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

So good evening, everyone. Welcome to Mahindra & Mahindra's Q1 FY '21 Analyst call. Thank you all for joining us. I know the timing is a little late in the evening. And especially for Singapore and Hong Kong, people who are joining from there, it's a little late. But it's good that U.S. people also can join in. So [indiscernible]. And this is associated because of our AGM, which happens along with our Q1. So just before we start the call, I would just like to make a safe harbor statement. Certain statements on this conference call with regard to our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. So we just wanted to make the safe harbor statement to look at what we say from that perspective. So with that, I would -- we have the entire senior management with us. Now I will hand it over to Dr. Pawan Goenka. We'll start with the opening remarks of Dr. Pawan Goenka, and we'll have presentations from Rajesh and Anish. Over to Dr. Pawan.

Okay. So thanks, Sriram. I'm just going to request Rajesh and Anish to give a presentation on operations and then on financial performance of stand-alone as well as consolidated, and I will then come back for some closing remarks before we open it up for Q&A. So Rajesh, why don't you get started?

Vineet, can you upload the presentation, please? Good evening and good morning to all of you, depending on which part of the world you are in. Just going to use a very brief set of slides to walk you through how things are. In the first slide, what I'm going to talk about is the -- it's just a recap actually of where we ended off in the last call that we had. And we've spoken about walk, run and fly. And the walk phase really was about managing cash and managing margins, and we'll give you a quick update on how we are doing on each of these. So we believe we've really managed our core working capital very well in the quarter, and it's a very strong green. We've also worked on the CapEx optimization. Though we had indicated that in the year F '21, we would not see more than a 10%, 15% reduction because most of CapEx was going towards projects, which are precommitted and are very strategic for us [ between big ] SUV launches. But we are looking at CapEx optimization in the next cycle of F' 22 to F '24, where compared to the previous cycle, we are optimizing to the extent of INR 3,000 crores. That's [ 12,000 to 9,000 ]. We've wanted to improve our net variable margin. We have improved our net variable margin in the businesses. And we believe we have been able to put in place very stringent cost management, and our costs are much better than the previous year. Okay? This is where we are by way of our status and start-up of operations. Our capacity utilization impact was more than 90%. In automotive, it was more than 50%. In -- sorry, June and July. This is a summary of June and July. And the number of dealers that we have opened are about 85% and about -- and all 100% suppliers are open. So some may have had temporary shutdowns, which may be very regional [indiscernible]. We are pleased to share with you that we were ranked 20th in the Great Places to Work. And this is the eighth year in succession where we've been in the top 50 ranked companies. We have been talking about a very strong, improving growth story. This chart brings to light. It's an internal chart, but -- and an index on the spending by the government in agricultural development. As you can see the last quarter starting from September of last year, there was a very good increase in spending by the government. And this is one of the contributory factors to the demand that we are seeing. Let's see how that pans out in the April, June quarter. So this data just shows you April-June for the last 4 years. You see that F '21 improves on both agriculture and rural development. There's been a huge increase in the spending by the government, and this is one of the significant drivers for the growth. The two other factors driving the rural growth story, of course, are the very positive rainfall that we've had up until now and also the Kharif acreage so far this year, been the highest in the last 5 years and is higher than the previous year by 19%. This graph shows you our sales trajectory in the two businesses. On the FES side, even though July is lower than June, the FES side, season shift phenomena. You can see July to July, the growth has been 28%. And even in June, those are 13%. On the automotive side, you can see a step-by-step movement towards recovery. And the growth -- negative growth, so to say, reduced from minus 79% to 53% to 35%. This chart is an index chart, which brings out our total system stock. And total system stock is defined as he stock with us, plants; plus -- plants plus transit plus dealers. And you can see that stock for -- and this is a combined number for auto and farm together, is at a very, very low number and lower than anything that we've seen in the recent past. A slide on how we've done in FES. You can see we've delivered very healthy margins. We have talked about the strength of FES in its ability to deliver and maintain a certain band of margin, even with industry volatility. So while the industry in quarter 1 has dropped 13.7%, we still delivered a margin of 20.4%. We have lost market share, and I'm sure some of you have a question on why we may have lost market share. I'd like to just strong reinforce that it is led completely by supply side issues. Demand is very robust. And there may be times when we may show an increase in market share, and we would urge you not to read too much into it in the current context, either up or down, because right now, what is governing every player's ability to sell is a function of how much stock they have, either finished goods or raw material, and the ability to ramp up. And everybody will have a different set of challenges from time to time. And we, as we showed you, were able to cross 90% capacity utilization. And our stocks are at very, very low levels. And in fact, we may have had almost nothing left to build at the end of June. And the market share is a result of those supply situation. On the Auto side as well, though we're showing you a slide on less than 3.5 market share going up. Again, I would say I don't read too much into quarter 1 numbers because it is a favorable supply situation that we've had. And the numbers, as you can see, segment-wise, also reflect a supply side situation. I'm sure you all will have questions on that, and we can talk more in the Q&A. Just take an element of the run right now, and one part of the run is focus on our core domestic. We've had a very successful launch of the new plus series in the Mahindra tractor brand. The new plus series is an upgrade of the old Bhoomiputra, and the Sarpanch range of tractors. Both the products have been upgraded, and the response to the upgrades have been very, very positive. And we would be looking at phasing out new portfolio [indiscernible]. The XUV300 has been rated in NCAP -- has got an NCAP 5-star rating. It's also been rated best car on safety over the last 6 years. Just want to take a couple of minutes and talk about a campaign that we ran through July. It's all digital, and we called it the Mahindra classics. This is 7 decades of us having created classics. We created a lot of online buzz. Of course, it was also precursor to Thar, but it also was 70 years since we rolled out our first vehicle in 1949. We've got very, very good digital engagement, over 3 million views of the video that we put out on this occasion, and 2 million engagements and several very good online conversations with some of the top auto experts. We are ready to reveal the all new Thar. It is a reveal, and it will be revealed on the 15th of August [indiscernible]. And it -- we believe it's generated some very, very good level of excitement. We've put out a teaser 1.5 days back and then 1.5 days we got over 1.5 million views of the teaser video. So -- and it just goes on to indicate the level of anticipation and excitement about the all new Thar which is going to come out soon. With that, I'd like to hand over to Anish.

