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

Ladies and gentlemen, good day and welcome to Mahindra CIE Q1 CY '21 Earnings Conference Call hosted by ICICI Securities Limited [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, Nirav. Good day, everyone, and thanks for joining us today for this call. From the management side, we are represented by Mr. Ander Arenaza Álvarez, the CEO; Mr. K. Jayaprakash, the CFO; Mr. Vikas Sinha, Senior Vice President, Strategy; and Mr. Oroitz Lafuente, Business Controller. Now I would like to hand over the call to the management for their initial remarks. Over to you, sir.

Yes, hi. 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 Arenaza, our CEO. As the second wave of the COVID pandemic grows through our country, we are all in a somber mood, and we thank you for being with us in these trying times. I hope and wish that all your loved ones are taking care and are safe. Let us now start with MCIE results for Q1 C '21. We'll jump straight to Page 7. MCIE India results for Q1 C '21 are on Page 7. We can see that in this quarter, we have continued with the trend of sales and margin improvement from Q4 C '20. Sales is 41% higher on a year-on-year basis compared to Q1 C '20. We are also happy to report that in this quarter, we have not only exceeded the target of 15% EBITDA, but we have also improved on our Q4 C '20 performance. The EBT is INR 1,116 million in this quarter. And in percentage terms is above 10%. All our verticals are doing well, and the focus continues on improving efficiency and customer satisfaction. MCIE Europe results for Q1 C '21 are shown on Page 8. The sales have steadily recovered. EBITDA is almost at 30 -- is at 13.9%, which is higher by 3.4% compared to Q1 C '20 and 2% higher than Q4 C '20. Q1 C '21 EBT is INR 922 million at 8.9%. We also have positive expectations for the second half of this year. And now if we go to Page 9, we will see the consolidated results, which are a combination of the evolution in both India and Europe. MCIE on a consolidated basis has achieved a sales in Q1 C '21 of INR 20,863 million, 30% higher compared to Q1 C '20 and 12% higher than Q4 C '20. We have delivered EBITDA of 14.7% and an EBT of 9.8%. In absolute terms, EBT on a consolidated basis for Q1 C '21 is INR 2,037 million or INR 203 crore. All of these numbers are a result of the work MCIE management has done on reducing the breakeven point and other improvement activities undertaken during the preceding year of 2020. On Page 11, we have a special mention on the adjustments that we have done based on the tax amendments introduced in India via the Finance Act of 2021, the budget of 2021. Goodwill of our business will not be considered as a depreciable asset and depreciation of goodwill will not be allowed as deductible expenditure effective April 1, 2020. In accordance with the requirements of IND AS, we've recognized a onetime tax expense amounting to INR 1,425 million, INR 142.5 crores as the outcome of the difference between goodwill as for the books of accounts and its updated tax base. This deferred tax liability is not expected to be a cash outflow in the future, and its reversal seems unlikely as the value of its associated goodwill is expected to be in use. These changes will also not affect our tax rate going forward, as was explained in the last call. Our CFO, JP is on the call. And any further clarifications, questions can always be put to him during the Q&A session. To reiterate, this is a onetime noncash expense and is applicable to all companies who have been affected by the amendment. On Page 13, we have tried to explain the short-term perspective of the possible effect the second wave of COVID will have in India. First, there is some potential pushback in demand. But from our experience of the first wave, we do expect volumes to recover before the end of the year, although the demand is pushed back. Overall, rural demand is expected to be good on the back of normal monsoon predicted by both IMD and Skymet. On the supply side, there could be some loss of production in this quarter at OEMs and suppliers due to the micro lockdowns and other constraints like steel and manpower. Currently, all our plants are working full time. Of course, we are taking all safety precautions as mandated by authorities. We are also providing support to our employees for testing and vaccination and in case they fall ill. Some our -- some of our employees have been affected by this disease and positivity rate in the workforce is in line with what the overall rate is in the city where the plant is located. But yes, we are providing all help. Next, a word about dividend. MCIE's dividend distribution policy was amended by the board. As per the amended policy, which is available publicly, the company would endeavor to maintain a total dividend payout ratio of up to 25% of the annual consolidated profits after tax of the company. We recognize that the company has not paid any dividends to the shareholders till date. We have been conserving cash to fund our organic as well as inorganic growth. However, we also recognize the need to pay regular dividend while continuing to grow the company and the same shall be considered appropriately going forward. To end, we are focusing on the safety of our employees currently and on sustaining the effort, the great efforts that we have made over the last year. As mentioned earlier, based on our experience with the first wave of COVID, we're looking at the future with cautious optimism in spite of the fury of the disease and believe things will get a -- will only get better from here. Thank you very much. And now we can proceed to Q&A.

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

First question on our European revenues. Can you indicate what was the European revenue growth in terms of euro basis?

Okay. Ander, can I request you to answer?

Yes. Yes. The growth in Europe, in euro basis was 11% approximately, okay? That's the growth we have in Europe. In the different verticals, we saw different behavior. CIG Forging, let's say, passenger forges performed quite well above 10%, let's say, more than -- much better than the market. The Mahindra Forgings Europe, let's say, the commercial vehicle forging, we had a growth of 2%, 3%. I mean we -- so we were at the same level then in Q1 2020. And in Metalcastello, where we had the biggest growth in the Gears division, we had a growth, I think it was something like 50% or 54%, okay? So that's the off-road vehicle market that is now growing again in -- mainly for the United States business. So that's the impact in Europe.

