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

Ladies and gentlemen, good day, and welcome to Mahindra CIE Q4 and Full Year CY 2022 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. Basudeb Banerjee from ICICI Securities. Thank you, over to you.

Thanks, Lizan. Good morning, good afternoon, good evening to all the participants. Thanks to Mahindra CIE management for giving us the opportunity to host the conference call. I'd like to introduce the management represented by Mr. Ander Alvarez, CEO; Mr. K. Jayaprakash, CFO; Mr. Vikas Sinha, Senior VP Strategy; and Mr. Oroitz Lafuente, Business Controller. Without wasting any time, I'd like to hand over to the management for the MCIE comments followed by Q&A.

Yes. Thanks, Basudeb. Thanks, everybody, for your time for joining on this call. I welcome all of you as well as Ander, our CEO. I will present MCIE results for the quarter 4 C22 and full year C22. We follow the calendar year just as a reminder. I will refer to the presentation that we have uploaded yesterday evening. So let me begin with some key developments in the year 2022, which are described on Page 5 of our investor presentation. Our principal shareholder and promoter, CIE Automotive Group of Spain increased its stake to 65.7% in C22, an increase of nearly 5%. The increase in shareholding shows the confidence CIE has in our company. The Board of Directors of MCIE at its meeting in December 2022, approved the proposal to change the name from Mahindra CIE Automotive Limited to CIE Automotive India Limited. India is one of the major growth markets that CIE Group is focusing on as part of its global strategy. And the name change reflects this. The name change will be executed once all regulatory approvals are in place, and it may take a few months. The Board also took note of a proposal to actively look for a buyer for the truck forgings business in Germany. This will allow us to focus on the car forgings business out of Spain and Lithuania, especially managing the transition that we are seeing in the car business in Europe to electric vehicles. Accordingly, the truck forgings business in Germany has been classified as held for sale. We are not presenting the details of the truck forgings business in the Q4 C22 and full year C22 results. The details of the operations held for sale are presented separately. The name of the general truck forgings business was also changed to CRE Forgings Germany and we call it CSG in our presentation as well as in the stock. With these 3 key highlights, let me proceed to 2022. The year 2022 has been an excellent year for MCIE. Let us look at the results in detail. The quarter 4C '22 results for MCIE India. We know that we operate largely in India and Europe. So our results are along India and Europe. The Q4 '22 results for MCIE India are on Page 7. While 4-wheeler and truck demand was good, 2-wheeler was very big in Q4 C22, and tractor suffered from a high base of last year. Sales in India in Q4 C22 were INR 13.4 billion, which was 26% higher than same quarter last year, but lower than Q3 C22, about 6.5% lower sequentially. The sequential drop happened because the Diwali season this year was in the third week of October, and large part of festival lead production happened in September. The India operations achieved an EBITDA percentage of 18.5% in Q4 C22 versus 12% in Q4 C21 and 15% in Q3 C22. Please note, the Q4 C22 EBITDA includes a positive impact of INR 378 million of profit on land sales. Without this, the recurring EBITDA margin in Q4 C22 for India was 15.7%, still higher sequentially by 0.7%. Also note, the Q4 C21 EBITDA margin had a onetime VRS cost that lowered margin by 1.2%. Even if we adjust for onetime effects in both the quarters, the Q4 C22 margins is much higher year-on-year than Q4 '21, 15.7% versus 13.2%. And this reflects the fact that the Indian operations continue their journey to match the global standards of the CIE Group. On Page 8, we have the results for MCIE Europe in Q4 C22. These financials don't include the German Forgings business, CFG, which have been held for sale. The Q3 C22 and Q4 C22 numbers have been stated accordingly. Sales of INR 7.3 billion in Q4 C22, which are 43% higher year-on-year versus Q4 C21 and 7.5% higher than Q3 C22 sequentially. We have clearly beaten the market with European light vehicle production growing year-on-year by 6.6% in this quarter. EBITDA margin in Q4 C22 was a healthy 14.5% higher both year-on-year and sequentially, that is versus the 11.1% in Q4 C21 and 13.5% in Q3 C22. Margins improved as some of the increases in energy and inflation were passed through and the energy prices are starting to stabilize. On Page 9, we see the consolidated MCIE Q4 C22 results. which are a combination of the good results in India and Europe. Consolidated sales were INR 20.7 billion, 31% higher than Q4 C21. EBITDA INR 3.55 billion, 92% higher year-on-year. EBIT, INR 2.78 billion, 135% higher year-on-year and EBIT INR 2.7 billion, 145% higher year-on-year. The full year C22 results for our Indian operations are on Page 11. Sales increased by 29% versus C21 to INR 52.5 billion. This was higher growth than the underlying market. As I said earlier, the 4-wheeler and truck markets did very well, while tractors were sluggish on high base and 2-wheelers continue to be weak. This trend is going to continue. The EBITDA margin of 15.9%, EBIT margin of 12.0% and EBITA margin of 11.9% are all much higher than C21. This reflects strong sales and margin performance. Please note the effect of onetime cost on C21 and C22 results, as explained earlier. The PAT percentage in C22 