Ladies and gentlemen, good day, and welcome to the Q3 FY'23 earnings conference call of Cholamandalam Financial Holdings hosted by DAM Capital Advisors Limited. As a reminder, all participant lines will be in listen-only mode. 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 one zero on your touchtone phone. Please note that this conference will be recorded. I now hand the conference over to Mr. Sanket Chheda from DAM Capital Advisors. Thank you and over to you.
Thank you. A very good morning to all of you. We have with us the entire management team of Cholamandalam Financial Holdings to discuss their Q3 results. We are accompanied today by Sridhar Narayanaswamy, who is the Director, Mr. N. Ganesh, who is the CFO, Mr. Surya Narayanan, who is currently Chola General Insurance, and we have Venugopal, who is the CFO of Chola MS General Insurance. Without further delay, I will hand over the call to the management for their opening remarks, followed by a question and answer. Over to you, sir.
Yeah. Good morning to all of you. This is Sridhar. I have with me my colleagues V. Suryanarayanan, MD, and Mr. Venugopal, CFO of Cholamandalam MS General Insurance, and N. Ganesh, our CFO of the company. The consolidated results of the company consists of Cholamandalam Investment and Finance Company Limited, Cholamandalam MS General Insurance, Accessories, and Cholamandalam MS Risk Services Limited as a JV. Total income for the quarter ending December 2022 increased by 28% to INR 2,777 crores, while profit after tax increased by 33% to INR 720 crores. Cholamandalam Investment and Finance Company, you might have attended the call and get their details on the presentation and transcripts are well available. Chola has delivered the best ever dispersal, collection, and profitability in Q3 FY'23.
Chola has gained market share across product segment in vehicle finance and other business units. AUM as of December 31, 2022 stood at about INR 103,789 crores. This is a milestone. The company holds strong liquidity position. Our ROE is at 19.1%, and the CAR as of December 31, 2022 was at 13.75%. Cholamandalam MS General Insurance Company registered a gross written premium of INR 1,625 crores in Q3 FY'23. Increase of 23% over the previous year driven by growth across channels and partners. The company continues to have dominant presence in motor sector and is strategically diversifying across motor ecosystem. In Q3, the industry grew by 18.5%, which excess players by 22.3%.
For Q3 December 2022, industry grew by 16.2%, and private sector players grew by 21.6%. For the same period, Chola MS delivered a growth of 27.5%. In motor, Chola MS improved the market share from 2.9% to 5.3%. In PA it grew the market share to 4.9% and entire book personal growth is at about 27%. For Q3 December, motor representing 59.3% of the portfolio grew by 24.5%. Commercial, representing 14.3% of portfolio grew by 27%. Accident travel and personal accident representing 16.4% of portfolio grew by 38%. Within motor, two-wheeler and passenger car share 21% and 36% respectively. Commercial vehicle at 44%.
The company's long-term policies growth was different for IFR reduction. The company continues to upfront absorb the full cost for all long-term policies. However, the UPI returned over the long-term policies created, creating an embedded value in the balance sheet. Solvency ratio as of December 10th is at 2.06 compared to the same period last year which was at about 1.86. Profit after tax for Q3 FY'23 was, it's INR 43 crores against INR 18 crores of last year. For Q3, PAT was at INR 116 crores as against INR 62 crores in the same period last year. With these comments, I would like to now open up for question and answer. Thank you once again.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question, please 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 a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Devansh Nigotia from SIMPL. Please go ahead.
Yes, sir. Thanks for the opportunity. Just a couple of questions. One is in case of our motor book, since we have significantly built the two-wheeler and PV book, and that has come at a very high cost. Where do we see this mix settling in terms of targeted, you know, mix between PV, two-wheeler and commercial vehicles? Any thoughts that you can share?
