CIE Automotive India Limited (532756) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Mahindra CIE Q2 CY '20 Earnings Conference Call hosted by ICICI Securities. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Nishant Vass from ICICI Securities. Thank you, and over to you, sir.

Thanks, Rio. Good day, everyone, and thanks for joining us today for the call. From the management side, we are represented by Mr. Ander Arenaza Alvarez, the CEO; Mr. K. Jayaprakash, the CFO; Mr. Vikas Sinha, Senior Vice President, Strategy; and Mr. Oroitz Lafuente, Chief Business Controller. Now I would like to hand over the call to the management for their initial remarks. Over to you, sir.

Yes. This is Vikas. Good afternoon, everyone, and good morning to those who are joining from Europe. I welcome all of you on this call as also Ander, our CEO. Thank you for being with us in these trying times of the COVID-19 crisis. I hope and wish that all your loved ones are taking care and are safe. At the outset, let us give you a quick update on the COVID situation at our plants. Europe, by and large, has stabilized and normalcy is fast returning. In India, the pandemic continues to rise, and we have had approximately 40 cases in our plant. Most cases are mild, and many have recovered and come back to work. But we have also had a sad fatality at our plant in Bengaluru. The entire CIE and MCIE family stands together in offering our heartfelt condolences to the grieved family. MCIE has drafted protocols regarding safe running of plants in adherence with the post-COVID-19 guidelines issued by relevant authorities in the geographies in which we operate. All plants have implemented safety and hygiene protocols, like wearing of face masks, physical distancing norms and workplace sanitation to make sure that the health of our personnel is ensured. Continuous awareness of these protocols among employees is being carried out. The protocols are being reviewed regular and updated based on revisions and guidelines received from local authorities. We have had these protocols audited by a third-party to ensure that gaps are closed. Our crisis management group to handle the pandemic has been constituted at each plant to review the situation and react as warranted. We are also trying to ensure that personnel at our Indian plant feel safe. We have tied up with hospitals and ambulance services and then panel doctors on a 24/7 helpline to help answer queries. All cases have been reported to local authorities, and they have been satisfied with the response. Due to these actions, all plants are functioning normally. Before we talk about the results, let me state that Q2 C '20 has been the most difficult quarter in the history of MCIE. Given the fact that the pandemic situation continues, especially in India, we are faced with a lot of uncertainty going forward. At the same time, the demand recovery in June and July has been better than envisaged and this will have a positive impact on our future results. Let us now go through the results. On Page 3 of the presentation, we can see that over this quarter, CIE's stake in MCIE has increased to 58.02% from the earlier holding of 56.2% and reiterate our parent CIE's faith in MCIE. We start with Q2 C '20 results for India on Page 4. Sales dropped by 73% year-on-year and EBITDA was negative at minus 12.8%. In this quarter, the sales dropped to below breakeven point as April and May were heavily affected by the lockdown. The restructuring actions have already been implemented to reduce our breakeven levels at all plants. Sales in June have already recovered better than our expectations, and we did make a positive EBIT in the month of June. There are 2 points that need to be highlighted regarding MCIE India's Q2 C '20 results, one pertaining to Bill Forge Mexico, which is part of the India results and the other 2 Aurangabad Electricals Limited. During the quarter, the management has reassessed the functional currency of its subsidiary Bill Forge Mexico and exchange rate to U.S. dollars from January 1, 2020, in accordance with Ind AS 21, the effects of changes in foreign exchange rates. Due to this change, the loan from group company in USD, which was restated into Mexican peso as at March 31, 2020, resulting in foreign currency loss of INR 418 million for the group for the quarter ended March 31, 2020, has been reversed with the changes effective from January 1, 2020, resulting in the revision of the March 31, 2020. That's the first point. The second