CIE Automotive India Limited
7,055words
172turns
14analyst exchanges
6executives
Management on call
Ander Arenaza
CHIEF EXECUTIVE OFFICER - MAHINDRA CIE AUTOMOTIVE LIMITED
K. Jayaprakash
CHIEF FINANCIAL OFFICER - MAHINDRA CIE AUTOMOTIVE LIMITED
Vikas Sinha
SENIOR VICE PRESIDENT,
Oroitz Lafuente
CHIEF BUSINESS
Swapnil Soudagar
DEPUTY GENERAL MANAGER, STRATEGY, M&A, AND INVESTOR
Key numbers — 40 extracted
60.75%
egy CIE Automotive our parent continues to reaffirm its faith in MCIE by raising their stake from 60.75% equity to 63.44% during Q2 C2022. Now let us look at the Q2 C2022 results for MCIE India on pag
63.44%
e our parent continues to reaffirm its faith in MCIE by raising their stake from 60.75% equity to 63.44% during Q2 C2022. Now let us look at the Q2 C2022 results for MCIE India on page #7. Sales have
46%
2 C2022. Now let us look at the Q2 C2022 results for MCIE India on page #7. Sales have grown by 46% year-on-year compared to the same quarter last year Q2 C2021 and the sales figures in this quarte
12794 million
on-year compared to the same quarter last year Q2 C2021 and the sales figures in this quarter are 12794 million and this growth is much more than what our markets grew by. While uncertainties around the Indian
14.9%
ndia is expected to remain buoyant in the coming months. MCIE India EBITDA margin in Q2 C2022 was 14.9%, which is similar to 15.1% obtained in Q1 C2022 and higher than the 13.9% recorded in Q2 C2021. T
15.1%
buoyant in the coming months. MCIE India EBITDA margin in Q2 C2022 was 14.9%, which is similar to 15.1% obtained in Q1 C2022 and higher than the 13.9% recorded in Q2 C2021. The EBIT and EBT are at 11.1
13.9%
margin in Q2 C2022 was 14.9%, which is similar to 15.1% obtained in Q1 C2022 and higher than the 13.9% recorded in Q2 C2021. The EBIT and EBT are at 11.1% and 11.4% respectively in Q2 C2022. Despite h
11.1%
5.1% obtained in Q1 C2022 and higher than the 13.9% recorded in Q2 C2021. The EBIT and EBT are at 11.1% and 11.4% respectively in Q2 C2022. Despite headwinds like steel price increase, inflation and
11.4%
d in Q1 C2022 and higher than the 13.9% recorded in Q2 C2021. The EBIT and EBT are at 11.1% and 11.4% respectively in Q2 C2022. Despite headwinds like steel price increase, inflation and other costs
12816 million
E Europe. We have seen a growth in year-on-year sales compared to Q2 C2021 the sales figures been 12816 million and this is despite the underlying market dropping. The market sentiment in Europe remains uncert
9.1%
hese efforts and the efficiency measures applied MCIE Europe’s EBITDA margins which had fallen to 9.1% in Q4 C2021 rose to 10.2% in Q1 C2022 and has further increased to 11.6% in Q2 C2022. You can cle
10.2%
ency measures applied MCIE Europe’s EBITDA margins which had fallen to 9.1% in Q4 C2021 rose to 10.2% in Q1 C2022 and has further increased to 11.6% in Q2 C2022. You can clearly see m
Guidance — 20 items
“The market sentiment in Europe remains uncertain but we do expect a better second half that is H2 C2022 could be and hopefully would be better than H2 C2021 in terms of the market.”
“Just for the forex impact interest rate could be in that, if the interest cost will be in 120, 130 million per quarter range?”
“Of course we will be benefited by that and we hope that in the future, perhaps we could see even higher improvement.”
“We have yet not experienced a drop in raw material prices in India we do expect it to happen but right now in this quarter there is no effect on that.”
“So other operating revenue will be set effectively in this major part of the scrap sales?”
“Secondly just wanted your thoughts on how are you looking at the demand situation in India, EVs in I think tractors is doing quite well here on the M&HCV side we are seeing good momentum but what is your view on the two-wheeler side what are you hearing from your customers and what is the outlook going forward here?”
“We expect the second half to be better than the first half of the year and it is true that the demand and the EDIs let us say the order that we have there.”