Good morning. Currently the two-wheeler mix is at about 21, 22 or so, and passenger cars is at about 35 or so. Over the medium term, with the buoyancy in commercial vehicles, emanating, we would expect to see commercial vehicles at roughly at about 50% and balance between two-wheelers and cars. We've also seen the regulator coming up with the draft exposure on long term relating to tractors. If that were also were to come through, then we could see a growth even in the tractor segment as well. Broadly, 50% commercial vehicles and non-commercial vehicles at 50% is the mix that we see going forward.
Okay. The mix will remain broadly. We have achieved the targeted mix that we were looking for for the long period of time, and we have achieved that now.
I think so. Given our channel presence, which is well diversified across and the financial tie-ups, including the sister company relationship, we would expect the mix to settle at around this level.
How do you see the competitive intensity in motor insurance, both in OD as well as two-wheeler and vehicle-wise you can share your commentary, how is the intensity right now?
The competitive intensity is at its peak across categories. It is not that it is in any way greater or lower in any particular product segment. Quite naturally, the peak competition would be in the cars and two-wheelers, especially in the new vehicle space or in the OEM segments.
Mm-hmm.
It would be relatively lower in the commercial vehicle space. The key is having long-standing relationships with financial partners. Thankfully, Chola MS has these partnerships in place, which should help us.
Okay. Because we find the competitive intensity high in PV and two-wheeler, and that is the book that we have built in the last one, two years. Just little confused on targeted, you know, combined ratio that you want to achieve and also how we are thinking in terms of risk reward and pricing in different vehicle segments. Can you just share your thoughts, sir?
The competitive intensity with respect to pricing discounts has been that the wound damage LRs have remained at an elevated level for almost all players. You could possibly have heard it in other investor calls as well.
Mm-hmm.
Chola MS has been by virtue of its mix and granular choice, has been able to keep the motor OD loss ratios currently. For instance, in Q3 we are at about 68%, Venu.
Yes.
Where we have been able to reduce it from Q2 level and Q1 as well. I think this is more or less at the level, maybe another 1% improvement can possibly come through. That is where we expect this to settle for the time being, unless the discount situation improves. That is what we would want to think as the OD LRs are concerned. As I've always maintained in the past, the motor third party LRs would also depend on the kind of price increase that the government is considering for the ensuing year, for example. It would largely determine that. That is what would make the overall motor portfolio as such in totality.
Mm-hmm.
That is where the COR would rest. Let us also understand that this is the motor portfolio which brings in the investment book which companies use for building the corpus as well as utilizing the investment income.
How do we see the competitive intensity in terms of remunerating the distribution channel? Because we have seen OpEx being elevated in motor across all the players. Is it easing or is it still at peak or, can you share some direction on where is it heading?
There, see, competitive intensity is there and it's a function of choice as to where we want to grow and how much we want to grow. It is always there. We have already seen some larger players tone down growth in the motor segment. In fact, even if we look at our growth, our growth is, in motor is more or less at on the same level as that of the industry. We are just about maintaining the market share, so to speak. If private sector has grown at 20.8%, we are at 24.5%. That is the level that we have seen our growth. Our reported growth, let's also consider that it takes in the long-term premium which has turned in premium from previous years.
That element is also there. That addition is also coming in. Coming back to your question on market sourcing costs, the market aggression is there. We would have to manage our costs to stay with our choices as to line of business that we want to be in and also the geographies that we want to operate.
Okay. That's it from side. I'll come back in a bit.
Thank you. A reminder to participants to press star and one to ask a question. We have our next question from the line of Sanketh Godha from Avendus
Yeah. Thank you for the opportunity. Sir, we mentioned that last quarter we took some corrective measures with respect to health and PA to improve our loss ratio. If you look at the claim ratio number, it still remains little on the higher side around 61%, 70%. Marginal improvement versus to what we have done in the previous quarter. Just wondering whether it comes with a lag or is it because the claim severity seems to be higher or pricing competition leads to that higher loss ratio? That's my first question.
On the health ALADs, we have made some corrections with respect to pricing, both in our retail products as well as the products that we offer to our public sector bank clients. There is a price correction of about anywhere between 20%-25%, which has been done. We do expect that the benefit of such pricing changes will start kicking the ALADs as we go along.