is 9.1% versus 3.9% in the previous year. The C21 PAT percentage was affected by the onetime negative impact of roughly INR 146 million of deferred tax liability on Wilford goodwill. So please adjust for that. Looking ahead, we expect the growth momentum to sustain in India for the next few quarters. Our order book in India is in line with these expectations, and we have been adding capacities in almost all our verticals. In India, we're balancing order book requirements and investments in capacity such that both growth and profitability objectives are met. On Page 12, we have the full year results of C22 for our European operations. These are without CFG held for sale. With sales of INR 29.8 billion, there has been a 27% growth vis-a-vis full year C21, much higher than underlying market growth. EBITDA margin in C22 was 14.5%, EBIT, 11.4%; and EBT 10.9% or slightly lower than C21 largely on account of the unprecedented increase in energy costs. C22 PAT is negative INR 6.159 billion, and that includes INR 8475 million of losses coming from discontinued operations. In Europe, we expect the market to start recovering very gradually and are focused on improving our profitability. On Page 13, we have the C22 consolidated results of MCIE. Sales was INR 82.2 billion, which is a growth of 28% versus C21. The EBITDA margin was 15.4% versus 15.2% in C21, 11.8% versus 11% and EBT 11.6% versus 10.4%. All onetime effects have been explained earlier. The consolidated PAT is negative INR 162 million, which is minus 1.7% and includes INR 8475 million of losses coming from discontinued operations. About INR 2 billion of positive exchange rate impact on CFG goodwill and net assets is pending to be allocated to the P&L account in 2023. This will be done once the CFG sale transaction is completed. The note explaining the impact of holding CFG for sale is shown on Page 14 separately. This note is also part of the results statement submitted to the stock exchanges in SEBI. We have already explained the details earlier in this talk. On Page 16, you will see our bridge consolidated balance sheet, which shows the healthy state of MCIE. Return on net assets is 17.9% and return on equity without the goodwill write-off is 15.3% percentage. Net financial debt is INR 144 million. That is roughly INR 145 crores. The cash flows are shown on Page 17. The company generated operating cash flows to the extent of 73% of consolidated EBITDA, which is very good. Growth CapEx was INR 3.5 billion, and this is without maintenance CapEx. And this was largely focused on projects in India, some of which are highlighted later on Pages 20 and 21. Overall CapEx was 5.6 percentage of sales, which is in line with our norms. While our consolidated PAT is negative on account of classifying CFG as held for sale, our cash generation has been good in C22. Taking this into account, the Board of the company has recommended that dividend payments be maintained. Accordingly, MCIE will pay a dividend of INR 2.5, that is INR 2.5 per share after the approval in the AGM scheduled later in the year. Pages 20 and 21 present some operational and commercial highlights of C22, some of the new photographs of the new plants added. Pages 22 and 23 give details of geographic and technology-wise breakup -- breakups, market segments and key customers that we operate with. Page 24 provides details of our electric vehicles portfolio. Electrification of powertrains has seen rapid adoption in Europe market share of battery electric vehicles has crossed 10% there. And it is getting to become more mainstream in India as well, especially in 2- and 3-wheelers. We have developed a good order book for EV parts and are working with major European and Indian OEMs in the EV space across segments. Our EV order book covers aluminum and steel forgings, gears, campings and composite parts for E2-wheelers, E3-wheelers and E4-wheelers. So the photographs of some of the parts are there. Page 25 summarizes our overall strategy, which has remained unchanged from previous years. Our strategy is based on the global strategy of CIE Automotive group, the global strategy, which has a track record of success in 4 continents, Europe, North and South America and Asia. Pages 27 and 28 provide a report card on the effectiveness of our strategy. On Page 27, we have shown revenue and EBITDA margin trends for our Indian and European operations since calendar year 2016, which was the first full year of reporting results. Revenues from India have grown 3.2x between C16 and C22, and this includes 2 acquisitions. Revenues in Europe in C22 are 0.9x of that in C16, but this does not include CFG, which has been held for sale. The share of India and consolidated revenue has grown from 33% in C16 to 64% in C22. EBITDA margin in India has grown from 11.5% in C16 to 15.9% in C22 and that in Europe from 10.9% to 14.5%. Page 28 shows similar trends for consolidated results. Consolidated revenue has grown 1.6x EBITDA, 2.2x and EBIT 3x between C16 and C22. EBITDA margin has increased by 430 basis points and on a percentage by -- that is return on net assets by 890 basis points in the same period. Page 29 provides a snapshot of our stock market history since 1st January 2015. The next few pages talk about market statistics and forecasts from relevant sources followed by the results submitted to SEBI in the prescribed format. The NCI team is confident that it can utilize future opportunities and face future challenges with agility in order to meet the shareholders' expectation of sustainable growth and profitability. With that, I would like to thank you and proceed to Q&A.

