Mahindra & Mahindra Limited (MM) Earnings Call Transcript & Summary

So good afternoon, everyone. Welcome. Welcome to Mahindra & Mahindra Limited's Q4 and FY '20 Earnings Call. And as has been the practice always, the host of fourth quarter call has the analysts meet, and it is a physical analysts meet. But given the times, we cannot have a physical analyst meet, but we want to retain the same flavor. So we will have the same agenda as what we would have normally had in a physical analyst meet. We'll have -- Dr. Goenka will start the conference. Then we'll have 2 presentations from Rajesh Jejurikar and Dr. Anish Shah, followed by summing up Dr. Goenka. And then we'll open up to Q&A. We'll also have Mr. Anand Mahindra joining us for the Q&A. [Operator Instructions] So without much ado, now I would hand it over to Dr. Pawan Goenka to start the conference.

Thank you, Sriram. Good afternoon, everyone. All of you would have attended enough analyst meets on Webex by now. And therefore, I'm sure that you're very comfortable and also realize that it works quite well if you have proper bandwidth. So let me first take the -- do the formality of introducing the new team. Of course, you know them all. Rajesh Jejurikar, you have met many times. He has presented to you as President of FES business. Today, he will talk to you as the Executive Director of AFS. He took over that responsibility from April 1. Anish Shah, you know very well. He has not participated formally in these analyst meets before, but he has met many of you over the last 4, 5 months, and therefore, I'm sure you know him very well. He will present in his capacity as Group CFO. The Mahindra Board met today, virtually again, as all the Board meetings have been for the last 2.5 months, and approved the financial results of fourth quarter and the full year FY '20. You have already seen the press release, and I'm sure, analyzed the data, the headline numbers. In the next 45 minutes or so, Anish and Rajesh will take you through insights on these numbers and give you all the details that you may want. And after that, we will have almost an hour for questions and answer. Anand has joined already. He will participate in the Q&A. Undoubtedly, the last 3 months perhaps have been the most challenging months for anyone, professionally, in business, personally because of COVID-19 and the industry that we are in -- the core industry of tractor and automotive have already have undoubtedly suffered because of that. In our tractor business, going into the fourth quarter, we're expecting a strong recovery, moving from what was about minus 10% growth in quarter 3 to a minus 5% with a positive 20% or so in quarter 4. But instead, quarter 4 also was degrowth, clearly impacted because of what happened in the last 10 days or so in the month of March, which was -- which is the highest selling time, one of the highest selling time for the tractor business. In the auto business, Q4 was supposed to be subdued anyways because of BS VI transition that was happening in that quarter. But the problems started almost in mid-February when some of the companies, including Mahindra, faced the supply problems from China. After that, specifically for Mahindra, we had a fire in one of our major suppliers. And after that, of course, we had the lockdown. And therefore, the industry in quarter 4 was down by 22%. In the middle of all of this, we obviously had to have the BS VI transition, and that also took its toll. You will see that, in spite of fairly sharp impact on volume and, therefore, revenue. For Mahindra & Mahindra, the operating performance was very good, and we will walk you through the detail. In fact, our operating margin remained same as the year before. That I believe is a remarkable achievement when we have seen such a huge reduction in volume. We increased the market share in the tractor. Rajesh will talk about that and also in the CV segment. And also we managed the operating cash flow quite well, at the same time did the BS VI transition seamlessly. So all of these things, Rajesh will take you through the details. We've taken some hard calls, as you would have already seen with SsangYong, of not investing anymore in SsangYong. Also, we have taken a decision to exit the electric scooter and bike business in U.S.A. called GenZe, and carefully examining all the other loss-making entities, especially overseas entities. And we have also done enough borrowing to -- at very attractive rates, in fact, to have a very strong cash position to face any kind of situation that may arise over the next few months. The opening up has started, and Rajesh will take you through where we are on the tractor business and automotive business as we open up. And Anish will take you through all the financial details. So with that, let me hand over to Rajesh first to take you through the operational performance. And after that, to Anish, for financial performance. I'll come back for a closer, and then we'll open up for Q&A. Rajesh?