Okay. It's more to be get reflected in the next year rather than getting reflected in the current year because as this will run off, then only it will get reflected. That's the way I should understand, sir?
Yeah. The larger effect would be seen, but we should start seeing the trend even quarter before when we get there.
Okay, sir. Got it. second question is the
Mm-hmm.
The new regime of expense to management, which is proposed by the IRDA. It says that, you can't breach 30. The number of claim ratio is 30. Today we are at 40. Any what you would call, a path you want to guide us to how you will ultimately achieve 30, whether we'll increase our exposure to corporate businesses, because we are 84%-85% with retail in nature, which is a concern too. Any thoughts, if you can share how we gradually will move in that direction without deteriorating our margin?
Yeah. There are two, three dimensions to this question. First is that the present method of computation, that's 40, also includes the long-term premium that we are collecting, especially in motor, which is not reflected in the top line.
Right.
The cost is sitting. As an industry, we have represented to the regulator that while are evaluating and completing this limit, we should see this in total. That is the one element. The second element is that the company may consider a look, an entry into crop insurance business, which can help in toning down and providing the balance for the ensuing year. That is a thing that the board has discussed. Probably we should have better clarity as we freeze our business plan sometime next month. That is the second dimension.
Yeah.
The third dimension is that, anyway, the regulator is also giving a glided path for reduction over a three-year period. It is not that the reduction is expected overnight. That is also a choice. As I have said before, as we attain scale, some economies of scale would start kicking in in terms of our own, our own operating expenses, which we are also seeing trajectory even at the present scale up, resulting from the 27% growth is giving us some say. If we look at it, our expense structure is lower than it was in Q1.
Right. Mm-hmm.
From Q1 to Q2, we had a 3% drop, and from Q2 to Q3, we have had a 1.9% drop. This benefit should start also helping. To answer your question, whether all these will take us to 30 overnight next year, the answer is probably no. We would well be on the right path towards converging to the stated number over a three year time frame.
Basically, is it safe to assume that maybe from around 26 or 27, you will ultimately achieve closer to 30?
Yeah.
regarding the obligation.
Yeah, that would also be a regulatory requirement. The window is three years.
Yes. Got it, sir.
we need to have our plans drawn up, to converge to that.
When you say crop, sir, I just want to understand. The crop, you intend to have it very closer to your overall market share of the company, your exposure or you are okay to go a little overboard. Then I also want to understand that in crop, given you are relooking it will be more into that 80, 100 formula only where you will do or you are okay to do in the normal way of doing crop also.
These are one as a proportion to our total top line. We would like the crop insurance to be somewhere in the 10%-12% range, is what we would like to have. Not to be excessively dependent on that line. Would be the broad guideline. That is A. Number two, we will also have to clearly look at the guidelines, the crop insurance guidelines that the government is expected to come up with.
Right.
Relating to the various methods which are there. Today we do have the last corridor options that are available.
Mm-hmm.
There are pros and cons of doing the last corridor method as well as the conventional PMFBY.
Mm-hmm.
which will have to be evaluated.
Okay. Fair, sir. Another question which I had was basically, when I see your one of the slides where you mentioned that your market sharing in jewelry is 8.3, which I believe at the start of the year, that is in Q1 FY23 was 10%. It has come off. Anything to read there, sir? Is it a conscious decision where you have lowered your market share because of the intense competition or in general that it has become a crowded space and that's why you saw a reduction in the market share?
If I want to connect it with the Chola Insurance Express offices which have come down from last year of around 200 offices to 357 offices, has that also played a role? This is a broader picture if you can, or both are unrelated? Basically, if you can tell me on those lines will help, sir.
This is the market share in jewelers is a function of competitive intensity and the economic viability given the pricing and other costs. We have teams at present after fees and in some product categories may products.
Mm-hmm.
Taking a granular look at the assets and the related cost, opening costs.
Yeah.
