Summary
Cholamandalam Financial Holdings Limited - Q3 FY26 Earnings Call Summary Monday, February 09, 2026 2:00 PM
Event Participants
Executives 4 N. Ganesh (Manager & CFO - CFHL), Santosh Pandey (CFO - Chola MS), Sridharan Rangarajan (Non-Executive Director - CFHL), V. Suryanarayanan (MD - Chola MS)
Analysts 4 Manish Beria (Sasvat Vridhi LLP), Parth Jariwala (DAM Capital Advisors), Rachna (SCIL Ventures), Ravi Purohit (Securities Investments Management), Sanketh Godha (Avendus Spark)
Financials & KPIs (Chola MS General Insurance)
| Metric | Reported | Commentary |
|---|---|---|
| GDPI | ₹2,067 crores | Q3 figure; impacted by ₹84 crores loss in crop insurance due to retendering. |
| GWP | ₹2,338 crores | Q3 figure; includes ₹103 crores premium in advance on long-term non-motor and RI inward. |
| 9M GDPI | ₹5,714 crores | 9M cumulative; impacted by ₹467 crores decline in crop business following retender. |
| Combined Ratio | 116.2% | 9M actual; 113.0% excluding 1/n accounting effect, elevated by 305 bps due to TP reserving. |
| Claims Ratio | 81.1% | 9M figure; higher than previous year due to rising Motor OD and TP severity. |
| Motor TP Loss Ratio | 78.9% | Up from 71.3% YoY; reflects conservative “precautionary” step-up in reserving. |
| EOM | 30.63% | Measured on 1/n basis; 29.27% on full premium basis, lower than previous year’s 33.76%. |
| PBT (9M) | ₹346 crores | Absorbed ₹150 crores impact from TP-linked provisioning and ₹7 crores labor code gratuity. |
| Investment Corpus | ₹18,700+ crores | Includes MTM gains of ₹162 crores in debt and ₹294 crores in equity. |
| Solvency Ratio | 2.04x | Remains robust and well above the regulatory requirement as of Dec 2025. |
| ROE (9M) | 7.9% | Not annualized; significant decline from last year’s 18.3% due to claims and crop losses. |
Geographic & Segment Commentary
- Motor: Remains the principal line of business with a 5.25% market share. The mix consists of 38% Commercial Vehicles (CVs), 11% Two-wheelers, and 1% Cars. New vehicle sourcing contributed 25% of total motor premium in Q3.
- Crop Insurance: Significant drag on performance due to loss of business in the current tender cycle. GDPI declined by ₹467 crores in the 9M period, removing a segment that historically operated at a healthy 95% combined ratio.
- Two-Wheelers: Management has adopted a cautious “slow down” stance for new two-wheeler business. This is a strategic move to avoid long-term Third-Party (TP) liabilities (4-5 year policies) at current inadequate pricing levels.
Company-Specific & Strategic Commentary
- Conservative Reserving: Chola MS is providing 12-14% higher reserves for Motor TP compared to peers. Management noted this is a precautionary stance against rising severity and potential minimum wage hikes.
- Expense Management: The company has successfully moved toward its Expense of Management (EOM) glide path, reducing EOM to 29.3% (full premium basis) from 33.76% YoY.
- Asset Allocation: Equity as a percentage of the investment portfolio has doubled in less than two years to 6.7%. The medium-term target is to increase this to 10%.
- Product Mix Correction: Taking “rear guard action” to improve Motor OD loss ratios by 3-5% over the next two quarters through selective make-model and geographic sourcing.
Guidance & Outlook
| Metric | Guidance / Outlook | Commentary |
|---|---|---|
| Claims Ratio | ~77% - 77.5% | Target for next year, assuming OD improvements and re-entry into crop business. |
| Motor OD Loss Ratio | -300 to -500 bps | Expected improvement over next two quarters due to sourcing mix changes. |
| Crop Insurance | Re-entry (Next Year) | Participation in new 3-year tender cycle expected to restore profitability. |
| ROE | 16% - 18% | Long-term medium-term target under iGAAP framework; expected to be higher under IFRS. |
Risks & Constraints
| Risk | Context |
|---|---|
| Motor TP Pricing | Continued absence of TP premium hikes for 4 years remains a major industry overhang, affecting long-tail liability profitability. |
| Competitive Intensity | High competition in Motor OD (particularly cars) is driving loss ratios 6-9% higher across the industry. |
| Regulatory Uncertainty | Significant differences between iGAAP (statutory) and IndAS (holding company) reporting create volatility in perceived returns. |
Q&A Highlights
Loss Ratio Drivers
- Question: What led to the sharp increase in loss ratios and decline in ROE? (Rachna)
- Answer: Motor OD loss ratios rose 8-9%; additionally, the loss of the high-margin crop business (₹467 crore GDPI impact) and a ₹150 crore step-up in Motor TP provisioning were the primary drivers. (V. Suryanarayanan)
Motor Strategic Stance
- Question: Why is the company scaling down the two-wheeler business? (Sanketh Godha)
- Answer: TP pricing is currently inadequate for 4-5 year risks. Writing this business now creates an unacceptable liability for the future given rising claim severities. (V. Suryanarayanan)
Accounting Divergence
- Question: Why is there a difference between Chola MS PBT (₹79 Cr) and CFHL’s reported segment PBT (₹123 Cr)? (Rachna)
- Answer: Chola MS reports under iGAAP (statutory), while CFHL uses IndAS. IndAS includes MTM gains on equity in the P&L, which iGAAP does not. (Santosh Pandey)
Future Profitability
- Question: Can the loss ratio return to 77% levels? (Sanketh Godha)
- Answer: Yes, if the company wins new crop tenders (typically 95% combined ratio) and achieves the expected 4-5% delta improvement in Motor OD through sourcing corrections. (V. Suryanarayanan)
Key Takeaway
Chola MS saw a challenging Q3 FY26, characterized by a compressed 9M ROE of 8.2% and an elevated combined ratio of 113% (excl. 1/n). Performance was weighed down by a significant ₹150 crore increase in conservative Motor TP provisioning and the loss of ₹467 crore in high-margin crop business GDPI. Strategically, the company is prioritizing balance sheet strength over growth by stepping up reserves and pruning the long-term two-wheeler book due to inadequate pricing. Management expects a turnaround in FY27, driven by re-entry into the national crop insurance tender and a 300-500 bps improvement in Motor OD ratios through sourcing changes. Despite current pressures, the company remains well-capitalized with a 2.04x solvency ratio and expects to eventually trend back toward its 16-18% ROE target as provisioning stabilizes.
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