Cholamandalam Financial Holdings Ltd
NSE:CHOLAHLDNG
Cholamandalam Financial Holdings Ltd
NSE:CHOLAHLDNG
Price:
1 556.1
INR
0.49%
Market Closed
Market Cap:
₹292.2B
Add Note
Add Target
Capture your thoughts and set a target
Decide at what price you'd be comfortable buying and we'll help you stay ready.
Based on
Margin of Safety
0%
10%
20%
30%
40%
50%
Your Price Target
Linked to
current price
· In Buy Zone
Loading
Note attached
Choose the stock you wish to monitor with a price target
Popular Picks
|
Johnson & Johnson
NYSE:JNJ
|
US |
|
Berkshire Hathaway Inc
NYSE:BRK.A
|
US |
|
Bank of America Corp
NYSE:BAC
|
US |
|
Mastercard Inc
NYSE:MA
|
US |
|
UnitedHealth Group Inc
NYSE:UNH
|
US |
|
Exxon Mobil Corp
NYSE:XOM
|
US |
|
Pfizer Inc
NYSE:PFE
|
US |
|
Nike Inc
NYSE:NKE
|
US |
|
Visa Inc
NYSE:V
|
US |
|
Alibaba Group Holding Ltd
NYSE:BABA
|
CN |
|
JPMorgan Chase & Co
NYSE:JPM
|
US |
|
Coca-Cola Co
NYSE:KO
|
US |
|
Verizon Communications Inc
NYSE:VZ
|
US |
|
Chevron Corp
NYSE:CVX
|
US |
|
Walt Disney Co
NYSE:DIS
|
US |
|
PayPal Holdings Inc
NASDAQ:PYPL
|
US |
Ladies and gentlemen, good day, and welcome to the Chola Financial Holdings Q1 FY '24 Investors Conference Call hosted by Axis Capital Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Praveen Agarwal. Thank you, and over to you, Mr. Agarwal.
Yes. Thank you, Rishi. Good evening, everyone, and welcome to this earnings call. From Cholamandalam Financial Holdings, we have Mr. Sridharan Rangarajan, is the Director; and Mr. N. Ganesh is the CFO; and from Chola MS General Insurance, we have Mr. V. Suryanarayanan, is the MD; and Mr. Venugopalan, the CFO of the company. I'll request Mr. Sridharan to take us through the key highlights of the results, post which we'll open the floor for Q&A. Over to you, sir.
Yes. Thank you. Good evening, all. I have with me and my colleague, Suryanarayanan, MD of Chola MS General Insurance; Venugopalan, CFO of Chola MS General Insurance; and Ganesh, CFO for Chola Financial Holdings. I'd like to have a very brief comment and I request Suri to make the comment relating to insurance.
Consolidated total income of Chola Financial Holdings for the quarter ended [Technical Difficulty] increased by 44% to INR 5,715 crores, while the profit after tax increased by 36% to INR 792 crores. Chola General Insurance also has done fabulously well. Overall, I feel that I think both the companies have done well.
And with that opening remarks, I request Suryanarayanan to make remarks relating to insurance and then we'll open up for questions-and-answers.
Thank you, Sridhar, and good evening to each one of you. So I shall now proceed to give you a brief overview of the performance of Chola MS General Insurance for Q1. In the quarter, Chola MS recorded a gross direct premium of INR 1,681 crores with a growth rate of 30.3% as against the multiline insurers growth of 16.5%. This growth has helped Chola MS to enhance its market share to 2.95% against -- amongst multiline insurers. The growth was across all lines of business with growth rates of 15.4% in fire, 35.3% in motor, 31.4% in health and 17% in personal accident.
The company grew across all its channels. In its captive channels, business from the sister company and the Insurance Express outlets grew by over 27%. Bancassurance business grew by over 15% and growth of 11% from other channels, including new channel acquisition partners helped attain the strong growth.
The EOM, a much discussed subject in the general insurance industry these days, for Chola MS was 33.9% in Q1 as against 37.16% in corresponding quarter of previous year, implying a reduction of 3.27%.
Chola MS has won a cluster in crop insurance in the state of Maharashtra with a premium potential of about INR 500 crores per annum. This business is a 3-year tender and one can reasonably expect this to continue for the subsequent 2 years as well. As premium recognition happens in subsequent quarters, this should help lower the EOM for Chola MS and gradually help converge to the regulatory limits as defined in the glide path.