So this is quite outstanding growth, in fact, not just in Europe, but also in India, and we have grown ahead of industry in both the businesses. Can you throw some light on how much of -- I mean, is this outperformance vis-à-vis industry is driven by these new orders which you had been talking about along with export focus? Or this is yet to start contributing to this top line so far there?

No. All the verticals both in Europe and in India performed really well in the first quarter, okay? We see the export rate from India to Europe or to USA is approximately at the same level that we were before, approximately between 11% to 12%, that's the export rate. So that export rate will grow in the near future, but we are still -- in the first quarter, we were at the usual rate, so no growth from that side. I think we were really affected in the first quarter in 2020 due to the Bharat VI transition, probably more than other competitors and more than the market. And now we are recuperating that growth. Also, we saw certain movement from -- in certain particles like magnets of Gears, where we saw the movement or transition from Chinese suppliers to us, to Indian suppliers. So we see an important growth there. And globally, the last year, new order book was higher than expected, and we are doing quite well on that side, so we expect an important growth for the next future, okay? So we are quite optimistic. We already told or expressed in my last call, we were talking about our optimistic view for the first quarter. You can see that this optimism is now a reality. And it's true that also for the future, we are quite optimistic, and I think that the second half of the year will be really, really strong in both regions, perhaps the second quarter due to the COVID impact, we could see a certain slowdown, okay? Not yet. We have not seen yet in April, but probably in May, June, we could see a certain slowdown due to the impact of the COVID in India, and the semiconductor scarcity in Europe. But overall, I think we can have the really positive view for the future. And we are quite satisfied how we are managing the situation. And I think -- and I would like to take the opportunity to give you some feedback that we received from our customers and most of them, they are asking us to add capacity to be ready for the growth for the second half of the year. And we received certain congratulations from them because we managed properly the growth in these last few quarters, okay? They had certain supply issues with other suppliers. And in our case, they gave us congratulations because of the fantastic job done by the team. So I think that the soundness of our company is clear, and we are well positioned in the market to continue growing.

Certain, certainly. So just a clarification on the European business. Given that 1Q, the underlying market, particularly on the passenger vehicle, was quite weak because of COVID-related lockdowns. Do you expect the 1Q run rate of revenues for us to sustain despite semiconductor scarcity? Or we will see some pressures there?

Okay. We already saw a certain slowdown due to the semiconductor impact, but it's not relevant. I mean we can say that we are approximately affected in -- from 5% to 10% in the market, that is the global impact that we expect for the first half of the year. There is certain uncertainty, but some customers, they say that they will recuperate this lost demand or this lost production by the end of the year. Some others, they say that they will recuperate in 2022. But my view is that there can be a certain slowdown now in this second quarter, and good recovery and the order book is very solid for the end of the year. So I am of course optimistic on this side.

The next question is from the line of Nikhil Kale from Axis Capital Limited.

Yes. Congrats on a very good set of numbers. So just talking more about the top line performance. So yes, generally talking, there was a significant outperformance versus the underlying industry production. So just wanted to understand, is there also an element of, say, the commodity costs, which have been increasing and you kind of pass-throughed that to your customers? So what is -- if you could just maybe give some color on the realizations and how much of that impact would be there in the top line growth? And secondly, you mentioned that all your operations or your plants are operating right now. But specifically in India, what is kind of the production levels right now? Also specifically for Q2, what kind of impact do you see in a year that the production schedules by some of the OEMs, especially on the two-wheeler side, have also been lower for, say, May and June? So just some color on that.

Yes, yes.

Yes. Ander, on the second question, can I just take that, Ander?

Yes, yes, yes. I will answer the first question and you take the second, okay?

Yes.

So regarding the first question, the raw material increased impact in our turnover in the first quarter was approximately 4.5%, okay? So that's the impact of the raw material growth. It's mainly in the steel and aluminum cost increase that we -- as you know, we passed through 100% to our customers. So that's the impact in India. Regarding Europe, in Europe, we didn't have any raw material increase or just minimal raw material increase in the first quarter because the raw material increases generally are applied from April 1. So you will see that impact in the second quarter of the year. So Vikas, up to you in the second question.

Thanks, Ander. Your question was, are all are transporting? The answer is, yes, as Ander explained, all our plants are running. Of course, we are taking care, as I said, the same level of illness that is there in a particular location is there in our plants. So we have to take all kinds of precaution. Second, what is the effect on schedule? Ander has explained this earlier. Currently, in April, we are not seeing any effect on schedule. Of course, there will be issues around steel as oxygen supply is diverted and steel production may get affected. But right now, most steel companies have a certain inventory level. So that is not affecting at this point of time. Plus a few OEMs have announced lockdowns in May. You know Hero announced between April 24 to 1st; Maruti between 1st to 9th; and now Hyundai has announced from 9th to 14th. But at the same time, please remember that the inventory in the light vehicle supply chain, in the car supply chain, if you look at the dealer association data, is very low. So for 10 to 15 days in March. So it would be a combination of both, lockdown plus build-up of inventory. So we'll have to wait and watch how much effect it will have on May. It may certainly have some effect. But on the one hand, you will have lockdowns; second, some steel issues, steel issues could be there, manpower, availability issues could be there. But also on the other hand, OEMs will also try and build up inventory, especially on the light vehicle side. So based on this, we'll have to see. There will certainly be some impact. How much? We'll have to see. But right now, no impact so far in April. Nikhil, back to you.