Thank you, Rajesh, and good evening, good morning, good afternoon to everyone. One of the benefits of this format is that we have a large number of attendees. We have 290 in total. And while we'd love to have everyone in person, the benefit here is that a lot more can join. So thank you, everyone, for joining. Let's talk about where we are this quarter as well as -- I'll also talk about opportunity from last quarter and then maybe go forward. So key messages are, one, a strong performance for domestic farm. Revenue declined for the industry in Auto, close to 80%. That does fuel high losses this quarter for us. Very strong cash generation. And we are on a consistent path to reignite value creation that we spoke about last time we met. So moving forward to the next page. I just want to reset everyone on the definitions we will use. Domestic farm and domestic auto are self-explanatory. International subsidiaries refer to auto and farm subsidiaries only. And investments all are listed and unlisted entities outside the auto and farm sectors. So these include Tech Mahindra, Mahindra Finance, followed by Lifespaces and a number of other unlisted entities. Starting with the financials. Revenue is down 56%, again, driven largely by Auto. And we are in the positive on PAT [ for these result ]. It is down to only INR 39 crores. And the one highlight here is that OPM has stayed at 10.3%. It is lower compared to 14%. But given the quarter and given the volume loss in the auto industry, we feel this is a very strong. Looking at what changed versus last year. You can see that the farm business was more or less equal to last year, just a INR 27 crore deficit versus last year, despite having more sales in almost all of April. And as we've spoken, Auto really has contributed to the loss this year. But international subsidiaries as well as investments are both more or less flat versus last year, resulting in a INR 32 crore profit that we had. The PAT after EI level. We had a much bigger number last year of INR 2,260 crores. That was driven largely by the big block that you see there, which was a share sale in the M&M Trust of INR 972 crores, and that obviously did happen again this year. So it's negative from a year-to-year standpoint. Domestic auto contributes, as we've talked about. International subsidiaries, these are some impairments taken at the MANA level. And I will talk later about the reason for this. In one line, it's basically because we decided not to bid for the U.S. Postal Service contract, and we'll talk about that in a little bit. And a small amount from investments in terms of exceptional items. But the net result at the PAT after EI level is a INR 68 crore profit. At a consolidated level, revenue is down 38% -- 37%. And PAT, after NCI and EI, is in the negative -- at negative INR 98 crores. If we look at the drivers of that, here, again, we see farm model as the same as Auto, a key driver. We see a positive year from international subsidiaries, which is something we haven't seen for some time, honestly. And that's driven by a onetime gain at SsangYong for sale of some assets, and that's driven positive in terms of the year-over-year number that we see and, again, a small impact from investments. We look at performance of our investments, Tech M has performed quite well in this quarter. Revenue of 5% have helped profit at the level of last year. Mahindra Finance, even better, 8% revenue growth. And profit has increased ForEx despite putting provisions and making sure that it stays safe through any issues that come up. Holidays and our real estate business has been hit pretty hard, and you see there are -- significantly unfavorable there. Moving to the next page. So in terms of our action plan, it stays the same, as we talked about last quarter. Tighten capital allocation norms, enforce the path to 80% ROE, define a clear answer for Auto, maintain leadership in farm and harness value from understood terms. While Rajesh has talked about auto and farm, I'll just spend 2 more minutes talking about the other 2 points. On the path to 18% ROE. We have promised that we would come back through this year as we are evaluating all our businesses. As a reminder, we have said that we've put them in 3 categories. Category A is a clear path to 80% ROE. Category B is a quantifiable strategic benefit, and category C is a path to exit. We've talked about SYMC and GenZe last time. As a clarification, GenZe operated from a company called Mahindra Tractor Assembly. So you will see that in some of the annual reports, but that really is GenZe. MANA, which is our North American automotive business, had been working on preparing for a bid for the U.S. Postal Service contract for the last couple of years. There had been some costs that have gone into preparing for that bid. If we want to pay, it would be a fairly significant investment, much close to $0.5 billion. As we just said that project [indiscernible] in the light of the current environment, and in the light of our tightened capital allocation norms, we felt that was not the right path today, and therefore, we did not proceed with the bid. And as a result, some of the preferential costs that we had done for the bid had to be written off, and that's what you saw in the numbers that I presented earlier. We are evaluating other companies. And as we go through the next couple of quarters, we will come back and share which categories those companies fall into. As a reminder, I would also say that category A will be there for some companies. We are seeing good turnarounds in some places. And if we do see that turnaround and are confident of the path to 18% ROE, then we would put them in category A and monitor them closely. Let me share a little more about our growth drivers. The gem set, we talked about last time. We just shared the names last time, but let me talk a little more about what they do. And then as we go in coming quarters, we'll share some of the numbers behind that and where we see them going as well. Susten is a solar business, really a technology-led, utility-scale solar company with very strong EPC business, both domestic and international. Rural household finance operates in a very different way than most mortgage companies. It's really focused on rural markets and has built a lot of capabilities in working with rural customers and, therefore, has a large field force, very customer-oriented. Overall, it's a gem set business that has been growing very well, strong distribution, the leader in telecom, and we see a lot of potential there. Accelo is one of the leading steel solution providers in India. The growth potential there is really in auto recycling, and it's the largest player in organized auto recycling today in a joint venture with the government. Agri is a trusted provider of agri inputs, seeds, flock care, irrigation and high-quality fruits, which we export as well. Aftermarket has made strong capabilities in used cars. This is brand agnostic, so beyond Mahindra, and looks to be one of the leaders in the used car space. Classic Legends and JAWA, you've seen and heard about before. We're seeing a very strong demand there and see good potential for them. Electric, we've been making EV since 2010. With Mahindra Electric, we have the EV technology that we built, and we're looking at 3 wheelers as well as 4-wheel kits for technology there. Mobility is focused on high-quality service for corporate employees with a focus on EVs. And there's a tenth one that we added this quarter, which is Bristlecone. What we are seeing in the current environment is a lot of demand for supply chain. And Bristlecone is a specialist technology provider of supply chain. It works with a number of Fortune 500 customers, very profitable company today. And the cash flow they generate should be sufficient to be able to drive its growth. So these are the tech companies that we have. Most of them are profitable today, and we'll share more about them as we go through the coming quarters. With that, we want to be the gateway in the largest and fastest-growing company in India. We are very well positioned in India with the businesses that we have. And the rural market is shaping up pretty well, in addition to the focus on technology, focus and consumers lays to our strengths. And with that, I'd say we are on track to reignite the value creation journey that we spoke about. And back to you, Pawan.

