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

Ladies and gentlemen, good day, and welcome to the Mahindra CIE Q3 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 Limited. Thank you, and over to you, sir.

Thanks, Stephen. Good evening, everyone in India, and good day, everyone, in the rest of the world. Thanks for joining us today for this call. From the management side, today, we are represented by Mr. Ander Arenaza Alvarez, the CEO; K. Jayaprakash, the CFO; Mr. Vikas Sinha, our Senior VP, Strategy; Mr. Oroitz Lafuente, the Chief Business Controller; and Mr. Swapnil Soudagar, DGM, Strategy. Now I'd like to hand over the call to the management for their initial remarks. Over to you, Vikas.

Good evening, everyone, and good afternoon to those who are joining from Europe. I welcome you 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 despite such a late starting time for Asian investors, but this was necessitated due to the markets being closed tomorrow in India because of the share. Q3 C '21 began on an optimistic note, which was reflected in our previous results call. India had quickly recovered from an eviscerating second wave of the pandemic in Q2 C '21, while Europe was well placed with a fast-paced vaccination program. However, Q3 C '21 has been hit by ongoing crisis that all of us underestimated, the semiconductor, or chip crisis as it is called , which has bullion into a medium-term issue and is now expected to last for a few more months. The light vehicle production in both Europe and India as well as truck production in Europe has been effective. IHS estimates light vehicle production in 2021 compared to 2022 to grow by 8% to 9% in India and about 1% in Europe. These are much lower than earlier estimates, and thus, Q4 C '21 will be a challenge. The saving grace is that the demand sentiment is still strong, and we think that almost all the demand lost would be recovered in 2022 and subsequent years. Tractors and Blue wheelers in India have not been affected much by the chip crisis, but they are following different growth paths. With a decent monsoon and continuing investment in rural infrastructure, the Indian tractor market is expected to remain stable in the near term, but the growth rates will be modest given the very high base of 2020. 2-wheelers demand in India is recovering slower-than-expected from the second wave, especially in rural India. Exports of 2-wheelers continue to do well, and 2-wheeler OEMs with greater export presence have an advantage. Steel prices continued to remain high, but stable. Other commodity prices have shown a marked increase this quarter. On top of this, we are now possibly looking at an evolving power crisis in India due to coal shortage and an increase in energy price in Europe. A [indiscernible] third wave of pandemic could hit India despite the high vaccination numbers and the situation post-Diwali will be critical. All these issues have added to the uncertainty in the environment that we as a business are functioning in. We will continue to focus completely on our primary task of ensuring that our profitability is least affected in case of any such occurrence. Now having made a litany of risk factors, let me add that the festive season always brings share and optimism, and we definitely look forward to that. As we all know, the same quarter last year, that is Q3 C '20, was slowly recovering after global lockdowns. And it may not be appropriate to make year-on-year comparisons to our Q3 C '21 just with Q3 C '20 when the base was lower. Instead, we'll make a comparison with both Q3 C '20 and Q3 C '19, and also sequentially with Q2 C '21 performance. Given this late call, I understand that our investor presentation for this quarter may not have been seen by many. I will highlight the key points as of this. We start with Q3 C '21 results for MCIE India on Page 7. Q3 C '21 sales in India were at INR 10,682 million, which is 30% higher compared to Q3 C '20, 20% higher compared to Q3 C '19 and 22% higher compared to Q2 '21. These growths are higher than the underlying market growth rates. MCIE India EBITDA margin in Q3 C '21 was 15.1%. This was higher than the 13.6% achieved in Q3 C '20 or the 13.1% in Q3 C '19 or the 13.9% in Q2 C '21. The twin focus in India on growth and operational improvement that we have spoken about in the last few calls is working. On Page 8, we have the Q3 C '21 results for MCI Europe. Sales were at INR 9,119 million, plus 11% versus Q3 C '20 and a negative of 2% versus Q3 C '19, but better than the underlying market. There is a sequential seasonal drop in Q3 sales compared to Q2, but -- Q2 in Europe. But as we know, that's because of the August holidays. Accordingly, Q3 C '21 sales was 13 -- 15% lower than Q2 C' 21. This is similar to the drop of 17% sequentially between Q3 C '19 and Q2 C '19 sales. So that is nothing out of the ordinary that you see in the sequential drop there. MCIE Europe EBITDA margin in Q3 C '21 was 12.5%. This is versus 9.9% in Q3 C '20 and 11.5% in Q3 C '19. The improved profitability year-on-year is evidence of the fact that the restructuring actions taken last year have worked well. The margin is lower sequentially than Q2 C '21, but that is attributable to the seasonal drop in sales explained above. And now, if we go to Page 9, we'll see the consolidated Q3 C '21 results, which are a combination of India and Europe results. Q3 C '21 sales were INR 19,801 million, plus 21% versus Q3 C '20, plus 11% versus Q3 C '19 and plus 2% versus Q2 C '21, even sequentially also higher. Consolidated EBITDA margin of 13.9% was higher than the 11.8% in Q3 C '20 and 12.2% in Q3 C '19. Consolidated EBIT in Q3 C '21 was INR 1,924 million at 9.7%, which is significantly higher than the INR 1,080 million at 6.6% achieved in Q3 C '20 and also the INR 1,396 million at 7.8% achieved in Q3 C '19. While not comparable due to the seasonal drop, even then the Q3 C '21 EBIT was even higher than the INR 1,828 million at 9.4% achieved in Q2 C '21. Similarly, consolidated EBT in Q3 C '21 was INR 1,790 million at 9%, which is higher than the INR 937 million at 5.7% in Q3 C '20 or INR 1,198 million at 6.7% in Q3 C '19 or INR 1,698 million at 8.7% in Q2 C '21. On Page 11, we have the 9-month C '21 results for MCIE India. Sales was INR 29,904 million, EBITDA 14.9%, EBIT 10.4% and EBT 9.8%. On Page 12, we have the 9-month C '21 MCIE Europe results. Sales was INR 30,164 million, EBITDA 13.5%, EBIT 9.4% and EBT 8.6%. On Page 13, we present the consolidated 9-month C '21 results of MCIE. Consolidated Q3 C '21 sales was INR 60,068 million, EBITDA 14.2%, EBIT 9.9%, EBT 9.2% and PAT 5.2%. Each of these numbers is higher than the corresponding figure in the pre-pandemic 9-month C '19. Let me emphasize that these results have been achieved despite the headwinds around the reduction in demand due to the chip crisis, increase in price of steel and other inputs like logistics and power and the continuing overhang of the pandemic. This shows the resilience that MCIE has exhibited during trying times. Regarding electric vehicles, we are happy to report that we have made progress in developing business in this area. Metalcastello has received a large-sized order of EUR 20 million from -- per annum from a U.S.-based transmission supplier to electric vehicle OEMs. In India, we have received similar orders for transmission and driveline parts for both 4-wheeler and 2-wheelers at Bill Forge. We will continue our [ strided ] efforts in this direction. Please appreciate that they are unable to save more given customer sensitivity. In conclusion, we would like to state that despite functioning in an uncertain and rapidly evolving environment, MCIE has continued its stated path of growth and improving profitability. We look forward optimistically to the normalization of semiconductor supply, which will be the key factor for the market recovery in next quarters. We wish everyone on the call, Happy Dussehra, Happy Vijayalakshmi, Happy Vijaya. May the festival spirit uplift our industry. And now we proceed to Q&A.

