thanks, Sridhar. Good morning to all of you who have joined the earnings conference call. Let me give you an overview of the performance of Chola MS for the quarter. In the quarter, Chola MS recorded a gross direct premium of INR 1,921 crore, with a growth rate of 14.2% as against the multi-line insurers' growth of 12.4%. The company grew higher than industry in fire and other commercial lines of business. In retail health, the company grew by 9% as against multi-line insurers' growth of 11.4%. In group health, the company grew its volume to about INR 146 crore. With growth in commercial and health lines, the composition of motor in the overall GDPI has reduced to 60% from 66% in the corresponding previous quarter.
In motor, the principal line of business, the growth was at 3.2%. Within motor, the company has a composition of 40.3% in cars, 43.8% in CVs, and 15.9% in two-wheelers. The company gets about 31% of its total motor premium from new vehicles. The expense of management for Chola MS for the quarter was at 33.35%, as against 33.87% in the corresponding quarter, a reduction of 0.52%. The claims ratio for the quarter was at 72%, as against 74.5% in the corresponding quarter. The crop-related claims ratio for the Kharif and Rabi seasons of FY 2023-24 saw a reduction of about 8% from the levels provisioned earlier.
The NAT CAT event in the quarter, Cyclone Remal, left us with an impact of INR 6.3 crore, as against 15.7 crore from Cyclone Biparjoy in the corresponding previous quarter. The company continues to be prudent in its reserving for motor third-party claims. The combined ratio for the quarter was at 108.8%, as against 112.9% in the corresponding previous quarter. The investment portfolio corpus was at INR 16,620 crore, excluding the fair value change positive, and, the company had an investment income of INR 309 crore. With no exposure to stressed assets, recoveries from previously provided exposures will be recognized on cash basis as and when it happens. The profit before tax in the quarter was INR 179 crore, as against 88 crore in the corresponding quarter.
Return on Equity for the quarter progressed to 5.2%, not annualized. The company has migrated its private car portfolio from the legacy ERP systems to cloud architecture ERP, enabling contemporary configuration capabilities on microservices-based APIs for channel partners and ease of transacting for our customers. We'll now be happy to take any questions that you may have.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. To ask questions, please press star and one. Ladies and gentlemen, to ask a question at this time, please press star and one on your touchtone telephone. The first question is from Sanket Godha from Avendus Spark. Please go ahead.
Yeah, thank you for the opportunity. Sir, so the first question is on the SEBI's Board meeting outcome that if a holding company derives meaningful value, more than 30% value from the listed subsidiary, then you have a choice to delist the company.
Sanket, you are not audible. Could you be...
Is it better, sir, now? Hello.
Getting better. Please continue.
Is this better, sir, now? Hello.
Better, better. Please.
Yeah. No, sir, my first question is on the holding company that SEBI now given a provision that if the holding company derives more than 35% of the value from the listed entity of that holding company, they have a choice to delist themselves. So, given we at the current market cap, we derive bulk of the value from one of the listed entities. So, just wondering whether the board of holding company has thought on the SEBI circular to create value to yourself and minority shareholders in that sense?
Yeah. So, thank you, Sanket. We are aware of this circular, and the board has no discussion on this circular at this point in time.
Oh, okay. Okay, but, but just, just because out of curiosity, I'm asking, whether at some point in time we will be considering it or, or, or it's completely kind of a thing which you don't want to consider maybe in foreseeable future, too?
Sanket, honestly, as I said to you, the fact is that the board has not considered this at all.
Okay, perfect. Perfect. Thank you very much on that thing. Yeah, and on generation business, a couple of questions I had is we have seen an improvement in the overall loss ratio from 74.5% to 72%, corresponding quarter last year. So, assuming if the crop reversal would have not happened, then the kind of loss ratio what we would have experienced is question number one. And the second question is with respect to how should we think your motor strategy going ahead? Because that was always our mainstay. And we have grown meaningfully below the industry, at least in the current quarter, at 3.2%.
How we should understand your outlook on this particular business going ahead, whether it's a tactical slowdown for UM or you will come back when the market becomes a little more conducive compared to what you are believing it today to be, to drive the growth? Yeah, these are the two questions.
Thanks, Sanket. On the crop pillar, clearly, yes, sir, but then you should understand that, on crop, our retention levels are much lower. We retain 30%.
Yeah.
Therefore, the impact, while it is there on the overall pillar, it is not significant. Second is on the motor business per se. One can say that at least for the first two months, it was a conscious tactical slowdown, because in the month of June, the data is there with you, our growth rate in motor was 9.3 as against industry growth rate of 5.9. And I would tend to think that even in the month of July, we would have grown slightly higher than the industry because our numbers are clear, so we grew by about 10%. So July was a particularly very sedate month for the industry in terms of growth overall. So I wouldn't know the exact numbers of motor growth in the month of July.