“The order book that we have in our shipments now shows a big increase and we are receiving those orders in July, August, September, but what I told also is that perhaps these orders will not be executed and the reality will be milder than they are now planning so we are cautious of what can happen in the European market, we got there a lot of uncertainties in front of us but the message from our customers is from all of them it is a general view is quite optimistic so let us see.”
“Bharat Bhai in terms of forecasts and since it is public we can tell you the IHS forecast for H2 is roughly 8.3 million units production compared to 7.6 in H1 so that is roughly a 9% increase over H1, but as Ander pointed out given the gas situation especially in Germany which is our main production area for the European light vehicles, the reality can be very different from any of these forecasts.”
“Yes, H2 is normally five months or even less than five months it is basically four months and three weeks even after that, that is the forecast as of now, but as Ander has repeatedly pointed out let us take it with a grain of salt not even a pinch of salt a grain of salt.”
Risks & concerns — 8 flagged
The market sentiment in Europe remains uncertain but we do expect a better second half that is H2 C2022 could be and hopefully would be better than H2 C2021 in terms of the market.
— Vikas Sinha
Operative cash flows have been robust despite having to carry more RM inventory due to uncertain steel availability in certain categories and this is required to maintain continuous production and no customer delivery disruptions.
— Vikas Sinha
Our German business is struggling because of the inflation plus the energy cost increase and of course it was difficult time before the crisis and the inflation came now the situation is also really, really tough.
— Ander Arenaza
The order book that we have in our shipments now shows a big increase and we are receiving those orders in July, August, September, but what I told also is that perhaps these orders will not be executed and the reality will be milder than they are now planning so we are cautious of what can happen in the European market, we got there a lot of uncertainties in front of us but the message from our customers is from all of them it is a general view is quite optimistic so let us see.
— Ander Arenaza
So I had a question on the Europe business so adjusting for the forex and the RM prices like Ander mentioned that we have seen a 10% growth and when we are looking at the production numbers in the Europe there has been a decline in this quarter and for the first half as well so just wanted to understand what is leading to this market share gain for us and do we anticipate this outperformance continue and what kind of then growth should we expect in the Europe business?
— Nemish Shah
Second reason is in our tractor business in Spain and our passenger vehicle forgings we are seeing also a certain increase in market share probably because some of our competitors are having more difficulties or let us say the market is moving due to the difficult situation in European countries so that is what we see it and probably because of our product mix we have been benefited by that so we cannot see a single course for this improvement those are the main drivers.
— Ander Arenaza
We have one cash generating unit which is considered full part of Europe and also we can move parts and projects around our Spanish plants and German plants so again we will make the testing, for goodwill based on the cash generating unit and we keep doing this testing regularly and up till now we do not have any signal or any update after that we should make any kind of impairment so for the moment we do not see any risk on that part.
— Oroitz Lafuente
I just wanted to say that in a very difficult market scenario what company has shown and has good results and shown its resiliency and we expect to mahindra C/E continue improving our results in the next quarter.
— Ander Arenaza
Q&A — 14 exchanges
Q
Hi! Congrats on good numbers. Couple of questions from my side personally on the European business if you can share the revenue breakup with respect to on constant currency basis and also if you can share what was the benefit of RM cost on the revenue growth part?
Vikas Sinha
Revenue in euro terms and what was the effect of steel. The revenue in Euros was 7% higher than they reflected in INR as the exchange rate has changed from €1 Rs.88 to 81-82 so there is a 7% loss in IRS in sales and regarding the raw material impact is approximately 15% in the sales so 15% of the growth is coming from the raw material. If we actually adjust from these two factors then European growth was almost at about 14% would that be the right way to look at it? Yes. We could consider that about our real growth in let us say in constant raw material and constant exchange rate would be appr
Q
My question is what is the 225 Crores inter-corporate loan in the cash flow?
K. Jayaprakash
255. You are talking about the 2.25 Crores outflow in the cash flows as you know like our inter- corporate loan that you seem to have given. This is basically Europe has seen a very good cash flow this first half and almost €28 to €30 million in cash flows and whatever surplus we get in paying it back within the growth, so at an interest rate of about 1%, 1.5%. Is it within CIE the inter-corporate loan? mahindra C/E No, it is within CIE Automotive. Like any duration of this… See this is basically cash pooling so like we explained in the last related party approval we are taking this is a loan
Q
Thanks for taking my question. My first question was on the operating income. So Europe if I see the operating income it has increased quite sharply so even in Euro terms if I look at it the operating income is almost double Y-o-Y so can you just talk about what is its share and what is driving this increase?