Yes. Can you all hear me? Good afternoon all of you and welcome to this analyst meet presentation, which, as Pawan said, we're doing in the remote mode here today. So the way we're structuring this is to talk first about the FES performance highlights in period FY'20, then the auto and then talk a little about the future direction and our priorities in the auto and the farm space. So let's start with some news around the awards that the farm equipment business has got. Many of you know that the farm equipment business is very well known for its quality standards and the timing. And this year, we went on to also get the -- we're the first in the world to win the TPM Advanced Special Award awarded for lean manufacturing and manufacturing 4.0, connecting not just a plant but for the entire business. We also have got the most trusted brand and the most customer-focused brand awards in the year 2019. And we continue to be very strong on customer satisfaction, both with the brand Mahindra and Swaraj being #1 and #2 [ with ] JD Power. Some highlights for the farm equipment business. As Pawan just said, gained 1 share point market share, taking us to 41.2% in an industry which was down about 10%. We delivered a very good profit margin performance with a PBIT margin of 19% and a PBIT in absolute terms of INR 2,926 crores. In the early part of the year in January, we pilot test launched, which has now been rolled out, the launch of the new Plus Series, which are upgrades both in looks and as well in performance of our diehard old strong models, the Bhoomiputra and Sarpanch, and both have been getting very, very good reviews in the marketplace and very good feedback. The U.S. tractor business, billings grew by 9.3% to a level of 15,600. And in Turkey, the Erkunt brand gained about a share point and was between #3 and #4 player during parts [ to begin ]. This slide is mainly to illustrate the impact that the COVID business had on the tractor side of the business. As you can see here, we were looking at a very optimistic quarter 4. Things were going very well. We started seeing a turnaround in the tractor space starting December onwards. And our assessment of the volume that we lost in the last 10 days, just to remind all of you who track us closely, that was the last 10 days of March, was a peak buying season because, in the northern part of the country, it was Navratri, and then it's Gudi Padwa and Maharashtra in Karnataka, so it was a very positive buying period. And this is straightaway the loss that we could see happen over the last 10 days of March, which led to an impact on the PBIT of about INR 194 crores. In that context, let's look at the resilience in the performance. We often show you this chart. It brings out the stability of our margin performance in an industry we all know to be very volatile. F '20 saw one of its downturn years, followed by F '19, which was minus 10% growth, and yet we were able to maintain a margin of 19% in these times and also gain market share in this period of time. Moving on to auto and some highlights. Our commercial vehicles market share went up by 3 points to a level of 27.7%. Of course, this is a mathematical calculation. The commercial vehicle definition here includes 4 wheelers starting from less than 2 tonnes going up to medium and heavy commercial vehicles. Our pickups continue to do well, and small commercial vehicles did well as well. The UV segment, we had a market share of 19%, and we lost some share point, and I'll talk more about that as we come to the way forward. The automotive business again had a very strong margin performance with an OPM of 13% and in complete readiness with BS VI. Mahindra Electric had an EBITDA breakeven in the year F '20. Treo crossed 4,000 numbers and is now in more than 70 cities. On the auto side, the retails have been much better than the billing. And as you can see, that translated into a dealer stock of only 10,000 numbers. And that is probably amongst the lowest dealer stocks we've had going back in recent memory. Again, a very strong performance on customer satisfaction and sales satisfaction indexes of JD Power. We also have a best-in-class IQS score for Marazzo. So overall, many strong points as we look at F '20. Let's now try and understand the point Pawan was making in his opening talk, which is what really happened to quarter 4 volumes. Quarter 4 F '19, we had a volume of 174,000. We were expecting an industry slowdown, and our volume was expected to go down by about 38,000 on account of that. But 3 other factors came into play. We had a major disruption starting from February, mainly from the China supplies. That was equivalent to losing about 16,000 vehicles. There was a fire at our -- one of our key suppliers, and that happened in February as well, which again led to a loss of 6,500 vehicles. And then of course, the last 10-day lockdown was another 23,000 vehicles. So in a way, that explains how 174,000 vehicles came down to 90,500 vehicles. Just the COVID impact of that on the PBIT was INR 470 crores impact. Moving on to the resilience of the auto sector. And again, here, you can see how consistently the operating margins have been maintained in spite of a fall of 22% in volume this year and giving us a best-in-class margin of 13%. A little bit on the Ford joint venture and the alliance. Just recapping the potential benefits. The potential benefits here have been co-sharing of investments and technologies. We clearly see that playing out. Economies of scale in joint sourcing. There's strong evidence of that on both sides, how Mahindra has gained on some of its newer projects from the oversight or the overview that Ford was able to bring in and likewise for projects which are impacting the joint venture. We're seeing a lot of momentum on joint product development and capacities, and classic utilization is under discussion. Many agreements are already signed on driving joint product development. And of course, the biggest and most important potential benefit is the potential of exporting products to the Ford ecosystem, especially in emerging markets. There has been a delay in the start of the joint venture due to the COVID, and we could talk more about that if we all like in the Q&A. I'm now moving on and talking about the future direction of the farm equipment sector to begin. As I do that, I'd first like to give you all an update on where we are today. We see a very, very strong rural opportunity. That has been enabled by very good reservoir levels, very good rabi output, both in quality and quantity. And a significant increase in government spending. We have an internal index, which we call the rural spending index configured by our economists. And that is showing its highest level in many, many, many quarters. And we're seeing the evidence of that play out in the marketplace where demand for everything rural right now remain robust. On the tractor side, the key challenge is how we ramp up operations. More than 90% of our dealers have started. Our plants are now operating at more than 80% capacity. We have aligned finances very well starting in May itself and building out further in the month of June. We have new products which are in the pipeline. I spoke about a couple of them, and we believe that will give us a strong footing and help us strengthen our position in the markets. There's also mechanization opportunity we've been talking about, and that's clearly playing out. And while it may sound counterintuitive that if labor is moving back to their homes and villages, why would mechanization grow? And one explanation for that is that there will be a big regional SKU. So for example, if labor, which was working in Punjab in their farms has moved back to, say, Bihar, that's going to throw up mechanization opportunities in a state like Punjab and so on. So there will be a kind of matching of states to opportunity as we go forward. We've listed here some of our key priorities for the farm equipment sector. First and the most important one is to strengthen our core business, and while we will do that with our core tractor business, and you've already seen that we have been able to do that while protecting our margins and gaining market share, a significant part of our strategy is to build a moat for our domestic business through farming as a service, and I'll talk a little more on that in the next slide. We'll also focus on building our Farm Machinery India business. The other project which is very significant, where we see our future is the K2 Project [indiscernible]. A significant priority is around turning around the global businesses. And I will talk a little about what we plan to do in the U.S. tractor business, but that is a very important part. So moving on to Krish-e. Krish-e is the branding we're using for farming-as-a-service. Krish-e is a combination of a revamped Samriddhi Center combined with precision farming, rental models and really working very closely with farmers on helping make a difference to your productivity and yield. Many of the precision farming initiatives we've been piloting for the last 2 years, be it smart sugarcane harvesting, smart fertilization for potatoes where we piloted on more than 2,500 acres and got very good results, almost 60% reduction in fertilization cost and a 90% repeat rate are all evidence of the impact that we would create to an initiative like this. So this is really combining digital precision farming kind of technologies along with on-ground presence. Krish-e will be a part of our channels, and that's the way we believe we will create a stronger customer engagement and a greater moat for our core business of tractors and farm machines. So Krish-e will be called Krish-e by Mahindra when it's in the Mahindra channel and Krish-e by Swaraj when it's in Swaraj channels. Pawan has spoken about Project K2 in the last quarter. Project K2 is an ambitious and a significant project aimed at creating lightweight global platform, something that we don't have adequately in our portfolio today. It's a collaborative project between Mitsubishi Mahindra Ag machinery teams in Japan and the Mahindra Research Valley teams in Chennai. We aim to create 4 new platforms which are global in nature. And we start from 13-horsepower going up all the way to 70 horsepower for markets like U.S.A., Southeast Asia, India and Japan. We've been working on this for the last 1.5 years already. And we should start seeing the first of the platforms 1.5 years or 2 on. The North American tractor business is a very important part of the turnaround action. Many actions have been taken in the year F '20. We are very confident that we will be able to break even by F '22. We fixed most of the transition issues. Price and value proposition was a concern in F '20. We still have transition issues because we had old stocks of higher prices in the pipeline. We've now adjusted prices for all of those. We're seeing a very, very good retail momentum in April and May. And again, counterintuitive as it may sound, the North American market for tractors is actually growing very well, and so are we in the COVID era and mainly because you can imagine people are spending more times in their farms rather than in their urban locations. A lot of actions are underway and have been taken on restructuring our costs and a much more focus on digital marketing rather than mass media marketing. I'll now talk about the future direction of the automotive business. And we're using the approach here of walk, run and fly. The period walk is the one we are in right now, which is April to August. Clearly, the priority has been to conserve cash, and we've taken all necessary actions to manage our cash and our cost level. As we are in this period, April to August, we think there are some segments which will respond faster than others. Rural is clearly one of them. We're seeing huge rural momentum, and fortunately for us, I think we're well-placed on this matter. We have a very strong rural portfolio. More than 45%, 50% of our volumes are from rural. Scorpio and Bolero have a very strong rural presence, and so does pickup. So we believe we have a portfolio which can fully leverage the demand. Goods mobility is a segment which is opening up and so is B2B, corporates and government buying, especially in the area of people mobility because those are solutions that organizations are going to need as things start opening up in the economy. Our dealer and supplier financial health is an area we have focused on to make sure our network and our supplier partners are healthy and would not cause disruption as we ramp up. Currently, on the auto side, we are at 30% of our manufacturing capacity. As many of you know, we started automotive plants later than the tractor plant. But 100% of our suppliers are now operational, and more than 80% of our dealer network is operational. The next phase is run, and that we're calling the September to March. We have been focusing and are focusing on strategically prioritization of CapEx, of aggressive cost optimization and many new lessons learned during the shutdown, which make us believe that we can do business very differently. And we believe, when we say strategic reprioritization, it is how do you reprioritize CapEx without taking away strategic objectives for the long term. So we're not cutting anything which is strategic to our core and strategic to our long-term growth. We believe that, in the future, we will be able to optimize CapEx in the auto business significantly for 2 reasons. One, we've already invested in all the new platforms, powertrains, aggregates. All of that investment has been done over the last 3 or 4 years. Secondly, synergy with Ford will allow us to much greater level of commonality to the platform. So we believe we will be able to deliver our long-term objectives with lesser CapEx going forward from the F '20 news cycle. An important initiative, and we believe this is a flagship initiative is the launch of the new THAR. The new THAR brings back the core. We believe it will create a new category, which brings in the core product of Mahindra, which comes in variety -- a wide variety, wide level of refinement, aggregates, automatic, all the works which will create a new segment. The product, we believe, is really looking good and performing very well. We hope to launch that by the early part of the first -- second half of the year. Also, Bolero will be a volume driver for us. XUV got a lot of feedback from customers, and our network is very, very positive on design and performance, including XUV, and we believe, again, we have a good volume opportunity to drive the XUV300 business as we move into the run phase. We are redefining the business model of the dealers, reducing the footprint and figuring out newer ways by which we can achieve the same impact by creating better viability from the dealers. As we move on to talk about new products and moving into the fly phase, which is F '22, a very important part of our strategy is to build a distinctive SUV brand, which is coming back to the core of what Mahindra is. We believe we have a very strong brand and a very strong heritage. And we -- our products will reflect that brand DNA. The Bolero is one of the products which does that. And then, of course, we will have the new THAR and the 2 new models which should be launched in the early part of F '22, and maybe W601 may come by the end of F '21, the W601 and the Z1. Through that, we're also going to be focusing on a new pickup, which we're very strong in, and Supro, where we are seeing traction both for passenger and goods mobility in the post-COVID era. We have a full-fledged EV portfolio strategy in place. And we believe that we will maintain our strong position on the commercial side in the short run, providing solutions for mobility operators. And then, of course, we will talk more holistically about the EV portfolio strategies forward. In the auto business as well, path to profitability for global subsidiaries is a very important criteria. Platform synergy, I already spoke about. We believe that will optimize our CapEx, and through optimizing CapEx and managing our cost structure better, we hope to improve our margin of safety quite significantly in the auto business. If I was to summarize the walk, run and fly for the auto and farm sectors combined, we're at the stage where managed cash is most important priority. Anish will talk more about that. We will bring core working capital back to normal. We are optimizing CapEx in the current year. So most of the benefits of that will come in the year F '22. Better management of margin. We already have very healthy NVMs. We will want to improve our net variable margins. A very, very stringent cost management in F '21, visiting many paradigms on what is acceptable level of spends. And of course, doing all of [Audio Gap] focus on domestic core, which is, in the period September to March, you'll start seeing more of that with the launch of THAR, as I said. CapEx and investment prioritization, the Krish-e initiative, which we believe is very fundamental to our long-term strategy, and more actions which simplify the business, bring greater agility and manage cost to it. As we move into fly, the SUV core brand differentiation, the launch of a new Yuvo Star and the vehicle launches start. In digital transformation initiative, we already launched Mahindra Own-Online. In the auto side, we've just launched a tractor on a digital platform [indiscernible]. The Mahindra Own-Online on the auto side is getting very good traction, has already had 1.65 lakh visitors in the short time that we've launched it. And of course, we leverage platform synergy to optimize CapEx. You can see turnaround global businesses are online threat and an important part of what we are expecting to focus on. In the short term, it will be about managing cash. And next year, it will be about fully leveraging the new auto launches to live up to our brand and the core of our brand name. Thank you, Anish. And thank you, Pawan. You want to sum up before…