[Operator Instructions] The first question is from the line of Nikhil Kale from Axis Capital.

Congratulations on a good set of numbers. So my first question was on the India business. Sir despite -- I mean, we've seen the growth that has happened in the different segments, we have outperformed the industry. So if you could just provide some more color on the India business performance, maybe talk about how the growth is panning out in the different businesses with stamping, castings, or electrical. So some more color on the India business performance.

Yes. Thanks, Nikhil. Ander, the question is, how is India growing at this rate, and which parts of India are growing? I will just start off the answer and you can add to that. We have been saying that all our divisions in India are on a growth path. And if you look at the CapEx figures also half yearly that we had presented, there was a lot of investment going on in India. In fact, this growth is spread across all divisions, and it is not really just one division that is growing. With these remarks, I'll hand it over to Ander.

Yes. Because -- thank you. Good evening, everybody. This is Andre Arenaza speaking, okay? My feeling is that the Indian business performed very well in the third quarter in 2021. If you look at the figures, we are already at the same level than the Q1. So the third quarter was this calendar year was very strong. The second one was affected by the COVID. And in the third one, despite the semiconductor shortage and our customer slowdown due to this semiconductor shortage, we saw that the Q3 results on turnover were up again at the same level as Q1. And we have the expectation to continue growing in the next quarters, okay? It's true that there is an uncertainty in the -- now in the market due to the semiconductor issue, and we could consider that during the next couple of quarters. We will see certain volatility and uncertainty. But after that, we think that there is very strong sentiment in the customers in the automotive market. And we expect that all the businesses will continue growing. Regarding the evolution of the, let's say, performance of the different verticals. I would say that all of them, they perform equally or similarly, all the divisions are performing well. And it's true that as Vikas mentioned that we have the disadvantage of the high raw material prices, okay? This is good for the turnover, but it's affecting negatively the margins. So despite that, we were above the 15% EBITDA margin. So overall, I think we are quite satisfied with the evolution and we are quite optimistic with the future. We were expecting a much better end of the year. That is true. I mean, we -- in the last call, we were really optimistic because all the customers were expecting a big jump by the end of the year. Unfortunately, due to the semiconductor shortage this jump didn't happen. And -- okay, the sales and the turnover will be a little bit lower than expected. But this jump is still coming. So we think that perhaps it will have a delay of 4, 6, 8 months, but the positive trend will continue. I hope I answered your comments -- your questions.

