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

Ladies and gentlemen, good day, and welcome to Mahindra CIE Q2 and H1 CY '22 Results Conference Call hosted by ICICI Securities Limited. On the call from the management team, we have with us Mr. Ander Arenaza, CEO; Mr. K. Jayaprakash, CFO; Mr. Vikas Sinha, Senior VP, Strategy, M&A and Investor Relations; Mr. Oroitz Lafuente, Chief Business Controller; and Mr. Swapnil Soudagar, DGM, Strategy, M&A and Investor Relations. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to the management. Thank you, and over to you.

Yes. Thanks. This is Vikas. Good evening, everyone. It is a bit late today, our apologies, but there are constraints for us, and we are grateful you could join. We'll start with an overview of the legal structure of MCIE on Page 5 of our investor presentation that has been uploaded on the website. Here, we see that in line with stated strategy, CIE Automotive, our parent, continues to reaffirm its faith in MCIE by raising the stake from 60.75% equity to 63.44% during Q2 C '22. Now let's look at the Q2 C '22 results for MCIE India on Page 7. So sales have grown by 46% year-on-year compared to the same quarter last year, Q2 C '21, and the sales figures in this quarter are INR 12,794 million, which is -- and this growth is much more than what our markets grew by. While uncertainties around the Indian economy, arising out of global factors remain, the auto industry in India is expected to remain buoyant in the coming months. MCIE India EBITDA margin quarter 2 C '22 was 14.9%, which is similar to 15.1% obtained in Q1 C '22 and higher than the 13.9% recorded in Q2 C '21. The EBIT and EBT are at 11.1% and 11.4%, respectively, in Q2 C '22. Despite headwinds like steel price increase, inflation and other costs and semiconductor shortages, et cetera, we have maintained margins in India. On Page 8, we have the quarter 2 C '22 results for MCIE Europe. We have seen a growth in year-on-year sales compared to Q2 C '21, the sales figures being INR 12,816 million, and this is despite the underlying market dropping. The market sentiment in Europe remains uncertain, but we do expect a better second half, i.e., that is H2 C '22 could be and hopefully would be better than H2 C '21 in terms of the market. Margins in Europe have been hit in the last few quarters by steep increases in energy costs, rising steel price and inflation and other costs like freight. We have been negotiating with our customers to pass through increases in energy costs and in many cases, these pass-throughs are being operationalized. Because of these efforts and the efficiency measures applied, MCIE Europe's EBITDA margins, which have fallen to 9.1% in Q4 C '21 rose to 10.2% in Q1 C '22 and has further increased to 11.6% in Q2 C '22. You can clearly see an improvement across the quarters. MCIE Europe in Q2 C '22 had an EBIT of 8.5% and EBT of 7.9%. Let's move to Page 9, where we see the consolidated Q2 CY '22 results, taking into account both India and Europe. Sales grew by 32% compared to Q2 C '21 and the sales numbers are at INR 25,609 million. The consolidated EBITDA for Q2 C '22 was 13.3%, EBIT 9.8%, EBT 9.7%. Q2 C '22 performance is the highest quarterly results ever that MCIE has achieved in terms of absolute sales and EBITDA. Page 11, we have the half yearly C '22 results, H1 C '22 results for MCIE India, the sales have been INR 24,815 million, maintaining the growth momentum from the semester before, i.e., H2 C '21. The EBITDA is 15%, EBIT, 11.1% and EBT at 11.2%. On Page 12, we have the H1 C '22 MCIE Europe results. Sales are INR 25,238 million compared to H2 C '21. In this quarter also, India has more sales than Europe -- in this semester, sorry, India has more sales than Europe. The EBITDA margin in Europe is at 10.9%, EBT at 7.8% and EBIT at 7.8% and PBT at 7.2% in H1 C '22. On Page 13, we present the consolidated H1 C '22 results for MCIE . MCIE sales are at 50,054 million, again, continuing the upward trend. Consolidated EBITDA margins for H2 C '22, 12.9%, EBIT 9.4% and EBT, 9.2%. Let's move to Page 15 where we have presented the balance sheet position as of 30th June 2022. The return on net assets is 13.8%, and operational return on equity is 13.0%. MCIE's consolidated RONA has been improving. It was 11.8% as on 30th June 2021 and 11% for CY '21. So clearly, good improvement in this very key metric. On Page 16, we present the cash flow situation for H1 C '22. Operative cash flows have been robust despite having to carry more [indiscernible] inventory due to uncertain steel availability in certain categories, and this is required to maintain continuous production and low customer delivery disruptions. Net financial debt has increased slightly to INR 8,737 million as compared to the end of year 2021, although the net financial debt-to-EBITDA has been reduced to 0.67x. MCIE has also invested in growth CapEx, which caters to the organic growth requirements largely in India and Mexico and all backed by an order book. We continue to be optimistic about both our Indian and European operations despite the global economic uncertainties that we are facing. With that, we can now proceed for Q&A.