No, let Anish come up. Anish, come in, please.

Yes. Good afternoon, everyone. It's a pleasure to be here with you. I would have loved to be there in person, and hopefully, that'll happen fairly soon. But for now, we shall rely on our electronic format. So let's start with the key messages that I'd like to cover today. First is, as Rajesh covered, the resilient performance for domestic auto and farm in a tough year. What you will see in our numbers is that SsangYong and other international subsidiaries drive a very significant reduction in profit. We'll talk about a strong cash position to tackle COVID and any uncertainties. And the question that you are going to have is, what are the actions? And are they really going to be tough actions underway to reignite value creation? And what does reignite mean? So that's something I'll cover as well. So moving forward then. Starting with F '20 results. A quick snapshot of our operating performance and why we call it resilient. Revenue is down 15%. Excluding COVID and BS VI, it's down 8%. Similarly, EBITDA down 16% and 5%, respectively. And profit before tax before exceptional items down 23% on an actual basis and, excluding the impact of COVID and BS VI, down 12%. More important though is operating margins were maintained at 14.2% in a tough environment. Cash generated was close to INR 4,000 crores, INR 3,946 to be exact. Farm market share was up, as Rajesh talked about. And auto LCV, less than [ 10 ] of them, market share was up 1.2% as well. Both of these are significant numbers because market share for both of these are in the 40s. And at that level, raising market share is not easy, while maintaining margins, of course. So that's really why we call this as resilient. Moving forward then. Here's where we see numbers we don't like at all. And when we look at PAT after EI stand-alone first, Q4 to Q4 on the left-hand side, and then we'll move to full year on the right-hand side. We start with F '19 Q4 at INR 969 crores. What you see here is that the farm business would actually have been INR 250 crores positive had it not been for COVID. Despite COVID, it is still INR 56 crore positive versus last year same quarter. The auto business is down INR 697 crores. And without COVID, it would have been down but by a much lesser margin. The third is where the trouble is for our financials this year, is international subsidiaries for auto and farm. That is lower by INR 2,719 crores, largely driven by impairments, and the bulk of this is driven by SsangYong and GenZe; 80% is driven by SsangYong and GenZe. The good news here is that both have been addressed. We're not going to invest in SsangYong anymore. They would like to give a new investor who comes in, and we will be down to a minority stake or possibly no stake over time. And GenZe, we have shut down. So 80% has been addressed. Remaining 20% has to be addressed, and we will talk about how we're doing that. And the fourth category there is investments. So the way we've shown this is domestic farm, domestic auto, international subsidiaries for auto and farm, and investments is all our listed and unlisted subsidiaries, including Tech M, Mahindra Finance, holidays, real estate and various unlisted subsidiaries. There is a hit on the investment side in this quarter as well. But as we go to the full year, there what we see is, again, international subsidiaries driving the vast majority of the delta. And investments in that case is slightly positive, driven by some upside that we had in the first 3 quarters of the year. Moving to consolidated. We see a very similar story, where if we were to stay only with domestic, auto and farm and investments, we would have been down only 4% on a PAT basis. But that's where SsangYong and other international subsidiaries come in. And that takes away almost all of the profit. And the little of what's remaining is taken away by a goodwill impairment, leaving us with INR 127 crores. So there, again, the core operating business is doing well. It's strong. The international subsidiaries is what we need to address. Looking at revenue. Q4 to Q4 walk shows us negative 9% pre-COVID and negative 35% on an actual basis. On a full year, it's negative 8% pre-COVID and negative 15% on an actual basis. The highlight again is operating margins, up 10 basis points for the quarter and flat for the full year. So as a result, our operating profit, really, as we call it, the profit before tax before EI, started at INR 7,011 crores last year. We see some impact due to COVID and some losses due to auto and farm, minor loss due to investment. Net impact, negative 23% on an actual basis and negative 12% pre-COVID or pre-BS VI impact. The question that many of you have asked before is when we're investing enough in auto and farm businesses, are we taking money from there and putting them in investments as well? So what we're going to show you on a regular basis is what are we doing with our cash. We started the year at INR 7,797 crores opening cash. Auto contributed INR 4,300 crores from an operating standpoint, and we invested INR 4,447 crores in CapEx in auto and farm. Investments in that same space was INR 1,698 crores. So auto and farm were net users of cash to the use of -- to the tune of INR 1,843 crores. Our investments were a net giver of cash to the tune of INR 1,895 crores. And as we use cash and dividend, our closing cash was INR 6,928 crores or close to INR 7,000 crores. What I will emphasize here is that we were actually negative on a net debt standpoint significantly by INR 3,400 crores at the end of the year. We have increased our cash balance substantially through further accruals as well as through some more debt we've raised. We continue to stay negative on a debt basis, but our current cash position as of today is INR 10,300 crores plus INR 2,250 crore of committed lines. So we are sitting with cash of INR 12,550 crores today. And that is, again, with a net debt position of negative putting us in a very good space to be able to tackle COVID or any uncertainties that we may face. In summary, the resilient performance of domestic auto and farm in a tough year highlights our market share gains, operating margins and a profit impact, but hold -- held up fairly well despite BS VI and COVID, where we did hold up well at all was these losses driven by SsangYong and international subsidiaries. And as I talked about the cash balance, we are in a pretty strong position there. So let's talk now about what are the actions to create value and what are the actions to address our international subsidiaries? Let's go back in time for that. Starting with 2002, the Nifty was born at that point as was the BlueChip Conference at Mahindra. At that conference, there was a very emotional appeal to lift our performance and make the stock price reflect a genuine potential. Over the next 17 years, till August 2018, M&M was a top-performing stock in the Nifty. In one of your reports, you highlighted that as well, where you said that Nifty scales new high and M&M leads the year -- or the Year 2002 Nifty pack with the highest returns at 31% CAGR. So let's look at what drove that. We just focused on everything except the rightmost side of the slide right now for just a minute, and we get back to the rightmost side. Operating cash flow for that 17-year period was INR 2,433 crores on average annually. EPS growth was 34%, and ROE was 22%. You would agree with me in saying these are fantastic numbers. And that's what really resulted in a 31% CAGR of growth over that time period. But as we see what happened on the right-hand side of the slide, as I come back to that, that's where things really fell off a cliff. And we'll have to look at what happened there. Why did that happen? Operating cash flow is still positive at that point because, over that 3-year period, we generated INR 5,210 crore of operating cash flow on an average annual basis, but EPS fell off a cliff there and so did ROE. Let's go to the next slide to really see the reason for it. You've seen some of this in previous years. But in F '17, you'd probably ignore it, saying 1% of PAT is fine as loss from an international subsidiary, not material. In F '18, it was higher at 12%. F '19 was 25%. And this year, losses of international subsidiaries actually took away 107% of our profit. We had some other gains in exceptional items which offset that to sort of get back to positive, but this was the biggest driver, and frankly, one reason why the EPS has gone down, even though operating performance has stayed strong, cash generation has stayed strong, these are the losses that we need to address. And here's how we are doing it. First, I will repeat that SsangYong and GenZe were 80% of the impairments that we had to take. We're not investing anymore in SsangYong. We have exited GenZe. All other businesses that are loss-making internationally have been put in 3 categories. First category is a clear path to 18% ROE over the next 3 to 5 years. Execution will be tracked very closely. If they're in that category, they stay. The second is a delayed or an unclear path to profitability, where they have a strong strategic link. A good example there could be Sampo, agricultural implements which can have a huge market in India. So the potential gains from that, all from technology, would be far greater than what we would face in losses or less profits in Sampo. And third is businesses that have an unclear path to profitability and don't have a quantifiable strategic link. They would be on the exit path, either through a partnership alliance or shutdown. Over the next 12 months and actually, at this point, the next 10 months because I've been promising some of you 12 months since April so that shall not be a rolling number. We will have all of these businesses identified and categorized. A lot of work has started already and is underway on this front. In addition to that, we have to get back to a growth path. We have seen the value creation over the years that has led to the growth I showed you earlier. Tech Mahindra, Mahindra Finance, Swaraj Engines, Holidays, all of those investments have contributed for growth. And what we want to talk about today is 9 more gems, as I call them, that we can harness value from. These are potential billion-dollar candidates. From the Powerol business to Mahindra Rural Finance -- or Rural Housing Finance rather; Agri; Accelo, which also is India's leading company for auto recycling; Mahindra Electric; Classic Legends of the exciting JAWA brand; Mobility; Susten and some of the leadership we've seen -- we've shown in the solar business; Aftermarket, where we've got a very good physical infrastructure and are starting to build a digital infrastructure now. And really, this can make us a gateway to the largest and fastest-growing chains in India. It will allow us to make in India and supply to the world as well, and we will see the Ford joint venture. The most important thing for us though is governance. That is our bedrock. That is who we are. That's what we stand for and the importance of being good to all stakeholders, not just shareholder value creation. And that is something that keeps us going and then is most important for us. A lot of awards won in this space. I won't go through the awards in terms of each one, but this is one that I just want to share that, as we think about transition of leadership, it is something that will be at the forefront of everything we do going forward. And our values and governance is something that we're completely committed to and will continue to stay committed to. So what is a path forward? We have tightened capital allocation norms. You are seeing that already. We have started action on all loss-making subsidiaries. We are in the process of defining an even clearer narrative for auto. You heard some of that from Rajesh. And we started to look at how do we harness further value from our unlisted gems. So if we can do all of these things well, and we are confident we can, we should be on track to reignite value creation and go back to the 17-year run that we had and extend that, hopefully, for the next 17 years. With that, back to you, Pawan.