point regarding AEL, pursuant to the receipt of eligibility certificate under Maharashtra Government Package Scheme of Incentive 2013, the PSI-2013 scheme by AEL, the company has recognized grant income of INR 122 million for the quarter and 6 months ended June 30, 2020, in accordance with Ind AS requirement. This incentive is in the form of refund from the government of Maharashtra on actual VAT/SGST paid by the company from February 1, 2016, till date. The maximum limit of the incentive was INR 2,522 million and can be drawn up to 2023. On Page 5, we have the results for MCIE Europe for Q2 C '20. Here too, the lockdown has affected sales and was below breakeven for our business, sales fell 59% and EBITDA of minus 10.1%. Since the truck and off-road markets in Europe are experiencing a significant downturn, we are taking restructuring actions at Germany and Italy, which, respectively, cater to the truck and off-road market. The Q2 C '20 EBITDA for MCIE Europe is depressed by about INR 344 million on account of this restructuring cost. However, in the month of June, we were able to generate a positive EBITDA if restructuring costs were excluded. And now if we go to Page 6, we'll see the consolidated Q2 C '20 results, which are a combination of the India and Europe results explained earlier. Sales dropped by 65% year-on-year to INR 7,113 million at a negative EBITDA of minus 11%. On Page 7, we have the H1 C '20 results for MCIE India. There has been a 41% drop in sales vis-à-vis first half of C '19. The EBITDA was positive at 6.5%, and EBIT was negative at minus 0.9%. The results are due to the double impact of BS-VI transition-related uncertainty in Q1 and the COVID situation in Q2. As mentioned earlier, we have undertaken restructuring activities during Q2, and we are expecting that this will have a positive impact. On Page 8, we have the H1 C '20 MCIE Europe results. Sales fell 45% year-on-year to INR 13,184 million, but EBITDA was overall positive at 3.3% and a negative EBIT at minus 1.2%. In Europe as well, the difficult market conditions were further confounded by the COVID crisis. Again, as mentioned earlier, restructuring actions have been taken, and we are happy to state that the EBT, excluding restructuring cost, is positive. On Page 9, we present the consolidated H1 C '20 results of MCIE in H1 C '20 and CIE sales dropped 44% year-on-year to INR 23,147 million at an EBITDA of 4.7% and an EBIT of minus 1.1% with an EBT of minus 2.6%. We then move on to Page 11, where we have the balance sheet position for the half year ended 30th June 2020. The ratios have been badly affected by the ongoing crisis, but we should highlight that our net financial debt-to-EBITDA remains under control at 2.7. On Page 12, you will see the cash flow situation as of 30th June 2020. Net financial debt has increased to INR 14,541 million, largely due to currency ForEx exchange fluctuations between euro and INR, which -- there's an impact of INR 840 million, which is included in others. There is also an Ind AS 16 debt impact. Without these 2 impacts, the net financial debt would have been stable despite the negative business environment, and the ratio of debt-to-EBITDA would be even healthy. On Page 13, we have tried to specify the strategy and actions that MCIE is taking during this time. A comprehensive program has been drawn up to improve profitability by emulating CIE's model of manufacturing excellence. We aim to grow significantly faster than the market and aim to profit from the opportunities that the crisis is throwing up, mainly resourcing from struggling suppliers and opportunities as OEMs derisk their China exposure. All teams have been tasked to acquire new customers and increase exports. Greater scrutiny of CapEx proposals will be made and new capital will be committed after trade deliberation. The immediate focus is to restore pre-COVID margins at all our verticals. In conclusion, we would like to repeat what we have stated in earlier conversations that every crisis is also an opportunity. We are looking inwards to improve ourselves by taking various measures focused on profitability improvement and making our businesses more competitive. And we are looking outwards, at the same time to continuously shore up our order book as we believe that the crisis will throw up any new opportunities. We assure all our stakeholders that MCIE continues to remain calm, optimistic and confident amidst all this turbulence. Thank you very much, and now we proceed to Q&A.

