Ladies and gentlemen, good day, and welcome to the Cholamandalam Financial Holdings earnings call, Q2 FY 2024, call hosted by DAM Capital Advisors 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 conference 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. Sanket Chheda from DAM Capital. Thank you, and over to you, sir.
Yeah, hi. Hello, and very good morning to all of you. We have with us the entire management team of Cholamandalam Financial Holdings today to discuss their Q2 FY 2024 results. From the management side, we have Mr. Sridharan Rangarajan, who is the Non-Executive Director, Mr. N. Ganesh, who is the Manager and Chief Financial Officer, Mr. V. Suryanarayanan, who is the Managing Director of Chola MS General Insurance, and Mr. S. Venugopalan, who is the Chief Financial Officer of Chola MS General Insurance. Without further ado, I'll hand the call over to management for their opening remarks, followed by Q&As that we can take. Over to you, sir.
Thank you. Good morning to all of you, and a very happy Diwali, and an advance Happy New Year to all of you, and Merry Christmas. I have today with me Mr. V. Suryanarayanan, our MD, and Mr. S. Venugopal, our CFO, and N. Ganesh, CFO of the company, with me to talk to you and address all your questions. Chola Financial Holdings, we see the final dividend for FY 2023 in this quarter. The total income for the quarter was INR 29 crores against INR 28 crores in the corresponding quarter last year. The key highlights on Chola Finance is very well covered in the call hosted by them, as well as the investor presentation they posted. I think one of the key highlight is, CIFCL launched a composite QIP.
They issued INR 2,000 crore at a price of INR 1,180 per share, and the Compulsorily Convertible Debenture of INR 2,000 crore, overall aggregating to INR 4,000 crore. The funds are from the investors they received on the first week of October 2023, and the allotment was completed on fourth of October. And they buy the, the capital adequacy, which was at 16.62 as of 30th September 2023, more to 20% effective from 5th of October. I would request, Suryanarayanan to cover about, Chola Insurance performance, and then we'll open up for Q&A.
Good morning, and my wishes to all of you. I shall now proceed to give you a brief overview of the performance of Chola MS for the quarter and the half year. In quarter two, Chola MS recorded a gross direct premium of INR 1,089 crores, with a growth rate of 35% as against the multi-line insurers' growth of 25%. The gross direct premium includes INR 290 crores of crop insurance premium, taking the organic growth from other lines of business at about 15.3%. The expenses of management for Chola MS was 29.6% in Q2, as against 35.7% in corresponding quarter of previous year, which is a reduction of 6.1%. The claims ratio for the quarter was 73.84%, as against 72.5% in corresponding quarter of previous year.
The quarter two claims also includes the crop-related claims provisioning and an increase contributed by about 1.1% from cyclone and Nat Cat event claims. The combined ratio, as against 112.39 in the corresponding quarter of the previous year. At the half year level, Chola MS has recorded a growth of 32.8%, helping its market share to climb to 2.98% against multi-line insurers. The company has grown across all its channels. In its captive channels, business from the sister company and the Insurance Express outlets, our volumes grew by about 23.3%. Bancassurance grew by about 6% and growth of 29.7% from other channels.
Chola MS investment portfolio corpus, as at September, was INR 15,649 crores, and with an investment income of INR 538 crores for the half year. With no exposure to stretched assets, recoveries from the fully provided exposures in erstwhile stretched assets, such as IL&FS and Reliance, would be recognized on cash basis as and when it happens. The PBT for the half year was INR 219 crores, as against INR 98 crores in the corresponding half year. The ROE for the half year, annualized, has progressed to 14.61%. I will 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 a question may press star and one on their touch-tone 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Sanket Godha, from Avendus Spark. Please go ahead, sir.
Yeah, thank you. Thank you for the opportunity. Sir, I have a few questions, basically. Sir, in the previous call, you said that crop we will be expecting to doing around INR 500 odd crores, but we have done INR 290 crores, and first crop is typically very strong in crop insurance. So, the target of INR 500 crores could be achieved or this is the number what we are looking for the full year? That's my first question. Or, if you want, then maybe I can ask subsequent questions, sir.
Yeah. So in Crop Insurance, of course, you are right that the Kharif is much stronger in terms of volume. I would tend to take the overall top volumes for the year at somewhere around INR 450 crore, is what I would expect.
Okay. And the 103 combined what you reported, maybe largely provision. So you expect it to come down below 100 or closer to 100 kind of a number? Because we just wanted to understand, given because we have returned largely in the 80%-110%, 110 percentage corridor, can we expect it to improve or it to be on similar lines for the full year?
See, the one we do have reinsurance protection in excess of 100, and the 103 also reflects the reinsurance protection cost. So our estimate is that it cannot worsen from this level.
Perfect. Perfect, sir. Sir, sir, the second question is on health insurance. Honestly, for me, these numbers are little concerning, because your health loss ratio, if you see, it is still, still 85%. Mm-mm. There was a time before COVID times, we used to write this business at less than 60% loss ratio. But now, though it has improved from COVID times, but 85 seems to be still on the higher side. And given we have a decent exposure to benefit-based health, which should pull down the entire company loss ratio. We just wanted to understand why the numbers are still relatively elevated compared to ideally it should be?
