Welcome to the Cholamandalam Financial Holdings Q2 FY2026 earnings conference call. 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 touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Mayank Mistry. Thank you, and over to you, sir.
Thank you, Boomika, and good afternoon, everyone. On behalf of JM Financial, I welcome all the participants of the call and thank the management of Cholamandalam Financial Holdings Limited for giving us the opportunity to host this call. For today's call, we have with us Mr. Sridharan Rangarajan, Non-Executive Director, Cholamandalam Financial Holdings; Mr. N. Ganesh, Manager and CFO, Cholamandalam Financial Holdings; Mr. V. Suryanarayanan, Managing Director, Cholamandalam MS General Insurance; and Mr. Venu Gopalan, CFO, Cholamandalam MS General Insurance. I now hand over the call to the management for the opening remarks, post which we can open the floor for Q&A. Thank you, and over to you, sir.
Good evening. This is Suryanarayanan from Cholamandalam MS General Insurance. Good evening to each one of you for joining the earnings call. I'll now proceed with the overview of the performance of Cholamandalam MS for the quarter and half-year ended September 2025. To begin with, on the top line, in line with the one-by-one method of accounting and reporting of GDPI with respect to long-term non-motor business, Cholamandalam MS recorded a gross direct premium of INR 1,835 crore for quarter two and INR 3,647 crore for the half-year. With the base effect of one-by-one reporting coming to an end in September 2025, the growth in business will be visible from Q3 onwards. Cholamandalam MS suffered a loss of crop insurance business consequent to the re-tender, which impacted the quarter's GDPI by about INR 323 crore and INR 383 crore for the half-year.
The premium received in advance on long-term non-motor products was INR 100 crore for the quarter and INR 202 crore for the half-year. Together with the reinsurance inward business, the gross return premium for the quarter was INR 2,221 crore and INR 4,217 crore for the half-year. In motor, the principal line of business, the market share stood at about 5.3%. Within motor, the company had a composition of 52% in cars, 37% in commercial vehicles, and 12% in two-wheelers. The company secured about 23% of its total motor premium from new vehicles. The Expenses of Management for Cholamandalam MS General Insurance for the half-year stood at 30.5%, which measured without one-by-one works out to 29.1% and is lower than the glide path plan approved by the board and presented to the regulator. The UIM for the corresponding half-year of the previous year was 32.7%. We have seen a 2.2% reduction from the corresponding period.
The claims ratio for Q2 and H1 at 81.9% and 81.5% are higher than the levels in the corresponding periods of the previous year. The motor OD claims ratio has been higher and also reflects the competitive intensity in the industry. Cholam MS continues to be prudent and conservative in its provisioning for motor third-party losses, with the level of provisioning a good 10% higher than many of its peers. Recognizing the rising severity in court awards in third-party claims and the continued absence of increase in motor third-party premium for the last four years, Cholam MS, as mentioned in the earlier call as well, stepped up its motor third-party reserving in the year. This has rendered the overall company claims ratio higher than the corresponding period by 2.31% for Q2 and over 3% for the half-year.
Consequently, the combined ratio for the half-year was at 115.3%, which without the one-by-one effect stands reduced to about 112.1%. This 112.1% includes the 3% arising from the motor third-party provisioning. The investment corpus as at the half-year was over INR 18,380 crore, and the company had mark-to-market gains in both the debt and equity portfolios amounting to about INR 500 crore. The PBT for the half-year was INR 266 crore, with the return on equity not annualized at 6.2%. Solvency at 2.112 times is comfortable. We 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 touchstone 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 comes from the line of Ravi Purohit from Securities Investment Management Private Limited. Please go ahead.
Yeah, hi. Thanks for taking my question. Sir, if you could kind of give us some sense of how the market has been lately. I think because of the GST cut, there has been a significant uptick in the auto sector. How does that kind of translate for from our point of view, given that the first half has been pretty tepid for us in terms of growth of the overall premium? Of course, you mentioned that because we lost some agri business, but in the second half, how does that look at the ground level?