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

Congrats on good numbers. A couple of questions from my side. Firstly, on the European business, if you can share the revenue breakup with respect to on a constant currency basis? And also if you can share what was the benefit of iron cost on the revenue growth part?

Revenue in euro terms and what was the effect of steel.

The revenue in euro. Good afternoon, everybody. This is Ander Arenaza speaking. The revenue in euros was 7% higher than the reflected in INR as the exchange rate has changed from EUR 1 to INR 88, to EUR 1 to INR 81, INR 82, okay? So there's a 7% loss in IRS in sales. And regarding the raw material impact, it's approximately 15% effect in the sales, okay? So 15% of the growth is coming from the raw material.

Okay. So if we actually adjust on these 2 factors and then European growth was almost at about 14%. Would that be the right way to look at it?

Yes. We could consider that about our real growth in, let's say, in constant raw material and constant exchange rate would be approximately 10%, okay? That is in market that was reducing and is affecting negatively due to the European situation.

Okay, okay. Understood. And second question, pertains to the energy cost pass-through. We have indicated about negotiations coming to end. So what kind of price increases that you got, is it for the entire energy cost inflation? Has that been entirely being absorbed by customer? Or [indiscernible] take a certain hit on that as well?

Okay. We have had big negotiations and hard negotiations with all the customers. The -- let's say, the agreements were different in each of the customers. So there is not a pattern there. But with most of them, we reached rational agreements where the energy costs were passed through partially, okay? Not 100% was accepted. I mean this was considered as a special situation in the market. So we absorbed part of the cost and the rest was absorbed by the customer. So depending -- and the customers would be around 60, 40, 70, 30, this is the range of the agreements we have reached with the customers.

So 60% to 70% pass-through and absorption of 30% to 40%? Got it. And the third question is on the European market demand side. So we are hearing about some bit of slow evolution of demand in the European market despite [indiscernible] improving. So what are you thinking on that thing on that side from your customers?

Okay. It's true that the POs from our customers, let's say, what we call [indiscernible] the electronic orders that we received in our systems are showing a relevant increase for the next months, okay? So our customer expectations are quite strong, and we see really a strong Q3 and Q4. Nevertheless, I would say that we are quite cautious, and we, let's say, we have certain doubts of that these orders will come real in the future, okay, because of the special situation in the European economy and especially the geopolitics, the war in Ukraine and the potential shortage of gas in Northern Europe at the end of the year, okay? So hopefully, all these kinds of things will result, and I hope that the demand will match the orders that we are receiving from the customers. But you are right, the trend, at least the information we received from the customers is really good news.

Okay. Okay. Got it. And last couple of clarification, the question is to JP [indiscernible] with respect to the other income in seems to be on the higher side, what has led to that? And secondly, the interest cost for the Indian market, India business was quite low, so what has led to that?

Can you hear me?

Yes.

So on the other income piece, we have received some insurance claims in Europe, so about EUR 240 million in this quarter. So that's one receipt. And on the stand-alone interest reduction, you can keep in control of is basically exchange rate positive impact.

