Cholamandalam Financial Holdings Limited — Q4 FY25 earnings call

Call held 9 May 2025

Management summary

Cholamandalam Financial Holdings reported a strong Q4 and FY25, driven by robust GWP growth, improved profitability metrics like RoE and combined ratio, and efficient expense management. The company's capital position remains healthy with a comfortable solvency ratio. While a one-time gain boosted RoE, management expressed confidence in the sustainability of current profitability levels and outlined plans for further operational efficiencies and growth in specific segments.

Highlights

  • FY25 Gross Written Premium (GWP) reached INR 8,328 crores, growing at 1.6x the industry average on a full GDPI basis.

  • Return on Equity (RoE) for FY25 improved to 18.5%, with management affirming its sustainability.

  • The combined ratio for FY25 (without 1/N effect) reduced to 107.85% from 109.9% in the previous year, showing efficiency gains.

  • Expense of Management (EOM) for FY25 (without 1/N) decreased to 32.18%, which is below the regulatory glide path.

  • The solvency ratio stands strong at 2.18x, and net worth crossed the INR 3,000 crore mark, with 85% from earned profits.

Concerns

  • The reported RoE of 18.5% includes a one-time income of INR 54 crores from recoveries of written-off investments.

  • The combined ratio, while improving, remains elevated, with management targeting only a modest 1% improvement over the next 12 months.

  • The timing of potential Motor Third-Party (TP) price revisions by the government, a key driver for combined ratio improvement, remains uncertain.

Key financials

  1. Gross Written Premium ₹8,328 Cr
  2. PBT ₹680 Cr
  3. Return on Equity 18.5%
  4. Combined Ratio (excl. 1/N) 107.8% -1.9%YoY
  5. Solvency Ratio 2.18×
  6. Expense of Management (excl. 1/N) 32.2% -1.5%YoY

What they filed

Q1 FY27: revenue up 19.6%, net profit up 42.0% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue8,090 8,489 8,913 9,296 9,461 +17%9,949 +17%10,366 +16%11,114 +20%
EBITDA4,553 4,718 5,204 5,154 5,102 +12%5,462 +16%— —
Net profit1,125 1,093 1,362 1,260 1,214 +8%1,386 +27%1,626 +19%1,789 +42%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Liquidity Liquidity disclosed The company's solvency ratio is comfortable at 2.18x as at March, and net worth nudged the INR 3,000 crore mark.
    The solvency ratio of the company at 2.18x as at March is comfortable. The net worth of Chola MS nudged the INR3,000 crore mark.

Guidance & targets

Profitability

  • Return on Equity (RoE) Profitability · long-term · Medium confidence sustainable
    I certainly feel that this level of ROE is quite sustainable as we go along.

    — V. Suryanarayanan

  • Combined Ratio Profitability · over a 12-month period · Medium confidence improve by 1% or so
    I would tend to think that the combined ratio would remain elevated, but then we would possibly improve by 1% or so over a 12-month period is what I would tend to look at.

    — V. Suryanarayanan

  • Combined Ratio (without 1/N effect) Profitability · FY26 · High confidence closer to 108
    So, you are right. Basically, the combined ratio will come down from 110 to around 107 from the point of 1/N effect.

    — Venugopalan S

Expense Management

  • Expense of Management (EOM) Compliance Expense Management · FY 25-26 · High confidence glide path level
    FY 25-26 is the last year of the glide path... But we are on the path to achieve that glide path level for FY 25-26.

    — Venugopalan S

Volume

  • Fire Business Growth Volume · ongoing · Low confidence grow
    Certainly, our fire business is poised to grow from the levels that it is currently in.

    — V. Suryanarayanan

What to watch in Q1 FY26

Combined Ratio Improvement

next 12 months
Current 107.85% (FY25 without 1/N effect)
Target ~106.85% (1% improvement)

Why it matters

Combined ratio is a key profitability metric, and management guided for a 1% improvement over the next year.

I would tend to think that the combined ratio would remain elevated, but then we would possibly improve by 1% or so over a 12-month period is what I would tend to look at.

Risks & concerns

  • Geopolitical situation impacting equity markets and investment income

    medium

    Equity markets could be turbulent due to geopolitical situation, but investment income is still expected to be robust.

    Management acknowledged

  • Uncertainty regarding Motor TP price revision by the government

    medium

    No Motor TP price revision for 3-4 years; government may look at it this year, but timing is unknown, which could impact combined ratio improvement.

    Management acknowledged

Q&A highlights

6 direct
ROE sustainability and future outlook Direct
I certainly feel that this level of ROE is quite sustainable as we go along.

Analyst sought clarity on whether the high ROE (18.5%) was sustainable, especially given the one-time income, and management affirmed its sustainability.

Asked by Ravi Purohit

Listing of general insurance companies Partial
Chola MS was not one of the companies that the regulator had called for a discussion... our turn would come in due course, perhaps when the new IRDA Chairman comes and later on as the case may be. The Board of the holding company will take an appropriate call.

Analyst inquired about the regulatory push for listing, and management clarified that Chola MS is not in the immediate queue but expects it in due course, with the Board to decide.