[Operator Instructions] The first question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services.

First thing, with respect to this incentive for Aurangabad Electrics (sic) [ Aurangabad Electricals ], is this for entirely for prior period? Or there's some portion pertaining to 1H CY '20?

JP, can I request you to take that?

Yes. Yes, sure. Jinesh, the large part, I would say, this is accumulation up to June '20 from 2016. So almost 90%, 95% will be pertaining to the previous period. And going forward, in the next 2 quarters, we can expect another INR 20 million, so that's the proportion you can make out for CY '20.

Okay. So CY '20 would be close to about INR 30-odd million, would that be fair to say?

Yes. Let's say, INR 40 million because we are expecting -- 18 into 2, INR 36 million is what you can take for CY '20.

Okay. Okay. Got it. Yes. And second question pertains to -- we have talked about growing ahead of the market. So what are the -- what gives you confidence in terms of -- can you talk about a few things which we are doing, which will lead to this faster growth than market in near to medium term and in the long term?

I'll request Ander to take that. But before he takes the question, let me say that confidence stems from the work that we have been doing since Ander took over in September 2016. I think his focus has always been to improve our plants to a level where we can be able to serve customers globally anyway. So that gives us the confidence. And therefore, we are going out, getting newer orders. There are enough queries that we are seeing. Of course, the situation is so uncertain that we don't know how much of the queries that were coming out of the resourcing opportunities or from China or from elsewhere will actually fructify, that will happen when things settle down. But our confidence stems from the fact that we are now like more sure of our plants' capabilities to be competitive. But with that, I'll leave Ander to answer the question.

Yes. As Vikas mentioned before, we think that this crisis situation is a good opportunity for companies like us, okay? Our perception is that we are a solid company. During all these years, we have been working on the internal efficiency, improving quality improvements and also the -- we have implemented all the standards of CIE manufacturing model in our verticals in India. So during all this period, we have improved a lot our reliability as a supplier. So what we are getting now is that we are being nominated, and we have been awarded with several projects for exports in the recent months. So we are quite optimistic on the growth of our [ export ] rate that we can be in -- about 10% to 15% of our production is to export. In the future, we will grow this percentage, and we are already getting new businesses, and we have been awarded with some big customers for Europe and from -- for U.S.A. So this is a fact. Also, we see that the problems within some of our competitors will bring us the consolidation in the market. So we are already getting some of the production from our distress competitors. And I think this is also an opportunity for -- to consolidate the market and to grow the business. And in this sense, we are receiving news every day. And yesterday, for example, we got some important business from one of our competitors for our aluminum company, AEL, Aurangabad Electricals. And we already launched all the activities to start the production of these components in 3 months, okay? We are talking about is not a big business, but we are talking about INR 350 million of turnover that will come immediately. So this is the environment. And on top of that, we have the Chinese import reduction. So we think that the production -- the localization of the production in India will be [ affect ] in the next months. We are already receiving certain businesses from our customers, for example, in the Gears division and also in the magnetic product division. So this is a factor that we are already -- that is already materialized and it's a reality. So with those expectations, together with the recovery of the market, we think that the next quarters, we will see an improvement in our margins. And our internal target, as Vikas mentioned, is to come back to the previous margins, the pre-COVID margins in -- by the end of the year or at least we'll say in a couple of quarters, we should be close to those margins, okay? So that is our expectation. That is our aim. I think the team is 100% motivated and committed to these figures and to these ratios. So we feel not comfortable because it's not the word. I mean we are worried because of the situation and the situation is tough for all of us because we need to accomplish all the restructuring jobs that we are doing in all the divisions, not only in Europe, but also in India, we are doing this restructuring job. But the expectations and the future, we think that can be good for all of us. So that's our task. That is our -- those are our targets of improving our margins and being able to consolidate the market in Mahindra CIE and be a winner after this crisis pass. So that is the general view that we have about the evolution of our company.

And lastly, with respect to CapEx, so any guidance on CapEx for India and Europe?

JP, can you take that?

Yes. So right now, I think on consol level, we have about INR 1.4 billion spent already, out of which a lot was already committed. So I think for the balance year, we can come at -- we would probably be able to restrict it INR 1 billion.

Yes. Regarding the CapEx in the last year, we have been, let's say, confirming -- or we have been executing the projects that we launched during 2019 and previously. So we decided to go on with all the committed investments with the customers, with the new projects, with the new plants that we are building a new plant in Hosur in Bill Forge. We are building also a new plant in Aurangabad. So we decided to continue with those already launched investments. Regarding the future CapEx in the last 3, 4 months, we have, of course, stopped the new -- let's say, new expenses. We decided to take care of the future. But we think that we -- the investments that we are doing now, they will pay dividend, they will bring us the required profitability in the midterm. So the company -- we continue with our growth strategy. And of course, let's say, with the most advanced technologies and automatization and efficient production lines, and that is our strategy, and we will keep this strategy even in this difficult time.

The next question is from the line of Sreemant Dudhoria from Unifi Capital.

Yes. Sir, question, again, on the Aurangabad Electricals, the incentive that we have fixed. So is the understanding right for CY '20 it is INR 36 million, and we will continue to get this incentive for the next few years?

Yes.