Yeah, thanks, Ravi. Let me take it in two parts. The first half indeed was tepid arising from two reasons. One was the crop loss that I talked about, and second was the one-by-one effect of INR 200 crore not getting reported the way it used to be in previous periods. That at least will now come to a level comparison as we get into quarter three and in October. The crop, we have digested a good portion of the portion that we had written last year. There will be somewhere about at best another INR 150 crore, which got reported in H2, which will not be there in H2 of this year. Therefore, the drop from here on is not going to be that steep. Second is the effect of GST.
Definitely, as we have seen, automobile sales has been quite strong in the month of October, and we did put out our numbers. The industry numbers are out there. The private sector in the month of October had a degrowth of 1.5% overall all private sector players together. Cholam MS had a growth of 5.4% in the month of October, which means that our YTD year-to-date degrowth that we had reported in the half-year is now getting reduced as at YTD October. It is things are looking up, and we only wait to see if the momentum in the auto sales sustains in the months of November, December. Of course, Q4, January to March, definitely there will be a strong push. We only wait to see if the sales sustain. I'm sure we will have a good business growth.
Sir, I think we started doing our calls on a quarterly basis a few years back, right? Earlier, we used to do maybe once in a year, and then we started doing quarterly calls. At that point of time, I think we had kind of mentioned about getting our combined ratio closer to, let's say, 105% or so. It's been persistently higher. If you could kind of share some insights into how should we see our combined ratio over the next one or two years and things that are in our control, right? It has been a competitive market, but there are companies whose combined ratios are lower than ours. Is there anything that you could kind of share on the steps that we are taking to kind of bring this down?
Yeah. We will not talk about the competition's combined ratio or what is shaping it. I think that is outside the ambit and scope of this particular call. We would rather stick to what we are trying to do and what is shaping our combined ratio at this point in time. In my opening remarks, I did talk about the motor third-party reserving that we are adopting at this point in time. I did mention in the call that our reserving level, what we are doing, is at least 10% higher than many of our peers. In our book, that translates into an effect of at least 3% on the COR. If without one-by-one, if I am talking of 112, that means that the correct on a comparative basis, this comes down to about 109.
Now, going to your question on it was 109 in previous years, it is at 109, and what is going to improve? The question is the way we have been conservative in our commission recognitions. For instance, when one-by-one came in, our cessions reduced, and therefore our reinsurance commission also got deferred. Now, actually, as we go along and when this one-by-one premium starts coming into the T&L segment, our reinsurance commissions will also start going up, and we should see a bounce back into the overall profitability. One area of concern, I should admit, has been the way the motor OD loss ratios have been moving up, both for the industry and particularly for Cholamandalam MS. We are seized of the problem and have taken several corrective measures.
One of the measures, which will certainly, of course, this is also arising from the GST change, Cholam MS has got a larger proportion of motor business from commercial vehicles. I did mention that we have about 37%. Now, the GST change that is coming in in terms of the GST on parts prices coming down from 12% to 5% will also give us some advantage as we go along as the severity of the claims will now go down. That will be a small positive which will come in, which will also help. Of course, the other corrective measures that we have put in place, and it should bring the loss ratios to a lower level.
Okay. Sir, just one observation. In our presentation, we give this breakup of investment book, right? Historically, we had moved a significant portion of our investment book into AAA rated and government security bonds, right? Lately, in the last two quarters, I have seen PSU/corporate bonds going up significantly and government securities coming off. I just wanted to kind of get your thought. I am assuming these are still all AAA rated, but if you could just kind of share some, is there a change in how we are kind of allocating our investment book?
Yeah. Our investment book earlier used to be very heavily loaded towards the government securities, as you rightly talked about. We have strengthened our investment management team, another thing, research work, and another thing. You know very well that the interest rate yield for government securities and corporate bonds are comparatively higher. We moved into a level of more towards the corporate bond in order to increase the yield on the investment book. That is the thing. What we are doing very clearly is not to reduce our rating profile on those corporate bonds. We are only looking at those profiles which are high in terms of the rating and the profile point of view. We are not diluting anything on the security on those investment book. That is the philosophy on which we moved. Altogether, we are slightly above 40% even now.
The threshold is 30% government securities. We are at around 40%.
