Cholamandalam Investment Management Defends Against Governance Allegations
Cholamandalam Investment management has provided comprehensive clarifications against recent governance allegations, with Arul Selvan D stating the claims lack consistency and ignore regulatory evolution. The company explained insurance transaction rationales, executive compensation practices, and group service arrangements while maintaining strong financial metrics and positive brokerage ratings.
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Cholamandalam Investment and Finance Company has mounted a comprehensive defense against recent governance allegations, with management providing detailed clarifications on various concerns raised. The company's proactive response helped calm market nerves, with shares gaining 6.4% to close at ₹1,680.60 on the BSE.
Management Calls Allegations Inconsistent and Context-Free
Speaking during an analyst call, Arul Selvan D from Cholamandalam Investment strongly pushed back against the allegations, stating they lack consistency and ignore the regulatory framework that existed at the time. "There is no consistency in the way these allegations have been approached. Different years have been selectively used to inflate numbers and portray a larger issue, without recognising that laws on related-party disclosures have evolved over time," he explained.
The management emphasized that all disclosures and transactions were carried out strictly in line with the laws prevailing then, and that judging past actions using today's norms creates a misleading impression. "At every point, the company ensured compliance with the law prevailing then. Applying current disclosure norms retrospectively and saying things were not disclosed earlier is completely incorrect," Arul Selvan D added.
Insurance Transaction Clarifications
Addressing allegations of fund diversion through insurance transactions, including the ₹3,040.00 crore transfer from Cholamandalam MS General Insurance to other Murugappa Group entities, management explained the business rationale behind these arrangements:
| Transaction Details | Explanation |
|---|---|
| Insurance Business Model | Group policy offering insurance at lower costs to borrowers |
| Customer Base | Largely 'earn-and-pay' customers requiring protection |
| Coverage Types | Motor, health and life insurance for emergencies |
| Commission Structure | Normal business practice with commissions paid back to Chola |
| Current Structure | Chola now direct insurance agent due to IRDAI regulations |
"Insurance ensures that the borrower's family is not burdened with loan repayments during emergencies. Even a one-month disruption in income can make it difficult for customers to pay EMIs, and medical insurance helps them manage such situations," Arul Selvan D explained.
Executive Compensation and Family Member Payments
Responding to allegations of excessive payments to family members and key managerial personnel, management clarified that promoter family members hold active executive positions. "Most family members hold executive positions and are deeply involved in day-to-day business operations. They are not non-executive promoters. Their contribution is visible, and compensation is aligned with industry standards," he stated.
The company emphasized that all remuneration follows due process, with salaries and commissions approved by the board and shareholders and benchmarked to industry practices.
Murugappa Management Services Payments Explained
Regarding concerns around payments made to Murugappa Management Services, management explained these related to an earlier group-level governance structure. "At the group level, we earlier had a corporate board with internal and external experts overseeing finance, HR and IT to ensure common practices across companies," Arul Selvan D clarified.
He added that from FY22, the group was reorganised into three verticals due to the scale of operations, and as each vertical built its own management framework, costs paid to Murugappa Management Services reduced significantly.
Strong Financial Position Reaffirmed
The company continues to emphasize its robust financial metrics and operational performance:
| Financial Metric | Value | Details |
|---|---|---|
| Cash and Bank Balances | ₹14,900.00 crore | As of November 30 |
| Capital Adequacy Ratio | 19.79% | Well above 15% statutory requirement |
| Tier I Capital | 14.53% | Above 10% statutory requirement |
| Net Worth | ₹26,783.00 crore | Increase of over ₹3,000.00 crore |
In a comprehensive regulatory filing, the company categorically stated there has been no revision to its earlier guidance and that it will continue to deliver as per its board-approved business plan. All payments to board members and senior management have been made in compliance with applicable law and fully disclosed to shareholders.
Brokerage Firms Maintain Positive Outlook
Despite the allegations, major brokerages continue to maintain positive ratings on the stock. Motilal Oswal reiterated its 'Buy' rating with a target price of ₹2,000.00, while Morgan Stanley maintained an 'Equal-weight' rating with a target price of ₹1,540.00. Jefferies sustained its 'Buy' rating with a target price of ₹1,980.00, stating that governance-related allegations appear misplaced.
Concluding his response, Arul Selvan D expressed disappointment that the allegations were raised without engagement. "These issues could have been clarified through discussion. Instead, conclusions were drawn without understanding the full context, creating an unnecessary controversy."
Historical Stock Returns for Cholamandalam Investment
| 1 Day | 5 Days | 1 Month | 6 Months | 1 Year | 5 Years |
|---|---|---|---|---|---|
| +1.15% | +1.45% | +2.79% | +6.21% | +43.22% | +351.12% |
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