Yes. Yes, Nikhil, back to you.

And then secondly, just on the Metalcastello brand, how are you seeing growth over there? I think that segment grows benefiting from a strong pickup in demand in North America. So what point of situation over there, what has the growth been in this quarter for Metalcastello?

Yes. Ander, the question is about Metalcastello. Is Metalcastello benefiting from the increase in demand in North America?

Yes, absolutely. I would say that the Metalcastello is doing really, really well in this calendar year. You know that we have very poor year, especially starting mid of 2019 when the decline started, and in 2020, we had a very weak year. But after that, after the elections in the USA part and the COVID is also over, I would say that in -- the demand from our American customers in Metalcastello, it's very, very high, is very strong. And we are delivering a lot. In fact, we are adding also additional capacity, and we are investing to be able to cope with a high demand. So yes, in this moment, we are close to the 2019 figures. And probably we will end the year very, very strongly. So the evolution of Metalcastello is very positive in the sense

Great. And just one last question on the number side. So if I just look at the employee costs, I think for the last 2 quarters, we were around INR 3.6 billion on a consolidated basis, whereas this quarter, it's declined to around INR 3.2 billion. So any one-offs there, or is this like the sustainable number that we should be looking at going forward on a quarterly basis?

Jayaprakash, JP?

Yes. I think you have to look at it from the fact that August was a closure period in Europe. So you cannot take only this quarter number.

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

Congratulation Ander, Vikas and Jayaprakash on excellent performance in challenging time. Ander, however, 3, 4 questions. One is on, we have already won some order on electric vehicle front in Europe as well as India. But from a medium-term perspective, can you give a little more color or elaborate what is our strategy to grow that electric vehicle business, new acquisition of the client as well as new businesses, particularly in Europe where the EV is penetrating at a much faster pace?

Okay. Let's say that the electric vehicle share in this moment in Europe is approximately 7% of the total market, okay? And the expectation is that this 7% will continue growing. This is -- the 7% are the pure battery electric vehicles, okay? Then we have a hybrid and my hybrid electric vehicles that we are already supplying a lot of components. In our company, we have we are already delivering and producing components for electric vehicles. But as the share is very small, our part of the pie is also is also very small, okay? But what we are now having -- we have all the new contracts, the new projects that we are being nominated from our customers, most of them, they are hybrid or electric vehicles, okay? So this trend that is -- in Europe is very clear, and we will be in that we will continue with that trend, and we will probably increase our percentage of components for electric vehicles in the next years. And this is a fact. And regarding the -- from the product strategy, Vikas already mentioned that we got big business from an American customer for producing electric transmissions, and we are going to invest and produce in a very important way EUR 20 million per year to order business with this American customer from Metalcastello plant. And also in our Forgings in Spain or in our Forgings in Germany, we are also developing components for these electric vehicles. We mentioned in the previous calls that we are developing the aluminum forging where we hope that we will have news very soon and we will be able to disclose -- we are not in a position to disclose anything yet, but we are working very hard on this transition to these kind of products where we think that there will be big opportunities for us in the future. And coming back to India, in India, we are already working for certain customers. For example, in Mahindra, we are producing gears or we have also from [indiscernible] producing components for electric vehicles, and also we've got certain new businesses for one new electric bike customer, okay? So we are developing the business. I would say that it's very complicated to give figures because the situation is evolving. And every day, we are developing and the market is moving to that direction. In India, I think the speed will be much lower, and we don't expect a major impact in the next 10 years. perhaps in the 2-wheeler and 3-wheeler where we will have certain entrants. But for -- in Europe, for example, there will be a faster pace of can and we will be ready to enter into that carrier. So that's our view on this.

Okay. Second question on our strategy to develop India as for export market. So at this juncture where we are and how do we see over the next 2, 3-year time frame?

Yes. This is 1 of the -- also 1 of our strategies in Mahindra CIE, okay. We are developing -- if you look at the -- our CapEx in the company, I would say that 75% of the CapEx is concentrated in India, and the remaining 25% in Europe, okay? So all our reports are reinforcing our capacity -- our production capacity in India because we think that the internal markets in India will grow. I think there is a big room for improvement in India in the next year. And also, the export rate will continue growing, okay? In this moment, we can be at something like 11%, 13% export rate in our production, and we will continue growing. And we have internal targets to be at 20% in the short term, okay? That is the clear strategy. Also, there is one important thing that is happening now that you know that the logistics and the transport costs are increasing a lot, especially all the ship rates costs has multiplied by 4 in the last in the last months. So that will probably create certain delays in the export rate because we think that most of our customers and especially after we're looking at what happened with the chemical doctor shortage. They are now rethinking and redistributing their logistics routes for the components that they buy, okay? So we think that in that sense, there will be local to local strategy reinforcement in the next period. So considering this, perhaps the export rate will continue growing, but at a lower pace than we were expecting some months ago because of this impact of the logistic costs.

