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

Ladies and gentlemen, good day, and welcome to Q2 CY '21 Earnings Conference Call of Mahindra CIE 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 Limited. Thank you, and over to you, sir.

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

This is Vikas. Good afternoon, everyone, and good morning to those who are joining from Europe. I welcome all on this call, as also Ander Arenaza, our CEO. I hope and wish that all your loved ones are taking care and are safe. Thank you for attending the call. Q2 C '21 was a difficult quarter as India battled a very virulent second wave of the COVID pandemic to speak in terms of daily cases was roughly 4x that of the first wave. While there was no nationwide lockdown like during the first wave, the month of May was severely affected by the local lockdown announced by the various state governments. The second wave has mostly subsided, but it has resulted in a dip in consumer sentiment that is only gradually recovering. MCIE India's June sales were at the level of 85% of Q1 C '21 monthly average rate. In the second half of CY '21, we expect the market to recover on the back of the demand of personal transportation necessitated by the pandemic-driven safety concern and continuing positive rural sentiment riding on a satisfactory monsoon. Given the size of India, the pace of vaccination is slow in covering the great majority of the population, we need to be vigilant about incipient new waves that could affect the health of the people and the economy of the country. Thankfully, at MCIE India, we will be able to ensure that all our workforce that is eligible for vaccination will have at least 1 dose of vaccine by the first fortnight of August. Europe also experienced renewed waves of the pandemic in this quarter, leading to a dip in market demand sequentially in comparison with Q1 C '21. But given the rapid pace of vaccination wherein a great majority of the population is expected to be fully vaccinated by September, we do expect that H2 C '21 will be better than the first half. Supply side issues like the continuing rise in input prices, especially steel and the global semiconductor shortage of the auto industry, we have some adverse impact in the second half, both in India and Europe, but we remain optimistic. As we all know, the same quarter last year, that is Q2 C '20 was severely affected by global lockdowns, and it may not be appropriate to make year-on-year comparisons of Q2 C '21 with Q2 C '20, when the base was extremely low. Instead, we'll make a comparison sequentially, that is with Q1 C '21 performance and also with the quarter in the prior year, that is Q2 C '19, so comparison of Q2 C '21 with Q1 C '21 and also with Q2 C '19. We start with an overview of the legal structure of MCIE on Page 5, here we see that in line with the strategy, MCIE continues to reaffirm its space in MCIE by raising their stake from 60.18% by end of Q1 C '21 to 60.76% during Q2 C '21. We start with Q2 C '21 results for MCIE India on Page 7. Sales dropped 17% sequentially compared to Q1 C '21 to INR 8,734 million, even though the underlying market segment degrew by much more. Our 2 largest segments declined by more than 25%, light vehicles by 30%, source IHS, and 2-wheelers by 38%, source SIAM group. If we compare Q2 C '21 to Q2 C '19, MCIE India sales declined by 5%, while the underlying decline in our key segments was 19% for light vehicles source from IHS and 40% for 2-wheelers source from SIAM. This shows that the focus on growth in India that we have spoken about in the last few calls is working. Let us turn our attention to profitability. MCIE India EBITDA margin in Q2 C '21 was 13.9% lower than the 15.5% in Q1 C '21, but satisfactory given the reduction in revenues and the increase in steel prices. The margin was also higher than the 13.1% recorded in Q2 C '19. The EBIT and EBT are at 8.8% and 8.3%, respectively, in Q2 C '21. On Page 8, we have the Q2 C '21 results for MCIE Europe. We have seen a slight growth in sequential sales compared to Q1 C '21 to INR 10,670 million despite the underlying market dropping. Compared to Q2 C '19, the revenue is down by only 6%, even though the underlying markets have degrown by much more. EBITDA margin in Q2 C '21 was 14.1% higher than both the 13.9% in Q1 C '21 and 13.1% in Q2 C '19. MCIE Europe in Q2 C '21 had an EBIT of 9.9% and EBT of 9.1%. The improved profitability is evidence of the fact that the restructuring actions taken last year have worked well. And now if we go to Page 9, we will see the consolidated Q2 C '21 results, which are a combination of India and Europe results. Sequentially sales dropped by 7% compared to Q1 C '21 and by 5% compared to Q2 C '19 to INR 19,404 million. EBITDA of 14% was lower by 0.7% versus Q1 C '21, but higher by 0.9% versus Q2 C '19. MCIE consolidated EBIT in Q2 C '21 was 9.4% and EBIT 8.7%. On Page 11, we have the H1 C '21 results for MCIE India. The sales have been INR 19,222 million, maintaining the growth momentum from H2 C '20. EBITDA is at 14.7%. EBIT is above our target at 10.1% and EBT at 9.6%. On Page 12, we have the H1 C '21 MCIE Europe results. So sales at INR 21,045 million are up as compared to H2 C '20. The EBITDA margin is at 14%, EBIT 9.8% and EBT 9.0%. On Page 3 (sic) [ 13 ], we present the consolidated H1 C '21 result of MCIE. Hereto, we see that MCIE sales at INR 40,267 million are continuing the upward trend from H2 C '20. MCIE consolidated EBITDA in Q2 C '21 was 14.3%, EBIT 10% and EBT 9.3% despite the headwinds around the reduction in demand, increase in steel price and the continuing pandemic impact. Now we move to Page 15, where we have presented the balance sheet position for H1 C '21. RONA is at 11.8% and operational ROE at 11.2%, and both are moving steadily towards that target that we have outlined earlier at 15%. On Page 16, we present the cash flow situation as of 30th June 2021. Cash flows have been robust despite difficult market conditions in Q2 C '21. Net financial debt has decreased to INR 11,023 million as MCIE reduces debt in Europe. MCIE has also invested in growth CapEx to cater to organic growth requirements largely in India and Mexico. We must also inform you that the Board at its meeting held yesterday, July 21, 2021, has recorded its approval to incorporate a new company as a wholly owned subsidiary. The proposed subsidiary shall be making greenfield investment in a new plant at Hosur to leverage the emerging growth opportunities in the mobility space. The idea is to help ring fence the business and operational risks associated with such a venture. In conclusion, we would like to state that MCIE has continued on its stated path of growth and improving profitability. We look forward optimistically to the coming quarters. Thank you. And now we'll proceed to Q&A.