Vikas Sinha
When you say operating income you refer to EBIT? mahindra C/E No, I am talking about the other operating revenue sorry. So you are talking about slide #17 right? Yes, that is correct. Slide #17 we have Europe other operating revenue is 953 for H1 C2022 and 737 for Q2 C2022 right that is the number you are referring to. Correct. Sorry but the insurance claims are they sitting in other operating income or in other income. It’s in other income. So other operating revenue will be set effectively in this major part of the scrap sales? Yes, in the other operating income the major amount is effective
Q
Hi! Congratulations Ander and Vikas and JP on the good performance. My question for this Ander when you say that Q3, Q4 we are anticipating a much better demand and much better growth so this is Y-o-Y or we are talking of H1 to H2?
Ander Arenaza
It is H2 versus H1. We expect the second half to be better than the first half of the year and it is true that the demand and the EDIs let us say the order that we have there. The order book that we have in our shipments now shows a big increase and we are receiving those orders in July, August, September, but what I told also is that perhaps these orders will not be executed and the reality will be milder than they are now planning so we are cautious of what can happen in the European market, we got there a lot of uncertainties in front of us but the message from our customers is from all of
Q
Thanks for the opportunity and congratulations on good set of numbers. So I had a question on the Europe business so adjusting for the forex and the RM prices like Ander mentioned that we have seen a 10% growth and when we are looking at the production numbers in the Europe there has been a decline in this quarter and for the first half as well so just wanted to understand what is leading to this market share gain for us and do we anticipate this outperformance continue and what kind of then growth should we expect in the Europe business? mahindra C/E
Ander Arenaza
What we see is that our market share has increased interest on customers in some of our business, one of the increases is happening in Metalcastello as we explained because the business is growing importantly that is one of the reasons. Second reason is in our tractor business in Spain and our passenger vehicle forgings we are seeing also a certain increase in market share probably because some of our competitors are having more difficulties or let us say the market is moving due to the difficult situation in European countries so that is what we see it and probably because of our product mix
Q
Hi! Couple of questions, one is on the India business any indication of what is the benefit of commodity cost inflation on the topline?
Oroitz Lafuente
It is approximately 10%. Second question pertains to the sunroof systems which CIE Automotive has in their portfolio so is there plan to launch that in India through the listed entity or that will be through unlisted entity or it will come separately? That is a different business that CIE bought to and is managing from a different country, and this is mainly directed from China so this business will be directed by CIE directly. Got it. Thanks and all the best.
Q
Thanks for taking my question again. So just taking forward the market share gain point that you talked about in Europe just wanted to understand for the products that we are present in Europe how is the competition like is there a decent enough chunk of the small players and is it fragmented, why I am saying that is because in this current kind of cost situation maybe some of the larger players are better placed and that is driving market share so do you see enough headroom for you to gain market share with all these small players kind of going up?
Ander Arenaza
Yes, probably we will be benefited the stronger players will benefit from the consolidation of the market this is something that we are forecasting since several months so that is probably one of the reasons of our growth or our market share increase in the last quarter mahindra C/E and yes that is a reality probably this consolidation will happen especially if the higher price situation continues in this moment. Secondly given that power and energy cost has such a higher proportion or an important cost item for businesses that we are in again given the kind of cost increase that you have seen
Q
I wanted to know is the EV industry is expanding can we get a number is what is the order book in hand for CY2023 and if we have seen a major development in the Tamil Nadu plant as the company has incorporated so how is the company planning for the capex of that plant?
Vikas Sinha
Two questions you are asking if I may repeat one you are asking is what is the EV order book in India so we had indicated in our year ending call of C2021 that we were talking in the range of roughly 400 to 600 Crores in India at that time so if you refer to our transcripts of that period of that time. As of now we do not have a figure we will again come back with the same number towards the end of the year but what we can say is that our presence in the EV order book is we are quite comfortable with whatever is happening especially we have two businesses which have a significant two-wheeler p
Q
Thanks for the opportunity again. So all this capex what we are doing at Hosur and even Rajkot so can you give some color which are the product lines that we are expanding and in future also the larger capex will be on what kind of a product line?