Okay. Okay. Last question, sir. I think in the last few calls also had asked you generally what is our long-term goal from return on equity point of view. I think for financial year 2025, we did cross 18%, and prior year was about 15-odd percent, right? This year looks like it is below in the first half at least. Would you kind of still stick to what you had mentioned earlier that we should remain in the 16-18% ROE band in the near future?
Yeah. That is the direction with which the management team is certainly working for, and we certainly expect to get closer to those levels.
Okay. Okay. Thank you and all the best, and I'll get back in the queue.
Bye. Thank you.
Thank you. A reminder to all the participants that you may press star and one to ask a question. The next question comes from the line of Sankeet Godha from Avantis Park. Please go ahead.
Yeah. Thank you for the opportunity, sir. Sir, this INR 570-odd crores of reinsurance accepted business, what you did in first half, can you just give the color of the business? Is it predominantly sitting in crop given we lost it on direct? We started doing it on reinsurance, or it's more towards commercial lines? Just wanted to understand the color of the business and how profitability of the segment has played out in one night given we did little more than usually what we do in the past.
Yeah. The volume is a little higher than what we used to do in the past, and actually the volume is spread across lines of businesses. We do have in property. We do have some in crop. We do have some in motor, and we do also have a good portion arising from the group health business. It is across multiple lines of business. It suffices to say that the economic combined ratio of this business is better than the combined ratio on the core business. It only operates to bring down the overall combined ratio.
Okay. Understood, sir. If the float in the business is a little lower, and even if the combined is closer to 100, then from an ROE point of view, it might be still depleting compared to the leverage benefit we get from the direct business, especially from TP. If I can ask on ROE basis, still it is ROE equity or we have, it's ROE 22 in a way?
I would broadly tend to think that it is ROE neutral. Yeah, it is not going to impact that because the overall, that's how it will tend to operate. I would tend to think that the problems and the difficulties at this point in time is more in the motor line of business than anywhere else. Of course, you have attended other companies' calls as well, and you know the kind of combined ratio levels that are getting operated in the industry. The problem is further accentuated because of our own stance and prudence with respect to the TP reserving. While that does not, it is reserving. It does not impact cash flow. The effect is still there when it comes to the combined ratio and naturally the ROE.
Okay. Will you continue this reinsurance strategy going head to, or is it more tactical for the current year? Or if I can ask whether EOM played a role for you to go a little aggressive on reinsurance acceptance?
Yeah. It is like it's an overall package, Sankeet, and I know this is a question that you have been asking of other companies as well in different ways, and people have proceeded to answer it in their own fashion. It is a tactical move, and also from considering also the fact that we did lose the crop business, so did others. One week is where that has come about. The thing that we were seeing as positive is apart from the effect that it helps us on the EOM, we have also used this opportunity to really cut down on our EOM even in our core business, which is what should help the company going forward.
Understood, sir. Understood. The second thing I wanted to check with you, sir, that given we were very strong players in benefit long-term health and PA, given these numbers have declined for the last three or four consecutive quarters, even if I do this math on any basis, have we seen still a decline, or the decline is predominantly because of the yield? Basically, the thing what I wanted to understand is that if the reporting would have been on yield, the health and PA segment would have grown or declined for us?
There will still be a marginal decline, but we have gone to our, say, economically viable businesses, and still our benefit mix, if you are to look at on the overall health business, would still be at around close to around 40%. It has come off the level of 46-47% that used to be in earlier years. It has come to 40% now, but it is still there.
Okay. Okay. Given now, I'm assuming EOM is under control, whether this piece will do, again, asking on yield basis a little better going ahead, or it is a conscious decision because commercials are not working in your favor, so that's why you chose to slow it down?
Yes. Because see, there is this last year of the glide path, and one had to move down to conform. That is also a tactical call in that respect. I say started off in the full premium basis, you would notice that our cost is now EOM is at about 29 point something, which also is, even from a glide path perspective, there is some leeway for us to take business, good, profitable business, and which is what we will proceed to do in H2.
Understood. Understood, sir. Another question was on motor OD, which you touched upon, that loss issues are a little elevated because of the competitive intensity. Now, given GST cut has happened, your IDVs will come down, claims will remain where they are. Is it fair to say that Sankeet Godha, the loss issues will deteriorate? Maybe new product mix might improve the loss issues, but in general, directionally, maybe you will benefit from the float or investment book. On combined or loss ratios, these numbers will look a little more poorer than what you are reporting for you or for the industry because of the IDV cut?