Thank you, Anish. Thank you, Rajesh. I'll just take a few minutes to reinforce few points that have already been made by Rajesh and Anish. So I would first say that the quarter performance, I think, not just for Mahindra, but for the industry, both auto and tractor, has probably been better than what most people would have expected in the month of April. The tractor demand clearly has been a surprise. I just talked about the reasons. So I won't repeat that. And what is surprising is that even with ramping up production to 90%, 92% of full capacity, we're still unable to meet demand. Auto demand is, I would say, not yet tested because supply is only at about 50%, 60%. Hard to say what the auto demand will go up to the full 100% if supply wasn't 100%. We'll have to watch and see for next 2 to 4 months. But we do expect that from here to festive season, we will continue to see a monthly increase in demand and, hopefully, supply. I'll come to that. Collection has been a big surprise for all of us. There was all this fear that we all had about consumer financing and about liquidity for the dealers, the wholesale. And none of that fear has come through and appears to us that the dealers are able to manage the working capital. So that's a very important supply surprise. And similarly, the working capital for the [ MS&H ], which was a big concern and was covered in the various packages that were announced by the Honorable Finance Minister. That seems to have done quite -- worked quite well. The rural demand clearly is stronger than urban demand. In fact, for Mahindra in automotive, our rural share was about 62% this quarter, which last year was about 50%. So significant increase in rural share this quarter. And COVID impact, while we all talk about the negativities of COVID, and obviously, there are many, but there are some sort of lessons learned that would help us in the future because many myths have been broken, which will lead to fixed cost reduction, which will bring in agility, efficiency and cost reduction, not just for the period that we have COVID effect, but even after that, and that I think will change the way we do our business. Hard to quantify right now what the impact will be, but the fixed cost reduction that you have seen in this quarter, not all of it is a COVID effect. It will be a permanent effect as we move forward. So as you move forward in the next few months, the 2 concerns that we'll be watching carefully will be any supply chain disruption. That is perhaps our biggest concern with auto and tractor because of local decisions on lockdowns or local spread of COVID-19 where our suppliers are critical and also a fear that if COVID-19 spreads in rural area, then that could affect demand for tractor and the rural side of automotive. Just talked about Thar, which is around the corner, and we are looking forward to it. And then after that, we have the W601 and Z101. We have not slowed down at all in our EV plans. Everything that we have talked about is being worked upon. The 4 JVs progressing well but delayed because of state approval that is required and because of COVID-19 both Tamil Nadu and Gujarat are not able to complete the approval process. Right now, we target the approval process having a date for starting the JV, but it will depend on the state approval. Clearly, our current action on creating liquidity, which we did in the month of March and April, has paid off. And we are in a very comfortable situation, as Anish has talked about. And the capital allocation again is covered that. We're very serious about it. That's why I'm pleased [indiscernible] have already announced. Other things are under consideration. That, in a nutshell is sort of between what Rajesh and Anish said and myself, are closing remarks covers what you want to communicate to you formally. Now we open to questions.