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

My first question pertains to the greenfield plant. If you can throw some light on which products are we looking at and what kind of CapEx we'll be doing?

JP, would you take that, please?

Yes, Jinesh. This is a greenfield we are putting up at Hosur. Obviously, we have hit capacity, and we want to have additional capacity, essentially in the Bill Forge unit. So we have -- and also, I think we are looking at putting up a very state-of-the-art plant there. So it is part of the growth story that we've been talking about. It's just that we are housing it in a different entity for various business reasons. And it will also be additionally entitled to the lower tax that the government of India announced in 2019 of 15% plus surcharge.

Okay. Okay. So it's primarily to support Bill Forge's capacity constraint and also to benefit from this lower corporate tax. So we would be doing the same products which we have been doing, and that's the right understanding, right?

Sorry, I didn't get that.

We'll be continuing to do the same products, not any different products there.

There are a few new products, definitely, but similar range, similar products.

Understood. Understood. Second question pertains to Europe. So there first, with respect to the current quarter, what was -- I mean, the last quarter, 2Q, what was the constant currency revenue growth or revenue decline?

More or less the -- the situation [indiscernible] Q1 to Q2, it was more or less stable.

Q-o-Q, it was stable in Europe. Okay. Okay. And second question pertains to the impact of semiconductor shortages, several of your competitors -- sorry several of your customers I have been talking about severe impact in coming quarters. What are you hearing about the production schedules for third quarter for us, what kind of impact it could have on our European operations?