Thank you, Anish. At the cost of repetition, I'm just going to summarize a few high points that Rajesh and Anish have made. So on the operating performance, I just want to reiterate that we had a 1% increase in market share in tractor industry and a 3.1% increase in commercial vehicle end-to-end. Our OPM, operating margin, was 13% for auto and 19% for tractor, which is same as the year before. [Technical Difficulty]

We have some connectivity problem there. So Sriram, should we start with questions till Pawan comes back?

Yes, we could do that, Anish. Okay. [Operator Instructions] So now there are a few questions which have already come up, so I will start doing that. Jinesh Gandhi. Dinesh, you can go ahead.

Yes, while he is coming there -- coming onboard, Pawan, are you back as yet?

Sriram, you could also add the others as panelists in the meanwhile.

Yes. Vaibhav?

Yes, I'm making the panelists, sir.

So there are -- in the meanwhile, there are some questions which have already come. So probably I will start with them. So in terms of the first question is tractors are witnessing strong rural demand. How do you see the ramp-up in production levels and given the conditions in the near term? And what is the outlook for the full year?

Rajesh, will you take that?

Yes, I'll take that. As I covered in my presentation, clearly, there is a big upside on the rural side. Demand has been very robust. If we had a quote of…

Was I on mute all this time?

Yes, Pawan, you had actually gone -- not just on mute, but the screen wasn't seen. So we were just starting the first question, but given you're back, why don't we hand it back to you for recap of where you started…

Sorry, are we -- we were at the very beginning?

Yes. You just started with the market share, and then it froze afterwards.

Yes. I will take a few minutes to repeat what I said. I'm really sorry, didn't realize I was on mute. I don't know how I went on mute. Sorry for replication, but I was starting off by saying our present performance for last year. I'm repeating probably things that have been talked about by Rajesh and Anish. Market share increased in tractor and market share increased in farms, very good -- very important for us. The operating profit margin being 13% for tractor and being 19% for -- sorry, 13% for automotive and 19% for tractor, which are, the best of our knowledge, the highest operating margin of any company in India for tractor and 4-wheeler. Very important that our retail volume in automotive was 10% more than billing, more than wholesale, leaving us only about 10,000 vehicles at the dealership at the end of the year. We had a BS VI transition that happened very smoothly. And EBITDA positive for Mahindra Electric, though operationally, not very significant, but it is significant that a business that will be the future has reached EBITDA positive for us. What I also said was that, what's important, not so much about what we have done in the past, but what -- how we're preparing for the future. And as we said often that crisis is a terrible thing to waste. We have taken it very seriously and using this time to take -- for reorient in many ways. We have taken many tough calls in capital allocation. SsangYong was known to you. We have also announced today that we are exiting from the GenZe business in U.S.A. and looking at all the other businesses that Anish talked about. Softly focused on narrative for automotive business, so I don't go left to right, from our core and shying away, though, from investing in core product development, as Rajesh talked about. FaaS, which is farming-as-a-service, is going to be a very important part of our farm equipment business in terms of creating a moat and the 9 gems that Anish mentioned that will create value for us going forward. So we do believe that we have used this difficult time, the challenging time very well to introspect, to take some tough call and orient our business in a way that we get back to the new creation that Anish pointed out, which kind of stopped in August '18, and we are in June '20 now, and hopefully, we'll be going back to the same kind of curve that we have seen in the previous 17 years. So thank you. I'll stop here, and now we can start the questions. Yes, Sriram?

Yes. So yes, sir, the one question was in terms of the tractor demand. What is the outlook for the next year? Rajesh was responding, sir.

Yes, I just started answering that. So I was saying that the tractor demand is clearly very positive, and we've seen that in the month of May where we had a growth over May last year. Of course, this is the peak season for tractors. We are at 80% production capacity now, and that's improving as we talk. So we hope that we will be able to ramp up to higher levels. Clearly, the way we see it from tractor side is -- the determinant of performance will be the management of the supply chain. And we would do our best to put that in place and streamline that to the extent possible. All our suppliers are operational now, and maybe 90% of our dealerships are operational.

Yes. Thanks, Rajesh. Vaibhav, now can you unmute Jinesh Gandhi?

Sir, Kapil Singh is unmuted. First question from Kapil Singh.

Okay, Kapil. Kapil, you can go ahead.

Can you hear me?

Yes.

Okay, great. Congrats. I think it was a great performance in very tough market conditions. Firstly, my question is on capital allocation. And so give some thoughts on the same. We already have so many investments. And how -- can you explain in more detail how will we approach capital allocation in future? And is this policy in response to current conditions? Or we will maintain this in good times as well? That's my first question. And secondly, on gross margin performance for the company, it's been pretty strong, both on a Q-o-Q and Y-o-Y basis, given the tough conditions. So any color or any one-off there? And did we have any onetime loss for clearing BS-IV vehicle?

Anish, on capital allocation first. And then Rajesh and I will cover the gross margin.

Yes. And we'll ask for Anand's views as well. So we will -- we'll go there also.

Anand will give his views after yours.

Yes. On capital allocation, this is a policy that will continue. It is not a change, as I've told many of our analysts and investor friends over the last couple of months. If you look at our 17-year history, we would not have that kind of return if it had not been for good capital allocation during those times. Now there were some things that didn't quite work out. COVID contributed to some of it. And the Indian subsidiaries really took a big hit. So our lesson there is that we have to be very particular about where we invest, make sure that it is generating the returns, track execution closely. And that is, again, the only recipe to get back to the [ 17 year on ] we want for future. So simple answer to your question is the capital allocation will continue to stay strong as we go out. It is not just in the short run.

Anand? Anand, you're on mute.

Yes. I'm just starting my video. Am I visible and audible?

You are.

Yes.