Thank you, Doctor, Anish and Rajesh. We open question and answers now. I've got some questions already from analysts. So I will start asking the question. And by the time, they would be taken online. The first question is from Sonal Gupta of UBS. What is the outlook for SCV, small commercial vehicle, and pickup segments? Your volumes in Q1 have been much stronger than the #2 player. With BS VI, what sort of shift can we see from small commercial vehicle to pickups?

Rajesh?

Yes. So there are 2 key drivers for the pickup segment and the SCV segment. One is the overall increase in the rural demand, and that leads to movement of goods agriculture and otherwise. So we are seeing a very positive demand for pickups. That's coming out of that. SCV is a very different segment. So SCV demand, we believe, is picking up because of the need for last-mile mobility, both personal, which is not [indiscernible] but personal goods. So as more and more business is moving to e-commerce, including [indiscernible] as we've seen through these months, there is a need for small commercial vehicles, which can operate intra-city, and SCV load carriers are a very good opportunity. Of course, there's demand -- not a very fortunate thing, but a lot of demand for SCV ambulances. And that's something we're struggling to ramp up to the requirements as well. So in a way, I wouldn't try to get into answering the question of what is the likely cannibalization between SCV and pickups. I'm just seeing these as 2 very different parts and different target audiences. And the demand for both is going up for the reasons that I explained. Pawan, do you want to add anything?

No. I think you have covered it well. So nothing to add.

Sonal, do you any follow-up question to this?

Sriram, you decide. You're the moderator.