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

Congrats on a good set of numbers. Quickly, a couple of clarifications. One is with respect to the European business, can you talk about the growth in euro terms, constant currency growth?

For the quarter or for the year?

For the quarter and the year.

Yes. So I think for the year, volume term growth would be about 11%. And for the quarter, Oroitz , can you help me with that?

Yes. For the quarter, the volume increase has been 40%, as we can have a negative exchange rate impact of 3%, but volume increase has been approximately 40%.

40 or 14?

Oroitz , is it 40 or 14?

40.

40 percentage.

And this is the volume growth, tonnage growth?

Yes, without exchange rate, without raw material.

Okay. Okay. Cool. Second clarification was with respect to the India business financials as given in PPP. So this line item would the revenue the gain on sale and will be accounted for? Would it be revenue or operating other income?

Which one? Which plan?

The gain on sale of land?

JP, which line item in the SEBI result takes into account the gain because of land sale.

Sorry, I was on mute, Vikas.

It's okay. So you heard the question?

Yes, I had the question, sorry. It is shown as an exceptional item. It is neither in sales nor in other operating revenue.

In the PPP India Financial because I could not see any exceptional item.

In the PPP it's part of EBITDA.

EBITDA. So it will also be part of revenues, right?

Not revenues. Just a product.

Got it. Okay. And in terms of the question which I have in regarding the business one is we have seen a very sharp improvement in profitability of CV forging business, which is for sale. So anything structural has changed there or that there is any one-off there?

Because this year we have exceptional write-back this quarter for employee payouts that were planned because of volume drop expected, but since contracts have been tying those provisions are no more required. In terms of settlement of prices from bad data. There are exceptions, almost EUR 7 million out there, EUR 1 million.

Okay. Got it. Got it. And last question pertains to what we have seen on the aluminum forging side. We have mentioned about we have started supplies there. So can you talk about what kind of order wins we have, how has been the response from customers for this new product category for us? That will be my last question.

So Ander, the question is what has been our experience with aluminum forging so far?

Okay. We have actively quoting several projects in the aluminum forging field. We are developing these products commercially. And we have got, as you all know, and we already informed, we got already our cat business, and we're already producing the first products in this technology. And we are, let's say, sure that in the next quarters, in the next month, we will be able to get additional projects and develop this business, okay? So we are planning to make this transition from our combustion engine component to this, let's say, new technology that we will prepare and we will manage to make this a smooth transition in the next years, okay? So the process is going, I think, quite well. We have already started and the expectations are also optimistic.

The next question is from the line of Siddhant from Goodwill.

I just had one question regarding the dividend policy. My assumption was that there would be around the INR 200 crore payout or 25% of profit. Is it because of the write-off that you've chosen to give a lower dividend? Or could you give future guidance on dividend policy?

You're right. We have a dividend policy where we say 25% of PAT. But since we have a negative PAT this year, we have chosen to continue with the last year dividend that we had declared since we started only last year. But going forward, our policy is very clear on what we want to do.

Okay. So next year, we can expect 20%, 25%.

Yes.

The next question is from the line of Pratik Kothari from Unique Portfolio Managers.

Sir, my first question on the India business. I believe the last quarter call, we had earlier, our stated guidance or estimation used to be there's been outflow from Indian markets by 5, 10 percentage point billion. I guess last quarter, we revised it we'll do at least 10 percentage of outperformance. And we have seen that happening here. Just if you can just highlight what is driving this outperformance or regaining market share at this quarter?