The claims ratio for the quarter was at 74.5% as against 72% in corresponding quarter of previous year, an increase contributed by 1.34% from cyclone, natcat driven claims. The combined ratio for the quarter was at 112.9%. And without the effect of the cyclone and natural catastrophic event claims, it was at about 111.6% as against 114.9% in the corresponding quarter of the previous year.
Chola MS investment portfolio corpus as of June was at INR 15,150 crores plus and with a investment income of about INR 263 crores for the quarter. With no exposure to stressed assets, recoveries from the fully provided exposures in IL&FS and Reliance Capital would be recognized on a cash basis as and when it happens.
The PBT for the quarter was INR 88 crores, as against INR 51 crores in the corresponding quarter. The return on equity for the quarter annualized has progressed to 11.76%.
We'll now be happy to take any questions that you may have.
Sir, are we ready to take questions now.
Yes.
[Operator Instructions] The first question comes from the line of Devansh Nigotia of SiMPL.
Congratulations on decent set of numbers. So just a couple of questions. Sir, one is, if you look at our commission in OpEx on a combined basis, the denominator of net written premium, so we see that it has been trending downwards for the last 3, 4 quarters. So is it related to the -- are you seeing some signs of competitive intensity moderating in motor? Or is it related to something else? And some thoughts if you can share here.
Yes, a good question. So very clearly, the business has been taking a close look at the various portfolios across its various verticals and recalibrating the sourcing cost together with the underlying fundamentals of the business. So the business has taken drastic steps of [ curbing ] and reducing sourcing costs in some panels, which has begun to show results, and the business expects this to continue as we go along.
So do you mention that we are again trying to build the CV book. Sir, is it the sourcing cost in 2-wheelers and passenger vehicles which were at an elevated levels and now we are trying to change our business mix from where which will help us gain in terms of better operating expense ratio? Is that the understanding?
Yes. That is one of the factors in play with generally TP premium price increase not happening. And on the backdrop of just a 4% increase last year, locking oneself into a much longer-term exposure for 5 years in 2-wheelers has its own implication. So business has taken a careful look at that.
Okay. And when we look at -- you've been mentioning for some time that we are trying to build crop again. But even in this quarter, there has not been any business from crop insurance. So some thoughts if you can share?
The crop season begins -- the kharif season begins in July. So as I mentioned in my opening remarks, we were not in the crop business. This year, we have entered the crop business. We have won a cluster. And as I mentioned earlier, so we should see the booking of business in Q2 and maybe -- largely it will be in Q2 and some, I think, volumes could come in Q3.
And what is the kind of business mix that we're targeting for crop over the next 1, 2 years?
Yes, but we don't expect this to be anywhere beyond 7% to 8%.
Okay. And is it likely to do with -- to comply with EOM or we are looking at higher profitability over here? And any expected combined ratio that you're expecting from this business?
I think in the current year, most of the crop tenders, the states have adopted, last corridor model of 80 to 110. So which means that under the model, any claim ratio in excess of 110, the state will step in. And the reinsurers have taken their own reinsurance arrangements or covers beyond the loss ratio of a certain level. So we just -- sort of made a gain a little more predictable than it was a few years back.
Okay. And in case of group health and fire insurance, there have been step up in losses -- underwriting losses. So what -- how would you describe, what is it related to? Is it pricing or sourcing costs? Or -- I mean if you can just help us understand.
Chola MS continues to adopt a very cautious stance with respect to group health, even if you notice from the industry numbers or our own numbers. While industry has grown in group health quite significantly. The multiline players have grown group health service, they have grown by about INR 2,350 crores. Our group health hasn't grown as much. We have just grown very marginally. So we continue to adopt a cautious stance there.
And with the CIFC net income booked likely of [ INR 4,000 crores ]. So -- I mean are we looking to participate in that since at balance sheet level, we don't have that kind of funds? And can that even lead to dilution, if at all, in CIFC?
What is that INR 1,000 crores, you are talking about? Can you repeat?
Is CIFCL looking to raise funds, right? You mentioned they're looking to do much writing. So considering looking at our balance sheet, I mean, will we participate in it? But at the balance sheet level, we don't have that kind of cash. Some thoughts if you can share that we are looking to participate or not?