And one on EBITDA improvement. CIE has clearly laid down, say, 2.5% EBITDA improvement over next 3 years timeframe. So in that journey, where Mahindra CIE is placed? How do we see EBITDA improvement from year-on-year?

Okay. We have also our internal targets, and we are aligned with the CIE EBITDA improvement strategy, okay? So we should show similar or the same trend than CIE, okay? This is clear. Of course, in this moment, because of the high increase or the strong increase of the raw materials, the margins are additional challenge for us, okay, especially since the volumes are not there. But once the volumes and the market comes again and we are again at expected volume level, I think that we will continue improving. I think we have a lot of room of improvement. I mean, this is our main job. I always talk about the internal efficiency to the teams, and we have shown a good improvement in the last year. but we are still far from the efficiency that we are getting in other regions in CIE. So yes, I think that the EBITDA margin improvement will continue. That's our main target. And we will be aligned with CIE.

Sorry, last question is long. See, under in our total capital employed, a little less than 50% is sitting goodwill. And this goodwill is on account of several equities and which are doing well, except on Mahindra Forgings Germany, which is approximately INR 500 crores to INR 600 crores, and which is on -- so are we really evaluating of impair -- doing any impairment of that goodwill?

No, we are not thinking on making any impairment on the goodwill on Germany. Germany, it's true that this is one of our most, let's say, weakest businesses and lower margin business that we have. However, despite the situation that we have this year with the semiconductor issue and raw material increase as soon we will be able to have black figures in Germany. So all the restructuring then was -- is paying results, and I think that we are in the good direction. And the wood will in Europe, it's a goodwill unified in all forgings in Germany plus the European businesses. So let's say that the European business is covering all the goodwill with no issue. We don't see a risk on that.

Okay. And last question, how do we see Europe business in Q4 vis-a-vis Q3 level?

Okay. This is a very good question because the -- where the -- some 3 months ago when I was speaking to all of you about the optimistic year or the end of the year, and I told that because we have orders -- we have term orders from the customers with the EDI, electronic data interchange, systems that we received the programs for the next month. And we see in 3, 4 months in advance the demand, and demand was -- for September, October, November was terrible, very, very high, okay? Unfortunately, at the end of August, because of the -- they have no semiconductors to -- they were not able to build the cars, so they can't sell the order. So -- and in September, the -- our deliveries were very, very low, okay? In this moment, we see a certain recovery, but the semiconductor issue is still there. So what we think is that the Q4 will be similar to Q3, something like that. I mean that's the expectation, I mean, it's still weak. And the recovery will come in 2022, okay? We hope that it will be Q1 '22 or Q2, okay? That's the expectation. So we see a challenge in Q4 and then probably we will see the promising calendar year 2022.

[Operator Instructions] The next question is from the line of Nikhil Parikh from Tamohara Investment Managers.

Sir, if you can just share what is the constant currency growth for the Europe division?

JP, growth in Europe in euro terms in Q3?

You want the numbers in new orders?

Yes.

11%.

Euro terms, right, sir?

Yes.

Sir, also on the Europe business, our commentary has been that the German forging business will more stay stagnant, given a robust order outlook from the CV companies, global CV companies, bearing the semiconductor ratio apart. So how do we see our German forging business over a medium term, say, next 1 or 2 years? And -- yes, I'll just follow it up

Yes. You know that we were expecting a decline in our German business. But as you said, as the commercial vehicle market, we expect that we'll perform well in the next 2022 and 2023 because we see the cycle will continue strong in for the commercial vehicles, we think that the company will continue at a good sales level, okay? So we see a strong demand. And we are already at the nice figures despite the semiconductor issue. Once this is solved, I think that we will continue -- at least we will have a couple of good years in Germany, yes. But we have an optimistic view of that.

Okay. And sir, if you could just give a medium-term outlook on how do you see Europe business shaping up over the next couple of years?

Okay. I think Europe business, this will perform also as MFE Germany. The European business will perform well, okay? We expect that 2022 to be a good year. And in 2023, also the expectation from the IHS shows recovery. You know that in Europe, we had a big impact in this calendar year 2021, where we will be very close to 2020. I mean, despite being a cover and this year, we will be similar to 2021. And 2022, we expect a growth of the market of about 10%, 11%, okay? So that's what the analysts says and that's what we expect. So -- in that sense, we think that there will be a recovery of the business in Europe. And the only, let's say, concern or the main concern will be first semiconductor issue to be over. This is something that we were expecting by this year and unfortunately, it will be next year. Then let's say, to end definitively with the pandemic, the bit we think that we are all in high stack who knows. I mean, there could be additional impacts that are not forecasted. But okay, let's see, we think that in Europe now approximately 80% of the people is fascinated with the 2 doses. So the risk is very low. So we are optimistic also on that. And finally, what is -- what can be a little bit boring also is the inflation that we can see in Europe, close to 4%. That is a much higher inflation than we are used to. So that could create certain difficulties, especially energy impacts on the industry or labor increases. Those are the main issues. But overall, we think that the volumes will be okay, and we will be able to manage this new scenario.