Okay. So in terms of the schedules, you are not seeing any cut in the business you have scheduled?

Till April. Not to say it won't happen in May. As I said, we'll have to wait and see.

[Operator Instructions] The next question is from the line of Sunil Kothari from Unique Portfolio Management Service.

Okay. Congratulations Mr. Ander, Vikas and the team for such a wonderful performance.

Sunil, sorry to interrupt you. Your voice is breaking. May I request you to come in a better reception area, please?

Yes. You're getting now?

A little better than before, yes.

Yes. Sir, congratulations for [Technical Difficulty]

Sunil, can I jump in once again, you're still not audible clearly.

Sorry, I'll connect again. Sure.

Sure, sir. [Operator Instructions] The next question is from the line of [ Rajakumar V. ], an individual investor.

Yes. Congratulations for the good set of numbers. So I have a couple of questions. This is on your European operation. So you have mentioned that you are expecting -- I mean, there is a positive expectation for the second half of the year. If you could give more color to that? And also, I want to know what is the update on your German forging operations? Because I understand those numbers are kind of a drag on your overall EBITDA numbers for the European operations. So if could just give more color on that. And the second one is on the impact of electrification in automotive industry. How it is going to have an impact on CIE operations in the medium-to-long term? And what medications that you guys are looking at?

Okay. Ander, second half prospects in Europe and update on German forging, then we'll come to you.

Yes. Sorry, I didn't catch you, Vikas?

So there are 3 questions he has asked. First is, you have said that we are quite upbeat about the second half of this year in Europe. So he is asking, can you give us some more details on why you're so upbeat?

Yes.

Second, what is the update on German forging operation because they are a drag and have we improved there? And third, what is the impact of EVs on MCIE? These are 3 questions.

Okay. So regarding the first question about the -- our European -- our view of European market, what we see is that the second half of the year will be much stronger. That's the input that is giving us all the customers, mainly because the COVID impact we are in Europe now in the fourth -- what we call the fourth wave. And we are now, let's say, the COVID impact has been, let's say, in a slowdown. So we are in a positive mood in this moment. The vaccination process is accelerating, and we expect that by summertime, by June, July, majority of European citizens will be vaccinated, okay? So in that scenario, we expect that all the lockdowns and all the restrictions will disappear by June, July, September in that range of the year. So from that point, there will be a pick in the demand and in the economical activity in Europe, okay? So that is what the general information that we receive from our customers. So they are asking us to increase our stock levels and to be ready to increase the production, okay? So that's in certain areas, we are already feeling that increase. For example, in Metalcastello, as I explained to you, we had this more than 50% of growth in the first quarter. And the demand is really, really strong, okay, on the front. We have the -- our main customers are Americans, and they are pushing us a lot to increase our output. So we are working weekends, and we are now quite tight even in now in today in April because I was yesterday, making the follow-up of the business with the Managing Director, okay? So the evolution is, in my opinion, it will be positive, and it will be really a strong end of the year. That's our view from Europe side. Regarding MFE, in Germany, we had also a certain increase in the demand, so the commercial vehicles market seems that they are starting to grow again. I mean, we were in the last 1.5 years, we were in the low side of the cycle, in the bottom side of the cycle, now we see that the market will -- is ramping up. And this growth other with the restructuring activity that we accomplished last year gives us a quite positive situation, I mean better-than-expected evolution. And despite the margins are not what we would like to be, the situation is improving, and we have the company under control. We don't expect any additional an additional restructuring activities in 2021 because of the long and high demand and order book that we see for the next months. So the situation is stable, and we expect to keep the current evolution in the next quarters. Probably, second quarter we will see a small decline, mainly because in Europe, the impact of the COVID is not important, but also, we have to add the semiconductor impact. So we will see a certain decline. But the expectations are high. So that's the explanation about the European business. And finally, regarding the electrification we are working a lot in the electrification area because, especially in Europe, because you know that probably, the electrification will come first in Europe and then in other regions. In this moment, the battery electric vehicles market share is approximately 5% of the market in Europe. And we expect this market share to increase to 15% in 2025 and between 30% to 40% of the market share in 2030, okay? So in that sense, what we are now is working on changing the portfolio, focusing more on in chassis component, in aluminum forgings. So we are making this transition to this, and we are quoting to customers with several projects, and we are working on that actively, okay? Regarding the short-term impact. We don't see any short-term impact. I mean we don't see that the electric vehicle market will be an important -- they will have an important share in the next years. But we are preparing ourselves to be ready to -- for this trend that a clear trend in the market. And we -- I think that in Europe, we -- our impact will be limited, and we will, of course, move our portfolio to other products as we are doing now, okay? And regarding in India. In India, this electrification, we think it will be much slower than in Europe. We think, and according to the experts that we contacted, they are talking about the 4-wheelers in India probably in the 2030, there will be the market share of 5 -- approximately 5% and the impact will be more in the 2-wheeler and 3-wheeler area, okay? So in that sense, in our portfolio, we have already a lot of components for the electric vehicles. We are already working for different carmakers on that. And in our opinion, or in my opinion, the impact for the next 5 to 6, 7 years of this trend will not affect at all in India to Mahindra CIE. And in Europe, yes, in Europe, we will have more impact because the trend will be much more faster. But we are doing our job to move the portfolio to different products and different technologies also. Thank you very much.