Okay. Hello, everybody. Good morning in India and good -- sorry, good afternoon in India, and good morning in Europe. This is Ander Arenaza speaking, okay? Regarding the semiconductor impact and shortage, it's true that the first quarter 2021 and especially the second quarter, the European market was really affected by that shortage, okay? The main impact in -- happened in -- during the months of May and June. And what we expect is that these shortages will disappear in the next quarters. The information we have from our customers show that there will be a recovery of the market and the production in the next quarter. So the demand are really strong for -- from September onwards. So our expectation is that the shortage of semiconductors will continue but at a much lower pace, especially in the Q3 where there will be a certain impact. And probably in the Q4, this will be a minor issue. So we expect that this shortage will remain till the end of the year, but at a much lower pace.

Got it. Got it. And last question pertains to the CapEx. So we maintain our CapEx outlook close to 5% of sales at an aggregate level or does some include because of the greenfield plant?

Okay. Regarding the CapEx, we are now -- we continue our best for our Indian growth. So we are adding capacity in India as we have biggest good expectations for the future. So we expect to be in the range from 5% to 6% over the sales. This is the standard rate. And mainly or almost 100% of the growing CapEx is located in India, especially you saw that the Hosur plant that we mentioned before, this is the new plant that we will launch with already nominated products. And we -- so we are opening a big facility for forging and machining, and we will add new customers and also new products on the factory. So -- and all these businesses are already allocated. So that will give us a big jump on sales. Also, we are growing in different technologies. We are expanding our gear division. We are adding more capacity and space to continue our growth efforts. Then also the forging plant is we are growing in the warm forging activity, and we are opening a new shed to product -- to enter into the warm forging in the second plant. So as you can see, there are plenty of big CapEx activity in the company as we expect to continue growing. And we are quite optimistic for the growth. For the second half -- I remain optimistic for the second half of the year and especially for the next year, where we will see a big jump once the COVID hopefully will be over -- COVID issue will be over and semiconductor shortage also will be over. So in that sense, we expect to have a good recovery in the next quarters and especially next year.

[Operator Instructions] The next question is from the line of Basudeb Banerjee from AMBIT Capital.

Sir, and congrats for the good set of numbers. So continuing with the same topic, as few global OEMs have been highlighting that Q3 volumes will be lower versus Q2 potentially. So from that aspect, because of the semiconductor issue. So -- and your Q-o-Q Europe business revenue was, in fact, higher. So how to look at just from a coming couple of quarters angle that Q2 revenue base, you are confident of retaining or there is a risk to this Q2 revenue number for Europe business?

Okay. As you know, in Europe, we have the -- in the Q3, we have the seasonality impact, okay, because we have the [indiscernible] in the middle of the Q3 -- That means that usually, Q3 is weaker than the Q2. But however, what we see in this moment is that the demand from the customer remains strong in July. And also despite we will have the holidays and plant closures in August, usually a couple of weeks will happen, we see also a very strong September, okay? So overall, what we see is that the market continues in a good trend, recovering the volumes slowly and we can see -- and that's at least in the commercial vehicle, the medium and heavy commercial vehicle market, we see also a very strong Q4. So my expectation is that the market will continue recovering. And after the COVID impact is over, I think we will see a good evolution of the market. So short term, I think the expectation is -- and the markets are quite good.

Great. My second question, sir, like as in the past couple of calls, you also highlighted that you are in touch with key 2-wheeler OEMs like Bajaj as there is so much news regarding e-2-wheelers various new launches happening and various component players also announcing JVs or tie-ups or portfolio expansion targeting e-2-wheelers. So anything material has happened incrementally in this quarter with regards to this?

No, no big changes on that. I mean we continue our contacts with the customers. We continue developing the products with them. And despite the 2-wheeler business it's more affected in the last quarter or let's say the drop of the 2-wheeler was higher than the rest of the sector. we expect that this sector will recuperate sooner. So no main changes. We continue our development with them. And let's say, the expectation for the future is also optimistic.

And last question, sir, if I look at your strong Europe margin this quarter. How to look at the MFE margin, the truck business margin, if one needs to segregate CIE Europe business for you, how that has progressed because we've been focusing on cost management aspects?