Okay. And sir, one last question. If you can just share revenue number from our [ Belford ] unit and aluminum folding division, if possible, for the quarter and for 9 months?

Yes. Like forge is now a vertical of MCIE. So that -- so we are -- so we'll have to look at it. We actually don't look at it separately at this point of time. AEL, of course, is a subsidiary. So that is -- yes. So JP, on AEL, maybe, but before this, now part of MCIE.

Right. AEL hedge is approximately INR 2.4 billion. And that's the size of the AEL in the Q3 and Bill Forge is similar.

Sir, if I can just repeat the number, INR 2.4 billion you mentioned, for 9 months?

That's right.

No, for 3 months, for the last quarter.

Okay. So AEL and Bill Forge number is the same?

Roughly in the same range, of course.

In the same range. Yes.

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

I also have a question for our group business. Si if I have to just compare the quarter performance on a sequential basis, so after adjusting for the drop in the revenues, is it fair to say that we have further managed to reduce our costs in that segment for us and already some breakeven point? Because if I had to adjust for the drop in revenues or do you see there has been a running of substantial -- there would have been an improvement in our EBITDA margins?

So Nemish, are you referring to India or Europe?

Europe business.

Europe business. So Oroitz, the question is, have we reduced our breakeven in Europe because in spite of a drop in revenues compared to Q2, the margins are still holding up that much. So is there a drop in breakeven in Europe?

No, no, there is no change in that.

[indiscernible]. But now, we have it in our results, and that's why we are showing the [indiscernible].

Sorry, could you repeat?

So the loss in the margins from -- in the sequential quarters from Q2 to Q3 in Europe is coming also for the increase on the raw material prices, okay? That's the steel price increase that reduced the margin from one quarter to another.

Okay. And another question, sir, for this auto PLI scheme, there is -- there had been an option to duly appointment of auto component parts like sunroofing -- or sunroof systems as well. So are we planning to introduce that production in CIE India? Any comments on that?

Ander, the question is about sunroof. Are we introducing sunroof in India through our sister company?

Okay. The sunroof business is being developed. In India, we are planning to do that. And we have to analyze if we will include the Mahindra CIE or not mainly because of some marketing reasons, okay? The sunroof is pure OEM-directed business. And as we are part of -- our name is Mahindra CIE, some of our customers can consider us as a competitor, okay? That's why we need to analyze that. I mean we have not yet made a decision on that. It's just some marketing issues or analysis that we need to develop and we will decide.

The next question is from the line of Niteen Dharmawat from Aurum Capital. As there is no response from the current participant, we move to the next question from the line of Nagendra from GrowthX Capital.

Good set of numbers. And sir, I have 2 questions basically. One is regarding EV market. So you said in the opening remarks, you have received an EV order in India and from Europe business also. So I just wanted to know, what is the quantum of EV order in India? And one more thing. Last year in con call, you said 1/4 of your revenue comes from the crankshaft business, right, sir? So with the transition of EV in the next 4, 5 years or 10 years, so how do you see -- or how much it will impact going forward?

No. Nagendra, first part, quantum of business in India, as I said, it is similar to the range that we put it for Europe. But we can't get into too much details on that because of customer sensitivities, but it's a large-sized business in India. The second question is 1/4 for dependence on engine-related products are not necessarily crankshaft. Crankshaft is only one part of that. So it is not entirely trying sharp. It is lower in India, a little higher in Europe, but more or less in the range of 20% to 25%. Of course, as the transition to EVs happens, obviously, these revenues will be affected, and that's the reason why we are like whatever we have been doing in the EV space is to make sure that EV is not just a risk for us, EV is an opportunity. So that's the reason why we are looking at it. So as EVs will come into the picture, engine parts related to IC engine vehicles will become lesser and lesser. Obviously, they will not become 100% in one year, but they will become lesser and less but they will be replaced by other EV parts. And we will continue to get business in those areas. As we are saying, we are working very hard on EV-related stuff, as Anders pointed out, a lot of our new RFQs in the area in Europe is actually on EV vehicles that we are discussing. So yes, it would be affected. But as I said, it is a transition, and we'll be able to transition very -- we should be able to transition. We are very confident about that.

So I think last time you shared you were entering into aluminum forging. So that would be a much more focused going forward, sir?

Yes. Ander just pointed out a few minutes back that in Spain and Germany, both we are looking at converting some of our products into aluminum first products, and that is what we are developing. And as and when that market becomes bigger, obviously, we will participate in that market.

So one last question, sir. Is there any company issue facing issues with the price size of coal and electricity issues? Does any -- does company have any impact on this scenario?

As far as India is concerned, as of now, currently, we are not facing too much of an issue. But going forward, if it becomes a bigger issue, that might be there might be some impact. But as of now, we can report that we are okay with this. JP, do you have anything to add? Is the core shortage causing problems for our plants in India as of now?