Yes. I just -- I would just to add to that, sir, what we are also doing is we track electric vehicle orders separately internally. So we look at them very seriously. Of course, as Ander pointed out, we have certain -- we have an order book in India, which is small, but we are working -- we are an important supplier to electric vehicles. We are looking at some other EV companies, Bajaj, Hyundai, for orders. So we take it very seriously. And we monitor it very closely. But as Ander pointed out, the pace in India is in Europe, yes, it will be much faster, but we are taking actions to mitigate that. And on the overall European thing, just point that Anders just made, yes, we are looking at second half to be very good. But Q2, you might see some slowdown because of the sole semiconductor and other issues that are there in Europe at this point of time based on what Ander said? Yes, please go ahead. Sorry, I interrupted you.

Yes, yes. Sir, just 1 request, if you go forward, if you could also give some metrics between EV and non-EV, the sales numbers, it would be -- I'm sure you will be tracking it internally. Even for us, if you could give that payroll be helpful, sir.

No. First, right now, EVs are a very small part of the portfolio. So if we are talking about an INR 8,000-crore company, it is not material. As far as the other question, I think what you mean is how much of our portfolio will potentially be affected by EV? I think we have answered the question in the past that any look, and we -- our share of power train and other related products on a consolidated basis is anywhere between 20% to 25%. So if you look at for example, they are an important powertrain product. So our powertrain products are somewhere, say, between 20% to 25% on a consolidated basis, a little higher in Europe, a little lower in India. And so that is what we supply to IC engines part. But as Ander pointed out, not all of it will be affected at one go. Of course, in Europe, the effect will be much faster. And we are mitigating it. I think in our year-end investor presentation, we had pointed out that we have a threefold strategy to make sure that our capacity utilization in our forging plants in Europe remains the same in spite of EVs. We are increasing share of business in We are focusing on nonpowertrain products like And Ander talked about aluminum forging even now. So that was the strategy that we had mentioned. So as I said, yes, a strategy is in place. We are monitoring it. And yes, we know about 22%, 25% of our business is in powertrain, but all of it will not be affected at one go. And as and when required, we'll keep replacing it with other -- we are a process company. It's not as if we are wedded to a product. We can -- like if required, we change our product portfolio, in line with what the customer requires. Yes, back to you.

Okay. Yes, got it. Sir, just lastly, on the EBITDA number, 14% for Europe. Is that a sustainable number or it's a one-off for this quarter?

Ander, back to you. Is 14% Europe EBITDA number sustainable?

Yes, yes. I think so. I think the -- providing the market continues with this trend, we will be able to keep these margins. I mean this is even our internal targets -- we have our internal target to improve those figures even, okay? So the -- what we see is that we are now in the pre-COVID margins, I mean, in the -- in our original margins, and we expect that if the market continues growing, we will be able to improve those margins. So yes, I think they are sustainable, and that's our to do it.

The next question is from the line of Nemish Shah from Emkay Investment Managers.

Yes. Congratulations for good set of numbers. Most of my questions have been answered. I just wanted to understand, any update on the integration of our Brazil-China plants, like we were thinking about earlier? So any update on that?

Yes. Ander -- before Ander comes, Nemish, we are currently focused on -- last year was a COVID pandemic year. In India, again, this year is the second phase is there. So we are really focused on getting our house in order, making sure that we do better and you are seeing that the results, some of the efforts that we made in Q2, Q3 of last year, when there was a lockdown, that is reflected in the Q4 and Q1 results. So our focus is there. So right now, that's not our focus area. But yes, in terms of how to tackle that, I will hand it over to Ander.

Yes. This strategy that was fixed in Mahindra CIE and CIE to transfer these forgings to the company, it's still there. And we -- as Vikas explained that due to the COVID and the evolution of the businesses and the different task we had in this difficult period, we did not accomplish it, but it is something that we are now reviewing in our strategic plan that we are now starting with the preparation of the new strategic plan, and we will come back to you when we have this clear timing plan for this -- for the simple reasons.

Sure. That's helpful. Yes. Just 1 last thing. So what will be the effective tax rate for us going forward now?

We said that it won't affect in the last quarter also, in spite of everything. We had talked about the tax rate won't get affected, but I'll hand it over to JP, he will answer.

We should be around 26%, 26%, 27% consolidated.

The next question is from the line of Basudeb Banerjee from AMBIT Capital.

Congrats for a good set of numbers. A few aspects. One, as you have mentioned, 450 basis points of raw mat inflation. So should one look at it? That's the part of the revenue growth also, revenue reported by 450 basis points?

Basudeb, come back again? You're saying is 4.5% in India is the raw material inflation and the question is?

Will it be right to assume that, that is also contributing part of your Y-o-Y revenue growth by the same...

Yes, yes, yes.

Sure. Second thing, sir, as you've highlighted on the EV aspect, I just wanted to understand what percentage of AEL being a major supplier for the plan being Bajaj, how much is exposed to our engine transmission under AEL as of now?