So if you look at the weighted average for the year -- full year, I'm talking about the full year, the weighted average growth rate and you have the segment-wise breakup for India, about 49% is 4-wheelers, 23% is 2-wheelers, 20% tractors and construction equipment and so on, and roughly 8% is tax. These are up overall rough numbers. So if you do a weighted average calculation based on these numbers, that would be 14%. Again, 14%, we have done 29%. Some of it is, of course, raw material, which this year would be lower. Where are we getting it from? We have to understand. A lot of our anchor customers are growing, M&M, Tata Motors, Maruti. They are growing. M&M, both in light vehicles as well as tractors. We have been getting more orders in areas where we were earlier less present like Hyundai Kia, John Deere, even in Tata Motors. So we are increasing our presence, and we have been adding new customers. So all 3 parts are there. A large part of the growth and also exports, especially from AEL orangey electrical. So these would be the drivers that we -- that has allowed us to grow much faster than the market. We expect some of these trends to continue. As we have pointed out, we are adding capacity in -- for the last 1, 2 years and this year also, we will be adding capacity in almost all our verticals. And we are careful because we want to balance both growth and profitability objectives. So that is not really a problem for us at this point of time. So balancing investments and profitability is our key focus at this point.

Sir, my second question on Europe. I believe in the middle of last year at expectations. I believe that was also the IHS focus that second half would be better than fourth irrespective of holidays, energy prices, et cetera. But that doesn't -- that hasn't stand out. So one, your comment on that? And second, the outlook for next year in Europe, especially?

I'll give you the overall numbers and then I'll request Ander to comment on the European market. Of course, we have outgrown the market in Europe also quite handsomely. You saw the volume growth numbers that Oroitz said about 40%. In Q4, the growth number in the light vehicle market was 6.6%. So it is much higher than that. Part of it is because of Metalcastello. Going forward, what is the forecast? I think this year, we ended up in light vehicles at about 15.2 million units production. That is expected to go up to 16.1% or 16.2% something like that. So that is the kind of growth. So some, okay, 6%, 7%, 8% growth is expected in Europe this year. So this is from a market perspective, but from a more business perspective, I'll request Ander to talk about how he looks at the European market.

Okay. Yes, it's true that the global figures in calendar year '22, the market performance in -- especially in the light vehicles was quite disappointing because we were all expecting certain growth, but unfortunately, mainly because of the Ukrainian war, plus the semiconductor shortage that still remains. We were not able to -- we saw the market going down a little bit in calendar year '22, okay? For calendar year '23, we expect the market to recover at least because we can expect between 5% to 8%, certain recoveries that was expected. Of course, this is providing the Ukrainian war and the, let's say, frictions with Russia will not create additional distances in the market, okay? That is probably one risk factor that we all have in mind. But we see the economy recovering. We don't see -- we were also -- we had certain fears of recession in the economy in Europe. It seems that it's not happening. And also the inflation is going down. And the most important point that I think is affecting our day-to-day business is that the energy prices are also being stabilized, and we are now the electricity cost is approximately now at EUR 140 per megawatt when 3 months ago, we were at above EUR 300 per megawatt, okay. So considering all these scenarios, we think that 2023 will be a good year. We will see increase also in our activity, both in Metalcastello, Cores, we see a strong demand in this moment. We expect a good year also. And let's say that in 23 24 days period, we will see the recovery that we didn't see in the last couple of years due to the semiconductors and the Ukrainian war. So we are moderately optimistic for the next couple of years.

And I mean, the outperformance in volume versus European market is outstanding. So I think congratulations to repeat there. Just on that part, again, so this additional wallet share, the business that we have won against the industry against the smaller peers, we were talking about consolidation earlier. So how sustainable -- I mean, obviously, this doesn't happen every year, but whatever extent that we have gathered, I mean how sustainable is this?

Ander, so the question is since we have grown much faster than the market in Q4, especially, that means that we have gained from smaller suppliers. So a bit of market consolidation is happening. How much of that is sustainable or we'll lose some of that going forward?

Okay. Let's say that we think that this trend will continue in the next year, okay? I mean this year perhaps was quite relevant or higher than even what we expected. But for the next year, we think that this consolidation will continue, okay? This growth, especially in the, let's say, the automotive passenger forgings activity will continue, and we will see certain improvement from that side. That's our expectation, probably at a lower pace than in the previous year, okay? So that is also a reality. And regarding the growth coming from Metalcastello that was last year, we had a big jump on Metalcastello on the Gears business that we mainly are exporting to the U.S. This market is doing really well also, and we continue -- we expect to continue this growth trend, especially because we have been awarded with additional new programs. So we are quite optimistic on that. Okay. The key point here is that we are adding capacity to full and to cope with this additional demand because in this moment, we -- our capacities are almost full. So that is the comment that Vikas made before regarding that we need to align our capacity to the demand and we are taking care of that capacity increase in our verticals.

Sir, last question is just on the other operating revenue in that has doubled over the last 2 years, and that I believe is largely scrap. Can you just highlight what it because the material number now?

JP, other operating income has doubled in the last 2 years. Any comments on that? It is largely scrap. That's correct.