All right. Well, first, on the question of whether this is permanent, it is going to continue in good times. I suspect rather that was not a question. That was very strong advice. And I'll just say that we will take that advice on board. And Anish has already answered to you as the person who will be steering the group from next year. He's made a commitment it'll continue, and I think we'll all hold him to his word. But I should point out, again, to you from the presentation that Anish made, he did show to you that we have not starved our core businesses at all of capital. There was never any diversion of critical capital requirements from the core business. So that principle has never been violated. Our interesting structure and consolidation shows up very starkly in our now consolidated results what goes right or wrong in our federation structure. So in a sense, I think, clearly, we're going to be far more calibrated in our globalization. I want to make very clear that I don't think we're a company that wants to suddenly become like a turtle and go inwards. That is a knee-jerk reaction the whole world is seeing. But I think we're people who are going to calibrate our growth and opportunities globally and do them with a very, very strict focus on getting returns as quickly as possible and ensuring value creation and exiting much faster if we find that we're not on track. So those are the points I want to make that we have never starved our core businesses. Our structure has shown up where we have not succeeded in our globalization. However, we remain committed to the opportunities of globalization but in a much more calibrated manner. And we will also fail faster if we have to. And we will also follow a path of much more stringent value creation oversight as compared.

Thank you, Anand. Rajesh, you want to take the gross margin question, and I'll add to that if I have to.

Yes. So gross margin improvement is a function of 2 or 3 things. One is the commodity prices had stayed benign. Now when commodity prices are benign in any given period of time, there's always a temptation to pass that off by way of pricing and both the businesses did not do that. And that's helped to improve the overall margins at a net variable margin level. And that's something we track closely. We've also looked at all our expenses very, very closely. Even in the year F '20. And of course, that's been recalibrated with a much stronger lens as we enter into '21. So I would say it's managing the benefits of commodity prices, a series of value engineering projects done on both the sides, which culminated in the full benefit point-to-point in the last quarter as well as a fixed cost plan. Pawan, would you want to comment?

Yes. The only thing that I want to add is that, currently, we don't expect any significant increase in commodity prices, and that the opportunity that we had probably will continue. However, we need to perhaps be a little bit careful because we also need to get the industry back on track and, therefore, not take any aggressive price increases. So we'll have to balance that. It'll depend on how the industry reacts, how other OEMs react and how the customers see. One thing that I just do want to put on the table so that you guys are clear on that. When it comes to BS VI portfolio that we have now, our effort is that the net variable margin in absolute terms remains the same on the weighted average basis. However, there will be a higher denominator. And it may not be possible for us to offset for the higher denominator in terms of percentage margin. So we will try and maintain absolute margin in our product but not percentage margin when it comes to BS VI pricing -- because of BS VI pricing. And one very important factor in margin is the model mix because model mix, there is a big variety in margin from worst to the best model. And it all depends on end of the day of what kind of model mix we get. So last year, we also had good model mix.

Jinesh, you can go ahead.

Can you hear me?

Yes, Jinesh.

Yes, sir. My question pertains to the CapEx and investment guidance. So in the past, we had peer holding targets of INR 15,000 crore CapEx and INR 7,500 crore of investment. So does that change now, a, given the operating environment and given the capital allocation focus? Second question pertains to the price increases taken in fourth quarter and 1Q FY '21 vitally in both tractors and autos. And lastly, what are your cost-cutting targets, both in variable and fixed-cost side?

Rajesh, you can take all of these.

Okay. So the first question, I -- was on the CapEx and investment. In the year F '21, we don't see a CapEx reduction compared to what we had planned of more than 15%. And the reason for that is that the 3 big SUV projects that I just spoke about are all at end of cycle of product development. And it is neither prudent nor possible to significantly cut back on those capital expenditures because that is really fortifying our future. So we have made all our F '21 plans on a CapEx which is only 15% lower than what we had planned, and we believe that's the prudent thing to do. As we look at the cycle of F '22 to F '24, which is the next 3-year cycle, that's where we would like to see a significant reduction. So earlier, we were talking about -- I think the number you quoted was approximately INR 4,000 crores per year, which is INR 12,000 crores over a 3-year cycle, and we are hoping that, that could come down to INR 9,000 crores over a 3- year cycle for capital expenditure, which will fully then leverage all the investments that we've made on our platforms up until now and also the synergy that we can get on Ford from the 4 platforms. On the investment question, the overall approach will be to keep it to the minimal level based on the communication that Anish has had -- just had communicated to all of you, following a very rigorous policy of capital allocation, putting in money only where we really see the gems as he called it and building those into bigger businesses, but otherwise, overall, be conservative on the investment. Pawan, Anish, do you want to add on this?

Rajesh, on variable and fixed…

Yes. I just thought if there's anything you want to add on this.

Not on this.

On this, I will just add that, remember, we have to grow as well. And that's what you've given us credit for in the past. So capital allocation doesn't mean that we will not put capital in there. It will mean that we'll be very stringent about where we put it. But we have high ambition for growth in many of our businesses, and we're very well positioned in many of the camps that I talked about, and we do see significant opportunities for growth there.

Just reiterating, I guess, this is a very important point for all of you, reiterating what Anish said in his presentation that only the investments which will justify financial return or which have very strong, quantifiable strategic relevance are the only ones that'll be supported.

Sriram, there was a part 2 to the question. Sriram?

Yes, yes.

Yes. The part 2 to the question, if I get it correctly, is what are the specific actions we're doing on taking on cost management. Is that correct?

Yes. Yes. Yes, that's right.

Okay. So firstly, as Pawan said, you should never waste a crisis like this. And we've learned a huge amount over the last 2 months on, a, the ways in which we can run our business differently. And that starts with looking at every kind of expense from the way we travel. I mean, if we've been able to get a market growth in tractors of -- in the month of May with nobody traveling to dealerships, it says a lot about how businesses can be run differently. And it's not that we were disconnected. We, in both the auto and the tractor side, have contacted thousands of customers directly using Teams. We've been regularly in touch with our dealers on Teams, Microsoft Teams, when I'm saying Teams. And so we've been very connected, very engaged, and that really tells us that there is an opportunity for rethinking the business model. And we are aggressively looking at every element of cost. We have set up a specific, full-time team on renegotiating all services contracts. So there's a host of actions aimed at re-imagining the future, not just getting actions in place to manage the next 2 or 3 months. So whether it's fixed cost or specific material cost reduction targets, renegotiations of contracts are all on the table right now as a new way of doing things.

Yes. So Rajesh, if I could just add to this answer. See, if there was one positive, if there is any positive out of COVID-19, it is that many myths have been broken on what we cannot do or what we can do. And this really is going to lead to very agile business processes, a lot of empowerment that the teams would have and clearly, clearly, a lot less travel than what we have -- what we do. And you can just imagine that, if travel costs itself, it is cut by 50%. I don't see any reason why we cannot cut by 50%. That will be a humungous saving for a company like Mahindra & Mahindra. And therefore, all the business processes are being revisited. In fact, in many cases, the need of supervision for many things is being revisited. And see, do we need so many people to match something. And this will all evolve over the next 6 months. But I do see significant potential for saving costs. Just as an example, in a given year, we do so many communication meet, dealer meet, supplier meet, zonal meet, regional meet, many of those may not be required, and some of those can be easily done on a virtual platform and that each one of them will save money in -- running into multiple crores.

The next question is from Pramod Kumar, Goldman Sachs

Yes. Can you hear me?

Yes.

Yes, yes. Congratulations on a good operation number and kudos to Anand and the leadership team for some tough calls. My first question pertains to the Project Kuber. In the past, we've heard you talk about massive cost-reduction efforts what you're undertaking both on automotive and farm equipment. We've already seen quite a lot of that in this year with your solid margin execution. So how much of runway do we have more left on the cost-reduction side across both automotive and farm equipment? And bringing in Ford inside and MVML inside, how much of further room do you think you have on the cost-reduction efforts here on the core business?

Rajesh?

Pramod, the answer to that question is that we always believe that the more you dig into cost, the more you will find it, and there's never a bottom to the pit. And we will -- we believe there is a big runway still. And I don't think we are best in cost at all.

The next question is from -- Pramod, do you have any follow-up question?

No. Okay. Go ahead, Sriram.

Yes. Okay. Next question is from Gunjan from JPMorgan.