Okay. So just for the Forex impact, interest rate would be in that or interest cost will be in 120 million, 130 million a quarter range?

Yes.

Got it. Can you quantify the Forex gain in this quarter?

[indiscernible].

Yes, yes.

Sorry, I missed the numbers.

[indiscernible].

The next question is from the line of [indiscernible].

So my question is what is the INR 225 crores intercorporate loan in the cash flow?

[indiscernible]

Price. You're talking of the INR 2.25 crores outflow, no? And in the cash flows, there's like an intercorporate loan that you seem to have given. Yes. So could you just...

Yes, I'll explain. This is basically -- Europe has seen a very good cash flow this first half and almost EUR 28 million to EUR 30 million in cash flows, which has been -- and whatever surplus we get in Spain, [indiscernible] within the group, so at an interest rate of above 1.5%.

[indiscernible]

Sorry.

Is it within CIE [indiscernible]?

No, no, no. It is within CIE. It's with CIE [indiscernible].

It is with CIE Automotive.

Yes.

Okay. Like any duration of this something or...

See, this is basically cash pooling. So like we explained in the last [indiscernible] taking, while CIE can -- I mean this is a loan given, so we can call back any time.

Okay. Okay. Why don't you just pass it on to MCIE India or something just -- I don't understand.

MCIE India, we would -- I mean, the only way we could get it here is through dividend growth, which is not tax efficient.

Okay. Okay. And so really, we'll have to think through and [indiscernible] to see how much money we need there, so we look at it how efficiently it can be used. But as it stands today, we have a decent interest rate on it. So we are [indiscernible].

But why can't we directly just keep the money ourselves instead of giving it to CIE? Now just keep it with ourselves instead of giving our intercorporate loan to CIE?

So keep it with [indiscernible], you mean to say?

Yes.

And keep it with the bank, you will get nothing.

So you're giving it a loan to CIE and they have built an interest rate on that?

That's what I said, we are earning money now in euros, which I think is a decent interest rate to one, right?

Okay. Okay. And my next question would be how much is Metalcastello benefiting from the fall in the euro compared to the USD? Is that the primary growth driver there in earnings?

No, I don't think that is the reason. I mean, because the growth of Metalcastello started several months ago without exchange rate impact, okay? So the reason of Metalcastello is coming from the recovery of the -- of higher growth components and, let's say, the infrastructure improvement in the U.S.A. So it's not related. The growth of Metalcastello is not related to the interest rate. Of course, we will be benefited by that. And we hope that in the future, perhaps we could see even higher improvement.

And what percentage of our total sales in Europe are exports?

In Metalcastello, exports about 30%, 1/3 of [indiscernible] Metalcastello [indiscernible] exported to the U.S.

Overall, Europe?

No, no, Metalcastello has increased the exports revenue to 50%. And Metalcastello is roughly about 20%.

15% to 20%.

15% to 20% of the European revenues.

Okay. And about the CapEx, India, so the last -- we've shown interest in the plastic CapEx growth over the organic or inorganic. Any update over?

No, we keep looking for it right now, nothing in the plastic space that we have, either organic or inorganic, no plans as yet.

Okay. And just a Germany-specific question. This particular quarter, was it profitable our business in Germany or the energy cost really hitting us over there?

So our German business is struggling because of the, let's say, inflation plus the energy cost increase. And of course, this is -- it was a difficult time before the crisis and the inflation game. Now the situation is also really, really tough, okay? So let's say, that the German business is trying to survive, and we are working on the [indiscernible] efficiencies, and we are trying to pass through the customers, the real impact that we are structuring in the business.

[indiscernible] we're not losing money, right?

We are not losing money, but we're not making money either.

Fair enough. [indiscernible]. And just my last question is, any of the profitability being because of the -- there's been some fall in metal prices in India. So has there been some lag in pass-through because of that profitability [indiscernible] or nothing like that?