It's largely scrap, but the doubling is actually a reclassification of all the energy compensation that we are getting from customers were credited to the power and that expense and other expenses line because that was more a sharing of expenses in terms of concept with the customer. But from an accounting point of view, it has to be reclassified to other operating revenues. So you see increase in other expenses as well as increase in other operating revenue. Other operating revenue will remain at the previous quarter level.

[Operator Instructions] The next question is from the line of Nemish Shah from Emkay Investment Managers Limited.

So I had a question on the Europe business and specifically on the margin front. So if I compare our CY '21 margins ex of German business, so we did about 17.2% EBITDA margins in CY '21, and we have closed at about 14.5% in CY '22. Now given that the inflationary trends are largely stabilizing, and we expect some pickup going forward as well. And so do we anticipate us inching back to those C21 level margins in the coming financial year?

Okay. Let's say that you are right that we had this margin reduction from calendar year '21 to calendar year '22. And there are 2 main results, okay? One is the raw material growth, raw material prices inflation that are passed through almost 100% of the cost increase is passed through to the customer, but without the any margin, okay? So that dilutes our margins. Approximately 1% is coming from that effect, okay? The second effect, second main effect is, as you know and as we have already mentioned, is regarding the energy price increases, I mean, electricity and gas prices went up dramatically during calendar year '22, and this impact this was -- we negotiated and translated and transferred to the customer only partially, okay? It was a big discussion on this passing through process and part of this was absorbed by our accounts, okay? So that's the second main impact that we had last year, okay? So regarding, let's say, the evolution of these margins in the -- during calendar year '23, what we think is that the raw material effect will continue because it seems that in Europe, there will be a certain additional increase on steel prices. That is our main raw material in these verticals. So we will have this disadvantage in margins in calendar '23, but on the other hand, regarding the electricity and gas prices that are going down and stabilizing, as I mentioned before. So I expect that we will recover certain margins coming from that concept, okay? So let's say that we expect a certain recovery but not all because of this raw material increase that is continuing going up.

The next question is from the line of Sunil Kothari from Unique Investment.

My congratulations for good performance as well as for taking decision on selling of this German forging business, which is very difficult reason for CIE because of record is always to turn around any difficult acquisition we make. But finally, we have taken this reason. So my articles for tech. Sir, my question is on this since last 3, 5 years, I'm hearing from Mahindra CIE, external, some speaker of, say, some auto giants, automobile companies, auto parts that ICE engine parts will be the very big opportunity for companies like Mahindra CIE. So I would like to understand that this opportunity has already arrived and that's why we are outperforming or you see much more opportunity from this internal combustion engines parts globally? Because locally, we are doing really well, but outsourcing exports, how big those open and how prepared we are and how you see those happening now?

Anders, the question is as electrification happens in Europe, whatever ICE parts that are left, internal combustion engine parts are left, will Europe transfer or outsource them to India? And therefore, there could be a big opportunity for Indian operations to export internal combustion engine parts to Europe in the next 5, 7 years or whatever.

Okay. We don't see this transfer of production from Europe to India. As we see India internally just with the internal demand and the internal growth that we are seeing in the local market in India, we think that we will have a full opportunity to continue our growth strategy, okay? So we don't expect the moving production from Europe to India in the -- at least in the next years, okay, perhaps in 8, 9 years later on could make sense to concentrate all the internal combustion engine components in India, but not in the short term. So in the short term, we think that there will be a consolidation in the market in Europe. So some of the players will be eliminated. So there will be a certain winners that will consolidate the remaining market. That is our aim. So that's first strategy. Then also, we are developing additional products for, let's say, with other technologies, as mentioned before, let's say, all these aluminum fortes. So we expect to do this a smooth transition. So that is the -- probably the key point for our next European business evolution. The key points are the transition -- consolidation transition that will be the strategy. But the movement from Europe to India is not really in the procedure at this moment.

Okay. Sir, second question is our parent company has some goals and objectives by 2025 for some growth rate and having over a 19% EBITDA margin. So as I understand MCIE also follow those type of goals and some and objectives. Which are the hurdles or which are the challenges which you should overcome to achieve those type of numbers may not be '19, but maybe '17, '18, '19, whatever and what you are doing for that?