As of now, nothing.

[Operator Instructions] The next question is from the line of Ankit Merchant from Quest Investment.

Yes. Am I audible?

Yes. Please, Ankit, go ahead.

Yes. Yes. So my question is related more towards the strategy perspective is that the CIE Global derives close to 23% from the roofing systems and then from interior also it derives. So I understand we won't be entering those business in Europe. But in India, can we enter those particular business lines in India going right?

No. As far as route system is concerned, Ander just answered a few minutes back, but yes, CIE as a group is evaluating India for roof systems and a decision will be taken in some time. So let's wait for that analysis to be over.

Yes. Okay. And even the plastic systems, right, the plastic interiors, which we do.

So plastics is 1 area where we have talked about both -- especially inorganically, we have talked about in the past that we would definitely we would like to look at that area. But then in organic strategy, like we have to see if there is something that matches our strategy only then we will do. So yes, both the areas we are looking at, but let's see what happens.

Sure. My second question is related to the CapEx guidance. So you have been guiding close to INR 450 crores in this year. How much have we spent in CY '21? And since CY '22 have you decided how much we would be spending?

Okay. In CY '21, we are about INR 4 billion already as we have invested Importantly, in the last months, especially with the -- in our new subsidiary, cloud with the expansion of the gear business and also in vehicles in Mexico, okay? So overall, approximately, we had at INR 4 billion already this year, and we will slightly above that figure in 2021. And for the next year, in this moment, we expect it to continue the same thing. And we consider that our CapEx will be approximately 5% of our turnover, 5% to 5.5%, in that range.

Okay. And just one last question related to the tax rate. Are we seeing any change for '21 or '22? Any change in the tax rate?

I'll take that. No, we've been doing -- we were saying we will be around 35%. That's where we will be on a consolidated level.

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

So first question, I understand you're not -- due to confess customer confidentiality not talking about EV, size and names. But can you tell us about how the EV order experience is in terms of both product development? Because I presume, some of these parts are completely new for Metalcastello as well as the India Bill Forge entity. So how that experience of product development cycle has been? What is the customer feedback like with your product? Are you competing with existing vendors on new programs, or you are on completing new programs for them? So what is the structure like in terms of the experience there for product development? And what are the learnings from it? And how can you populate it for other products? The second set is from a EV standpoint. How do the EV product stack up vis-a-vis, let's say, the engine parts that you were doing specifically? So how does the EV stack up to rate? Those are my first questions.

Ander, two specific questions. With respect to EV parts, especially the Metalcastello order that we are talking about. How has been the experience of product development in the EV space, what has been the feedback from customers on the product development, and who are we competing against, what kind of competitors are we experiencing in that space. And last question, are the gross value-adds? So I assume margins as the margins in this area, same as what we experience in our traditional products or are they different?

Okay. The margins on the EBIT products are similar to the rest of the products. So there is no big difference on that. What is different in the EV product is that the complexity and the requirements of these products are well above the internal combustion engine components okay? The accuracy of the products and the tolerances are much tighter than the current production that we have, okay? So in that sense, the product is more expensive because it has more operations, gear grinding operations and also tighter tolerances and more requirements. So -- and regarding how the experience -- how was the experience of the development? I mean, the experience was very positive. And I think that the customer clearly choosing us because of our capabilities and the good technical skills that our team in Metalcastello had and the impression of the feeling that we have both sides is very, very positive, and the development is being done properly with no issues. And regarding the competition, it's our competitors, we have -- as you know, the world is big and the competitors are anywhere in the world, some of them in India, some of them Europeans, Americans -- and we compete with them. And I think in that campaign we will be the chosen ones, sometimes they will do it. So in this moment, what I can say is that we are competing properly, and we are also growing and getting the businesses in the same margin that we have had in the rest of the business. So in that sense, I think the -- I think everything is evolving. And of course, there will be also a consolidation in this business, but only a lot of people now going is now pushing a lot on the EV components. I think that at the end, there will be always the big companies with the best technology, with the best management style with the procedures that will be the winners in the use. And also the financial capacity to be able to invest the required amount of money for this kind of components because not now the old machines and chip machines are not valid anymore because the accuracy required by the electric vehicle is much higher, okay? So I think that we will be one of the winners in this career, and I think that we will be there growing as we did in the internal opportunity components.

Ander, if I can ask from an incremental capital investment standpoint, I presume that most of the existing capacity that you would have fall, whether it is gears in Europe as well as Bill Forge, you can horizontally deploy that for these products. I presume you would need more machining capacity. But the baseline capacity that you have are fungible for these products. Is that understanding correct?

Yes. Yes. The main investments are going to the machining and the finishing operations and, let's say, with the higher added value additions to the product, yes.

Perfect. My last question is on Bill Forge Mexico. Could you share an update as to where it is in terms of the timeline that you thought about in terms of the progress? If you can shed some light on Bill Forge Mexico?