Yes. Correct.

Till what time period is this?

See the incentive gets accumulated up to 2023. It's a 7-year incentive. But the way it gets -- and it will come in, in terms of cash as the [ coupon apply ]. The GST that we pay, the SGST, the state GST that we pay, a maximum of INR 2.5 million is what we are entitled to. As of now -- sorry, are you able to hear me? Hello?

Hello? Sorry, I missed your statement last.

Okay. So I was saying, this is a 7-year incentive. So it started from 2016, it lapses after 2023. It is a refund of the state GST that AEL will pay during this period. As of now, we have an accrued receivable of about INR 1 billion. And it comes into the P&L through -- vis-à-vis the depreciation that you charge on the assets that were bought under this scheme?

Okay. Right. And you were saying the maximum incentive is capped at INR 2.5 million a year.

INR 2.5 million is what our eligibility certificate talks about -- over the 7 years, over the 7 years, okay?

Okay. Got it. Sir, secondly, so there was also this INR 34 crores of restructuring costs in Europe towards the restructuring. What was this related to? And how will this impact on the financials going forward?

Okay. This restructuring jobs mainly are coming from dismissals, okay? You know that in Europe, the cost of the layoffs is very high, and we set certain social plan, the name is -- we implemented a social plan. With this social plan, you agreed the layoff of certain people with according to certain parameters. And we have already executed the social plan in MCIE, in our plant in the south in GSA, and we already also implemented this social plan in Metalcastello, okay? The -- let's say, the amount of this INR 344 million are already accounted in our P&L in the month of June, and we will execute the layoffs during the next 2, 3 months, okay? And this is mainly the explanation of the restructuring costs. The impact of these layoffs, of course, will have a big reduction on approximately EUR 4 million per...

Per year.

Per year. Okay. This is EUR 4 million per year of cost reduction, thanks to this layoffs, okay? Of course, what we are doing, the main logic behind all these activities is that what we see is that the markets will have dropped in the last year not only because of the virus, but also because of the market cycle evolution, especially in the commercial vehicles and in the off-highway production products, I mean, the agriculture and big machinery. So what we did is, we reduced our breakeven levels with this cost -- fixed cost reduction, okay? That was the logic. So our aim is to get back to the previous margins despite the drop of the market.

Sure, sir. Is there more restructuring costs to come in the coming quarters? Or are we done with this?

Okay. We are now waiting on how the market will behave because we are not sure that the revamp of the market will come in the next months. But in Metalcastello, we have already done, we have finished the -- we don't see any more social plan or reductions. In GSA, we also finished the activities. Perhaps in the north of our plant in Schoneweiss, we can have additional layers to manage in the future. But right now, what we are now is -- preparing the plan, looking at the market and waiting to see if we need to accomplish additional layers, but focus only in the Schoneweiss plant. The rest of the plants are already finished.

Sure. That's helpful. So if you could comment on the current utilization levels, both in the India business as well as the Europe business?

Okay. The utilization levels are quite low, especially because of the virus impact, okay? You know that in April, the utilization level in India was close to 0 because we were in complete lockdown in our Indian plants. In May, we could be at 20% more or less, 20%, 25%. And in June, we are at 50%. So this is the growth that we have had in the last month. And in the next -- future, we can foresee and according to our customer demand, we will see more growth in the next quarters, okay? But you can consider that we can be at 50% in this moment in India. And regarding Europe, the impact of the virus has been a little bit less than in India. And in April, we were at 20%, 25% of capacity utilization, in May at 40% more or less. And in June, we can consider 55% to 60%, okay? So that has been the evolution in Europe. And we expect to have, in the next quarter, an utilization of 65%, 70%, that could be the near future.

In Europe, 65% to 70% Europe?

Yes. Also in India. I mean not clear, but this 65%, 70% can be the evolution and the forecast for the next quarters -- next quarter, sorry, according to our customer demand. What is -- we are not -- also we cannot commit to any figure on that because we see a big volatility. And of course, this additional lockdown that's happened in India perhaps can reduce the turnover in the next months. But in Europe, it seems that the situation is recovering fast. And yes, we are now above the breakeven level, so we are now in a positive EBITDAs and touching the positive EBITDA. So let's say that the evolution is promising.

Sure, sir. Sir, in the previous quarter's conference call, you highlighted about the incentive from the European governments towards the labor cost. How much was that number in the quarter 2?