Okay. What we are working extremely hard in the improvement in our -- of our operations, okay? You have listened to me in the previous calls, we always talk about our efficiency improvements and productivity improvements where we can be competitive and profitable in all our verticals, okay? During all these years, we have improved and we -- you have seen the calendar year '22 results. And we also expect to continue this improvement trend in the next years. So as you also know, we want to be at the same EBITDA and profitability margins than our parent company. I mean we need to be at that level in this 17%, 18% EBITDA margins. Those are our midterm targets. So we continue improving. Just as an example, this calendar year '22, our added value per employee improved about 15% improvement in this productivity ratio that is really important. So for next year, we even want to continue this improvement even further than the 15% that we go to this current year, okay? So the difficulties on let's say, the hurdle that we see in this process is that, let's say, that the mentality and the production style in our Indian verticals is less efficient than in Europe. And we would like and we are trying and we are, let's say, making this transfer of technology and continued visits from our technicians and management to Europe to learn about our strategies and how we manage our plans to transfer these best practices. And I think this is paying a lot of results, okay? So this trend will continue, and we expect to continue improving our margins in India.

Great, sir. for very detailed answer. Just last question is on this German operation, which we are planning to sell. What challenge to get the buyer or will form somebody should throw some light?

Okay. You know that we took the decision in the December board in Mahindra CIE. Since then, we have received several expressions of interest of several companies. And we are preparing the documentation we are, let's say, changing information with these interested parties. And we are developing this process. Okay. Now there is no additional information to share. And during next month, when we advance in this process, we will inform accordingly.

The next question is from the line of [ Rahil Shah ] from Crown Capital.

So I was just pending back to the answer that day previously about improving margins and the strategy we are following and how you continue to maintain the trend. So on a similar line, are we to expect as investors that from here on for CY '20, everything will be maintained, like from revenue, from the EBITDA margins on. So you will be able to maintain the numbers, and it will only be upwards from here on.

Rahul, you are asking a very difficult question. whether, of course, we will try to maintain the trend, as Ander pointed out. As he pointed out, our parent margin is higher. The previous question was that the parent is targeting 18% to 19% EBITDA margin. We are still some distance away. So our midterm target, as Ander pointed out, is to come as close as possible to CIE global target of EBITDA margin. So that trend will continue. Your second question around growth whether we'll be able to maintain the same growth rates is something that I will not comment on. But both the -- but I'll talk about both the markets that we have in India. We said that our key challenge in India is really not order book. Our key challenge in India is to balance order book requirements and investments. So we are quite comfortable on the growth aspect. What we are focused on is to balance growth and profitability. And in Europe, Ander pointed out, there is a consolidation happening on IC engine parts. And therefore, there are growth opportunities in Europe beyond just market growth. So with these 2 factors, I would suggest that, yes, we'll continue on the growth trajectory, but whether it will be same, different or not, that is a question I will not answer. But yes, we will continue both on our margin improvement and growth directory. Is that sufficient? Or you would want some more clarification?

No. That will be enough.

The next question is from the line of Aman Agrawal from Carnelian Capital.

A few questions from my side. Number one, it was on the German like. This question is in continuation to the asked by an earlier participants. Like given the current macro like weak macro in Europe and globally, have we had any internal time line of by then, we basically want to dispose of this business. That was my first question.

No, Aman, there is no such time line that we are talking about as our Board has noted that we need to do this -- we need to execute this strategy. And as Ander has pointed out, there have been several expressions of interest. So it is our endeavor to execute this as quickly as possible. And as and when some developments happen, we'll keep you updated. But at this point of time, like with your permission, this is the kind of update that we have.

Understood. The second question was on the India business that we were talking about 5 to 10 percentage points higher than the industry growth rate that is our target for the India business. But if you can touch upon like segment, which you want to focus on, like we have presence across the tagging and all. Which specific segments are we more focused on growing faster than the industry in which you want to grow more or less in line with industry, if you can take this trend?

Again, and I will take you back to the question Rahul just asked because he asked the same, like whether the trend in growth will be maintained. Right now, the 4-wheeler market is doing exceedingly well. As you know, it is perhaps the best year that we have had in a very long time, 2022. It's actually higher than 2018, which was the previous high. And within the market itself, some of the customers that we work with more M&M, Maruti M&M and Tata especially and Maruti in the later half of the year, they are also doing well, plus we are increasing our presence with Hyundai and Kia. So to that extent, 4-wheeler market is one area that is doing very well for us. 2-wheeler market, we have a strong presence, but the 2-wheeler market is -- just grew about 2% or 3% this year. And therefore -- and in the 2-wheeler market, I think Bajaj is our anchor customer. And because of Bajaj will be export oriented, I think exports because of the currency crisis, especially in South America and Africa, Bajaj exports are a little muted. So to that extent, 2-wheeler will continue maybe not a very big growth for us. Tractor market, again, has been doing very well. Even though tractor market in CD22 was some like maybe 2% lower than C21, but the base is very high. I think the production in both C21 and C22 actually crossed 1 million, which is a very big number in tractors. So that base, we think will continue in tractors. So tractor is again a very good area for us. Trucks, the base has come down very strongly even though on a low base, trucks grew well, I think almost more than 20%. And this year also, all forecasts are suggesting at least 10% growth. So truck market is growing, but on a low base. So 4-wheelers, yes, is one area where we think we will benefit largely not only because the market is growing, but within the market, our -- some of our key anchor customers are growing. And within the anchor customers also, we have been doing well in terms of new orders that we are getting from them. And we have talked about, say, whether it is M&M or Tata Motors, we have talked about it in the past. So right now, so that is the situation why we think we are confident that to answer both you and Rahul's question earlier, that we are confident that the growth trajectory will continue. Whether at the same level, I think this year, we grew by about 28% or 29% in India. So whether that kind of growth will -- trend will continue or not, it is something we have to see. But the direction is, yes, we will benefit from growth in the market, as I've talked about segment-wise.