We have -- we have not experienced a drop in raw material prices in India. We do expect it to happen. But right now, in this quarter, there's no effect of that.

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

My first question was on the operating income. So Europe, if I see the operating income, it's increased quite sharply. So even in euro terms, if I look at it, the operating income is almost doubled Y-o-Y. So can you just talk about what's it here and what's driving this increase?

[indiscernible] you -- when you say net operating income, you refer to [indiscernible]?

No, no, no. [indiscernible] so I'm talking about the other operating revenue -- sorry, my mistake, other operating revenue.

So you're talking about Slide #17, right?

Yes. Yes, that's correct. That's right.

So Slide #17, we have Europe, other operating revenue is INR 953 million for H1 C '22 and INR 737 million for Q2 C '22. That is the number we're referring to.

Correct.

No, Q2. That is H1 numbers. Q2 numbers.

737 million. Yes.

Yes, the operating revenue, we are including all the [indiscernible] and also, as JP has discussed before, plus some income coming from [indiscernible] received this Q2.

Sorry, but the insurance claims, are they sitting in other operating income or in other income?

In other income.

[indiscernible].

Yes. So other operating revenue will be effectively just a major part of the [indiscernible]?

[indiscernible] sales.

Got it. Got it. Got it. Secondly, just wanted your thoughts on how the demand situation, how are you looking at the demand situation in India. I mean, TVs and I think tractors is doing quite well [indiscernible] we are seeing good momentum. But what's your view on the 2-wheeler side, what are you hearing from your customers? And what's the outlook going forward here?

Yes. 2-wheelers has been struggling for some time. We all know because of the total cost of acquisition has gone up for 2-wheelers. But we are seeing an uptick in the 2-wheeler schedules as we see today. It is still below, say, the 2018 levels, much below the 2018 and quarterly levels. But there is certainly an uptick from a quarter-on-quarter basis. So yes, the base is low, but we are seeing some growth in the 2-wheeler segment as of now. As I said, everything is subject to no change happening due to the global economic factors.

Okay. And just last question. So specifically with our key customer, M&M, we are seeing a few new launches that are coming up this [indiscernible]. Just wanted to understand how has our content shaped up in these new models compared to the content that you are doing in the past, has the content gone up and would we benefit from the kind of response that we're seeing with these products?

Yes, we will benefit. From content-wise, I cannot give you an exact answer at this point of time. I don't have an answer to that. But it is true all our -- our business with M&M is growing in every vertical that [indiscernible] M&M. So yes, we are -- we will continue to benefit from the good performance of M&M models.

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

Congratulations, Ander, Vikas and JP, on the good performance. I have a question for Ander. When you say that Q3, Q4, we are anticipating much better demand and much better growth, so this is Y-o-Y or we are talking about H1 to H2?

It's H2 versus H1, okay? We expect the second half to be better than the first half of the year, yes. And it's true that the demand and the [indiscernible] is, let's say, the orders that we have the order book that we have in our systems now shows a big increase for even we are receiving those orders in July, August, September. And -- but what I told also is that perhaps these orders will not be executed and the reality will be milder than they are now planning, okay? So we are -- some -- we are [indiscernible] what can happen in the European market because there are a lot of uncertainties in front of us. But our -- the message from our customers is from all of them, I mean, it is a general view, it's quite optimistic. So let's see.

So Bharat, in terms of forecasts, and this is -- since it is public, we can tell you, the IHS forecast for H2 is roughly 8.3 million units production compared to 7.6% in H1. So that's roughly a 9% increase over H1. But as Ander pointed out, given the gas situation, especially in Germany, which is our main production area for the European light vehicles, things can -- the reality can be very different from any of these forecasts.

And this is even after factoring that normally, H2 is -- there's a 5-month operating return.

Yes. Yes. H2 is normally 5 months or even less than 5 months. It is basically 4 months and 3 weeks. Even after that, that's the forecast as of now. But as Ander has repeatedly pointed out, let's take it with a grain of salt, not even a pinch of salt, a grain of salt.