Okay. So the next question is from Jinesh Gandhi of Motilal Oswal. And a few others also have asked this question, which is more in terms of outlook for FY '21 for auto and tractor. Is there any outlook we can provide? And also on the supply side status, both in July and August, how is it likely to impact that? So -- and will it impact the festive season? So that is the type of questions a few people have asked.

Okay, Rajesh?

So will it impact festival season, I think it's a difficult question to answer because that question is difficult to answer. It's also difficult to answer what the growth outlook will be. So I'm just kind of rewinding now and connecting question 1 and question 2. If you were to look at tractors, we feel that just looking at it from a demand standpoint, the industry would definitely have a growth year. However, given the uncertainty on supply, we wouldn't like to give out an outlook, and that's something we've got to wait and watch. But as you can see, we were able to pull out for us a 28% growth in July. And of course, that's reduced the stock for us even more. On the auto side, as Pawan said, I'm just reinforcing again, the demand is not fully tested, but we are seeing a lot of positive demand for all products, which are [indiscernible] Scorpio pickups in particular. On the urban side, [indiscernible] products like XUV300 and so on are doing well. We, unfortunately, have had a great supply side challenge in some of our competitors because we had very little stock coming in through the BS VI transition. Given that portfolio was [indiscernible] and we were transitioning to that in March, first, due to the COVID situation around the world, which happened for India and then the lockdown, plus a fire at one of our suppliers, led to us, I think, very little opening stock as we got out of the lockdown. So right now, our focus in both tractors and Auto is to produce as much as we can. We are operating from a context right now that the business challenges about ramping up supplies and demand will be reasonably okay. We do see a focus and need for personal mobility pretty strongly. Of course, it will be at the entry level, but we also expect that there will be a demand for larger vehicles as we get into people wanting to follow this social distancing, even within their vehicles. We, ourselves, are very pleasantly surprised with the high level of positivity on [indiscernible] on the launch of Thar, as Pawan said. And that is in a way an indication of customer sentiment. Because if customer sentiment was not positive, you won't expect this kind of a positivity on announcing a date of [indiscernible]. So we certainly have seen customers vary of wanting to make purchases. That was a concern we may have had in April. But as things have opened up, that concern, we believe, is behind us.

Just want to add one thing to what Rajesh said that on the supply side, it's not like we are having problems all over the place. If we have, let's say, 100 suppliers supplying for tractor, we have no problems with 90. 7 to 8 remaining can be managed a little bit of work on our side -- not a little bit of work, a lot of work from our side. It's only 2 or 3 that are hit. And therefore, as long as you manage those 2, 3, we are [indiscernible]. Same with the auto side also. And these 2 big suppliers are working extremely hard. They have the constraints because of [indiscernible] COVID-19 or because of local shutdown. But we are hoping that we'll come out of this problem as long as the spread of coronavirus does not get worse from where we are. Okay. Next question.

Thank you. Yes. Next question is on the capital allocation. A few people have asked this question. By when can we hear more updates? What will we do if some loss-making businesses have capital requirements before we can make decisions? And as a part of that third question, how's the SsangYong deal progressing?

Anish?

So there are 3 parts to that. First, by end of this year, the fiscal year, 31st March, we will have a clear answer on all our companies. And that's something we promised before. As I've said before as well, we want to make sure we do a very detailed evaluation. This is not a cursory look at the company. We have things working in many of these companies, looking at what are the levers to be pulled. Will they be successful or not? We also have to see early successes before we can say that it's on a path to profitability, which is why we are not rushing to answers. We are taking our time to look at a fair amount of detail, and we will come back by the end of the year on all of our businesses. The second part to that question is will some need capital. We have looked at it. There may be some that do need a little bit of capital. There's no major investment that is being done without that detailed look, which is where also for MANA we decided not to bid for USPS. And it could be a couple of other investments we will look at and say we may [indiscernible] them until we have a clearer view of the part of that company. And third, with regard to SsangYong, our position has not changed. Our Board has made it very clear that we will not be investing anymore. SsangYong could sell some assets and, therefore, generate some cash. There is a search for investors that's going on right now, and we are hoping that, that is successful.

Yes. Thank you.

Just to add to that. In any case, for SsangYong, we have got a very firm line. So whether there's an investment or not, we will not be putting in more capital as committed by a model.