Thanks for an elaborate answer. Sir, my question was mainly from the technology point of view. Like we are present in forging, aluminum casting, iron casting, stampings composition in all the segments. So within just like which are the main technologies, we will be focusing on in terms of growth. And this was coming from the point of view that we want to increase our margins in the Indian.

Mr. Agrawal, sir, there's a lot of echo from your line.

So you are saying among forging, casting, is there one area that we are focusing on. Sorry, I took it the other way, whether we are focusing on some segment. In fact, when it comes to technology segments, I think we are -- like we are focused everywhere. So it is not as if we are focused only on this or only on that. And let me just elaborate a bit, like forgings, both in Bill Forge as well as in -- as well as our Forging Sakon plant, we have added capacity. Wilford, we have talked about CI as in the past. In forgings, we have added presses. Like last year, we talked about in foundry, we had like refurbished our oldest and largest molding line. Magnetics, we are increasing capacity in gears, we have put up a new plant in AEL. We have put up a new plant in stampings, we have been doing a lot of robotic automation, which will help provide value-added welded products. So it is across the board. That is why I have given at least one example from each vertical to show that growth is happening across the board. It is not really restricted to any one vertical. So we are not really focused on only one vertical. That's why I talked about more market segments. So sorry for that.

Okay, sir. Just one final question from my side. Making past concert 2, 3 years back, we have somebody about margin at global forging businesses and also about applying the plastic business in India.

Pardon me Mr. Aman Agrawal. Sir, your audio is not clear. We're not able to hear you clearly.

I'm able to hear that, ma'am. So let me -- so his question is, a few years back, we had talked about merging the Brazil, Mexico, China forging business of CIE. What has happened to that? Frankly, when after the pandemic came, we have not pursued that proposal. So as of now, we are not pursuing that proposal. That's -- that's the answer to Brazil, China, Mexico at this point of time. In fact, the priorities are different. There has been -- EV transition is happening. So all of us are focused around that. And perhaps we will -- I don't think we'll go ahead with that proposal. And to your next question about M&M in plastics, yes, plastic continues to be an area where we want to look for acquisitions. And we continue to look for it. If there is anything of interest at the appropriate time, we'll let you know. So that strategy continues. We have not -- we have not been able to proceed on that.

The next question is from the line of Navin Matta from Mahindra Manulife.

Just a question on the energy cost. You did comment that prices have come off from INR 300 crores per megawatt to about 140 currently. I just wanted to get a sense of the quarter 4, what would be -- what would have been a consumption of energy cost at? Would it be higher and there could be some benefits that should flow through going forward?

Navin was just asking if the question is what percentage of our cost is -- or what percentage of sales is energy cost? Is that what you're asking?

No, sir, I was trying to understand what was our energy consumption cost in the fourth quarter? Because I'm sure it's come down from 300 to 140 over the last quarter, but we would have consumed at a higher level. So I'm just trying to understand what benefit can flow through as we get closer to this 140 production cost?

So absolute power cost in Q3 and absolute power cost in Q4, right?

Yes. That's also fair.

Yes. So Ander, he's asking for total energy cost in Q3 versus Q4.

I don't have the details in this moment, but the trend in the -- during the Q4 last year was in October, we had something like 300 to EUR 300 per megawatt, then November was reducing. And in December, we finished at approximately 150 something like that, okay? That is -- so the average you can take the -- it could be around EUR 200 to EUR 250 million, okay? Then for this quarter, for this start of the year, in this moment, we are at about EUR 140 per megawatt. That is the trend and it's quite stable in the last weeks. So we can expect -- and this is positive because this will, let's say, reduce also the impact of the energy accounts, okay? So that was the effect that we expect to be positive in our margins, thanks to this effect.

Got it. And just one question on our European operations again. We are -- we focused new products, and we are gaining new orders. So I'm just trying to understand over the next 2, 3 years, how should we think about our revenue mix between ICE and EVs? This is specifically for Europe.