You know that last year, in 2020 due to the big impact of the COVID and also because of the drop of the market, we accomplished very strong restructuring activities in all our companies in Germany. And we reduced our breakeven levels, and we try to adapt our capacity to the new [indiscernible]. This year as the market itself is ramping. You can see that our -- we were able to improve our margins slightly. And we -- I think we are in a good path in this moment, okay? So the margin evolution in Europe, it seems solid. And we continue improving. And we -- of course, we are not satisfied, especially with the German profitability, our German factory -- profitability is not where we want to be. But we continue working to improve those figures, okay? So we see that if the market becomes stronger as it seems that it will come, we will be able to continue improving our activity.

And shipping, sir. As you mentioned, the creation of the separate subsidiary for new products and key mobility, et cetera. So can you highlight on the target product portfolio under that new subsidiary.

Well, this subsidiary will be located in Hosur, let's say, close to Bangalore will be managed by the -- our team Bill Forge mainly because Bill Forge is obviously booked and we have note -- additional capacity for the growth. So we opened this plant for this growth. The plant will have forging, but especially machining activity. We will produce there different components for sports, for PSA, different customers like Royal Enfield and also Hyundai, Kia, those are the customers that we have [indiscernible] projects and programs has been already awarded to us. So we are launching all the investments. The building will be ready in a couple of months, 2, 3 months, will be fully finished, and we will start production beginning this year.

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

Congratulations for a really good numbers. Sir, my first question is related to this outperforming Indian market. Indian entity has grown faster, far faster than the market. So if you can elaborate and give some qualitative reasons and trend towards those outperformance?

Okay. We think that our Indian activity has been -- we are producing properly and with high efficiency, and we are improving our quality and delivery ratios despite the impact of the pandemic and the difficult situation in the country, okay? And in this scenario, most of our customers are supporting us, and they are consolidating and moving the production to us as we are a reliable partner for them. So what we see is that producing with efficiency, with good quality in a very solid company as we have is paying results, and customers are confident, they trust on us. So they are supporting and consolidating production where other smaller suppliers, they are struggling with the situation, okay? That's the -- in my opinion, the view and the reason -- the main reason of our good position in the market. So that's the -- I explained this in the first quarter last -- in the last call in April, and we see that this trend still continues. Despite the COVID impact that happened, especially in May where we had a drop of 30% approximately in that month because of our customers closing factories due to the lockdowns in the different regions in India, especially in the Bangalore area. But after that, we showed very fast recovery. That's why we remain optimistic and we continue investing to expand our capacities to continue our growth path in India.

Great, sir. And sir, my second question is little related to some time back on some days or weeks back, we had CIE Investor Day, I've attended that. And there was a very, very good explanation -- strategy explanation on what CIE want to do over the next 3, 5 years? And it seems that India is a -- Mahindra CIE seems to be a very important part of that growth strategy, profitability improvement, investment, certainly. So would like to understand from you what where currently this -- our entity is and where -- how far we are from achieving those objectives, what we'll be doing. If you can explain in a little bit detail about the strategy for next 3, 5 years, which apparent already you've disclosed in those -- at that Investor Day?

Yes. Okay. As you said -- properly said that CIE is to continue growing and improving our profitability in India. We see as CIE -- from CIE point of view and despite the different new trends in the automotive, what we see is that the Indian market will continue growing, and there will be a very, very important production and manufacturing for the automotive sector worldwide, okay? So what we think is that we need to continue and our expectation is that the biggest growth in CIE in the next years will happen in India. That's a fact because we expect the market to continue booming. And also the export rate should grow from India to the rest of the regions, especially Europe and the States, okay. So that's the bet of CIE. And in that sense, Mahindra CIE is instrument where CIE will put the efforts to continue the growth. And if you look at the CapEx and the investments that we are doing in India, it's mainly focused on that. So we expect this growth to happen in India. And we will have a very, very solid activity in the future in India. That's the bet.