Two questions from my side. And firstly, on, again, capital allocation. Sorry, to be harping around this topic. But generally, when you're looking at investments in subsidiaries, do you have any -- is there any commitment in mind that we don't want to exceed beyond this limit per annum because, if I look at we did withdraw from SsangYong, but at the same time, we are definitely going to subscribe to the rights issue in MMFS, which could mean a similar magnitude of money being invested on these subs. So is there some amount which you have in mind that we're not -- this is the cap beyond which we wouldn't be investing in subs. And any ROE targets that you can commit from a mid-term perspective on the consol basis? And second question is on the financing side. Given that you're on different segments, are you facing any issues when the dealerships are opening, given the overall environment on the -- in the banking environment? It's a bit cautious. So what are your early readings into the financing?

So Anish, you can take the first one. And Rajesh, the second one.

Sure. So first, we want to make sure, as Anand said, that the auto and farm businesses are not starved of capital at any point. And therefore, they generate a lot of cash. That cash has been reinvested in that business. Beyond that, our current investments also generate a fair amount of cash, and we typically don't spend all of it. So today, we do have the ability to spend more in many ways. That ability has come down over the last 2 or 3 years. And what we would look for is any investment that we make has to meet a financial hurdle. That goes back to your second question, which is what is that hurdle. I would look at that as an ROE of 18%. If we can achieve the ROE of 18%, let it manage that investment. And very often, we can get other partners to invest with us as well if we feel that we don't want to put all the capital there. So far, capital has not been a constraint in that sense. What has been an issue, as you've seen in the numbers is the losses from the international subsidiaries. We want to make sure the losses are not there. We continue to get returns. If the returns continue to come in, those investments will continue to provide funds to fuel further investments as we go on. But the 18% ROE threshold is the important point.

Rajesh, on financing and the dealerships.

Yes. So we -- in the month of May, when we started May, we were worried about financing. May turned out to be much, much better than what we had thought. And the reason we were worried, of course, was that given the financiers, people on the ground were all working from home, and they, in a way, reinvented their model of approving cases digitally. So the typical verification process that would happen by visiting people, especially in rural India in their homes to approve a loan all got done with a completely different level of, as Pawan calls it, of supervision and done remotely. We -- I'm just addressing the rural side first, and then we'll come to the urban side. The cash flows in rural are pretty good. And I think Mahindra Finance has really stepped in along with the financiers to ensure that we've brought our payment cycles back on our rural businesses to a level we are very comfortable with right now. So May was very good. June is going very well as well from a financing point of view. The -- on the urban side, as markets open up, mainly for the automotive space, we don't really see financing as a big going-in constraint. Anish, do you want to bring in a different perspective on how you're seeing financing given…

Yes. Thanks, Rajesh. I will just add that Mahindra Finance today continues to be very strong. And the reason for us to do a rights out of there is to ensure that there is no concern or no issue at all as we go forward from a solvency standpoint or a liquidity standpoint. As you would know, NBFCs are facing lots of problems everywhere. And we wanted to make a statement with Mahindra Finance that there is no problem, and that helps us address financing on both auto and farm. And that will actually be a strong strategic support for us as we go forward as well because, with the strong Mahindra Finance, as what Rajesh said, we don't see any problems from a financing standpoint.

Rajesh, just one more thing you may want to just allude to or add is about strong collections in the month of May.

Yes. Yes, I did say that, but collections, like Pawan is saying, were very, very strong in the month of May. A lot of it came through money which came through either dealers bringing in their own money as well as collections from farmers. And the role that finance companies, and as Anish said, Mahindra Finance especially, play in enabling that process to happen. So we've really been very, very pleasantly surprised with the collections. And as I've said in my presentation, clearly, cash was our #1 priority as we got into the April, May and even June cycle. That is this year, our #1 priority over everything else.

And Gunjan, when money comes from dealers, that's a very positive sign for us. Anand, do you want to add anything to it, to this discussion?

Gunjan, I just wanted to add something. In a sense, I'm paraphrasing was Anish said. But first of all, the investment that we're making in Mahindra Finance, even by itself, we believe, not only will it meet the hurdle rate that Anish articulated but might, in retrospect, be one of the best investments we will make or we will look back and say, it's one of the best we've made. But I also want you to look at it, in the way Anish said, as a strategic investment also. If you look at what's happening in the NBFC arena, there is going to be a substantial shakeout in that field. And those that are left standing with both strong solvency and strong liquidity are going to be far stronger players. And for a company like that to be supportive of our auto and farm businesses, I'd like to urge you to look at that as a very strong differentiator and a facilitator for the growth of those businesses. That's all I wanted to add.

Yes, next question is from Hitesh Goel of Kotak.

Can you hear me now?

Yes.

Yes.

Yes. First of all, congratulations on the outperformance and…

Goel, come closer to the mic. Your voice got lost.

Yes. I'm saying -- first of all, congratulations on a very good set of numbers in this tough environment and also calling out the capital allocation quite clearly in the PPTs. What we are wanting to understand is: How should we look at the volume trajectory? Like tractor business, we know that it's doing well now, even tractor companies have said that. But how should we look at from FY '21 perspective for the auto business? Like you're saying current capacity inflation is only 30%. Do you see it's a supply issue which gets sorted out?

So I think we would want to refrain from making any volume projections for this year as yet. Probably, towards the end of July, we may be in a better position to understand how things are moving. Unless Rajesh wants to add something to it, that's my view that it'll be premature for us to take any call on volume.

Yes. I would not want to give a call on volume right now. But just want to clarify to you that, on the tractor side, the reason for the lower capacity utilization right now is the pace of ramp-up. And in any case, we need much more vehicles because, as we mentioned earlier, our dealer stock is only 10,000 numbers cutting across our entire portfolio. So we anyway made…

Rajesh, you mentioned tractor side. This was auto.

I'm sorry. On the auto side, we -- I guess, old habits die hard. On the auto side, it's really the need to fill back the channel. So we definitely do want to produce much more than we're producing. And that process of capacity utilization being low is the time it's taking to ramp up as we don't want to compromise quality as suppliers get into restarting their businesses. So we are not pushing beyond point, and we do want the same process to get stabilized in our own plants. But the desire is to definitely increase the capacity utilization in our auto plants.

I think this quality point that Rajesh made is very important for anyone to -- everyone to understand because auto being somewhat more complex than tractor, and many of the suppliers perhaps using different set of people for their processes than they were using before lockdown. We need to be extra careful, a lot more than we normally have to be, in terms of the incoming quality of parts. And that's what Rajesh alluded to that we don't want to force the suppliers to ramp up faster than their ability in terms of quality.

Yes. Next question is from Aditya from HDFC. Aditya?

Yes. Am I audible?

Yes.

Sir, just on this APMC reforms which have been announced by the government, is this just a big-picture reform which will not reflect in the near term? The reason I ask is that the state government also has to alter the law. And just for -- a question for Mr. Mahindra. How does he now see the agri space in terms of farm income maybe over the next 3 to 5 years?

Rajesh, you want to try the APMC question? I may add to it after you.

Yes. So firstly, we strongly believe it's a very, very long-awaited and fundamentally big, big reform. One of the biggest problems the farmers in India have is market linkage, and we have the ability to get the right price for the produce. And that's been something which has been part of our economy for years. So we believe that this is a very, very strong reform, which will transform agriculture and farmer prosperity. It may take a little bit of time to execute these things, like you said. But I think we have enough positive demand enablers from the rural side right now for F '21. And all of you know them well, but to complete recap, very high reservoir levels. We've not seen that in the last many years. Good monsoon outlook at this point of time. Excellent rabi quantity and quality; very good prices that farmers have got, increasing their overall revenues while costs have come down, so farmer profits have improved. So there are a series of enablers and the very high government spending on agriculture and rural, probably the highest in the last 8 or 9 years. So there are many demand enablers right now on the rural side. So even if this were to take time, I think it will create a very strong fundamental difference in the whole ecosystem of farm. Pawan?