Yes. So the process is on. I think, first of all, CIFCL will get their shareholders' approval. And then we will take a call with that. I think last time we did participate, and we are also thinking about that. I think we will take a call. The Board will consider this soon and will take a call and decide about that.
[Operator Instructions] While we are waiting for the queue, Mr. Agarwal, would you like to ask a few questions?
Yes. Thanks, Rishi. Sir, we had 2 queries. One was regarding the price increase across products. Can you share some thoughts how has been the price increase across various products that may have helped us during the quarter?
If you look at the, first, the commercial and property lines when it comes to general premium price realization. The market for Chola MS, we have seen a decline in average premium realization of anywhere between 7% to 9%, depending on the occupancies and the risk profiles, the location and whether there was a claim in the previous year and so on and so forth.
So while that is a story, in the fire, actually, we are now seeing pricing improvement in the motor. There is a lot more responsible behavior I'm seeing from many players. And as a responsible insurer, Chola MS has also enhanced its prices. And to the immediate effect that we see is that some volume drop is also seen. While our growth, as I mentioned in the start, as motor at 35%, you will find that the growth in subsequent months within the quarter, June was much lower. And if I see even in the month of July, it is lower.
It is a direct effect of the price corrections that we have reflected in the market. We are quite happy with that. And in health, again, of course, these are not prices that would change on a month-to-month basis. But the general tendency that we are seeing is that claims ratios are on the -- increased across with significant inflation and also the general nature of health claim frauds that we see in the marketplace. Chola MS will also be evaluating one other price correction as a sequence to the one that we had last year.
Okay. Okay. And in terms of the new channel contribution, which product is more successful in the new channels that you have generated?
See, I mentioned about the growth rates in various lines of business. So we are growing in fire. We are growing in motor, in health. And again, you will find that our mix of categories within motor is also presented. So you will see that there is growth in cars. That is largely because of the [ tiers ] that we have got it into. So it's more a positioning model where we have grown. So we are seeing a secular growth across lines. So it is not that we are growing just in any particular line as such.
Okay. Okay. And lastly from my side, sir, any progress or any thoughts that you have garnered from the regulator regarding the composite licenses?
Composite license, actually, as per the -- it requires the insurance act amendment, which was there in the earlier draft version of the proposal. But I don't think that there has been in the new proposal. And also with the monsoon season starting, it is not in the -- for bearing any of the insurances. So majority of that is a smaller level of changes in the income tax. Composite license is not there in the final draft version of CFG.
We have a question from the line of Sanketh Godha from Avendus Spark.
Sir, when I see your motor mix, it seems to how drastically changed not in favor of 2-wheelers. So in the last year for the full year, it was almost 20% of the business was 2-wheelers, now it is just 16%. So when you said that in June and July, the growth has moderated or price correction has been done, that -- should I assume is largely because of your change in stance with respect to 2-wheeler business?
I wouldn't think of it that way. So we would like to stay in that business, but ultimately, the economic results should make sense. That is what will drive the ultimate mix. Though we are seeing a reduction from 19.6% to 16.3%. 19.6% was last year's full number. In Q1 16.3%. But a good amount of premium anyway will come up during the festive season.
So the 2-wheeler sales itself has been down if we all know in Q1 and that story continues in July. But in festive reason, it does go up. And anyway, the long-term component of the premium that we had written in previous years will all start adding up in the subsequent quarters. So in my view, I would tend to look at it as a more static position of around 19% to 20% is what I would tell, looking that it would settle ultimately.
So sir, you're fairly confident that 2-wheeler will be more like 19% to 20% of the total mix even for the entire FY '24? That's the way I need to understand, right, sir?
At this point in time, that's how I'd think of it in the current situation.
Sir, the reason why I was asking this question is sir, if you look at your loss ratio of trajectory in motor OD business, it improved from 76% in the first quarter FY '23 to almost 72%. You ended the year with 71.7%, now which is back to 75%. And if you again look at the mix in the car contribution, which was 35%, 36% it has increased to 42%.
So which means that the higher loss ratio product typically, which I believe is cars has increased and that led to increase in the motor OD loss ratio. So sir, just wanted to understand that it is largely because of car? And the second reason I just wanted to check, why you tend to choose to do more cars relatively? Is it more industry-led growth? Or you are consciously making an effort to grow the car piece?