And sir, regarding ratios, return on equity, profitability, EBIT margin. So we'll be also aligning to those numbers over a period, right?

Yes. Clearly. I mean, the CIE target is to -- you know that we are above 18% EBITDA and the return on asset expectation is 20%. And in Mahindra CIE, we are still below those figures. So clearly, the strategy of Mahindra CIE is to match or even improve the CIE margins worldwide. So that's the clear target. So we continue our improvement efforts, working on efficiency, working on quality and, of course, growing the business because we have the capacity to continue growing. That's the strategy of CIE. So yes, we would like to align -- we will align our margins to CIE margins. That's the main target that we have today.

[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investment.

Congratulation Ander and the whole team in good set of numbers in challenging time. You gave little more color on this forging business in the our Europe, Germany. Can you elaborate? I missed some part? So how do we really look at this business the way CV market demand is growing very strongly in the Europe. And second question is what exactly are we doing for participating on EV space from the European entity?

Okay. As you know, the German business, MF -- what we call MFE, Mahindra Forgings Europe, has been, let's say, our most complicated business and less profitable business in the last years, okay? We have a turnover -- strong turnover level in the past, but we were not making money. So we decided to reduce and to make a slowdown of the business, let's say, a reduction of the business, especially eliminating all the nonprofitable products that we were producing. So in this reduction of the business, we had some hard times, especially because the -- in 2020, the crisis came, so the reduction was higher than what we expected, then I think that we did all the restructuring job. And what we expect is that we will keep and maintain business. We are not planning to continue growing. We want to make it efficient, and we want to make it profitable at least having a positive EBT. And that's our challenge, and that's what we are getting and obtaining now, okay? For the future, what we see is that the business will remain flat, and we will continue our efficiency improvement plan. So that's the strategy. And coming back to the electrification, we see that the electrification will be the next challenge in Europe as the market will change in the next 10, 15 years. And we are working directly with most of our customers to offer the different products and to change the portfolio in certain plants, okay? And we are working on actively on the suspension and chassis components and in the aluminum forging, and we continue in that path. The development, for example, in some -- we already got a very important electric component business nominated from an American customer. So we are already nominated to produce a big program for electric vehicles. So that's the way that we are working. I mean we are concentrating now in the current market because you know that the electric vehicle market is only 5% in this moment in Europe. And so we need to take care of the rest of the 95%. And for the future, we are quoting and we are actively searching for the products for the electrified battery electric vehicles. So that's the strategy, and we have time, and so we are quite optimistic that we will make this change feasible and in a proper way in the next years.

On this European forging plant, so we want to turn it make EBT positive. So in the whole journey where -- what stage we are in, I mean?

Yes, we are already in the positive EBT, okay, very closer to that close, and that -- in that branch. So -- that's where we are, and we need to now doing continue improving to have positive -- additional positive margins. So we are already in the breakeven and already we got it. And -- but of course, it is not enough for us. So we expect to continue growing.

And since you are saying that for electrification, we are looking -- evaluating aluminum forging. So what type of capacity currently we have and how much investment we really need to make to scale up that aluminum forging business in Europe?

Okay. The investment is not important because what we would use is the current prices to produce the aluminum. Of course, then we need to change certain facilities and to add treatment ovens and we need to modify the lines, but the investment is not very relevant, okay? So the -- what we will use is the existing capacity to produce the aluminum components and, let's say, all the chassis components.

Okay. And can you give some color on this Metalcastello business which was operating at very low capacity, how we are looking up. And any new customer acquisition that has added in the first half of the current year?