AEL -- look, as I said, overall, in India, we are roughly maybe roughly around 20% in India and maybe a little higher in Europe. And so that is what it is. And AEL is in line with those estimates. The exact estimates we don't have, but I think AEL is in line with that. I think AEL makes crankcases. That's the 1 big engine part AEL makes. But other than that, I think maybe a bit maybe from turbo housings also. So these maybe the 2 parts. But then other than that, they are mostly in [indiscernible].

And can you highlight that current user, what kind of EV component initiatives AEL is taking for future years, as you also highlighted that 2-wheeler electrification will be faster?

Look, AEL is working closely with Bajaj on the issue. Bajaj has now planned -- you know about the plans around Chetak and so on, which is a major model. So they are working closely with them at this at this point of time. So that's what AEL has been doing. And other verticals are also doing the same. Bill Forge is also talking to some EV manufacturers. And as I said, we are suppliers to an EVs, to many of their good models that they have. So we have an EV order book. It's very small at this point of time, given the number of vehicles that are sold in India. So yes, we're looking at some of these. And maybe we'll also expand this thing.

So basically, if all these new big bang announcements, whichever coming on media by emerging e-2-wheeler players, so you are not participating in any of those supply chains as such as of now?

As I said, like whatever I have talked about our growth where we have an order, that is not to say that we are not looking at other So whatever I have told you are where we are dealing with, okay? So as I said, yes, we will look at 2-wheelers transition very, very carefully. And yes, we will try in participate in whatever new players come up.

And lastly sir...

We'll make an effort to at it. Whether it happens or not, of course...

My last question, sir, as the initial comments as you highlighted, because of the change in union budget this time that you can take the tax benefit because of amortization. Down the line, will it be possible any scene of any write-off of intangibles as such from current size of the...

Write-off of goodwill? JP?

Goodwill write-off any requirement in next 4 to 6 quarters because of the things?

No, no, we don't see any such write-off required. Businesses are doing well, and we don't see any need for it.

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

Yes. Sir, earlier, you had mentioned that your breakeven point for Europe was around INR 5.5 billion. And for -- I think for India, it was INR 3.5 billion. For India, it kind of went up because of the sudden surge in demand in the second half of last year. So what is the current breakeven point for Europe and India and the gross margins or the contribution margin in both these geographies?

JP, at gross contribution in India and Europe?

Europe as of now is INR 5 billion of sales and India INR 3 billion. So we can see the global is a sales level of INR 8 billion for the quarter.

I couldn't hear that properly. I mean if it could -- some...

Yes. The current breakeven point is INR 8 billion for full Mahindra CIE and the split, the split is more or less INR 5 billion in Europe and INR 3 billion in India.

Okay. And the contribution margin?

Now contribution margin is dependent on how you look at it. The variable cost -- how you define variable costs, whether labor costs are variable or not. So I think it will not be comparable. So I think let's stick with the breakeven point at this point of time because contribution depends on how you some of the labor cost is variable, some is not. In Europe we treat labor cost -- labor cost differently than in India and so on. So let's -- that's...

How does the company define it? I mean it's -- as for your computation -- calculation?

JP or Oroitz, can you explain what is the -- how do we define contribution margin?

Okay. For the contribution margin, usually we consider our variable costs, such as all the consumables, raw material, energy and also all the part of the workforce which is variable, which is totally linked to production. This means direct labor directly, okay? And our contribution margins, it depends on vertical, but could be at around 20%.

Around 20%.

20%, 25%.

No. But please remember, as Oroitz pointed out, direct labor is part -- is considered as a part of variable.

Yes, yes, I understood that. So 20%, 25% for the company as a whole?

Yes.

Okay. Yes. Fine. And you are at the moment, an INR 8,000-crore company. Internally, when do you see doubling sales, getting to become a INR 16,000-crore company, considering the outside dynamics that are in place as of today?

As Ander pointed out, we are rethinking our strategic plan. Let us go through that because that's a very -- it's a very long-term question, so let's look at that perspective, let's go through our strategic fixed plan and then on that.

Okay. But you would essentially be looking at, at least a 15% compounding over the years?

As I said, let's look at that separately. Let's not put any numbers at that.

So your German operation has always been a pain point and kind of dragged down the performance of the company as a whole, would you at any time look at closing down your German operation? And would pension liabilities be a reason for continuing with the German operation?

One, I'll, of course, ask Ander to talk about this. But it's not as if the German operations are loss-making on a net profit basis, you may leave out last year, which was a special year, as we all know. But they are not negative a EBT or of that time. So yes, they are lower than other verticals in our business. They are not up to our CIE internal standards, for sure. But they are not negative. Let me just clarify. That is number one. Number two, we do think that we can make improvements in that business, and that's the reason that they are there. So it's not about whether pension liabilities or not. Yes, pension liabilities are what they are. It is a rule that is specific to Germany. And of course, all of us have to follow that. So I think the reason why it's not there, it's an important part of our portfolio. It is -- it provides us diversification in terms of being present in the truck market in Europe. So it's a significant diversification level. Of course, some of the OEMs that we work with are big names. We have worked with almost all the major truck OEMs in Europe. So we do think it's an important part of our portfolio. Yes, it is not up to the mark, but now I'll turn it over to Ander for his views.