A couple of points out here. See even if you are to look at the last year's numbers, Q1 was 75.8%, and then it improved as the year went along to 71.7%. So in the industry, yes, we have always seen the trend where the loss are elevated in Q1 and then they taper down towards Q2, Q3, and then you will see some hardening again in Q4. This is a trend that even if you are to look at numbers of competition and for the industry in general, that is the trend that you would see.
And that is something that we expect to happen even in the current year. And let me also say that we are seeing traces of it even as we go along. So we are now having this discussion in month 2 of the quarter. So I can say that the trend is quite visible even presently.
See, the next question is that cars, our growth. I've mentioned this even in some of the past calls. So we get our car business across all 3 segments. The new segment, which as its pluses and minuses. The financial segment, which again has its own advantage. And third is the agency segment, which is the older vehicle segment. Chola MS has a strong presence across all 3.
We have added 2 OEM partners to an extent that pan India has been opened up by Maruti for us. So these will bring in some new vehicle business. But Chola MS will be committed to looking at the inherent profitability per se. The financial business -- growth in the financial business augurs well because the price point pressure at the financial point is much, much different and much better as compared to what you get in the agency business or perhaps in the new vehicle business. So these are several factors at play, which ultimately shape the overall strategy in terms of getting stronger in any particular subcategory.
But sir, just asking the point, if I look your Banca contribution compared to the last year -- full year, it seems to have come off. Then how do we read these numbers from the point what you said that -- that the Banca led to the car-led growth? Is it that we have taken a conscious decision to slow down our long-term policies growth in Banca and that's the reason why the contribution is lower, and it is compensated by car growth, is the way I need to look it? Or how do I read the numbers basically?
Banca, see our report volume comes in from our sister company, which is not. Hello, am I audible please?
Mr. Godha, can you hear us well?
Mr. Godha, can you hear everybody?
Go ahead. Good.
Yes. If you look at our -- we have presented our growth across the captive channels, Bancassurance and that part. Our growth in our own business, across own sister company, you will find that there is a strong growth there, so which is where we get a good part of the motor business, and that includes cars. And when I say cars, that is also the used car market which is there...
We can't hear anything from your side, sir.
Sorry.
Not able to hear?
Mr. Sanketh Godha, can you hear everybody?
No, I think his mic has a problem.
Sir, please continue we can all hear you.
What Suri is speaking are you able to hear him?
Others are able to hear, Sanketh...
Oh, okay. Then...
So then maybe he'll have to rejoin in to come back.
Come back?
Praveen we can go to the next question and then come back.
[Operator Instructions] We have a question from the line of Prateek Poddar of Nippon India Mutual Fund.
Sir, just one question. With the crop being 8% of your GWP as you just guided for. How should we think about loss ratios from an overall company's perspective, especially given the fact that EOM rules are there and you need to go towards 30%?
Yes. Look, I mentioned that the scheme operates in a corridor of 80 to 110, I guess, [indiscernible]...
Sorry to interrupt, sir. I understand that. My question was on the overall loss ratio...
Therefore, so we will have a loss ratio of a minimum of 80, that is the best that one can look at and that's the cap. So we would tend to believe that crop can reasonably operate somewhere in the 90s. So 90 to 95 is what one can reasonably expect. And that is what we would probably start factoring in, even when we start presenting the numbers.
Got it. And sir, sorry, maybe I'm wrong, but sequentially, we have seen a sharp jump in [ '20 ] OpEx ratio overall. How should we think about overall OpEx ratios in the next 1, 2 years for the medium term?
Prateek sir, if you are talking about the EOM percentage to GWP or NWP?
Sorry?
See, I mentioned, Prateek, in the beginning of the call that actually on the EOM, as compared to corresponding quarter, we have had 3.27% reduction. Our numbers, EOM for the current quarter was 33.9%. By EOM, we mean our total expenditure in relation to the premium, the top line. So this is now for the quarter was at 33.9%. And I'd also mentioned that as we start recognizing the crop premium and given the business mix, you will possibly start seeing this ratio going down.
And this gets compensated in the sense by elevated loss ratios, right? Because you just mentioned that loss ratios in the crop will be closer to 90%, 95%.
That is an expectation that we would like to carry. So yes, if it turns out to be 80%, 80% at the lower end, yes, that can be possible. On the other hand, if it turns out to be other end, yes, it can be adverse.
And how should we think about the combined ratio? What are your thoughts on how would you look to which -- what is the normal band in which you would look to operate these businesses?