And second on now Europe, during our lockdown, I mean, COVID-19 lockdown, we [indiscernible] bring down the breakeven level which was around, say, [indiscernible] million per quarter run rate at PBT level breakeven. Now with this inflationary cost and increase in the energy cost, so what level of European business can breakeven at PBT level?

JP?

Yes?

[indiscernible].

[indiscernible] take that?

Yes.

So we talked about -- Bharat, I think because of the energy price increases [indiscernible] be around EUR 100 million to EUR 105 million third quarter.

We can PBT level breakeven? The current quarter number is around EUR 155 million, I mean Q2?

Yes, around EUR 150 million, yes.

Okay. And our second question is on [indiscernible] and for Ander. Currently, our [indiscernible] contributes around 10% of the India business. Is that fair understanding?

Yes. Roughly, including light commercial vehicles. Yes.

So do we have any plan, I mean, to increase that business because that next 2 years or 3 years, I mean, that business looks much upfront side. So do we have any plan? And if that -- how do we expect that revenue mix of CV to go up in a couple of years?

CVs. We do business with CVs in foundry and in stampings. And if the CV volumes go up, we will commensurately go up with that. And if need be, we can look at increasing our presence there, but we will benefit out of growth in CVs. If the question is that, yes, we will benefit.

But is there any chance that revenue mix contribution from CV increasing?

It may not increase drastically, but that number, 8%, 10% can become more than that, but it can't become 20%.

Okay. And last question for JP. JP, in last year, our working capital used to be remained negative and this time because of higher inventory as Vikas explained. So how do we see now steel price stabilizing? Do we see that for second half, our working capital, again go back to negative level and cash flow -- positive cash flow can be generated?

JP, you are taking that? Net working capital position in India, how can it become better?

Yes, there in the following months, we will see a reduction in capital for this effect. We expect that the steel price will remain constant [indiscernible] go up. So we can pass. And as we will readapt our stocks to the sales level. So we can -- will at least see a small improvement in the [indiscernible] capital in India.

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

Congratulations on a good set of numbers. So I had a question on the Auto business. So adjusting for the Forex and the [indiscernible] prices, like Ander mentioned that we have seen a 10% growth. And looking at the production numbers in Europe, there has been a decline in this quarter and for the first half as well. So just wanted to understand what is leading to this market share gain for us? And do we see [indiscernible] continue? And what kind of then growth should we expect in the Europe business?

Okay. What we see is that our market share has increased in certain customers in some of our business. One of the increases is coming in -- is happening in the Metalcastello as we explained because the business is growing importantly. That is one of the reasons. Second reason is in our tractor business in Spain in our passenger vehicle [indiscernible] we are seeing also a certain increase in market share probably because some of our competitors are having more difficulties or, let's say, the market is moving due to the difficult situation in European countries. So that's what we see. And probably because of our product mix, we are being benefited by that, okay? So we cannot see a single cause for this improvement, but those are the main drivers.

The next question is from the line of Jinesh Gandhi from Motilal Oswal.

A couple of questions. One is on the India business. Any indication of what was the benefit of commodity cost inflation on the top line?

The effect of RM on Q2 India revenues. JP, will you take that, please?

It's approximately 10%.

10%.

10%, yes.

Okay. Okay. And second question pertains to the [indiscernible] CIE Automotive has in their portfolio. So is there a plan to launch that in India through the listed entity or that will be through unlisted entity or will come separately that way?

Okay. That is a different business that the CIE bought to is managing from a different country. And this is mainly directed from China. So the -- this business will be directed by CIE directly.

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

So just taking forward the market share gain point that you talked about in Europe, just wanted to understand for the products that we are present in Europe, how is the competition like? I mean, is there a decent enough chunk of the small players and is it fragmented? I am saying that is because in this current kind of cost situation, maybe some of the larger players are better placed and that is driving market share. So do you see enough headroom for you to gain market share with these -- all these small players kind of [indiscernible]?