In Bill Forge Mexico, we continue with our development plan, and we are receiving the additional machine [indiscernible] press by the end of the year, I mean, during this quarter, and it will be released from the supplier and will be assembled in the plant. And the expectation is very good as the demand and the customers are pushing us a lot to increase our output from the plant, okay? So what we will see is that the -- our Mexican plant will double the production next year. That's the size of the jump that we are going to give in next year, and the expectation is good also. So we are satisfied, very easy because we are developing a lot of numbers, I mean, more than a different part numbers that we are now developing in this moment and with additional machinery that we are going to implement in next month. So evolution and the growth history continues in Mexico.

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

Just had one follow-up question on the met cash flow CV orders. When is that expected to start the commercialization of the order vendors that happened? And assuming that the volumes hold up in line with expectations by what year will the order peak.

Ander, the question on the Metalcastello EV order is when does it start? And when does it -- and when are the peak numbers achieved?

The program starts by the end of next year. in calendar year '22. And we'll start growing in a steady ramp during the -- I think it's 3 years, something like that, okay? So we are taking effect when the peak will happen, but I think the peak will be something like 2025. I will confirm now, okay? But the ramp starts slowly as the electric vehicles are not yet -- they don't have the big share in U.S.A. yet. So this growth will be steady.

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

Ander, you said that we are working on product development for aluminum forging from Spain and Germany plant. So what stage we are and how this technologically is different? And do we expect the success of that product can really change the, I mean, the profile of German business.

Okay. We are now developing these products in our R&D center and with our different plants. And from the technology point of view, of course, we are changing the -- still with the aluminum that requires different dependent process conditions. The concept of the presses is the same. So we can use the existing present, then we need to add additional heat treatment machinery and also machining and track detection was in all the, let's say, auxiliary operations that we need to add, okay? So in that sense, all the development is being done. We are working with a couple of customers very, very closely and developing the processes and the, let's say, all the concept of the production, and we hope that we will be able to materialize and to get the -- finally, the orders soon, okay? However, we continue working. And what we want to do is we want to make a transition because we expect that in the next 5 years, we will have still massive consumption of our current products. You can imagine that 2020 and 2021 has been a very, very weak year in terms of car production. For next year, only we expect to the market to grow a little 11% 0r 10 -- 10%, 11%, minimal. And for 2023, an additional 10%. So that means that we will see the market, the world market at 90 million cars again. So we think that there will be plenty of tranche and engines to be built in the next years, okay? So what we want and our idea is to start entering into the -- these aluminum forgings where we can ramp up these new products and, let's say, balance the -- our share of the internal combustion plus against the electric vehicle sector, okay. So that's the idea. And in this moment, what we expect is that we will make this transition smoothly in the next 4, 5 years.

The next question is from the line of Robert Jackson from Banco Santander.

Ander, I have a question regarding the -- you mentioned the raw materials -- higher raw material prices has been affecting you in the third quarter. I just wanted to know, more or less, the breakdown of your exposure to the spot markets and to contract pricing because steel prices will -- have continued to rise over the last few months and are rising -- or more stable now. But looking ahead into the -- if you have more annual contracts, then next year is going to be much higher versus this year. So could you give us an idea of why -- what the breakdown is?

Vikas, can you help me? I mean, I did not hear properly the question.

Yes. Robert, we couldn't catch. The question is, in terms of raw material bifurcating raw material prices into 2 effects. What were those?

Sir, the question is, your steel exposure, you buy steel on the spot market and you're buying steel on annual contracts. So I just wanted to know how much of that exposure is to spot, which would have been affecting your third quarter -- or such as third and fourth quarter results because they are exposed to spot. But if there are annual contracts, they wouldn't have been affecting you yet so far. They're going to affect you next year.

Okay. Understood. The answer is clear. I mean, almost 100% of our steel is under annual contract, okay? We -- every year, beginning of the year, we closed the contract for all the complete year and if there is any variation on the base price, this is also passed through the customer, okay? That's how we avoid being impacted negatively if something changes in the market. So in that sense, the base price, still base price is contracted annually from on our purchasing teams, okay? So then there is the second concept of the steel payer is the surcharge scraps. And this is variable. This is [indiscernible] to every month. And we have a system to, let's say, apply these such every 3 months to the customer. So we calculate the average of the previous 3 months, and we applied this in the following 3 months. So there is an index in place. And that's why this can affect us a couple of months. But in the average, I mean, during the year, this is not affecting us. That's the way. So coming back to the steel market situation in this moment, what we expect is that for next year, we will see additional increases that what the market is saying us. I mean, the commodity prices are growing, and we can expect a further increase for next year.

Okay. But for the shorter term, because of that indexing fixed system, our -- the pressure on the fourth quarter will continue because of that -- because steel prices have continued to increase over the last few months. So basically, in terms of your margin, your margin for the next quarter will continue to be under pressure because of raw materials.