Sorry, sorry, I was in the mute. We are not planning to close in Germany. So our strategy is to continue improving the efficiency of the activity. And what we are doing now is to make this downsizing of the business, eliminating the loss-making components and keeping only the best-margin products, okay? So we are -- we have been doing this restructuring in the last years, especially last year due to the COVID we had to speed up a little bit restructuring, and we did it. And now we are in a positive breakeven position. So the view for the future will depend on how we continue improving the margins and the business. If we are not able to improve or we see a worsening of the situation, we will have different measures, and we will decide later, okay? But now on, in this moment, what we are doing is, we are focusing on the improvement in the company. And as you can see, we are able to get at least reasonable figures, and that's our aim for the near future. For the long term, we will decide according to the evolution of the market and evolution of our company.

[Operator Instructions] The next question is from the line of Gautami Desai from Chanakya Capital Services.

Yes. Ander, you being born and brought up and also working in Europe, I thought you will be more relevant to answer this questions that...

Sorry to interrupt you, Gautami, may I request you to speak a little louder, please?

Okay. Yes, I would like to ask this question to Ander being a native of Europe. Ander, even before COVID, we were talking a slowdown in Europe because of various reasons like could be or could be shared mobility or is that there's no growth happening there. So leave along the COVID part, but after -- and we've been 2 years after that and after we started witnessing the slowdown and accepting the slowdown, and 2 years after that, now do you think that -- I'm not talking about this resurge after COVID, but are there any behavioral changes in the auto industry among the consumers in Europe, which could make us revisit our -- or probably that has caused you to increase your optimism on Europe?

Okay. What we see in Europe is that this COVID pandemic has reduced and keep the people at home and reduce the expenditures in different areas, not only in the expenditure in the cars, but also in other sectors like hotels or travel and so on. So I think the -- once the by dose is gone, that we expect that we will start living normally again after summer, that's our expectation, and that's what everybody is now talking in -- especially in Europe. I mean because we are all at the same pace of vaccination. So from that point of view, we will see a recovery of the market and the expenditures and the economic activity in all the regions. That's what we see. So we will come back to a normality. It's true that with the EV transition and the new trends, there is a little bit of uncertainty in the buyers, so the market is expected to grow slowly in the next year, mainly because of this uncertainty and this change of trends. But I think that also, we need to consider that after this big crisis, there will be a consolidation in the market, okay? So the best performers will continue, will take and will consolidate the business and some of the weaker players in the market will disappear, okay? We are already seeing this, okay? We feel this, and that's why we are quite optimistic because we feel that we will be one of the survivors and the winners in this consolidation process. So that's the reason of our positive view. And that's also one of the reasons of why our Q1 was so strong in India also because we performed well. We performed better than competitors in certain areas. We were able to deliver the customers, we keep our customers satisfied with our delivery rates with our efforts all the factories were running, let's say, 24-hour day during Saturdays and Sundays to fulfill the demand. So that's the key point from our side. We'll continue improving efficiencies, we will continue improving our competitivity and our service to the customers. So those are the parameters why we consider that we will be in the market even stronger in the next future, okay? So that's the view. All these new trends that are coming, like the electrification on the shared mobility all these activities will come. But we think that we will continue being one of the preferred suppliers for our customers. So we expect to be to continue growing in the near future, yes.

The next question is from the line of Bharat Sheth from Quest Investment Advisors.

Congratulation, Ander and team, I mean, on good performance. Ander, I mean, earlier, we were talking with BS -- in India, BS-VI coming, our content per vehicle increasing, that is one. And second thing, now we are seeing that consolidation is happening, and we are winning more. So first, both are the separate questions. So while we are winning market share because some of the -- so do you think this is a permanent, I mean, market share gain? I mean those who have lost will not be able to come back? Or once the COVID will be -- post-COVID thing will normalize? And third how do -- even Europe also on the CV side, we were gaining, I mean, some market share, so if you can elaborate on that?

Okay. Yes. Regarding the consolidation in the market, yes, what we think that this consolidation will continue in -- especially when the situation is complex, like in this moment in India, let's say, the best prepared companies with the best procedures with the safety procedures for the workers as we have, let's say, with massive step then to all our workers. Let's say that all the companies that are well-managed will continue because they will continue supplying to the customers, okay? In my interactions with the customers, they told us that in 2020, let's say, in the second half of the 2020 calendar year, they lost production because lack of supply, okay? So the market could have been much better than it was, okay? And the main reason was that the suppliers were not ready to supply with the required volumes. And in this sense, we see that they are coming to us, and they are pushing us to continue producing more and more because the -- some other small businesses they cannot manage this situation. This -- the complexity of the current situation, okay? So even for us, that we buy a lot of small components to small suppliers we have to add our capacity in-house because our suppliers were not able to deliver the required parts, okay? So this is just an example of why the good well-managed companies can continue and will continue growing and consolidating the business. And this is I think the trend that we will see in India in the future where the professional companies will continue strengthening his position and the less professional will -- some of them will disappear or will be added to other groups, okay? So that's my feeling. And regarding the German and the commercial vehicle trend in Europe, what we see now and -- because we are receiving the forecast from the customers with 6 months of advance, mainly because of the lack of the difficulty to get the still some months ago. So now they give us much more visibility on the future. So we see until October, November, the order book, and it's really healthy. So perhaps in the short term, we could have some reduction because you know that the order books are changing every week. But the visibility that we have is really strong. So what we think that we are not gaining market share on this business, what we see is that we are growing together with the market. Our main customer is Daimler, the Daimler -- the truck division of Daimler. And they are doing really well in the last month, and they expect to do it strongly in the next quarters. And we have the long-term or at least midterm visibility with a strong demand. So that's why my view is quite optimistic on this market.