Yes. Probably we will be benefited. I mean the stronger players will benefit from the consolidation of the market. This is something that we are -- we are forecasting since several months. So that is probably one of the reasons of our growth, of our market share increase in the last quarters. And yes, that is the reality. Probably this consolidation will happen, especially if the situation continues as hard as it is in this moment.

Okay. And secondly, given that power and energy cost is such a high proportion or an important cost item for the businesses that we are in. Again, given the kind of cost increase that you have seen in Europe, are there now increasing conversations with customers to do more of the production in India and then kind of exports, which could kind of benefit our export business?

We don't see that trend in this moment, okay? Because of the -- there's also an additional problem is that the transport costs are increasing tremendously. Also, the difficulty of the logistics in this moment, the lack of enough logistic routes and ships to move the product and the material from India, from China to Europe, it's also blocking that. Also, our customers are afraid of all the geopolitical issues that are happening around the world. So in our opinion, the local-to-local strategy will be reinforced after all these things that are happening in the world, okay? So we don't see that move in this moment. We probably see a certain strategy changes in our customers. But at this time, I would say that probably the local-to-local will be the main strategy followed by the customers. Also, and we have certain customers that are referring to the CO2 emissions coming from the transport. So from the environmental point of view, also their view is to localize as much as possible.

Vikas, can I come in for a minute?

Yes, please. Go ahead.

This is for everybody because on Slide 17, there's a question on our operating income.

Yes, yes. So this is with respect to that question that was asked regarding the other operating revenue in Europe of 737 million, right?

Yes.

In Q2 C '22. Go ahead.

So with a lot of apologies, that number, Q2 number needs to be corrected. The H1 number is correct. Europe instead of INR 737, we should read at 478 and Q2 total is INR 1,463 and, of course, send a correction for everybody in this note.

JP, will you please repeat it?

If you go to the Slide 17.

Yes, yes, yes. And we are there.

The Europe number 737 should get replaced with INR 478 million.

478.

And [indiscernible] should be 1,463, so it will more or less fall in line with what was in Q1. So there is no significant increase in other operating revenue.

Okay. Fair enough. Other operating revenue. That's right?

Yes. Yes. So the only change is in other income, not in other operating revenue. Yes. Okay. So that's for the -- for everyone. Apologies for this error.

The next question is from the line of [indiscernible] from ICICI Bank.

Yes. So my question is...

I'm sorry, you're talking very soft. Can I request you to speak to the handset?

Hello?

Hello? Yes. Yes, we could hear.

Yes. So I wanted to know, is the [indiscernible] expanding. So can we get a numerical number if what is the order book in hand for CY '23. And if we are seeing a major development in the [indiscernible] the company has [indiscernible]. So how is the company planning for the CapEx of that industry?

Okay. Two questions you are asking. If I may repeat, one you are asking is what is the EV order book in India, right? So we had indicated in our year ending call of C '21 that like we were talking in the range of roughly INR 400 crores to INR 600 crores in India at that time. So if you refer to our transcripts of that period of that time. As of now, we don't have a figure. We'll again come back with the same number towards the end of the year. But what we can say is that our presence in the EV order book is -- we are quite comfortable with whatever is happening. Especially, we have 2 businesses which are -- which have a significant 2-wheeler presence. Our aluminum business out of Aurangabad and Bill Forge business out of Bengaluru, and both of them are doing well, especially with the build force as far as the EV order book is concerned. Details right now, we don't have the details, but like that is something we can do. The second question you had was with respect to CIE Hosur. I think the investment that we are making on that, what specifically did you want to know?

So I wanted to know how is planning for the funding of the CapEx as the company is planning for [indiscernible].

What is the CapEx for CIE Hosur and when is it going to start production, right?

Yes, sir.