Thanks, Anish. The next question is on tractor margins. So we have done 20% margins, but only [ 55,000 ] volume. Do margins have more upside? We don't generally talk about margins, but the question is coming as whether there's an upside to the margins from here.

It's a difficult question to answer for the following reasons. Firstly, Sriram, you said that we don't give a guideline on margins and [indiscernible] to get drawn into that. I think when you look at quarter 1, we have to keep in mind that with many, many things being shot, we were able to have a very tight control on our costs. As Pawan said right in his opening comments, we would try to bring in a mechanism by which we are able to lock in a lot of the savings. And what we really have to see as we go forward, what of these savings are we able to lock in and what will come back to business. So let's take the example right now. Demand is so much higher than supply, then we're obviously not going to spend on marketing all that much. And in this period of time, we've really cut back all marketing spends and promotion. But when you come back to a situation where supply is equal to or greater than demand, which is the normal state of operation, then there is going to be an effort from all OEMs to bring in sales promotions and marketing support, which clear in the current context. So I think we -- but there may be a lot of savings in fixed costs that we are able to hold on for nonmarketing. Example, the savings in travels, conferencing. So all of that are savings, which we'll be try to lock in most of that, but what we really have to see is what happens to sales, promotion and marketing as we go forward. So that's a broad kind of guideline on how we look...

I just want to add that one of my fears was that when we open up, will there be irrational clamor for volume and market share by OEMs, which is not the case because the demand is good and therefore, no irrational clamor. And that's the point that I just also made. Now again, as I just said, we cannot say, what is upside, but we are happy that we have improved our margin even with lower volume.

Next question is on EBIT -- stand-alone EBIT margin of automotive. The question is, is there any write-off -- one-off write-off in automotive EBIT margin in stand-alone?

Write-off, meaning what?

Is there any one-off. I think, the EBIT was negative. So the question is whether there is.

Nothing major, right, Anish?

No. On the stand-alone, there is -- none on the auto side.

Yes.

So I just want to add that you -- the EBIT should be seen in the context of the revenue, which is more than 75% down. And without naming any peers, we believe our EBIT performance actually on the Auto side is pretty good given the extent of revenue drop that happened. A lot of the revenue drop that happened was really because of almost 2 months...

1/4 revenue, we have more or less maintained, I think -- not more or less. We have maintained our variable margin. And significant reduction in cost to have a reasonably low loss EBITDA level.

Thank you. There are some people have asked a question on MVML status, on MVML merger as well as Ford joint venture. What is the status on completion of that. MVML merger.

So on the MVML merger, it's going on track. We had just received one of the approvals that we're waiting for. Now I think it's a matter of a month, 1.5 months, perhaps, before it's all completed. There are no roadblocks. Of course, slowdown because of COVID-19 because many of the government offices were shut down. On Ford, I've already answered in the beginning that we have slowed down because of state government approval is not happening. But that is only the formation of JV that is slowing down. Our work is not slowing down. So everything that we're supposed to do in the JV. Complete planning is happening. The business plan is being developed. The people movement is being planned. The projects are progressing. All the work is happening. Just in the physical or the legal handing over from [ FICL ] to the JV, it's stuck for this one-off state government approval. Right now, our best guess is October 1. But again, that depends on when we get...

Okay. The next question is on how big is it -- how big a challenge is CapEx and RDE for Mahindra? Is it going to have much lower cost than BS IV to BS VI transition? Will Ford JV also give us access to full technology and future products if required?

Okay. Let me take a crack at it. RDE -- cost of RDE -- so RDE is not a technical challenge. It's just timing it will take to develop it and the cost we will incur. It's very difficult to give a number on cost because it depends on many different factors that will come in. For example, what are the RDE factors that the government finally decides on [ 2.101, point 4 ]. But my best guess right now will be of the order of INR 10,000 will be the impact on cost -- impact of RDE on the cost of vehicle for SCR [ emission ]. I don't want to give in too much technical detail. So let's assume INR 10,000, which will be about April 23 is when we expect RDE to become up again. On the CapEx side, right now, again, there is a discussion going on, on when the new [indiscernible] regulation will come in place because of everything sort of coming towards standstill because of COVID-19. But all the same, we are working on meeting the [indiscernible] requirements and electric vehicles that we are working on and that we hope that by the time [indiscernible] comes, we'll have a substantial size of electric vehicle. So a substantial [indiscernible] will also obviously help. But otherwise, we are looking at many different things. And clearly, we will be in place to meet [indiscernible] requirements by the time it comes. But it's not a single solution. It's multiple things that we are doing. For example, 48-volt hybrid might come on some vehicles, electric vehicle. Sensors will help, improving efficiency of diesel and gasoline, both. So -- direct injection gasoline engine, GDI. All of these things will help in meeting the regulations. And the technology, of course, with the partnership that we have with Ford, we will have more access to Ford technology. But obviously, these are 2 different companies. And therefore, whatever we do will be at arm's length. But we certainly have reach to Ford technology.