So one can say that after four months, two months, we are growing much higher than the industry. But then the word that I would like to use is, cautious optimism. So which is what I would—we would want to do in the area of motor. Given the, competitive conditions, plus the outlook on motor third-party pricing, so we would, want to be a little more careful in this area while approaching growth. As I said in my opening remarks, we are growing, faster, perhaps, in the, the fire and other commercial lines, so it also gives us an opportunity to reorient our portfolio to an extent. But, motor still remains our lifeline, and we will continue to grow.
Any, any guidance you want to give, that's, that's, as you rightly said, in, in the month of June and July, you did well. So, so, so we can expect a double-digit growth from a full year point of view with respect to motor business, given the first quarter looks little muted?
I would tend to think so, because normally if we are, even our, your long-term premium, that rolls in is quite strong in the second half of the year.
Right.
Therefore, we are a double-digit growth in motor, is very much possible.
Got it, sir. And one more on group health. You see, our retail growth is little muted, as you highlighted in the initial remarks, it's 9%. But group health has done very well. So if you can give a bit of color on group health, which I mean means where you are growing, whether it's banker-led or a group employee-employer cover. And I mean a long-term strategy on this piece, and why it gives you comfort today to do that business if it is employee-employer, compared to our previous strategy being very cautious on that particular space.
And if you can, I mean, I'm assuming that the loss ratio, which has little deteriorated compared to last year in health around 69.7, is largely because of our strategy changing, the employee-employer or something with respect to incident rates have played a role?
Yeah. While our group health volumes have risen, if one were to compare this with the industry, we are still probably somewhere number five from the bottom. So it is not that one has taken a very aggressive stance on this line.
Right.
It is more a balanced stance. We are focusing on the SME segments.
Mm-hmm.
To begin with, much of our business is also from within the group, so, leveraging on the synergies within the group. So, while we will definitely see a growth, given the small base, the percentages would look very large, but in relation to industry, one can still say that our overall market share in group health would continue to be low.
Okay. And loss ratio, sir, if you can break it down between retail or is it largely because of our exposure to group health, which played the role? A bit of deterioration.
No, I wouldn't tend to think so. So, some of our businesses from the public sector banc assurance side, which is where the loss ratios are, were a tad higher. But then, we have secured some price increases in those businesses. So which should roll out maybe 60 days down the line, which should improve the loss ratios from that line of business. We will also be considering a price increase in our retail health-
Mm.
in some of our flagship products, consequent to the product regulation changes and medical inflation. So I think that should help us, bring the health loss ratios to control.
Got it. And lastly, on motor OD, how much was the impact because of the cat event, meaning basis points, if you can tell? Because we were seeing an improving trend every quarter, but in this current quarter, there seems to be a bit of deterioration. Yeah, and I think in the presentation, we have put in as ex-cat base, so I'm assuming it is because of cat event. If the cat event would have not happened, what that loss ratio number would have been?
Let me clarify. The cat event was more from the fire line of business. You will find that it is largely from the fire line of business.
Okay. Okay. Nothing, nothing in motor.
Maybe you can... Yeah, I think it will be largely from the fire line of business.
6. 3 crore.
Largely from the fire line of business.
Okay. Perfect, sir. That's it from my side. Thank you very much.
Thank you. Participants who wish to ask questions, please press star and one. Ladies and gentlemen, to ask questions, you may press star and one on your touchtone telephone. A reminder once again to participants, that you may press star and one to ask questions. To ask a question, please press star and one. The next question is from Ravi Mehta, from Deep Financial. Please go ahead.
Sir, just a clarification on the EOM. So what is the glide path, and by when we hope to be at 30%?
See, the regulator had given us a three-year timeframe ending with the fiscal year 2025-2026 to align to the 30% mark. We have been progressing in that direction, and we are confident that we will attain that level by then.
So you could be attaining 30% at the Q4 of 2026 is also okay, or for the entire year it has to be like, just to get a sense here?
No, it has to be for the year.
Okay, for the year.
For the full year.
Sure. Okay. Yeah. Thank you.
Thank you. To ask a question at this time, you may press star and one on your touchtone telephone. The next question is from Nischint Chawathe from Kotak Securities. Please go ahead.
Hi, so just one question from my side, and, if you could give some guidance in terms of how your financials will look like under IFRS?
Pardon me. Okay. IFRS for nine months, you know, we have not evaluated the impact. However, basically there are couple of major level of impact that it could create based on our, you know, analysis inside, which is yet to be completed yet. But there will be an element of, you know, that we call it as the, the full acquisition cost. Currently, we are upfront accounting the entire cost that are incurred as an acquisition cost now. IFRS would have a benefit on that, that's one benefit. The second benefit on the discounting on the TP claims, which may have a positive impact again, currently, we are not allowed to discount, whereas all the investments are going to earn on those liabilities on the TP claims. These are all the two positive changes which we are expecting.
We are yet to evaluate the impact in terms of, you know, the current business on that. We'll be shortly going to get into that detail.
Sure about it. Thank you.