Okay. And with BS-VI in India, I mean, content per vehicle increase in content per vehicle?

Okay. Yes, perhaps Vikas you can elaborate on that?

Yes, Bharat bhai, it was in certain specific areas, for example, in Gears, very clearly, the Gears for BS-VI is much more complex. So there -- if you had gains, there were a few on the engine composite component side some Indian parts. But by and large, for example, BS-VI had no effect on things like or so yes, it's specific even in casting. So the casting, forging, gears, maybe we had some effect in forge. But other than that, it's okay. As I said in those areas, we gained from BS.

Okay. And now on the -- last question, I mean, on the CapEx side, since Ander stated that customers are pushing, I mean, to supply more and more and last year, we did not invested much. So how much CapEx that this year are we planning?

Okay. We are planning usually between 5% to 6% of the turnover in the CapEx. This is our standard CapEx, okay? In 2019, we invested INR 4.1 billion. And this year, we expect to be there or even more, okay? Depending on the customer requirements, probably, and that's also important to say that we are investing importantly in in the first quarter, we invested -- I think it was about INR 1 billion. And we will -- so we are at the pace of INR 4 billion per year. And probably in the second half of the year, we will increase this rate because of the new orders that we are getting. And also, as I mentioned and you will correctly said, the customers are pushing us to increase capacities. So yes, we are planning that we are doing our review of the CapEx plan for the next months, but we are in this line of 5% to 6%. And in certain verticals, could be a little bit more.

And Ander, when we said that there is a consolidation in India, so how many new customers have we won? Or with existing customer and new components or that development, if you can highlight?

Yes. We -- in last year, we explained that we got approximately was something like 25 customers and new products. And regarding the consolidation, the consolidation means that we are producing certain components now that were produced by others. Mainly the same kind of products that we are doing right now for different platforms, different cars, different tractors. This is what we are consolidating. So that's the view. I don't know, perhaps, Vikas, you can elaborate a little bit more detail?

Yes. Yes. Yes. So '19-'20, as Ander pointed out, about 25 new customers were added between 2019 and 2020 spread across verticals. But more importantly, if you remember, if you go through that transcript of our Q2 C '20 call, where we had talked about how -- given the dynamic situation that prevailed at that point of time similar situation prevails now. I think we had said OEMs will put more faith in companies that have stability in their business model. And that exactly as what has happened. And therefore, to your question, whether they will go back? Well, the answer is that Ander pointed out at the very beginning that he has received a lot of congratulatory messages from many OEMs for supporting them during the second half of last year. So that is something we strive to do. We strive to gain the confidence of our customer. And as pointed out there, that last year around the same time, the same thing prevailed. The situation is dynamic. It is not easy. So suppliers, which will manage cash, to manage safety, quality, they will continue to do well. And even in categories which are existing product categories. So yes, 25 new customers both in existing and new products -- as I said, we are not a product company. So more than saying we added this new product, we actually do what the customers ask us to do. So I think adding customers and winning the favor of existing customers both of them are equally important, and we have done that. As you know, especially on the tractor side, the growth was immense. So we have supported our customers there. So we hope to keep winning the confidence of our customers.

And in this first quarter because of sales growing substantially higher, so whatever efficiency side we took the measure is reflected in the margin. So still there is room for improvement in margin with higher business?

Ander is here, he will never say no to that.

Yes.

As people reporting to him, we may want to say no, but he will not allow us to say that.

Yes, yes, yes. No, that's...

So I mean, without -- I mean, realistically, how much margin we expect, I mean, if '21 and '22?

Yes. Okay.

Let us say not make forward-looking statements, Bharat bhai, but yes, we do expect to improve our status answer your question directly there.

Yes, just as referenced, we already talked in other calls before previous years. You know that CIE margins globally, it's approximately 17% to 18% EBITDA, okay? So our target, our aim and the CEO of CIE is pushing me to get those those margins also in our India business. So okay, that could be the long-term strategy to be there. I think that it's possible. Of course, we need volumes, and we need to continue our efficiency improvement. Of course, we have a lot of room for improvement. And we are doing slowly, but step-by-step, we are getting this. You can see in the results in the last quarters that we have accomplished these improvements, and we see already in our P&L. And the approximately, we can say that we had an internal efficiency improvement of 20% approximately in the last year. And we still think that we have the opportunity to continue with the automation processes and also the -- what we call Industry 4.0, I mean with the new management strategies, I think we can continue improving our factories, okay? So yes, this is my tough improving the margins and we -- I hope that we will see better margins in the future, okay?

Okay. All the best, Ander and team, I mean, and Vikas. I mean wish you all the best. I mean look forward for a CIE kind of margin by '23.

Okay. Thank you very much. Yes.

The next question is from the line of Nishant Vass from ICICI Securities.