So ma'am, we have already invested something like INR 1.3 billion out of our [indiscernible] approval. The commercial production has started towards the end of June. So we started dispatches. Now regarding your 5 billion, I mean, that's only an MOU be spend over the next 5, 6 years and not immediate. We believe CIE Hosur should be able to generate its own cash flows to meet its CapEx maybe from a year from now or 1.5 years from now, it should be able to generate its own cash flows.

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

Again. So this -- all this CapEx what we are doing at Hosur and even Rajkot. So can you give some color, which are the product lines that we -- are expanding and in future also, the larger CapEx will be on what kind of a product line?

No. CapEx is largely in India also. Again, this -- everything is in India. Hosur is a whole set of products, both for domestic and export customers. Rajkot, again, it is because of the expansion of our customers, of our existing customers.

What are the major products in Rajkot?

In Rajkot, we have gears and shafts, the same product line that exists today. And then Aurangabad Electricals, again, a new plant we are making, again, for our existing customers but non-Bajaj. Okay? So there are other areas also we are making investments. We made investment for warm forgings in Chakan, Forgings Chakan, think -- and we are making investments in magnetics, in our Magnetics division. So Magnetics division will be new customers, and Forgings Chakan is also a new product because Chakan was not doing warm forgings. So this is a kind of synergy between Bill Forge and Forgings Chakan, the warm forgings plant.

Okay. And this question is for Ander. We have a good presence in hybrid at the EV side in the Europe. Now Maruti has come up with a very new product, I mean, which is largely in India hybrid -- was very late. So how do we see opportunity for ourselves in that hybrid field? And do we expect that, that will be [indiscernible].

Okay. There's a big debate on this in the market, okay? The main, let's say, we see a big advantage to the hybrid because you have the internal portion engine plus the electric motor. So you can enter into the cities without polluting. I think gives us an initial idea of the OEMs and they are the producers. But unfortunately, there is a problem with the cost of the hybrid, okay? Because you have to double the systems -- so most of the OEMs as far as we know, are going directly to the electric cars, okay? So hybrid will be a temporary solution during 4, 5 years until the infrastructure repair. Then they will go directly to the [indiscernible] electrical, pure electric vehicles. That's how we see the future.

The next question is from the line of [indiscernible].

Just wanted to clarify which was asked earlier. On the India business, on a sequential basis, what is the benefit of the [indiscernible]?

On sequential, it's negligible. It's [indiscernible] Q-on-Q. No more on that.

[indiscernible].

Okay. Okay. And on the CapEx that you mentioned, what is the sort of incremental revenue that we can expect in the next calendar year?

No. Again, we won't be able to give that exact number for the CapEx, but we have an internal rule of meeting a minimum return on investment for every CapEx. So if the market situation is right, then we should definitely get good returns out of the new CapEx.

Do you look in terms of asset turnover as well?

No. We look at it in terms of ROI, of course, asset turnover is an integral part of that. So yes, so there are various levels at which we look at starting from the profitability, let's say, the growth number, profitability. So there are a whole lot of things that we look at. But the most important factor is the return on that particular project.

And when do these -- most of these on [indiscernible].

No, no. There is, of course, a time period between getting the order and going live with that order, it takes anywhere between 12 to 24 months before our CapEx can go live.

Okay. So at least 12 months [indiscernible]?

Yes.

The next question is from the line of [indiscernible].

So I just wanted to follow-up to my previous question. So how much money -- how much is our loan to CIE total amount as of Q1 ended?

JP [indiscernible], loan to CIE under the cash pooling.

EUR 40 million.

EUR 40 million. Okay. And have we taken any loan from them also in some other company or something?

So we -- our Mexico loan is from them and in Germany we have taken also there.

So how much money have we taken from them? And how much do we hold and can you just give that number to EUR 40 million [indiscernible]?

[indiscernible] close to about, both put together another EUR 80 million taken from them.

[indiscernible] the India market.

Together.

Okay. Secondly, like we discussed that the German business is not doing well. So is there any goodwill over there or you could consider writing off or impairing?

So we have a bit of goodwill, but that's an annual check we do for accounting. So we go by that.