Yes. Yes. They still -- [indiscernible] price is high, and we expect it to -- that will continue high in this quarter, yes. That's -- it's a good comment.

Okay. And my second question is related to your -- you mentioned that you're growing market share in -- not exactly did you say where, but generally this growth in market share is because of competition isn't being able to be efficient enough. And hence, the market share will continue to increase longer term, or is this more of a probably or temporary gain in market share?

Okay. What we see is that clearly that we are explaining lipase, especially in all the Indian business, mainly because I think some of our competitors and especially the smaller competitors, some of them are struggling after the COVID and then with the shortage of the semiconductors and the low volumes, they are tracking. So in fact, some of our, for example, a stamping activity that we buy certain small components and we are integrating them at home because our suppliers are facing difficulties, okay? So we think that this trend of gaining market share will continue in the future. Also, we have a lot of pressure from the customers to increase the capacity. That's why we are investing importantly in India to be ready for this market share gain. So I think that's the main reason of the customers concentrating on the most reliable partners to continue the growth because I think that they cannot afford stopping their line or losing sales because of lack of supply, okay, after what happened with I think the strategy of our customers are now moving to the more reliable companies. And I think all the big companies, we are being benefited from this trend.

Okay. And just finally, the export market is still not that relevant, but it did help to compensate some of the weaker domestic markets. But now looking to the fourth quarter, it's not going to be able to compensate at all the weaker domestic market. So hence, more weakness in the fourth quarter. Is that -- would that be a reasonable comment?

Yes. Yes. The export market, yes, will be at the same level than Q3. I mean, we expect to remain at the same 12%, 11%, 12%, 13% that -- in that range.

The next question is from the line of Nitin Dharmawat from Aurum Capital.

I have a couple of questions. You mentioned about the EV wherein you mentioned that the product requires different kind of tolerances more accuracy required on their expensive products. So as the EV pie grows, would need for manufacturing these products or will be able to do it from our existing facilities only?

We will need additional CapEx, especially for the finishing operations and we are already adding certain capacity, okay? So in the last year, we are also adding capacity, especially in the gear grinding and finishing operations where we can get these better characteristics on the product, okay? So for sure, we will need to continue adding capacity, yes.

But Nitin, just to make the point clear, these are all incremental CapEx. It's not as if like as I said, the overall -- as Anders mentioned, the overall CapEx in YTD this year has been INR 4 billion. So it is not as if these are all incremental CapEx. It's like doing a higher tolerance part. So for that, you may require additional CapEx. So it does not being able to set up completely different lines or completely like completely different plants in the same plant, we'll have to make those incremental CapEx

Absolutely, I understand. The second point, with respect to EV only, we mentioned that we have got some good traction of, especially in the U.S. market. And still, there are size ways. They are small. So if I look at it from a 3-year perspective or a 5-years perspective, where do you see the revenue percentage growing of -- revenue contribution coming in from EV of the total pie for Mahindra CIE? You must be having some estimates. And based on that, you must be taking certain expenses connection. So I just wanted to understand your perspective on that.

Yes. What we think is that it will be different in Europe in India, okay? What we think is that in India, in 4, 5 years, there will be the share of the electric because will be very small yet. So the share that we will have will be small also. So we will be aligned with the market. And if the market was to 4%, we expect to be at 4% in 45 years, no more than that. In Europe, we also expect to go live with the market. And in Europe, with the pace and will be faster than in India. What we see that our percentage in EV vehicles will continue -- will grow steadily to that percentage that we could expect, okay? If you ask me in 4 or 5 years, we can be at 12%, 15%, that should be the figure that we should have in the electric to be aligned with the market. I strategy is to -- not to lose any internal combustion engine sales, but also to be in line with the market, so we can go and have a very healthy share between the both technologies, and the electric one will continue growing and the other will start declining. So -- but we don't see the decline yet. I mean we will see the decline probably, as you mentioned, into the 2025, 2026, not before that.

And Nitin, just to clarify, when we say EVs, we mean battery electric vehicles. There are a whole host of other things like plug-in hybrids and hybrids, which we consider as traditional business for us, right?

Okay. Got it.

As there are no further questions, I now hand the conference over to the management for closing comments.

Yes, thanks. And with that, thank you very much for this late hour. And I'll hand it over to Ander for his closing remarks.

Yes, I wanted to thank you, to all the participants for the good questions and the very clever questions that you made, as usual. I hope I answered properly and you have the good impression of our company's strategy and results. I would say that this has been a very complex year or it's been a very complex year because of the COVID impact, then the semiconductor shortage, then still and the commodity price increases. But despite this, the company is performing well, and we are in a very well mode to continue this trend to continue growing and showing good results. And as always, I would like to thank to all my team to the great job they did in a difficult situation. So it's a big pleasure to leave a good team. And we hope that we will succeed altogether. Thank you very much, everybody.

Thank you. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference. Thank you all for joining us. And you may now disconnect your lines.