So I had a couple of questions. Ander, you mentioned about the export strategy. So could you shed some more light in terms of how is the strategy playing out between external customers and also sourcing from CIE, increased sourcing from CIE? And the second question is on Bill Forge Mexico. Can you share some update on that, where is the progress?

Yes. Okay. Yes, regarding the export strategy, we had this growth strategy. We are now at approximately 12%, as I said before, and we expect to grow this rate to 20%, okay? That's our target in the next years. We have already been awarded for several export projects. So we are industrializing, we are investing and we are launching those products. And some of them go direly to our customers in Europe or in the States. But also, we are going to produce, for example, forgings or gears for -- from India to our companies in CIE in Europe to be finished and delivered to the customers, okay? So this process is also there, and we have big businesses to be produced in India. So we are taking care of this process, okay? And this strategy is still there. And the second question was?

Bill Forge Mexico.

Okay. The Mexico, Mexican, Mexican point. Yes. And Mexico is -- you know that we -- 2, 3 years ago, we had certain difficulties to launch the activity, and we have -- it was slower and at the lower pace than what we wanted. But now the company is performing really well. I mean the team has been fully trained. We have reinforced the team and the plant is producing perfectly with the proper quality and the customers are really satisfied. We got a new customer, and we got new businesses from our customers. And in fact, we are now adding capacity because we are launching new products to start from September, October and ongoing, okay? So the evolution of the company is positive, and we have good expectations in Mexico in the near future. We are adding the new press investing. We need to to expand the building. So the business is doing really well.

Ander, if you could put some data point around where is Mexico's revenue structure today? And would do you believe the profitability has reached where you were expecting it to reach? And in terms of your investment size in Bill Forge Mexico, could you shed some light in terms of what kind of expansion you are thinking?

Yes. Okay. We are expanding the building because we are adding a new transfer press in the next -- we will receive it in summertime. So everything is ordered, so we will receive the machine. We are talking about an investment of approximately EUR 4 million that we will accomplish in the short term, in Mexico. And the evolution of the of the company is really good. Regarding the margins, we are not yet where we expect to be, but we are already in the breakeven situation. And in the future, we will have the same or even better margins than we have seen in our forgings in Europe and in India, okay? So that's the situation of the company.

One last question, if I can squeeze in? Is -- obviously, you answered many questions on MFE and congratulations on MFE improvement after including the restructuring and the market ex evolution. If I put it in context over, say, a 5-year period since CIE took over this entity, where initially long-term targets for a double-digit margin. If I had to -- like with the restructuring behind you and with market evolution looking positive, where do you see the medium-term margins kind of stabilizing for MFE?

Okay. Yes, this double-digit margin that we still have in mind, and as our internal target proves difficult to obtain, at least in the last years. And we have -- mainly because of the reduction of the volumes. And in this moment, we are not yet on those figures, but we are much better than a couple of years ago, okay? So we were able to improve slightly the situation. And what we see this year, this business will be at EUR 170 million, EUR 180 million turnover in that range. That's the trend that we have in this moment. And probably in the future, we will be -- it will be a business of EUR 150 million. That can be the size of this business in the future, okay? So that we complete the reduction in a more efficient way, if we are able to reach close to this double-digit EBITDA, that would be the target in the future.

The next question is from the line of Nikhil Kale from Axis Capital Limited.

So this is more on a long-term and a strategic perspective. So as you mentioned that you are a process company for [indiscernible] right? So going forward, how is Mahindra CIE and maybe even CIE Automotive, the parent, looking at maybe diversifying out of automotive into some of the other industrial segments, right? So for example, Bharat Forge has done it successfully. So how is the view towards diversifying into nonautomotive say more industrial-oriented segments?

No. We continue thinking that we are an automotive company with our knowledge and our main expertise is based on automotive. And we think that we will continue working only for automotive, okay. So automotive is our main business, and we will stick to this strategy. We are not thinking on diversifying other activities.

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

Yes. Sir, last year, CIE increased its stake in Mahindra CIE. Would it look at increasing its stake by a similar magnitude in the current year also?

Okay. This is a shareholder matter, but the CIE's commitment to this project is really strong, and we continue thinking that the -- let's say that the best of CIE in India will continue growing in the future. So I cannot answer you with a figure or -- and so -- but I can tell you that it is highly probable to continue growing this better in this year.

Ladies and gentlemen, that was the last question for today. I will now hand the conference over to the management for closing comments.

Okay. So...

Over to you, Ander. Ander?

Yes. Perhaps you can also make a comment, but yes, just some words from my side. So thank you for all your questions and interest shown in our company. And really clever and well-directed questions. Thank you for that, okay? I hope we answered correctly as you perceive the strength and solidity of our company, and we continue our drive towards efficiency, competitivity and profitability. Despite of the peak of the pandemic, we will continue being optimistic for the near future. And let me share with you that most of our customers acknowledge our good performance and efforts to deliver with quality and on time. And I have received a recognition personally, and I feel immensely proud for the team that did all the jobs. So thank you to the team for this fantastic job. And my last word go to all the people that is suffering due to the second wave of the virus in India. And my fully support and best wishes to all of them, okay? And finally, thank you for your trust in our company, and take care. Thank you. Goodbye.

Thank you, folks. Have a good day.

Thank you very much. On behalf of ICICI Securities Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.

Thank you.

Thank you.