Yes. I'll just add to that in the announcement that the Honorable Finance Minister had made, what was said for the agriculture side was really very strategic and long-term reforms. The essential commodity at taking out some of the commodities from there at APMC and INR 1 lakh crore of investment support for farmland infrastructure. All of these are going to work tremendously towards increasing the farm income. Now obviously, the key is execution, and how well it is executed on the ground is going to be the determinant. Now I've been somewhat involved in some of the meetings with various ministries and government officers. And from what I can see right now, the intent of converting all of this -- or converting all this intent to reality is very high. And I would hope that, that does not slow down and we do see the conversion start. It's unlikely that anything meaningful will happen during this year. But certainly, it's a long-term benefit that will go long ways in terms of transforming Indian agriculture. Anand, you want to comment for the second part?

Yes. And let me just add to the first part. Aditya, it's interesting you asked this question about the APMC. I happened to be in an interaction with the people who formulated this policy, including the FM. And I also, to be honest, when I first saw it, I said, how is this going to be implemented, the same old problem of inertia by the state. And one of the insights the government had, and I'll be honest, I overlooked it, I plan to, in fact, follow this up more closely. They discovered that interstate sales of farm produce is actually a concurrent list item. And I said, fine, then why hasn't this happened before? And the insight of the government is that, well, nobody has really pushed it and might have been a political inertia because of the RPIs and the middlemen and their pull. But what the government is determined to do is actually breathtakingly simple, which is that they've always had the power to enable interstate sales through a concurrent list, and digitization now has just made that easier. So I'm frankly -- I actually see this as a very, very earth-shaking reform. Yes, Pawan is right, it's about execution. But the execution is going to be far simpler. It's not simply that we'll be twiddling our thumbs, waiting for the states to play ball. I didn't know about this concurrent list's existence. But this government is determined to use what is already a provision in the law. That was the insight that they shared with me. Your second question, Aditya, what was that? Was it -- it was a broader question about agri, was it? Can you repeat it, if you don't mind?

Yes. No, my question was, how do you see now farm income in 3 to 5 years' time? Do you really think that they will now actually double?

Yes. Am I audible again, Sriram?

Yes. I guess, Anand.

Yes. So Aditya, I'm actually very optimistic after what I've heard and also because of the change in The Essential Commodities Act and taking a substantial amount of horticultural crops out of the list. I think that there's going to be a tremendous input of digitization and disintermediation in the -- for farmers, which should certainly double their income. Will that double the income of the system? No, probably not. Farm incomes as an ecosystem are fairly sticky. Export can definitely boost an overall ecosystem. But if you leave out export, the fact is that the pie may not change dramatically. That will go up and down, as it always has, with monsoons and with fluctuating fortunes. But one thing is certain that with this change and disintermediation, the farmers' incomes are going to get disproportionately benefited for sure. And if you look at what Rajesh talked about, the inputs that Mahindra wants to capitalize on with its e-farming business, farming-as-a-service, we're going to focus on using precision farming and other techniques and automation to substantially improve farm income. So do we have a shot at that doubling? Absolutely.

And if I could just add, Anand, that the government is very clear that to improve farmers' income, we have to increase export in a big way. And a lot of effort going on right now on how we can increase exports, not just of commodities -- agricultural commodities, but also value added.

Yes, there is one question which has come through the site window. The question is in terms of -- based on initial bookings, what is the shift being witnessed from diesel to petrol vehicles in compact and large SUV segment? In terms of BS VI, how are we placed? That's it. That's the total question.

Okay. Rajesh, you want to do it? Or you want to call Veejay for this?

It'll be a good idea to get Veejay.

Can Veejay come in and answer this question, please?

Yes, I'm audible?

Yes.

Yes.

This is Veejay Nakra, who is CEO of Automotive division, taken over on 1st of April.

Yes. I just want to maybe flash back a little bit to the auto show, which happened earlier this year. And some of you all may recollect that we had actually showcased the entire range of gasoline engines that we intend to bring out as we go forward. Of course, needless to say, to begin with, I think, the gasoline engine on the XUV300 has been extremely successful because, as you rightly mentioned that with the transition to BS VI, the demand for gasoline is very, very strong. On the XUV300, already, we are seeing success of that with more than 50% of the volume to sales being on the gasoline XUV300. And as I did mention that we showcased the auto show, the entire range going up to the 1.5- and 2-liter gasoline engine with TGDi technology, which will be available on our products going forward. So going forward, we will have a very, very good range of gasoline engines, world-class in nature and with excellent performance meeting all the requirements of the customers.

Veejay, I think the question also was, how do you see the shift right now in terms of customer buying.

Yes. I mean, I think there are 2 parts to that. If you look at it, I think we should bake that up into 2 parts. There is a compact SUV space and of course, then the large SUV space, what is typically classified as UV1 and UV2. In the compact SUV space, clearly, we are seeing a larger shift to demand in gasoline, as I mentioned, and we did -- we see that in the XUV300. But on the large SUV, it is still governed by diesel. And I think that's got to do a lot with the size, weight of the class and category of SUVs, where diesel clearly outperforms gasoline in terms of delivery of value to customers. So currently, that's the way it is that larger SUVs still see higher diesel demand. And the compact SUVs are seeing a higher pull towards gasoline, which is where I come back to the point that I made earlier that we were -- going forward, we have a comprehensive range of both with diesel and gasoline technology on current range of products as well as the future products as such?

So I think this is a very important question on your mind. I'll just carry forward what Veejay said a little bit more. So the 3 engines that we have, which we have talked about in the past, the 1.2 liter, the 1.5 liter and the 2 liter, they are all ready for launch. In fact, the 1.2-liter engine is used right now by SsangYong to export to Europe to meet the C02 requirement in Europe. The 1.2-liter engine will also go into Ford EcoSport. The 1.5-liter engine is being used by SsangYong and Korando. The 1.5-liter engine will also go into the B Platform SUV that Ford is developing right now. That'll be a platform that'll be for both Mahindra and Ford. And the 2-liter engine has been accepted by Ford for the W601, 605, the common platform that we have for the C-SUV. So in a sense, all 3 of these engines have been proven, 2 of them actually in the market right now, and 1 of those, by virtue of acceptance by Ford, to go into the W605. And it will be in the market as soon as we launch W601, which will be towards the end of this financial year.

There are a few questions, a few more questions are there, maybe another 5 to 7 minutes…

We have 15, so we have 12 more minutes.

Yes. Okay. So the next question is on the tractor. Emission regulation changing industry for tractors from October 1 for greater than 50-horsepower segment. What kind of price hike will that bring? Will this lead to a mix downgrading this year in terms of [ HE ]? Will that bring down margins too?

Rajesh?

Yes. So the greater than 50-horsepower segment, in the case of tractors, is about 6.5%, 7% of the total industry volume. So unlike in the case of automotive, firstly, there is not a very big impact if that were to happen. Through the Tractor Manufacturers Association, we have made a representation requesting for that emission norm implementation to be deferred, given the current environment and the crisis that's prevailing. So that's under consideration. It's too early to talk about what kind of price we would launch with. But as I said, it does not affect the overall strategy because it is not a very large portion of the overall portfolio. Pawan, do you want to add something?

No. Hopefully, it will get deferred by some time. We don't know how long, but it will get deferred by some time.

The next question is from Yogesh Aggarwal, HSBC.

Yes. I have just a couple of questions. Firstly, on automobile in the longer term, so you guys talked about the stock price underperforming in the last 2 years. And I think one of the big reasons has been loss of market share to competition, which -- who were able to get more forward-looking vehicles. And now in the next 3, 4 years, you are further reducing the CapEx spend. So I was just trying to understand how will your auto business catch up with competition with a lower spend. Will the effectiveness of R&D will go up? Or there'll be more focus on marketing? Or something else? So just trying to understand the strategy behind that.

Rajesh, do you want to take on? I may add to it.