That is what is some about it. The some of the, it's a two-way moment. If you look at even the our location and presence. While we have stepped in and got into newer locations, some locations which probably haven't really grown or haven't delivered up to the potential. We have also taken a call to reduce our presence in some of these locations. That is a, I believe, a constant evaluation of market-related opportunities that exist, which is what our teams have been doing.
Sir, is this predominantly the reason why your motor OD loss ratios have come down to 68%, the recalibration of the?
Function of that as well, very clearly, because we have made our choices and those choices seem to be working in terms of the overall loss ratios. These are not one quarter choices. These are continuous choices that we make, because any choice that we make lives with us and casts its shadow for at least one year. In case of long term, it'll have its shadow for three, four years. These are continuous choices that the teams make.
Got it. Finally, if I can ask a data keeping question, how much of our total premium is now from long term in our GWP in the current nine months or third quarter of 2023? Finally, one more one.
I know to answer that.
The position as of December 22, we are carrying INR 1,381 gross of the premium which belongs to the
What is the % of the premium in the?
Roughly about 8.8%.
Actually, the uncollect assets at nine months is at about 9.8%. 9.8%, right, sir?
9.8%. Okay.
More or less two, three plus at about 0.7. It's more or less settled right now at about 9.7%, 9.8%.
Got it. Got it. Perfect, sir. Yeah, that's it from my side.
Thank you. Ladies and gentlemen, to ask a question, please press star and one on your phone. We have our next question from the line of Yash Mehta from Steinberg Asset Management. Please go ahead.
Hi, thanks for the opportunity. One question on what was reported last year. If I look at it to March presentation 2022, there were two one-off, INR 200 crores of COVID claims and INR 263 crores of IRDA order impact on write-off of acquisition cost balance. That INR 463 crores ideally shouldn't have continued in the current year. One would have expected about INR 100 odd crores support would be added to the bottom line of the company from last year to this year. The actual translation has been closer to 20% of that in terms of improvement in what our absolute numbers are. How do you reconcile the one-offs and look at the steady state profitability? Even today, our ROE is not reflecting the old ROE levels, pre-COVID ROE levels.
Yeah. To answer the question on the INR 463 crores which you have talked about as a part of health COVID claims and the prepaid expenses which you have written off in the last year from 2022. See, there are things which are happening as a part of the motor third-party claims. Okay? There are benefits which were flowing in the last year in the form of the lockdown benefits and other things is also not there. When there are costs associated, one-time cost, there is a one-time benefit also flowed in the last year. It was not there. You know very well that the motor third party, there is an inflation. The premium increase is not matching the other long-term part of it.
With that, the inflation element itself is costing us more, A, this one portion as a part of the health inflation. Second part is also that the growth is around the 28%. The long-term share we have already said is around 19% on which is also there. Coupled with that, there is no prepaid concept that was followed in 2022, 2023. The entire absorption is taking into the claim part. Just I'm not putting the numbers here. There are positives and negatives there. In the earlier part, there is an element of continued level of the growth is absorbing the cost also is part of the, you know, different track. This will create a limited value there as a part from which the earnings will come into the next year without cost.
Do you see, let's say, improvement in our ROE from here on? The way it seemed, we are increasing the share of crop business, and that is probably not as profitable as to the overall business today. On top of that, we are kind of getting, let's say, the long-term policies continue. Just want to understand if our ROE will see pick up and where do you see it stabilizing?
Definitely the ROE will pick up because the growth in 2022-23 is, you know, around a 28%. We are more than industry from the point of view also. That's why, you know, the earnings will take time. Coupled with the long term, it will take, you know, long time for us to, you know, to reach the profitability. ROE will improve in the next year, next period onwards. We have already improved it down some way. We already expected 20% of the thing only improvement is there. It is only because of the point on the growth and the long-term point of view. It's also on the treatment the inflation is there. Coming years, definitely you will see that ROE to improve because the every growth case, the acquisition growth is absorbed in the next year.