Related to it, if you can give the breakup of health, broken down into benefit-based groups, group indemnity and retail health.
We have been saying, Chola MS still is not so aggressive in the group health employer employee.
Yeah.
While we have grown, I think in the industry, we are probably the second lowest in terms of the group health employer-employee volume. So that there is no fundamental shift in our stand towards employer-employee group health. Our health in retail health mix is about 48% indemnity now and 42% benefit. Which has been more or less the same. Maybe the benefit was slightly higher at about 50, 52 earlier. Now it's come down to about 42, 43%, currently.
Okay.
In the indemnity health, you are right in that some of the especially the public sector bank portfolios, we have behaved quite differently in this quarter. So we've been pursuing for another round of price change, which is under discussion. So we should hopefully be able to push them through in the current quarter.
Okay. Just as, see, with this 42% as benefit base, sir, I believe we would like to have it below 70 as a loss ratio. So, just wondering, after price hike, can we expect, maybe not current year, next year, to have similar kind of a loss ratio in health or, or it will remain... I mean, your comfort zone is 80 or, you expect it to go below 80?
We would certainly expect the LR to come down, as a combination of two factors, both arising out of the price correction in the indemnity side as well as volume increase in the benefit side. So together, we do expect that the overall blended LR should come down.
Okay, sir. And two more questions. Sir, so our solvency now it has come to 189%. Honestly, the growth has been very strong, probably higher than your ROEs what you deliver. So it has consumed your capital. So just wondering, given it is 189%, any way to manage the solvency or you intend, I mean, if you sustain the current growth, except crop, which is around 22, for the half, then any plans to increase capital to sustain growth or how you are thinking on these lines, sir?
See, you are aware, Sanket, that we do, when push comes to shove, we do have the option of augmenting Tier 2 Capital.
Yeah.
So revised norms gives us some more headroom by which we can certainly raise-
Mm-hmm.
-without disturbing any equity capital structure.... So I think, at an appropriate time, the board will consider relevant measures based on our own business plans.
Got it. Got it, sir. And on UIN, you highlighted in your initial remarks that UIN came below 30%. But sir, largely it happened maybe because you did a decent amount of crop in the current quarter as a mix. But naturally, crop contribution from second half would be lower. So that UIN of 30 can be still achieved for the full year or it's more on a side 25 target to achieve an UIN below 50?
I think, what I would like to say is that, we are doing better than what, we had even committed both to the board as well as to the regulator. You are right in that the crop has given us that, advantage in terms of, a lower UIN and with a lower, government business in, H2. So we could see the UIN rise from the current level, but it will still see-- you will still see a good reduction from on previous years' level. At this point, I would only like to say is that we are committed to, converge, to the, guidance that we have given both to our board as well as to the regulator.
Okay, sir. Last one, your combined is 110.5 for the half. Just wanted to understand that if it is expected, because I think you gave a guidance at the start of the year to be closer to 105, 106, kind of a number. You delivered a much better number in fourth quarter last year. So just wondering, sir, this number, how do we see? And it will be driven by better loss ratio or from the current levels, or you expect the expense ratios to improve ultimately, and we can get closer to this thing. And honestly, this question I'm asking because we don't have motor TP price hike.
There is a possibility that motor TP price hike might not be there next year for Chola, because it's an election year. So just your thoughts on how combined will move considering these points.
You would have noticed that, with MS reports a motor TP loss ratio, which is fairly secular across the quarters.
Yeah.
We do not have any volatility in motor TP provisioning between the quarters.
Right.
We take the annual view and then keep providing for it through the period. So that's been our methodology over the years, followed quite consistently.
Mm-hmm.
On the COR, you will find that, even at the half year's level, so about 1.2% or so is the impact of the nat cat events.
Mm.
While these are expected in the insurance business, but this is still, you could consider it as an exceptional, kind of a charge that has come in, in the current year.
Mm.
If I remember right, we had only given a guidance of somewhere around 107, not 105, 106, as you mentioned. And, I think, we are probably still, it's possible in the current case.
Next year, sir, given the price hike might not be there for the last part of the year?
Industry is such a fluid situation where things keep changing. I think, we won't hazard to give any indication of what you are for next year and thereafter. But the point that you mentioned on motor third party is quite valid. The industry has received a very paltry correction over the last four years, and it's perhaps a pressing need now for some correction to happen at the earliest.
Perfect, sir. That's it from my side. If there are any questions, I'll come back in to you. Thank you.
Thank you. A reminder to all the participants, you may press Star and One to ask a question. A reminder to all the participants, you may press Star and One to ask a question. Ladies and gentlemen, we will wait for a moment while the next question queue assembles. The next question is from the line of Nidhesh, who's from Investec. Please go ahead, sir.
Thanks for the opportunity. So in the motor own damage segment, our loss ratios are around 73%-74%. And my belief is that the sort of loss ratio, this, will be a very low ROE or negative ROE business for us. So how are we thinking about this line of business, and what are the desired level of loss ratio in this segment for us?