Perfect. So because it's been struggling for -- so I'm wondering why we haven't impaired it here.

[indiscernible] have one unique [indiscernible] Spanish plants and Japan plants. So again, we'll make the testing, the testing of the goodwill based on our [indiscernible] unit. And every year, we will discuss. And up until now, we do not have any signal or any update after that. We should make any kind of impairment. So for the numbers, we do not see any risk on that part.

Okay. Okay. Perfect. I just wanted to just request you should keep a gap between the earnings and the other call so that we can actually go through the numbers properly next time?

Yes, of course. That is the normal practice that we have. We had certain constraints in that. So our apologies for that, it's late. I do understand. And therefore, but instead of waiting until Monday evening or Tuesday, we thought it's better to do it right now. Our apologies, but we do try to keep that in mind. And we'll keep that in mind [indiscernible].

And is there a follow-up questions, you can always follow. You know [indiscernible].

[Operator Instructions] The next question is from the line of [indiscernible].

Just on the German business, what are the -- our plans around sort of turning around the business or restructuring the business or bringing it to a part of sustained profitability, if you could throw some light?

Germany [indiscernible] plant.

Okay. I -- you know that in our German plants, we have been struggling since several years. And we have been doing, let's say, all the restructuring -- a lot of the restructuring activities. And included during the last year, despite the negative environment with a very low sales. And with cost increasing, we have been able to keep the company without losing money, okay? So that was the result of all these activities. Unfortunately, right now, we are in front of an additional difficulty coming from the energy plus the huge inflation that we are facing. And we are [indiscernible] that once I'm looking for internal improvements in terms of efficiency gains, plus the passing through the cost to the customer, we cannot afford absorbing those additional costs that we are suffering, okay? So that's the evolution of the business. We -- on the other hand, we have a very strong order book in front of us. So if the business, let's say, comes as they -- our customers are planning and the energy prices and raw materials go down as it was expected by for next year, then we survive properly, okay? That's our expectation.

The next question is from the line of [indiscernible].

So my first question is what percentage of sales in Q1 FY '23 are only ICE-related products?

What percentage of sales are ICE, related to [indiscernible]. So no, that would be a majority of [indiscernible] 90% plus in Q1 -- in Q1 '23. Just think of it this way. In India, EVs, I think in 2-wheeler segment, I think EV penetration in Q1 '22 was -- or Q2 '22 was about 4%, actually a little less than 4%, 3.5%, 3.7%. In cars, it was negligible, maybe 0.5%, 0.6%. In 3-wheelers, which is a very small segment, it was decent enough. And in Europe, this number of battery electric vehicles, we are not talking hybrids because that was explained earlier, hybrid has both the powertrains. So pure battery electric vehicles in Europe is roughly about 8%, 9% in Q2 C '22, which -- or Q1 F '23 that you said. So right now, the basic numbers are very low. So our revenues are also quite low. All that we are saying is among the new order book, we are generating a lot of the new orders that we are getting. A lot of them pertain to EVs. But then they will start making an impact on the P&L, maybe towards late next calendar year or early 2024 calendar year, okay?

Okay. My second question is that is there a difference in the sales that we report in fully and investor business. For example, India, in the [indiscernible], it is INR 1,386 crores, and in the investor presentation it is INR 1,279 crores. So what explains the difference?

Basically, in [indiscernible] so you need to add the other operating revenue to the sales number to get the [indiscernible].

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

Yes. Ander?

Okay. So as always, thank you all of you for the participation and for the good questions [indiscernible]. I wanted to say that in a very difficult market scenario, our company has solved and has got good results and show its resiliency. And we expect to continue improving our results in the next quarters, okay? It's true that there are certain [indiscernible] coming from the volatility and, let's say, potential problems that could happen in Europe due to the war in Ukraine, but we are quite optimistic, and we expect that the next quarter will be much better. So again, I want to thank you all the Mahindra CIE team for the good job, and thank you to all of you and till next quarter. 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.

Yes. Thank you. Thank you very much.