Okay. The incentives that we are getting in the European countries, I mean, it varies from the different countries. But in Italy, for example, what we have is the kind of Cassa Integrazione is the name of the program. And this gives you the -- saves approximately 80% of the total cost of the people, that is -- of the labor. That is the reduction that is given in Italy. Of course, we are not applying to 100% of the people because we are right now at a production rate of approximately 50%. So we have, in Italy, approximately 120 people in Cassa Integrazione, okay? Oroitz is now calculating the amount and give you some figures in 1 minute, okay? And regarding Germany. In Germany, we have the Kurzarbeit. And this is also similar program than Cassa Integrazione in Italy. And in this program, the saving for the company is approximately 70% of the total cost of the employee, okay? So we pay 30% -- the company pays 30% and the state pays 70%. So we have applied this in April and May. In June, we have reduced a lot because now we are preparing the stocks and we are making the production for the summertime. So the benefit we took is a little bit less than the previous months. But that is the amount that you can have. I mean something like -- Oroitz?

Yes, yes, one minute.

Okay. He's now calculating to give you the accurate figure, okay?

Sure, sir. Sure, sir. Sir, lastly, you talked about the opportunity from the import substitution of products from China. In our product profile, what is the opportunity size that we are looking at? And how quick we could kind of capture this opportunity?

Yes. Okay. We have different situations in each vertical, okay? But for example, as I mentioned before, in the Gears division, our customers, they are buying a lot of gears in China. Now they are moving some of them to India. So this localization is a fact. And we can have a growth of the -- our Gears division of 5% to 10%, thanks to this movement, okay, this behavior of the market. And also in the magnets -- magnet business, in -- we are seeing that the biggest magnet production in the world is in China. Now in India, we are one of the key players, probably the biggest one in -- and we are getting additional orders from the customers. It's too early to give you the size because this movement is just happening now, and it's difficult to give you the size. But I think that another 5% to 10% growth in our magnet division is also feasible, thanks to this movement, okay? So those are the range of growth that we expect coming from that movement.

Sure, sir. Sir, lastly, if I could ask this question? You also talked about in-sourcing of products. Right now, how much is outsourced? And how much of additional revenues can we kind of capture by in-sourcing of products?

And we calculated the saving of the incentive in Europe, and this has been more or less EUR 4 million in the quarter in Q2.

EUR 4 million?

Yes. That's in Germany and in Italy, okay, both together.

Okay. Anything in India, sir?

No, not in India.

No. India, there is not any progress report from the government for this kind of things. It's only in Europe.

The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund.

My question is in Europe, so there have been a lot of subsidy schemes announced by the various governments, which are driving the battery electric vehicles and hybrid electric vehicle sales much higher. The -- I mean, the mix of these vehicles and the mix have also gone up 8% to 9%, and it is continuously increasing. Now given all this whole, may not be this quarter, but over the next few quarters, are we seeing any cuts in terms of the production volumes for our passenger vehicle forging division in Europe? Is there any trend that is emerging because of this? And generally, what is the outlook in Europe across different divisions?

Okay. Regarding the electrification or the growth of the electric vehicles, we think that with the subsidies, yes, it will be a sector that will grow. But you need to realize that the size of this electric vehicle business is very, very small, okay? So the impact will be small -- very, very small for us, okay? And on top of that, you know that in Europe, there is not yet any recharging infrastructure already in place. That means that the amount of electric vehicles that are sold are very, very low because there is no way to recharge the battery of the vehicle. So the last trend that we are now seeing is that the carmakers, they are moving now to the hybrid cars. And they are pushing for the hybrid cars with the plugging hybrid cars. And this trend is also very positive for us because they have the internal combustion engine and with all the transmission, plus the -- all the electrification of the car. So we think that this will be the trend in the next year. So answering your question, we don't see any negative impact in the next few years. And at least, it will take some years to -- the electric vehicle to be a threat to our business.

Understood, sir. And generally, the outlook in Europe across what are you seeing over the next couple of quarters in terms of passenger...