Understood. What we've seen is your partners like IndusInd Bank and Chola, disbursements on vehicle finance have been absolutely stunning since last quarter on odd. When we look at that translating into our growth from these channels, it's not really coming through that well. Are there nuances which I'm missing here in terms of why our growth from these channels is not reflecting growth that they have seen in their books? They've started lending to acquire these vehicles. Finally, one should see them selling insurance on this vehicle.
Yeah. Your observation is partially right to the extent that in the case of new vehicles, the control over the insurance is with the dealers.
Mm-hmm.
Whether it is cars or two-wheelers or OEMs. The financier's control over that would be definitely lower. The financier's control always comes in only in the case of we came to term in used vehicles, very certainly, and in case of new vehicles in the later years. To what extent it will not reflect directly because that business is anyway is market related, which is controlled by the OEM and the dealers. It will not reflect it. The immediate increase in disbursements is not going to reflect directly in an insurance claim.
Understood. Given, let's say, the implications of the expense on management regulation that the regulator has now come up with, we've consistently for the last two years have had money from shareholders account getting transferred to the revenue account. How do you see the implications of this on us? Because this is relevant to us because we are above the 30% mark, which is how do you see it? Is it a positive? Is it a negative? How do you approach this regulation? Will it benefit you again across, I'm just trying to understand from a strategic perspective.
See, from a pure strategic perspective, it only clears up the compliance related aspects greatly. From a market perspective, the sourcing cost is not really going to reduce. The intermediary arc is not really going to reduce. It's more a question of how nimble players are in choosing the geographies profitable and yet are able to manage both the loss ratios and the cost. The game is all about managing your overall combined ratio and not really to look at any element in isolation. We can't say that you may have a higher cost, but if your loss ratios are okay, then it justifies it. The economic view is what players would start taking, which is what they have been taking as well. That is how business would be run.
In that sense, the EOYM has the freeing up the EOYM and flexibility being given to insurers and insurer quotes is a welcome step.
Understood. Thank you. I have no further questions.
Thank you. We have our next question from the line of Devansh Nigotia from SIMPL. Please go ahead.
Yeah, thanks for the call, sir. In case of health insurance, what we are seeing is that everyone is going for 20%-25% price increases. Could you just help us getting this your perspective on how is everyone in the all the players who are getting price increases. Can you just throw some light on that? We have taken 20%-25% price increase.
I'm not clear, Devansh. Could you please speak?
Am I-
Can you just use the mic or... Yeah.
Am I audible?
Yeah. Can you repeat the question?
We just mentioned that we have taken 20%-25% price increase and we've in health insurance and similar comment has been there from one of the listed player as well. Can you help us understand how is the regulator's response to this price increase? How also other players in the industry are responding to this type of price increase? Everyone taking 20%-25% price increase or is it only few players?
Yeah. Players have stepped up prices. The PSU players have done, the SAHIs have done. Even large private sector players have effected price increase, which is also inevitable given the medical inflation that is prevalent. The regulators' own publication is suggestive of a 12%-13% medical inflation. With advance to age especially, see it also happens when they're in renewals. Some people are renewing, and they are in their eighth or ninth or tenth year. It links to age, linked to pricing also goes. It is inevitable that prices go up in the health sector. It is there, and customers are paying the price to Reliance General Insurance also to other companies.
Okay. This 20-25% price increase is beyond the price increase that happens on change in cohorts, age brackets. Is that the right understanding?
It is across. For example, see, health insurance caters to multiple needs. It meets accidental hospitalization, which is not really age related. It is also needs children, the ailments, which again has nothing to do. Inflation is across, whether it is, the incidence of an ailment is probably higher. Probability is higher in an advanced age. Other hospitalization needs also suffer this medical inflation.
Okay, got it. How has the claim experience been with the motor TP six months regulation that has come in place? How are we seeing the settlements happening on the ground with the courts now?