Yes. Okay. In Metalcastello, the business is evolving really, really well. You know that in -- our main customer in Metalcastello are the American customers. American off-highway vehicles market is revamping. So the demand is really, really strong in Metalcastello, just to review what -- we are adding also additional capacity and investing in additional machinery because the plant in this moment is fully booked. And the expectation for the near future is also really, really strong. So we will come back to 2018 figures when the market rate was really strong. In 2019, we had a slowdown and 2020 because of the COVID it was very, very low. And we are recovering again the 2018 figures. So we are quite optimistic with the evolution of Metalcastello business, okay? So at least in the next 1.5, 2 years, we will see a big jump in Metalcastello and we are working even adding capacity to cope with the demand. The pressure in this moment is very high. That's the -- and yes, we are opening the new customers. I told you before that we got a big business from an American customer -- a new American customer for electrified powertrain. So I think this is the best information that I can give by saying that we are opening new customers, and we are obtaining also new products for electrified vehicles. So in that sense, it's a very, very positive move in the evolution of the company.

Can you give some more color on over this Aurangabad aluminum plant, the facility, which we acquired the company, which we acquired what stage we are earlier we -- because of COVID, there was some slowdown.

Yes. No, the company in Aurangabad is doing well. They continue growing and they -- we'll -- as you know, we are opening -- also building a new plant in Aurangabad, the fully new plant in order to continue our growth strategy. We continue also with the exports that we are doing to Europe, and this is also a growing business. And you know that Aurangabad main customer is Bajaj, and we have an excellent relationship with Bajaj, and I think we are supporting Bajaj absolutely 100%. So they continue trusting on us and giving us additional business. Then what is true is that due to the COVID and we had the plan to transfer technology from Europe to enter into new products in Aurangabad. This transfer was unfortunately stopped because of the pandemic. And we hope that this transfer will be restarted by the end of this year, okay, not yet because of the second wave of the COVID that was a surprise to us, and we were expecting to do it in June, July, but now we need to postpone it to the end of the year, but we will do this jump of technology also in Aurangabad. So overall, we are really pleased, the management team is doing really well in Aurangabad. I think the alignment with Mahindra CIE team is complete. And I can only say positive things about Aurangabad. So we expect that this business will continue growing the same way that Bill Forge is growing strongly. I think that Aurangabad will continue also the growth path, and we will become one of the aluminum high-pressure die casting leaders in India.

We will request the current participant to please come back in the question queue for any follow-up questions. The next question is from the line of Srinath Krishnan, an individual investor.

My question is to Mr. Ander. First, congrats on consistent operations for the last 1 year. There were plans to merge the Chinese Mexican and Brazilian operation with Mahindra CIE, once the automotive industry has stabilized. Now we see some stability in the market. Any update on the same? Any update or time lines that we could have?

Okay. There is no good news on this in this moment, okay? We are continuing in our analysis -- internal analysis and strategic reviews. And in the next month, we will accomplish the strategic plans for Mahindra CIE, and we will decide later the next steps, okay? In this moment, we see this option as feasible, but we need to decide and looking at the market evolution and the expectation of the different regions, decided we will go on or look for other acquisitions and use our -- all our capacity -- our financial capacity to develop other businesses. So that's the strategy thinking that we are now having, and we will accomplish this during the second half of the year.

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

Congrats on a very good set of numbers. Most of my questions have been answered. Just had a couple of housekeeping questions. So firstly, I just wanted to understand, in the last quarter, you had mentioned that there will be certain price increases, which will be coming in the Europe business, which have kind of come in, that's what you mentioned in this presentation. So can you just help me with the quantum of the price increases that you have seen?

Sorry, I didn't catch currently the question. Can you repeat the recaps. Can you help me on this?

Yes. Nikhil, are you asking how much price increases we have got in our European business, right?

Yes, the net benefit of price increases in the region.

Benefit of price increase in Europe.

Yes. The price increase in the second half -- in the second quarter is approximately 6% over the Q1, okay? This is the raw material impact. As you know, the steel price is really -- is going up and has gone up dramatically in the last quarters and the impact in our business in Europe is 6%. And it's approximately the same than in India.

Okay. So in India also, you've gotten price increases for this quarter? Because I think last quarter, you've got a price increase in India, but has it also happened in India for this quarter as well?