Yeah. If you look at the page where we have shown the LR, page 54.
Yeah.
Page 54 of the presentation deck, you will see that the motor OD LR. I'll answer it in two parts, because the motor own damage section and the motor TP section. The own damage section, you will notice there in the footnote that from Q1 level of 74.9, it's come down to 72.7 in Q2. And even if you look at the previous year, from a H1 level of 73, it came down to 71.7 by the end of the year. So, generally, we have seen that the H2 growth in the LRs are lower, and we see that pattern going that way even for the current year.
So motor only loss ratios, one can say that, on a steady state basis, one can reasonably expect it to be about 67%-68%, is what one can expect. But TP, I just answered to the previous question of Sanket, explaining the situation. So that, until I think we see the pricing fees really happening, we can't see a LR lower than that. It's going to be very difficult to manage the LR below that. On the ROE from motor, you will find that it is motor which gives the investment corpus segregation.
One will have to, say, really look at it from that perspective on what kind of investment income is generated from the premiums coming from the motor business, and that's how the driver of the business in terms of its overall economic profitability should be determined.
Yep, sure, sure. So, where the investment book is largely coming from motor third party. So I was just referring to motor own damage segment, where the LRs are reasonably high and flow is also much lower. And so, at the current level, it may not be very profitable business on a standalone basis. But we have the point well taken. The second is, if you can share the mix of motor business in terms of two-wheeler, cars and private cars and commercial vehicles.
Yeah, we at this point in time, we have a private car mix, which is running at about 41%-42%. Then, it's there in page 50-
51?
56.
56.
You will find that-
Yeah, I got it.
Yeah. Yeah, the car is at about 41.5%. Commercial vehicles is almost equal size at about similar percentage, and two-wheeler is at about 17%. We will find that the is largely at two, and so we will find that the two-wheeler inching up perhaps to about 18, 18.5 by end of the year, but this is more likely to be the composition. So what you see is over a period of time now, the weight on commercial vehicles has now come down to about around the mid-40s, and the rest is cars and two-wheelers. But given our channel mix, we our own sister company association and otherwise, we expect this mix to more or less stay at this level, possibly plus another two percentage points this way, that way.
Hmm. Understood, understood. And then lastly, any comment on the competitive intensity in the private car segment? How is the competitive environment in terms of pricing and payouts?
See, this, the competitive intensity is always there in the Indian market, and so it's always there. And what we are seeing is that some players are behaving very sensibly in given the higher loss ratios. Accordingly, the pricing and payout has been tweaked. We have also gone down that path, and which is why you see some of the UAM costs coming down. Even bereft of crop, we have seen a reduction in the UAM, largely because we have toned down the payout in the market. So that much is there, and which has a direct effect on the growth. So if you look at the growth rate in motor of different players and relate it to the industry, you will get an idea.
For us, the motor volume growth in Q2 was 13.5%. The industry growth was 13.9. So we are just keeping pace with the industry growth, not really wanting to be aggressive in a highly competitive environment.
Sure, sure, sure. That's it from my side. Thank you.
Thank you. Before we take the next question, a reminder to all the participants that you may press star and one to ask a question. The next question is from the line of Anand from Wipro. Please go ahead.
Thank you for the opportunity. Also, I just wish to understand, of the vehicles that CIFCL finances, what is our, market share in the insurance that would be, you know, purchased by those vehicles? And how has that number been trending over, let's say, last few years?
See, you would notice that, in the motor space, Chola MS has almost a 5.45-5.5% market share. It is well diversified, while CHCL is a large component, but our channels are really wide in terms of our agency presence, our own Chola Insurance Express outlets, the OEM business, the other financial business. And as we have disclosed somewhere, our overall volume from CHCL is roughly about 10% of the overall top line, and that's not just motor, it's also across multiple lines of business.
... Sure. But sir, I was just trying to understand whether you have, let's say, a first right of refusal of all the loans that Chola originates, and insurance that might be commensurately purchased in that entire transaction. Do you have first right of refusal, and what is our market share in the business that Chola does on the general insurance, particularly the motor vehicle side?
I have addressed this question even in one of the year calls, where I've clarified that when it comes to the new vehicle financing by CHCL, even their share, their hold would be limited because that business would go through the dealer network, which is part of the OEM program. So, and their ability to offer multiple options, including Chola MS, would be higher in a used vehicle financing. And I should say that our penetration level in used vehicle is fairly good and growing.
Sure. Thank you.
Thank you. A reminder to all the participants, you may press star and one to ask a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A reminder to all the participants, you may press star and one to ask a question. A reminder to all the participants, you may press star and one to ask a question. As there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Thanks, everyone. I think, Chola MS has been doing well, over the almost last 10 quarters, we have had a growth higher than industry. The various pieces of the jigsaw puzzle are now quite in place, so we believe we are, the team is, quite confident and optimistic about, carrying this, further into subsequent quarters. Thanks, everyone.
Thank you. Thank you very much. On behalf of DAM Capital Advisors Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.