It is more than courts. Actually, we have a Madras High Court, which has endorsed the law. Which has come in from April 1. We would need to see as to how other high courts also appreciate and endorse this particular amendment. For the moment, what we are seeing is some improvement in faster reporting of claims is something that we are seeing on ground. We will have to still wait and see as to how the other leading courts in the country take a view on this. That would be critical to the way the ultimate loss ratios shape up there. The law is clear. Now it is up to the courts as to how they implement the law.
by that you mean that only Tamil Nadu is following the six-month intimation, and it's not been followed by all the states?
Tamil Nadu has come up with a judgment upholding the six-month time limitation. Very clearly. Similar upholding will have to come in other states. Yes, that, there could always be appeals that could lie to the Supreme Court. Ultimately, we believe that this matter will get settled by the Supreme Court sooner than later.
Okay. I'm at least still confused because I'm just trying to understand. Let's say the settlements which are happening after six months across India, can you help us understand how is the claim experience not only in Tamil Nadu but even in other states? Are there rejection of claims because they've exceeded the six-month limit or?
Let me explain this. The time limit is only for intimation of the claim. Settlements, court proceedings can take longer. There is no time limit as to the settlement itself. If the tribunal and court wants to hear that particular case only after two years, there is nothing that anyone can do. That is purely the way things progress in the court. The time limit for limitation only brings in a higher level of certainty as to the liability.
Mm-hmm.
As to how many claims are actually recorded. It's a function of the prevalent severity for that measure of accident or whether it's a death or an injury and the earning potential of the individual concerned who has suffered it. That will determine the ultimate part. It only brings in the finality and the certainty as to the number of claims that an insurer would have to pay for ultimately. The timing of payment, if a company is more negotiated settlement, favoring position takes that position, it will happen faster. If an insurer waits for the court decision, then it will take longer.
Okay. Okay. I mean, I'm just trying to understand that have there been any rejection of claim which has exceeded six months, time limit? Now we are in, I think, February, so it's already by October there should be five months where we would have seen such cases, right? I'm not sure if you're able to understand my question or.
No, no, it is. You know, in Tamil Nadu, as Madras High Court has clearly given a verdict for both prior to 1/4/2022 as well as accidents from 1/4/2022. These are all strictly followed by the MSTs. Our thing is also we are also, you know, taking it through from the point of view of each of the MSTs in Tamil Nadu. We are also looking at the other states also as to strictly implement the, you know, motor vehicle, new motor vehicle rules. Having said that, you know, it is too early at this stage to, you know, come out with a clear level of how this happens or how the MSTs are going to adapt and how the high courts are going to take it.
We are monitoring each of MST cases very closely in terms of that. We will definitely appeal those cases wherever it is being admitted by MST if at all. That process internally we have. We will be implementing it very strictly.
For it to be implemented, is only the Madras code that has come up with this ruling.
It's a, it is the Madras High Court state they have clarified. In the MACTs, many of the other states are also following the six months limitation. Wherever the six months is not adhered to by the MACTs, we will appeal against that.
Got it. If you can also elaborate on the strategy ex-motor, on fire insurance, personal accident and health insurance, what is our strategy going forward? What was the target focus? What are the kind of policies we are looking to launch and, if you could just share some soft points.
The fire insurance sector, we are growing in that space as was mentioned earlier. We've grown well in the nine months to date. Thanks to our bank assurance partnerships and the general credit growth that is happening in the banks. These have been large drivers. We also have some headwinds that have been announced or are more likely to come up. We could potentially see some price correction in the fire insurance space. That is possibly there. Also the kind of the losses that local reinsurers have taken. The reinsurance costs, it can go up. This is what even GIC Re as well as other reinsurers have started indicating.
This will have to be priced in by all insurers when they offer their products to the customers. Nevertheless, it's a segment that will keep growing, and we would want to grow there. Also as a part of our strategy to increase our proportion of non-motor business. That is on the fire segment. The personal accident is something which goes well with our bundled products along with our other Motor and dwelling and other related insurances that we sell. We have maintained a good pace and growth this year, and we definitely hope to keep that going and then operate at somewhere around 6% market share, which we have presently. That will also grow as we see.
Okay. In case of health insurance?