Yes, let's say, the price increases in the different quarters have been different. Aluminum has continued going up and steel is also going up and the impact on this -- of the raw material in our P&L is approximately 6% and it's similar in India and in Europe. So it's 6% is the figure.

Okay. Okay. Secondly, if I look at the commentary that -- I mean you're talking about a lot of new order wins and a lot of organic CapEx that you're doing. At the same time, I think in the last quarter, we have kind of changed our dividend policy, where we'll pay out more dividend now, which we were not doing earlier. So how should I look at it this in line with our also stated policy of looking at potential acquisitions? Is the focus now more on organic growth? Are we not seeing enough -- I mean, targets available at good valuations or what is the situation here?

Okay. No. We are now working a lot of focusing on the organic growth, mainly because we got the new orders from the customers, and we decided to go in that path, okay? But we keep also an eye on the inorganic growth. And as we usually say that we would like to have 50% organic growth, 50% inorganic growth, okay? So we are still at this. Of course, due to the pandemic, we were not able to -- let's say, to be very active or to develop these activities. So we expect that by the end of the year once the pandemic is over, we will be able to start also analyzing the market, and we are also willing to continue our inorganic growth path, okay? So the strategy of the company continues its focus also in the process. So that's the update on that.

The next question is from the line of Nihil Parekh from Tamohara Investment Managers.

I just have 1 basic question. Referring to the commentaries of the various auto ancillary companies and also the OEM, largely, their business has been impacted due to semiconductor ratio, be it Q1 or Q2. But so looking at our results, we have seen minimal impact. So just can you share your thought what measures have you taken to ensure that we've safeguarded from this impact.

Nihil, just to answer -- we tried to answer that question. Yes, there has been an impact on the market. And very clearly, you see the market impact is there. We talked about -- the presentation also talks about the market demand coming down both in India and Europe in Q2 versus Q1. You can clearly see that, especially in Europe, which will be more semiconductor impact in India, of course, we had the May lockdown. So yes, there has been an impact on the market, but we have always been saying that we are trying to grow faster in the market and order book is being developed. And that's the reason why our impact has been less than the market impact. It has been -- the steady focus on ensuring growth over the last few quarters that we have been talking about, and that's what you are seeing in this quarter. So we have not done anything differently to mitigate the impact of the semiconductor crisis or anything. It has just been the focus on growth that has been part of our strategy.

Okay. So can we say that it has been the recent order wins, which has sort of helped us tide this time?

Absolutely. Of course, when you stay focused on growth, it is you get orders lot of the orders have come as Ander pointed out because there has been a consolidation in the market. Customers are trusting companies like us more, given the uncertainty in the health of the supply chain aspect. So that's the reason why some of our existing customers have given us -- have reposed trust in us during this pandemic period. some new like Hosur, Ander pointed out new customers that have come in PSA exports and the 2 other customers that he talked about. So yes, you're right. So largely, our existing customers are reposing trust because the supply chain -- there is a lot of uncertainty in the supply chain. Plus we have also gained newer orders, a lot of like -- if you remember in C '19, we talked about some huge number of customers that we had added. If you go back to our C '19 year-end presentation. We have talked about so many customers who had added at that time. So lot of them are ramping up. So you are right. It's the order book, but the focus on order book is because of the growth we had.

Yes. My comment was that, yes, also that in Europe, the second quarter was affected negatively by the semiconductors, and we saw reasonable turnover figures, okay? That's why also what -- we see the Q3 and Q4 in an optimistic way because once these semiconductor shortage is over, we will see the production of our customers growing and we will see our demand growing. So that's the main reason that we still feel quite optimistic for the near future. And especially for the next year where we think that will be one of the best years in the automotive sector. And that's the feeling that we have because we -- in this difficult situation, we did reasonable figures and nice figures, if the market improves, as we expect, the figures would be better. So that's why we will continue being optimistic in this environment.

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

A couple of clarifications. One is, when you're talking of recent order wins helping to dilute semiconductor shortages this would be primarily in India, right? Europe site, we would not have seen any material new order win with respect to the totally new business of such.