I even mentioned in the previous call that we would like to probably converge to a level of about 107%, though the 2 events, what has happened in Q1, the cyclone and in Q2, July, whatever we had by way of the northern floods, there will be a setback, but then we still hope that we will get somewhere closer to that by the end of the year.
[Operator Instructions] Sir, we have a question from the line of Devansh Nigotia from SiMPL.
Yes. Sir, just wanted to understand, in terms of motor TP, when we look at our historical claim ratios before 2019, they were really elevated at that time, and they should be upwards of 95%. Sir, now even after COVID, everything is normalized and still our claim ratios remain at 73%, 74%. So what is helping that the claim ratios to stay at such low levels? And this pricing being at almost flattish for last 2 years?
What we are clearly -- while severity is definitely going up with minimum wage increase levels and medical inflation, what Chola MS as well as that the industry is generally seeing is some frequently benefit pan out going by the way the claims have developed over a period.
And we do -- apart from our own experience, we do have compared notes with the loss ratios of competition as well. And still, we find that our loss ratios compares in terms of, I think we -- it is slightly higher and elevated than what we see in relation to the numbers of competition. So which only makes us feel comfortable that we are still on the right path when it comes to the reserves.
So I mean, you said that there were benefits of -- that we had -- were provided in during COVID in FY '21, '22 and that benefit of reversals we are seeing right now in our current claim ratios. Is that the understanding? So these claim ratios might step up further going forward?
Yes, we have maintained that for the price corrections in motor TP is essential for long-term survival tough motor business in the country itself. It is really unfortunate that we have not increased, and it's been rather sedate until now. It is required.
So I think it will start casting pressures. While 77% or what we have provided or what we are carrying, it is sustainable for this year. But if you are to look at a combined ratio of this, that TP come under pressure as we move along. There is a sourcing cost now even for TP. There is an operating running expense for TP. So it will be difficult to run beyond this.
Sir, but I mean, my question was more specifically on reversals and the benefit of that. So is it that more benefits will stay only till this year? Is that what you are trying to say? I'm still not able to understand.
See, benefits will accrue only when the Motor Vehicle Act, which was made into effective from April '22, that gets recognized. The industry together has filed a petition with the Supreme Court on appeal against several High Court orders. And as that gets clarified by Supreme Court, the industry itself will see some relief on this.
Okay. So basically, there are some conflicts with the states -- a few state decisions like Tamil Nadu and -- the decision which came from the Motor Vehicle Act and -- and any expected date when will the outcome will come from Supreme Court on this?
Yes, it is at the -- no, we'll have to wait. See, the case is listed for hearing, but we don't know how -- when it will actually be taken up and how many rounds it will go before a final decision is out. How many hearings will happen, we are not too sure.
[Operator Instructions] Sir, we have a question from the line of Prateek Poddar from Nippon India Mutual Fund.
Am I audible?
Yes.
Sir, could you just talk -- sir, you mentioned that you are planning for one more price correction this year on the health side. Is it possible for you to quantify?
No, the actuaries are working at it. The business team, underwriting team or actuaries are working at it. See, there are multiple ways of approaching the situation. Whether you take one big increase once in 3 years and then benefit or where you move along with the kind of inflation that you see.
One would tend to believe that the latter is more palatable even to customers. Nobody likes to get a serious jolt of a sudden sharp jump. So that is the thinking. So let's see how it pans out. Maybe by time that we have the next call, I should have some more details.
[Operator Instructions] We have a question from the line of Ajox Frederick from Sundaram Mutual Fund.
Just one clarification. The 107% combined you're talking about, are you assuming a motor third-party pricing?
See, the draft exposure was out about 6 to 8 weeks back, industry has represented. You'll have to wait to see if anything comes out of it. The industry has asked clearly for correction upwards, especially in -- both -- actually industry has asked both for upward and downward corrections for various categories.
Okay. So basically, you are expecting a price hike, that's how I should read it, right?
We'll have to wait and see.
Okay. But this 107%, which we are targeting, we are not factoring that in, right?
At this point, no.
[Operator Instructions] As there are no further questions, I would now like to hand the conference over to the management for the closing comments.
Yes. Thanks, everyone. So it's been a quarter of good performance from Chola MS. We certainly hope to carry this forward and carry this momentum as we go into the subsequent quarters. Thank you, everyone.
Thank you. On behalf of Axis Capital Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.