Health, again, see our, we have been growing faster in the attachment and group health space, as also the volume that we get on indemnity from banking segments. The agency segments are, in fact, during the last quarter we had our new product launch, which is called the Flexi Supreme, which is doing well in the market, and we do expect the growth to come in. As I've said before, ideally we would want our the indemnity benefit mix to be at about 50/50. Today it is actually loaded more in favor of benefit. That the mix readjustment will come by a faster growth in the indemnity over the benefit products. That's the intent, at least to balance it at 50/50.
How would you comment on the competition in health insurance, as of now? Is the competition easing up or the competitive intensity high or any level of direction of competition?
See, in general insurance, like, in every line there is competition. It is not that any particular line has less competition. In health it is more. You have five more SAHIs who are competing in that space and who are probably focusing on that as the only line of business. I would tend to think that the intensity is no different in the health line of business as compared to motor or as compared to fire. Like it's a, again, a question of the appetite for that business. Naturally, as general insurance players, we have other avenues which have their relative advantages. The motor has a certain advantage, a fire business has a certain advantage, and so does health. The relative choices always come in.
Just last question. you know, we mentioned that the new investment book that you're building, you're building it at 7.2%, 7.4% and 7.6%. What is the expected investment yield that we are expecting in FY 2024 and FY 2025?
See the interest rates are going up. That's the part which the incremental investments are being deployed at higher yields. That's why we are talking about the 7.6% deployment. Still, the older books are carrying at a lower yield. That's why we are expecting around 7% yield by end of March 2024. March 2025 is, again, you know, we need to think about what will be the interest outlook, and, you know, inflation and other aspects. It will be more than that because the older investments will, you know, be invested behind it. Exactly cannot be quantified. It could be more than 7% for, you know, 2025.
Okay. That's it from my end. Thanks a lot.
Thank you, sir.
Thank you. We have our next question from the line of Parag Thakkar from Anvil Wealth. Please go ahead.
Yeah, sure. Thanks a lot for taking my question. My question is not on insurance business. My question is on Chola Financial Holdings valuation. When we are seeing
I'm sorry, your voice is breaking, Mr. Thakkar.
Hello.
Can you repeat your question please?
Yeah. My question is more on Chola Finance.
I'm sorry. You're sounding muffled.
Hello. Now is it okay?
Please go ahead.
My question to Cholamandalam Financial Holdings team is, while you are building the business of insurance, taking so much of pain, the valuation of Cholamandalam Financial Holdings does not even reflect a 1% out of such insurance business value. If you see 46% stake in Chola Investment Finance, that itself is worth INR 39,000 crores. Your current market cap is only INR 11,650 crores. You are already getting a huge discount to your holding in Chola Investment and Finance share. I don't know, for 60 minutes we are discussing only Chola MS General Insurance business, where you have, after taking so much of pain, you have built up that business. Actually, for a shareholder, this business is available for free.
My question is what we are thinking to unlock this value, whether any buyback or promoter trying to increase stake. What things is to be done to unlock this value? Bajaj Holding, Maharashtra Scooters, various other holding company stocks are there where the value has unlocked. For example, I can give you in Bajaj Holding, the promoters themselves can increase their stake. The value finally market realized some value. Now it trades at 40% discount to its value in Bajaj group shares. While you are paying at as one third of your investment only Chola MS. In Chola MS General Insurance, whatever you hold your pack or whatever you are going to make, is absolutely available for free. There you have 50% stake.
My question is, what we are thinking as a company to unlock this value?
Yeah. Thank you, Mr. Parag for asking this question. Our job is explaining to the investor community, and I think I just want to take this call as probably the concluding question also is. We have come a long way in building this fine insurance portfolio. There were some challenges in the last couple of years. We have all overcome that. Business is done very well. The growth has come back. We used to grow at CAGR of 20% plus, except the last couple of years back. We are back into that growth trajectory. We feel that the investment book size at what we have built, we can work on improving the yield, which I think we will do this in the coming years.