Yes, that's correct. So in India, if you see the difference in market, we talked about between Q1 and Q2, light vehicle market dropped by almost 25%, 26% for the 2-wheelers by roughly about 38%. The tractors, of course, dropped only 15%, that's true and MHCV is also a large number -- large numbers. So we have dropped to 17% compared to -- compared there. There will be some steel impact, but still, we are much better than the market prospect. You are right, as far as order books wins in India is concerned. In Europe also, it's largely the existing customers that we are talking about in Europe. Of course, Ander has talked about the new customer for our Metalcastello business, but that is largely our expectation. You're right.

Right, right. And secondly, with respect to this new American customer our EV program, the component which will be supplying is our existing company or that's on the totally new EV component as such? And would this be an aluminum portion or normal steel forging, which we do currently there.

Ander, the new customer Metalcastello.

Yes. The new products that we are producing for electric power train are existing products, of course, with different characteristics due to the electric vehicles require much more accuracy and surface treatment and so on. But the production is sitting at their existing products and mainly they are shafts and gears for the electric transmission.

Okay. Okay. And secondly, on aluminum forging, which you indicated that investment would not be very high. It's primarily because we look to ship some existing equipment from steel forging side? Is that what you mean?

I didn't catch the question properly. Vikas, can you tell me?

Yes. Ander, the question is, we said that the investment in machinery for aluminum forgings will not be high. So the question is, are we dedicating some existing press or whenever it happens, will we dedicate some existing press to the same? Or how is it going to be because there is extra capacity?

Yes, that's right. the solution is -- our proposal is to use the existing -- part of the existing capacity and the different process that we have to produce these kind of components. Of course, we need to completely change the line and add additional heat treatment facilities and so on. But the idea is to partially use the capacity that we have to replace products for these new products -- new chassis components.

[Operator Instructions] The next question is from the line of Bharat Sheth from Quest Investment.

Ander, second half is normally typically is lower than the first half in case of Europe business, because of many holidays lined up in second half. But Y-o-Y, how do we really look last year second half versus this year second half?

Okay. We think this year's second half will be better, stronger than the last year's second half. Last year second half was affected, especially Q3 where the COVID pandemic was still there, and we saw a recovery from the Q2 that was really bad, Q3 was better and Q4 was good, okay? But this year, what we see is that the second half of the year will be better, stronger than the than the second half of 2020, okay? We clearly see that because the impact of the pandemic is slowly disappearing. I mean, not definitively because in Europe, at least in Spain, we are in the fifth wave of the coronavirus, so the virus appears and disappears continuously. So that's the situation. But the semiconductor issue that was the -- one of the big blockages in the first half of this year will disappear or will be reduced and will be much lower impact in the second half of the year. So that's why we expect a stronger second half in 2021. And in fact, the order book shows that, okay? The order book for September, October is really high. So let's see if -- and of course, there are certain uncertainties because the -- we don't know if there will be another wave of the virus. But if the virus is over, I think that we will see a good end of the year.

So that is on the top line as well as the profitable margin wise also -- EBITDA margin, correct?

Yes. Yes. Yes, absolutely.

That was the last question. I would now like to hand the conference over to the management for closing comments.

Thank you for your participation. I now hand it over to Ander for his closing comments.

Yes. So yes, I wanted to thank you to all the participants for the good questions and direct questions. And I hope that we answered properly to all your questions. I just wanted to thank you to all my team and all the workers in Mahindra CIE because they did a fantastic job in this really, really challenging times, especially in India, where we were affected heavily in all the locations, but especially in the Bill Forge in Bangalore area in Karnataka. So my best wishes and my thanks to all the team because of the commitment they show, the commitment and they manage the company perfectly. And I think that our customers recognize that. So thank you very much to everybody, and see you next time. Thank you.

Thank you.

Thank you. On behalf of ICICI Securities that concludes this conference. Thanks, everyone, for joining us, and you may now disconnect your lines.