Okay. Yes. Okay. What we can expect is a recovery in the next quarters. And -- but the recovery will not -- we will not reach to the 2019 volume levels, at least in a couple of years, okay? So what we see in the next future is to a market at 75%, 80% of the 2019 volumes, that is the volumes we can see in the next 2, 3 quarters. And then in 2021, we can consider probably in Europe, 10% below 2019 figures. Those are the rough IHS' forecast. And we think that, that will be the reality in the market. And in India, we expect that the market to recover faster than in Europe, that's our expectation. Probably, we need to wait until the virus is gone. This is probably the key point in the Indian market. But once the virus -- let's say, we solved the virus issue whatever with the vaccine or with the different measures taken by the government and the society, probably, we will see the revamp in India. That's our expectation. And on top of that, we see that the -- as we think that this crisis will create some stress in certain competitors, there will be a consolidation in the market. So we expect to grow above the market, thanks to this consolidation that we think that will happen.

Sir, does this consolidation that you're talking about in Europe, sir, I mean, you did allude it even in the last call, so mostly in Europe?

Yes. In Europe, but also in India. We see that in India also. The consolidation, we think that, that will happen. This is a reality in this tough situation. In Europe, of course, because we are already perceiving this. And there's important movement from -- in our customers to move the production to the safer and solid and financially sound companies. And -- but in India, we think that it will happen also. And the stronger companies will be the winners in this crisis.

Right. Right. Sir, just one question on the restructuring. We have received this grant EUR 4 million for this quarter from the government. Now after receiving this grant, are we still free to layoff or retrench employees? Is that still allowed by the government?

Yes, yes. It is allowed. There is no limitation on that. I mean this is a temporary support that the governments are giving due to the virus situation. And they are -- those are standard programs in -- both in Germany, Italy, Spain. I mean most of the European countries, they have similar programs to support the companies when the market is down, okay? That's the -- and the point is that, of course, this support is there from the government. They give us the support to keep -- to maintain the employment, but as we see that there will be a structural reduction, and especially in Germany, what we see is a slight downsizing, we think that we need to make a structural movement. That's why we go for the restructuring activities.

The next question is from the line of [ Jay Daniel from Entropy Advisors. ]

Yes. Sir, I mean, the promoters have increased their stake in the last quarter. Will this be an ongoing exercise in the current quarter? And -- so I just wanted a clarification on that.

Okay. This is a shareholder issue with the CIE decision. But what I can explain to you is that the CIE decided to increase the share on the Mahindra CIE because they show that the value and the share price was not reflecting the real value of the company. So it's an opportunity for CIE to increase the share. That was the main reason behind. And if the value -- the share price continues in this value, probably, CIE will continue taking this opportunity.

So what you're saying is that CIE will continue at -- to take advantage of the opportunity provided by the current prices?

Yes. Let's say that -- of course, this is not my call to -- this is not -- I cannot disclose this information because this is CIE or shareholder issue, okay? But what I say is that probably and in these certain conditions, the CIE can continue with taking the opportunity to increase the share because CIE considers the real value of the company is higher than they are reflected in the share price, okay? That's my answer.

Okay. And where would -- I mean, what would be the target for CIE to take the -- to take its stake to? I mean from whatever level it is at the moment, where would it want the -- it's holding to increase to?

I don't know. I don't know if there is a target on that. I mean it's just an opportunity and increasing the share in the business because of the interest in evaluation of the company.

The next question is from the line of Priya Ranjan from Antique Limited.

Just on -- first on the Aurangabad Electricals' incentive. So if I remember correctly that we have to pay or we have already paid these incentive to the promoter group of Aurangabad Electricals. So whatever incentive we are getting, we had to pay -- I mean, I just want to understand, we have to pay to the promotors or we have already paid to them? Sir, hello?

Yes. Yes. So we need to pay -- it's only INR 600 million, and the payment will be done in August. [ That is from the fee ] that we collect. We don't need to pay anything else. The only contingent payment that was pending was INR 600 million.

Okay. So after getting -- receiving these incentives, do we have to pay those?

We need to pay only those INR 600 million. Nothing else. Nothing additional.

No. Priya Ranjan, it is not dependent on the cash flow. We had to pay in August. Since we have received eligibility certificate, the payout happens in August.

Okay. Okay. Okay. And secondly, on the -- I mean, earlier Shyam has actually asked this question on the electrification part in Europe. So I mean, after COVID, what we are seeing is that the government is incentivizing a lot to the electric side. So even Germany has run up a program of incentivizing the electric vehicle purchase. I think even U.K. is talking about that and France is also talking about. And so we have seen the market share of electric is moving up. So if suppose electric market share in overall passenger vehicle moves up by, say, around 10% in, say, by in '20 -- I mean 2021, so what can be the potential loss of business we can have, like, it can happen to us?