Yes, I'll take it. Yogesh, so just kind of clarifying a few things, building out of my presentation. We do want to be a core SUV brand. And our submission to all of you is let's not track our success based on our market share of the way SUV is defined today because the way SUV is defined today includes a very high percentage of car platform/carryover products. So that has significantly expanded the size of the SUV by as defined now, but that does not necessarily make that SUVs, right?. So what is then our strategy? Our strategy is to say how do we be highly differentiated with products which have very high affinity to customers, which leverage the core of what Mahindra is, and that's really true-blood SUVs. We believe starting with the THAR and the whole pipeline of products that we have will give us enough opportunity to create volume growth with a very differentiated portfolio compared to what most other people are going to come in with at the price points at which we will operate. So I believe and we all believe as a team that we have a strong competitive advantage as long as we play in an area which is core to our brand, and we believe our products will deliver on that. The point on cutting back CapEx. I think it's a relative point because we have invested money in the last 4 years in creating platforms. Pawan just listed some of the powertrain aggregates, but we've really created a very robust platform strategy in place. Plus we have synergy coming out of the Ford joint venture as we've often reinforced. One of the big values of the Ford joint venture is to create synergy in platforms. And if that were not to reduce CapEx, then what would so we're really saying our IC engine strategy from a platform point of view is now very robust and well invested in. We now just need to create more variety and products coming out of that, brand it in a very focused manner so we own the core, and then invest in the EV side. So that's really the way we are looking at it. We believe then, to your point, all the points work out. Yes, it will be a different way to market. It is reducing CapEx but not by virtue of not doing what is needed for the success in the market. And the third is measure us on the success of what we launch and the returns we generate out of that rather than just one metric, which is the SUV market share. Pawan over to you.

So Rajesh, you have covered it quite comprehensively. I just want to say that, in a sense, our CapEx cycle is getting over with -- or the big CapEx is getting over with the launch of these 3 products that we talked about today: The new THAR, the W601 and the Z101. And that's bulk of the CapEx. All of that will be invested in FY '21. We are done with complete engine development. We have brand-new diesel and brand-new gasoline engines at 3 hub displacements, and nobody has a newer portfolio of diesel and gasoline engines than we do. And therefore, we don't need to invest in core engine technology. We don't need to invest in capacity for engine. We don't need to invest in capacity for vehicles. We don't need to invest in new platforms. The only gap that we have in the platform is a [ 4.4 meter ] kind of vehicle, and that will come from a joint product development that we're doing with Ford, which is a Ford platform called VX-772, which will take care of that need for Mahindra also. And therefore, we are kind of done with the major CapEx that we needed for completing all the notes, all the notes that we need to complete for SUV launches. Also, on the commercial vehicle side, we didn't talk about that too much today. With Blazo, with Furio, with the new bus, with the investment that we've done on LCV, with the investment that we have done on Supro at a lower level with the investment that's currently going on the pickup, again, we are more or less completing our major investment on commercial vehicle by the end of this financial year. On tractor side, K2 is a large investment, and K2 will -- bulk of it will be over by the end of this financial year, some will be [ before ] FY '22. And there also, we have made the engine investments in the recent past. We have made investment in Swaraj tractor also. So the point of it is that it's not that we're compromising with the products for the future. It's just that we are completing a peak of CapEx in this CapEx cycle.

Okay. Thank you. Next question is from Binay Singh of Morgan Stanley. Binay, I think you're unmuted.

Congratulations for very good performance, especially in context of what your peers have done. My first question is on the automotive side. Like we've seen that the rural momentum is clearly visible on the tractor side. Is it also visible in your rural automotive dealerships? You mentioned that 40% to 50% of your automotive portfolio is rural. So how is the momentum over there?

Rajesh?

Yes, Binay, it is visible right now on the auto rural side as well. We have very good momentum visible on Bolero, Scorpio, which are both rural brands. I spoke about pickups as well. And as we mentioned earlier, unfortunately, our challenge is, and that's unique, more unique to us than our competitors right now, is we've really opened with very, very little pipeline inventory. So it is going to take us a couple of months to be able to fully leverage the opportunity. But the demand is visible and very much there in rural India for these kind of products. Veejay, I don't know if you want to add a quick comment on how you see things on Bolero or…

Yes. Thanks, Rajesh. Yes, I think as appropriately put, I think from a rural demand point of view, clearly, Scorpio and Bolero are standing out. And I think that's going very good and one very big advantage that we have. But I just wanted to add another dimension to this. I think the most obvious expectation would have been this. But many of you all would know that we launched the owned online platform, which is a really differentiated digital buying platform, not necessarily only for inquiry and booking, but for an end-to-end purchase experience, which allows you to do many other things like do your exchange, including get your finance offer letter on our digital platform. And what's very, very interesting is we've got a lot of bookings for Bolero and Scorpio that have come from upcountry India. So one would have expected typically for urban profile customers to be booking online. But I just wanted to add that point that we're seeing this also as a great opportunity of digital platforms in upcountry rural.

Okay. Thank you. Last question -- sorry, somebody saying something?

Actually, just one question on JAWA, since no one touched on that. The latest VAHAN data shows that JAWA is doing almost 4,000 units a month, which is not better than what we expected. Could you confirm that? And what's the outlook for that brand? Because that does feature as 1 of the 9 major bets that the group wants to take. Thanks.

VAHAN can never be wrong. VAHAN is the real registration data. So there's no question. The only thing that can be wrong with VAHAN sometimes is that there is a 2-, 3-day delay in -- from the time the retail happens to the time when it gets booked into VAHAN. Other than that, there cannot be any other sort of difference in actual registration and VAHAN data.

Next question is from…

Yes. Any question on tractor?

Tractor? Most of your questions have been answered. It's more on the demand outlook is what…

I'm looking for an opportunity to get Hemant in so that everybody sees his face and knows who the tractor head is because Hemant may not have been seen by many of the analysts before. Hemant -- could you just put Hemant online so that, Hemant, maybe you can just say hello if you don't have a question.

Pawan will come back with the next question…

Can you hear me? Good evening, everybody. Happy to be here.

[indiscernible] Head of Purchase till 31st March. From 1st April, he Head up Farm Equipment sector.

Hemant, you want to share your perspective?

So thank you very much for having me here. And yes. So Rajesh, I mean, I just want to echo what you and Dr. Goenka have been saying. I mean I've come into this role from 1st of April, and actually the kind of momentum that I'm seeing on the rural side is amazing. And it is because of all the reasons that you have heard nothing more because we have covered all the aspects. But clearly, with this kind of momentum growing, we are not looking at only at this June, we are looking at further down the level in the next season also for momentum going. We are running very low on stocks and inventories. So obviously, we will be running at full production for 3, 4 months to come and getting prepared arsenal for the next season. We are having a very good supply side ramp-up. In fact, we are now running at close to 85% of our maximum capacity. And that makes us very happy because I don't know about exact numbers for other players, but we would be among the fastest ramp-up in the tractor industry in the last 2 months. So the team is working very hard. It's not easy. It's not that it's like running like a weapon machine needs interventions at various levels. So far so good, and we're hoping to go to 100% level in next few weeks. So looking forward to a good season ahead.

Could you [indiscernible]

Hemant, there was one question, which is how are you ensuring financing liquidity, especially for the FES.

That got answered, Sriram.

Rajesh had covered that, yes. Okay.

Can you bring in Rajeev Goyal for just a minute?

Rajeev?

Many of the people have interacted with Rajeev Goyal as CFO of the Automotive Sector. As of 1st April, he is CFO of AFS Automotive and Farm Equipment Sector.

Rajeev, you have to speak something, so can you come on the screen?

While he's coming on, I just wanted to add that in the press meet earlier, a question was asked on how easy or difficult the transition was on 1st of April. And I pointed out that probably nowhere in the world such a major transition of leadership could have happened when everybody is working from home. Yet, I don't think we missed a beat. And that's the strength of leadership team at Mahindra. And since everyone in the new leadership role is homegrown, and there are no outsiders who came in, the transition became that much easier because everyone knows everyone, knows Mahindra culture, Mahindra way of working, and we had almost like a seamless transition in spite of everybody working from home. Okay. So Sriram, do you have a last question? Or shall we wrap up now?

Yes. There's a last question from Chirag, and that's the last question. Chirag Shah?

The last word. Okay, Chirag.

He's dropped out.

Dropped out? Okay.

Okay. I think there's [indiscernible] call also, so some people started logging out.

Okay. All right. Go ahead, you want to summarize anything, Sriram? Or shall we log out? No, I think thanks a lot for everyone for participating and having a good set of questions. And there are a few more questions which are probably some data-related questions, which we would respond separately to people whoever has asked those questions. And if there is anything which is important, we will put it on the website. And thanks a lot for taking your time. And I also thank Anand, Pawan, Anish, Rajesh, and all the senior management people to be here and taking time and being here. Thanks a lot.

Thank you, everyone.

Thank you, everyone. Buh-bye.

Thank you. Buh-bye.