Before we take the next question, a reminder to participants that you may press star and one to ask questions. The next question is from Sanket Godha, from Avendus Spark. Please go ahead.
Thank you again for the opportunity. Yeah, one small thing was that our solvency has improved to 1.92. And will it still be okay to raise subject or, given the profitability looks better and growth seems to be in line with the other ROEs. Or, it's an option you have, but you will... I mean, we just wanted to understand it will get triggered in the current year or you see that solvency to be self-funded by your own profits? That's point number one.
The second question is largely to understand this question I typically ask, how much is our long-term business both in the entire GDPI right now compared to what it was previous quarter in the same time?
Yeah. Second, you know, the solvency currently at a comfortable level of 1.92. So we have got the approval from the government in regard to the, you know, additional, and to the and deploy regulation. However, we are yet to take the call because we are. So this is the question, first question that I'm answering. So on the second question that we have been talking about on the long-term part of the, uh, around, uh, uh, 9%, 9.8% of the availability with regards to long term. It continued to be around that, uh, on the total premium.
Got it, got it, sir. And if you can break down your health, within that health, and it's excluding PA, how much is benefit based?
So, in the is, there is a large of premium in the health, which is continued to be around 8.5%-9% of the total premium we pay. So, majority comes from, you know, continued to be from the, you know, accidents, and then benefit on the health and the dwelling part.
Okay. Got it. That's it from my side. Thank you.
Thank you. Participants who wish to ask questions, please press star and one on your touchtone telephone. Next question is from Nischint Chawathe from Kotak Securities. Please go ahead.
Yeah, hi. So I was looking at, you know, data on channel-wide mix, and I was just curious, what proportion of, you know, business that you, that you kind of, you know, highlight from, from agency actually comes in from your side?
That is that, Insurance Express, our own captive agency, is part of the corporate agent, the captive, which is reflected there. It is part of the 27%.
So that should be after 27%, the agents and POSP combination should be about 15% and 1.5%. But the balance will be from CIFCL and other group entities. This is on page 60. Yeah.
That's it. No, no, but I'm just curious that, you know, within the industry, we can see a, you know, probably a big change where, you know, the business under agency is actually sort of, you know, moving more towards POSP. And I guess, that's a trend that we have seen in, in the motor business, more prominently. So are you kind of seeing a trend where a large part of the agency business is sort of now coming under the POSP umbrella?
The POSP operates both under broking as well as agents. So individual POSPs, we treat them as agents. And POSPs operating under brokers, they go into that 41.7% reflected there. So there you can see that, say as compared to the full year of last year, 36.5-41.7. Or even over a period of time, from about 32.5 - 41.7. So one does see the trend of POSPs operating under brokers going up. But of course, this 41.7% will also include the business from OEM brokers, typically the OEM tie-ups . But broadly, one can, in the industry, one can see the volume of business going in from POSPs operating under the umbrella of broking entities.
On a YoY basis, POSPs would be like, how much up for you? I mean, one has to just get a broad trend.
should be about 6.5%-7%.
No, I'm saying how much would it be increasing on a year-on-year basis?
So we can get back to you later. Yeah.
Perfect. Perfect. Thank you.
Thank you.
You're welcome.
Before we take the next question, a reminder to participants that you may press star and one to join the question queue. The next question is from Naveen Vijay from MS Capital. Please go ahead.
Good morning, sir. Thanks for the opportunity. I just wanted to get a feel of the work that we are doing on the digital ecosystem. Will it be encompassing any more features like payments, et cetera, or it will be confined to insurance only?
Today, under the regulations, we can do largely only the insurance payments. Should the insurance amendment bill go through, then we could get into allied areas linked to insurance, which should be the adjacencies that can operate. Presently, what I talked about the digital ecosystem is we are working on a digital transformation within the company. One is the ERP transformation, where we have made the first step in terms of the private car portfolio, which roughly is about 25% of the company's top line. So that progress we will then make to the other parts of motor and health, and so on and so forth.
The other is, once this is enabled, it helps us to open up a world of possibilities relating to microservices, and offering of a much more vibrant APIs to all our partners, agents, POSPs, banc assurance partners. So this is the journey that we are undertaking, and we believe that over the next 12 months, we should be completing this journey.
Great, sir. Great. That was helpful. And I thought I'd just throw this question also. Any plans for listing this insurance arm separately, sir? Is that under discussion or any timeframe, long-term timeframe that we are looking at.
The board of the CFHL will take an appropriate call. There's no such discussion as of now.
Thank you, sir. Thank you. Thank you, sir. That's it, that's it from my side.
Thank you very much. That was the last question in queue. I would now like to hand the conference back to Mr. Nischint Chawathe for closing comments.
Thank you, everyone, for joining us today. We thank the management for giving us an opportunity to host the call. Thank you very much, and have a nice day.
Thank you.
Thank you.
Thank you.
Thank you very much. On behalf of Kotak Securities Limited, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.