It will have definitely all were well in terms of the profitability of this portfolio that what we are building. Insurance as a industry has got a long-term potential, and I think we feel that that will also augur well for this portfolio. I think, the loss ratios currently what we are seeing is coming down. Very good work that the team is doing in terms of the portfolio change that they can make. In terms of the product as well as in terms of the geography that they are doing will also help to bring the loss ratios even down.
In a way where the growth is there, combined with the loss ratios coming down and the investment yield going up, and with the embedded value, what we have created in the balance sheets for the long-term business that we have got, I think the profitability will go up in the next couple of years. You will start seeing this franchise building such a good return to the investors. I would leave at this stage beyond which commenting on that would not be appropriate in this call.
No, I, yeah. Okay. I appreciate.
I think that this is a choice that the investor should make. I think we have, as you rightly said that probably the place, an investor like you would probably have observed it, right? I think it will start calculating down and more people will start buying the shares. Our job is to deliver the performance, and that's where.
No. That I appreciate, sir. That I appreciate. The only point is Chola Finance is doing so well. This quarter result was absolutely phenomenal. So Chola Finance right now, for example, so I don't know how investors miss that if you are buying Chola Holding, you are getting Chola Finance at 10 P. Chola Finance, I understand why NBFC is doing so well. So the point is that, just because it's my point that, in order to unlock value, that is something which management also has to think on those lines. You know, you see, you all view very rightly, and I really appreciate that. You say you speculate about the future growth potential for Chola MS.
My point is that Chola MS is not getting any value only as of now.
Mr. Parag, I think your points are well taken. As I said that, the investors should take a calculated position both in terms of the performance of Chola Finance as well as Chola MS General Insurance. Since it is a holding company, obviously they would look at both. Our job is to present these, you know, portfolio choices that we have. As you rightly said that the performance of the NBFC has done probably well. Insurance has also done well. I think my specific feeling is that investor community will start appreciating that going forward.
Thank you. Participants are requested to restrict their question to one at a time. We have our next question from the line of Prateek Poddar from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi. In part, I think this question has been answered. Just from a holistic perspective, we have seen substantial impact in the opex ratio as well as improvement in the loss ratios. It's a growth issue that we have witnessed this quarter. Just wanted to ask you in terms of sustainability of these numbers going forward.
Yes. See, these are choices that we have made but, I see no reason why there should be any change, from in the direction as well as what we went through in Q3.
Got it. With this EOM new timeline, you know, pricing as an important lever will no longer be a major way to grow. In your view, what will be the other aspects for let's say, Chola to outperform the industry growth?
Definitely there is a potential for growth is very much there, given the thrust as to penetration and general economic growth which will be there. We will also see Chola MS strength also over what it has been doing in the tier three end markets. We will have to penetrate the market. Quite naturally, we also have the prospects of about another five, six players entering the scene. From a competition intensity, we have discussed this a few times even in this call, only going to be on the rise. It will all start at the metros and urban markets. The key, as I would see, is also in building a presence and strength in the tier three and such markets for sustainability.
Got it. This is really helpful. Wishing all the best.
Thank you. I would now like to hand the conference over to management for closing comments. Over to you, sir.
Yeah. No, thanks. I think, I'd just like to summarize a few points, is that, one, has done a good performance. Insurance has done a growth, which is back to about 25%+. It is still higher than the market growth. Investment portfolio is reaching about close to INR 14,500 probably at the year-end. We will have a portfolio-based, work done on the investment side as well. Product, choices, region choices, very careful work is being done. At this point in time, the leadership at all levels is, you know, fully available, and they have got really ramped team in place. Investment as far as IT, infrastructure as well as applications, which a key project is undertaken.
I think this will take about couple of years for us to change the course in a far better way than what we are currently having it. All this will augur well for this insurance business. With that I think, thank you all for participating in the call. All the very best. Thank you.
Thank you.
Thank you.
On behalf of DAM Capital Advisors Limited, I'll conclude this conference. Thank you for joining us. You may disconnect your lines.