Asked by Ravi Purohit

Combined Ratio vs Investment Income contribution to ROE Direct
If you look at it on the combined ratio front, we have been fairly stable on the combined ratio... I would tend to think that the combined ratio would remain elevated, but then we would possibly improve by 1% or so over a 12-month period... On the investment front, certainly, there is a possibility that all our debt portfolios, the mark-to-market gains will change for the positive significantly through the year.

Analyst asked for a breakdown of ROE drivers, and management explained the expected modest improvement in combined ratio and robust investment income.

Asked by Ravi Purohit

Medium-term Combined Ratio target (102-103%) Partial
Yes, I fully agree with you. But there are many drivers in the industry, which should help in actually making this downward progression in the combined ratio. So as you would have heard even in the other calls possibly, Motor TP price revision is one element.

Analyst pushed for a more aggressive combined ratio target (102-103%), and management acknowledged the drivers for improvement but did not commit to that specific level.

Asked by Ravi Purohit

EOM accounting basis (1/N vs N) Direct
Yes. FY 25-26 is the last year of the glide path. So where we need to achieve that 1.5%, which you are talking about, that all depends on the additional allowances towards insurtech and the rural obligation part. But we are on the path to achieve that glide path level for FY 25-26.

Analyst sought clarification on the EOM calculation basis and its implications for meeting regulatory glide path targets, which management confirmed they are on track for.

Asked by Sanketh Godha

Impact of Motor OD loss ratio on product mix Direct
Yes, as you would have looked at the motor composition has been changing, and we are seeing a rise in the car proportion... In our case, actually, we are seeing a reduction in the motor OD LR of Q4... I'm reasonably confident that this will be sustained and then brought down further.

Analyst questioned if diversifying product mix was compromising motor OD loss ratios, and management clarified that OD LR was actually improving and expected to sustain.

Asked by Sanketh Godha

Details of investment book write-back Direct
Yes. So this is largely from the Reliance Capital write-off that we had taken and ILFS, about INR31 crores from Reliance Capital and balance of INR23 crores from ILFS.

Analyst asked for specifics on the one-time recovery, and management provided a clear breakdown of the INR 54 crores from Reliance Capital and ILFS.

Asked by Ravi Purohit

Inclusion of Reserve Triangle in investor presentation Direct
Yes, we take that suggestion, so we will work on it. Thank you.

Analyst requested a specific disclosure (reserve triangle) that is common in the sector, and management agreed to consider including it in future presentations, enhancing transparency.

Asked by Ravi Purohit

3 min read 6 chapters

Detailed narrative

Q4 and Full Year FY25 Performance Highlights

For Q4 FY25, Cholamandalam Financial Holdings reported a gross direct premium of INR 2,029 crores, with a total Gross Written Premium (GWP) of INR 2,135 crores. For the full fiscal year 2025, the company achieved a gross direct premium of INR 8,124 crores and a GWP of INR 8,328 crores. This represents a growth rate of approximately 1.6x the industry average on a full GDPI basis. The comparable GWP for FY25, including premium received in advance, stood at over INR 8,578 crores.

Profitability and Efficiency Improvements

The company demonstrated improved profitability, with the Return on Equity (RoE) for FY25 reaching 18.5%. This figure includes a one-time income of INR 54 crores from recoveries of written-off investments. The combined ratio for FY25, excluding the 1/N effect, improved to 107.85% from 109.9% in the previous year. The Expense of Management (EOM) for FY25, also excluding the 1/N effect, was 32.18%, which is below the regulatory glide path. The claims ratio for the year stood at 73.3%, a slight improvement from 73.7% in the prior year.

Investment Performance and Capital Position

The company's investment corpus successfully crossed the INR 18,000 crore mark. Profit Before Tax (PBT) for Q4 FY25 was INR 195 crores, and for the full year FY25, it was INR 680 crores, both including the INR 54 crores one-time recovery. The net worth of Chola MS nudged the INR 3,000 crore mark, with 85% of this accumulated through earned profits over the years. The solvency ratio remains comfortable at 2.18x, indicating a strong capital position.

Motor Business Dynamics and Strategic Initiatives

In the motor segment, which is the principal line of business, the company maintained a market share of 5.5%. The motor portfolio composition includes 42% in cars, 43% in commercial vehicles, and 15% in 2-wheelers, with 27% of total motor premium derived from new vehicles. The Motor OD Loss Ratio (LR) for Q4 FY25 improved to 72.5% from 75.4% in the previous year. The company expanded its distribution by forging new OEM relationships, large financial partnerships, and strengthening its agency network, reaching over 168,000 gram panchayats and adding 5.2 million customers.

Technology Spend and Future Outlook

Cholamandalam Financial Holdings invested INR 117 crores in technology spend during FY25, an increase from INR 91 crores in the corresponding period, to augment its digital capabilities. This investment supports the transition from legacy ERP systems and digitization efforts aimed at improving efficiencies and convenience for channel partners and employees. Management expects these initiatives to contribute to future operational improvements and combined ratio reduction.

Regulatory and Listing Outlook

Management clarified that while there is a regulatory nudge for general insurance companies to list, Chola MS was not among the immediate companies called for discussion, expecting its turn in due course. The Board of the holding company will make an appropriate call regarding listing. The company also noted that the industry is awaiting potential Motor Third-Party price revisions from the government, which could further aid in improving the combined ratio, though the timing remains uncertain.

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