Vikas Sinha
This everything is in India. Hosur is whole set of products both for domestic and export customers, Rajkot again it is because of the expansion of our existing customers. Which are the major products in Rajkot? Rajkot we have gears and shafts the same product line that exist today and then Aurangabad electricals again a new plant we are making again for our existing customers but non-Bajaj. So there are other areas also we are making investment, we made investment for warm forgings in Chakan, forgings Chakan and we are making investments in our magnetics division so magnetics division will be
Q
Just wanted to clarify which was asked earlier so from the India business on a sequential basis what is the benefit of the raw material increase in the sales?
Ander Arenaza
On sequential it is negligible it is like 1%, 2%. mahindra C/E On the capex that you mentioned what is the sort of incremental revenue that we can expect in the next calendar year? Again we would not be able to give that exact number for the capex but we have an internal rule of meeting a minimum return on investments for every capex so if the market situation is right then we should definitely get good returns out of the new capex. We look it in terms of asset turnovers as well? No we look it in terms of ROI of course asset turnover is an integral part of that so yes so there are various leve
Q
I just wanted a followup to my previous question so how much is our loan to CIE total amount as of Q1 ended?
K. Jayaprakash
€40 million. Have we taken any loan from them also some other company or something? Our Mexico loan is from them and in Germany also we have taken loan from them. How much money have we taken from them and how much do we owe them can you just give that number for 40 million and this side? This side it will be close to about both put together under 80 million taken from them. mahindra C/E Secondly like we discussed that the German business is not doing well so is there any goodwill over there we could consider writing off or impairing? We have goodwill of course there but that is an annual chec
Q
Thanks again. On the German business what are our plans sort of turning around the business or restructuring the business or bringing it to a part of sustained profitability if you could throw some light?
Ander Arenaza
You know that in our German plants we have been struggling since several years and we have been doing let us say all the restructuring activities and included that during the last year despite the negative environment with a very low sales and with cost increase we have been able to keep the company without losing money so that was the result of all these activities. Unfortunately right now we are in front of additional difficulty coming from the energy plus the huge inflation that we are facing and we are attacking that once I am mahindra C/E looking for internal improvement in terms of effic
Q
This is Mohammed Patel. My first question is what percentage of sales in Q1 FY2023 or only ICE related products?
Vikas Sinha
No that would be a majority of that, 90% plus in Q1 2023 just think of it this way in India EVs I think in two-wheeler segment I think EV penetration in Q2 2022 was about 4% actually little less than 4%, 3.5%, 3.7%, in cars it was negligible maybe 0.5%, 0.6%, in three-wheelers which is a very small segment it was decent enough, and in Europe this number of battery electric vehicles we are not talking hybrids because as was explained earlier hybrid has both the power trains so pure battery electric vehicles in Europe is roughly about 8%, 9% in Q2 C2022 or Q1 F2023 that you said. So right now th
Q
As always thank you all of you for your participation and for the good questions well directed questions. I just wanted to say that in a very difficult market scenario what company has shown and has good results and shown its resiliency and we expect to mahindra C/E continue improving our results in the next quarter. It is true that there are certain uncertainties coming from the volatility and the potential problems that could happen in Europe due to the war in Ukraine, but we are quite optimistic and we expect that the next quarter it will be much better. So I just want to thank you all the
Opening remarks
Vikas Sinha
Thanks. This is Vikas. Good evening everyone, it is a bit late today, our apologies, but there are constraints for us and we are grateful you could join. We start with an overview of the legal structure of MCIE on page #5 of our investor presentation that has been uploaded on the website. Here we see that in line with stated strategy CIE Automotive our parent continues to reaffirm its faith in MCIE by raising their stake from 60.75% equity to 63.44% during Q2 C2022. Now let us look at the Q2 C2022 results for MCIE India on page #7. Sales have grown by 46% year-on-year compared to the same quarter last year Q2 C2021 and the sales figures in this quarter are 12794 million and this growth is much more than what our markets grew by. While uncertainties around the Indian economy arising out of global factors remain the auto industry in India is expected to remain buoyant in the coming months. MCIE India EBITDA margin in Q2 C2022 was 14.9%, which is similar to 15.1% obtained in Q1 C2022 and