Okay. I think we will see the transition in a smooth transition from, let's say, this calendar year '23 were the total, let's say, vehicles market share is approximately 10% to what we expect to be above 60%, 70% in 2030, okay? So we will see this transition. What we are now we are getting new orders from our customers and yet, for example, last year, approximately 30% of our new orders are from electric vehicles. So what we expect is that there will be a transition and our share of electric vehicle components will continue or will go increasing smoothly during this period, okay? It's difficult to give you a figure because the evolution of the market is unknown and the start of the new projects is usually being delayed, okay, especially when there are new technologies, okay, you can see the evolution of the new electric vehicle plants in Europe is being delayed by the OEMs mainly because of the technical reasons, also the supply of the components, battery components and all these kind of things, okay? So my expectation is that we will have this smooth transition and increase on this year. And also the expectations are good or optimistic, mainly because of the new order share on any vehicles is becoming higher and higher every year.

The next question is from the line of Basudeb Banerjee from ICICI Securities.

A couple of questions from my side. One question from the point which [indiscernible].

Sir, can you give a handset mode while speaking?

Yes. So one question I just wanted to know like before last 1 year in this power price moved to EUR 400 per megawatt hour, as you said, when it used to be at those steady levels. What was the energy cost as a percentage of revenue at that time? And how much it moved up to?

And that is only for Europe or other countries?

Only for Europe business.

So Ander, the question is what was the power cost as a percentage of European sales before the energy costs started going up. What was the max it went up to power cost as a percentage of sales and how much is it stabilizing at?

Before it went up it was approximately 9%. It has increased up to 8%.

Vikas, if you can repeat again what he said.

So it increased by about 5% or is that right? It increased by about 5%. And now it is at around 8%, you are saying.

So it went from what level to what level? That 5% increase was from which level?

So Oroitz, we couldn't hear you. When you say 5% increase, what was the level before the increase?

More at 3% over the sales. And now it has gone up to 8% of sales, more or less.

So it was -- it has come back to 8% is what you are saying?

The reference level before this energy increases went up was around 80 -- between EUR 60 to EUR 80 per megawatt. That was the previous energy price -- electricity price in Europe.

So we'll clarify this a little later because we are not able to hear Oroitz properly. So we will clarify this later.

Yes. And second question, sir, like as you duly mentioned that because of the goodwill write-off of the truck forging those one-off accounting aspects, dividend was limited to INR 2.5 this year. And with normative free cash flow again starting to come back from next year or get enhanced along with some potential value seeping in through selling of that asset. So that extra cash flow on one side. And on the other side, in the December press release, you also mentioned that a larger focus on European EV let component piece. If you can highlight any specific technology aspect or strategy aspects? How are you looking at European EVs or in terms of acquisition. So what is the way ahead other than what you are doing presently.

No, Banerjee, we will continue to do whatever we are doing. As Ander has pointed out, we do expect a smooth transition to EVs. As we have been saying, the EV transition in Europe is being led by the same companies that we deal with. So to that extent, that transition is a bit easier. So what we are seeing is a twofold thing. We are getting more and more new orders in the EV space. The new orders as a percentage of overall orders that we get is increasing. And number two, we are also getting -- because of consolidation, a higher share in the IC engine market. So both these factors will continue for some time. And I think at this point of time, we don't require any special effort like doing an M&M or something. We just have to manage this transition. Anders, would you like to add anything more to this?

Because exactly, that's what I was trying to understand, to grow and expand European business through the EV route, do you need some external capability addition or organically, you can grow. So that's what I was trying to understand.

No. We can grow organically. No problem. Is the only new technology we are adding is aluminum forging and that is going on, as Anders pointed out.

But that is anyway a part of your 6% CapEx to sales outlook?

Yes, exactly. No, there is not too much CapEx required in aluminum forging. I think in our previous call, Ander has pointed out, it is largely the allied machines that are required heat treatment and finishing and so on and so forth.

One of your key competitor who has also entered the same field almost 2 years back is still grappling with capacity utilization and making EBITDA losses. So how to look from that EBITDA?

Yes, it's a journey for them and us for both. So that's okay. We have to manage this transition.

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

Yes. Thanks, and I'll hand you over to Anders for his closing remarks.

Okay. So thank you all for your participation in this call and your well-directed questions. I hope we answered properly, and you felt the real performance and value of our company. And as always, I want to thank you to all Mahindra CIE for the commitment and a fantastic job during a very complicated year. So thank you very much, everybody. Thank you.

Thank you members of the management team. Ladies and gentlemen, on behalf of ICICI Securities, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.