Okay. I mentioned before that we don't see a potential impact in our sales in the next few years, okay? What we consider is that, yes, there is a growth on the electric vehicles and there will be a growth because of subsidies and the support of the government programs. But the infrastructure is not yet ready in Europe. So we don't see that this will be a huge market in the near future. What we see is -- and when we talk about this 10% of the market, we are including -- or you are including the hybrid vehicles that they have been combustion engine and complete transmission. So this -- the pure battery electric vehicle will be less than 5%, okay? So we can consider that the maximum impact could be no more than 5% in our business. So in the next 2, 3, 4 years, we don't see a relevant impact in the -- in our business. Then, we need to see what will happen with the technology and how this will be managed by the governments, okay? The investment in the infrastructure, this is a huge investment to be done in the future in the different countries around the world. And in this moment of crisis and, let's say, when there is no -- the governments are with a huge deficit, I think it will be tough to -- for them to invest. So I think that the electrification will come, but it will come slower than expected.

Okay. And in terms of the business outlook for, say, Metalcastello, I think the European agriculture market was quite good this year. So how do you see -- I mean the off-highway, the Metalcastello, can it go back to the last year's number pretty quickly? Or I mean, it will take much longer? Because you already have taken some restructuring out there. So your outlook on market is a little benign compared to what we are seeing in terms of the agriculture market overall.

Yes. In Metalcastello, we have agriculture sector components, but we have mainly off-highway vehicles market, okay? And our main customer in Metalcastello is Caterpillar, and we devote more than 50% of our sales to the U.S.A. market, okay? So due to the current political situation in the U.S.A., where the elections are coming by the end of the year, in this period, there is no, let's say, expense and investments from the government. And after that, what we expect is that the revamp will come in 2021, 2022, okay? So that's our expectation. So we don't see -- we'll see probably a weak second semester or at least affected by the virus plus the market drop. And then the recovery and revamps to the previous figures will come in 2021 probably or even 2022.

And lastly, on the Mexico front, I mean, can you just update on what -- where are we, I mean, in terms of toppled run rate and in terms of profitability?

Yes. In terms of profitability, I already told you in the last conference call that the company is evolving positively. Of course, we have been affected by the virus and the lockdown. And right now, we are starting again the production at the reasonable levels, okay? Our expectation for the Mexican plant in the short term is, we need to recuperate from the virus impact. The internal efficiencies, quality, delivery and everything is under control, and the company now is performing well. So in that sense, I am quite happy. So once the market comes, I think we will see a good profitability and a profitable business there, okay? We are actively searching for new businesses. We have been already awarded for new businesses for different customer. So yes, we are developing the business. And I think that this virus crisis will delay a little bit the improvement of the company, but we will -- we are sure that we will fulfill the company in the next year, okay? So that's the expectation in Mexico is -- in Bill Forge Mexico is positive. And I think that we will see good figures in the near future.

[Operator Instructions] The next question is from Jigar Shroff from Financial Research.

Sir, at the end of Q1 conference call, you had mentioned that the consolidated fixed cost of MCIEs are about INR 100 crores per month. And sir, with all these various restructuring and cost-cutting and layoff for these exercises that you've undertaken, can you envisage or -- I mean give a guidance, I mean, how much have you been able to reduce the fixed costs, sir, to now per month?

Yes. Okay. Yes, you are right. We mentioned that, that figure of INR 1,000 crore per quarter of fixed cost. And it's true that now as we are above this rate in June, for example, that's why we set in -- we've put a note in the presentation saying that we were already in a positive EBITDAs in both India and Europe, okay? We have reduced our breakeven level approximately 10%. That is the approximate reduction that we have already done. That means that our breakeven should be at INR 900 crores. So that is the amount that we can consider right now. Of course, this value is moving every day and we are adjusting it. But my -- the other way of looking at this figure is that my expectation is to recuperate the margins despite the drop of 15% to 20% of the turnover that we can expect in the second semester, okay? That is the view that we have.

So you've reduced it from INR 100 crores per month to INR 90 crores per month?