See, the IDV change arising out of GST is more prevalent in the new business. The older vehicles, the changes in IDV have not really happened as yet. I am speaking this position even as at, say, closer to mid-November. That is how it is getting played out in the industry. I did mention that our total share of new business is somewhere around 24-25%. The 75% of the business is not undergoing a change on the IDV at this point in time.
Okay. So.
That's the situation.
Understood, sir. Sir, this 83% loss issue in OD, honestly, this is a little uncomfortable number from your perspective also. If you give any concrete measures, what you have taken exactly for this number to improve going ahead, and what likelihood this number will improve to despite the competition challenges?
See, our point is that by in H2, if you are to look at, we would certainly want this number to at least come down by about 5 percentage points for H2.
Measures to achieve?
That will come in from the other changes that we have made. That is the prediction that we are trying to make for H2, going by the effect of the changes that we have now put in place. That is what we expect.
Understood, sir. In general, I am saying that you were always like 71-72% loss ratio company, even if I negate the impact of what you call additional reserving, what you have done for TP. Now you still look like more 78-79% combined loss ratio company. Maybe you got a benefit of expense, but is it fair to say it is a trade-off that expense comes off at the expense of loss, and therefore you end up at the same combined? I just wanted to understand. That is the way I need to understand because expense ratio improvement got reflected in higher loss ratio. That is the reason I am asking it. Or both can move independently so that overall combined can improve?
They can move independently. This is a stance that we have taken with respect to motor third-party provisioning. Of course, all efficiencies towards securing the actuals at much lower levels is on by way of a higher proportion of compromise settlements, where I should say that the company is doing well even at the half-year stage. Again, we will take a closer look at how things shape up, and maybe by December and again in March, we could look at a more pragmatic situation there.
Lastly, on leverage, again, maybe I'm just asking this, maybe it could be repetitive for you. Typically, we always enjoyed the higher leverage, 6.1, 6.2 kind of a leverage. Now it has fallen sub-6, still very healthy compared to the industry standard, but has fallen. Is it fair to say that your defocus on long-term plans has led to lower leverage, but we did not get so much of advantage in the combined? That leverage benefit what was there in the ROE did not play out at the expense of EOM management. Is it a fair way to think, sir?
In a way, it is true because I meant somewhere in the mention in the presentation deck that there is a very conscious move with respect to the two-wheeler business. That is a view that the board has taken. When you do write new two-wheelers on a one-plus-five basis, there is a cash accretion that happens. The worry is in the context of absence in pricing. Is it really worth taking on a risk for four and five years from now? What is absolutely certain is the inflation running at whatever level in terms of the compensation level. It is a necessary trade-off between whether you want to have an accretion and have investment book and earnings now, and then liability really getting deferred into the subsequent years. That is the call that the board really took, and that is what is driving.
It is on page 55. If you look at it, we will say growth in OD premium and degrowth in TP premium and primarily conscious reduction of volumes in two-wheelers. If you look at it even in the motor book, while we have an OD market share of 6.3, we have actually brought down from 5.4- 4.7 in motor TP. That is what is impacting the leverage. This, I would tend to think, is more tactical because it's not that we have lost any channel or anything. It is more a question of what we and how we chose to source. Of course, there is always talks of an impending TP price increase. We never know when it's going to happen. The sooner it happens, it's better. Things can certainly pivot back.
Understood. But the likelihood, maybe that was my last question, actually, the likelihood of TP price hike, will we see the light in the current year or you are hopeful at least start of the next fiscal, we will see a price hike?
I would tend to think that industry will be very happy even if it comes in from April 1. However, the necessity, the preliminary steps will have to be taken now to make it effective from April.
Understood, sir. Yeah. Thank you. Thank you very much for answering my questions. That's it from my side.
Thank you. A reminder to all the participants that you may press star and one to ask a question. Ladies and gentlemen, as there are no further questions, I would now like to hand the conference over to the management for closing comments.
Yeah. Thanks to everyone for joining the conference call. The management is committed to taking the company forward both in terms of growth and profitability. Thank you.
On behalf of JM Financial, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.