Thank you. Yogesh -- next question is from Yogesh. Yogesh, are you online? Can you ask your question? So in the meanwhile, there is a question from Binay Singh of Morgan Stanley. What is the diesel share of UVs in Q1? And overall, want to understand the impact of fuel mix change and BS VI on auto margins.

Sorry, effect to what?

Effect of BS VI on fuel mix change. Is there a fuel mix change?

Rajesh, you want to say something?

Yes, I can do it. Yes, yes. So Binay, 2, 3 parts to your question. One is -- anyway, diesel first. In -- on the rural side, we are actually in our category perhaps not seeing any desire or move to want gasoline vehicles in the segments in which we participate. On the urban side, especially in the compact SUV, where we have XUV300 we ourselves about 35%, 40% gas in mix in that segment of product. So there is some shift on the urban side. But like I said, on the rural side and products like Scorpio and Bolero, the customer continues to have a distinct preference for diesel. The [indiscernible] products we are offering in diesel, in fact. On the specific question of BS VI, I think we've said that last time as well. We are confident of maintaining our weighted margin and with -- in absolute per unit basis. However, there could be an impact on the percentage margin because of denominator effect. So basically, we have been able to pass on the cost of BS VI and [indiscernible] per vehicle basis. But without the denominator, we are likely to see a percentage drop. That has not happened in quarter 1. And one of the reasons why it's not happened is it's more favorable margins. So like Pawan said and I had said in my presentation, we improved our [indiscernible] in the quarter.

Let me also give you some numbers on diesel and petrol in the UVs overall in Q1. The diesel share was about 44% compared to 15% in the previous quarters. But a lot of it is coming from the up [ 4-meter vehicles and sub-4-meter ] vehicles, diesel is only 31% compared to 42% in the previous quarter. And as Rajesh said, that in our vehicles like Bolero and Scorpio, especially [indiscernible], the leadership remains predominantly vehicle of choice.

What's ramp-up in production? Are we stabilized? And when can we expect some high-frequency monthly data on JAWA? And secondly, on the SUV business, since there were some supply issues, as Rajesh mentioned, is there some kind of order backlog you can share, which can help us quantify the pent-up from the missed sales because of lesser supply.

Rajesh?

Let me take -- Yogesh, let me take the three question first. Let me first put it this way. There are some margins, we have not even got to market yet. So Marazzo and, like I mentioned earlier, we did have a fire at one of our suppliers, and we had to start prioritizing. And that was a supplier of lamps had lamps [indiscernible]. And we had to start prioritizing after the lockdown which models we wanted to get out first. And given the strong rural pull, we had started prioritizing the Scorpio and Bolero. So some of our models haven't even yet got out, so that's all pent-up. Marazzo and XUV 300 and 500, very small numbers. But some of the other models we haven't even got out. The -- I'm not going to be able to give you a number, but stock levels, like I said, are so low that can't even test the demand for it. And our desire will be to get to 100% of our capacity over the next 3 or 4 months is what I would kind of say. But we do see, Pawan mentioned earlier, some real supply and challenges, and they're all localized. So it could be one supplier shutdown for a week or 10 days in a particular area and somebody else having a shutdown later. Hopefully, things will improve and stabilize as we move through August and September. But really, don't want to try and put numbers out. Suffice to say that we are seeing a positive in demand. Pawan, do you want to comment on this before we take the JAWA question?

No. Nothing much to add. I would just sort of contrast tractor and automotive in the supply side. See, on the tractor we tend to have multiple suppliers for the same thing, except for 2 or 3 very difficult thing like [indiscernible] equipment. Where in auto, we tend to have single source because very high cost of [indiscernible]. And that's the reason you see that Auto is more affected than the tractor, which will again be true for everyone. But if we are able to resolve 2 or 3 suppliers who are not be able to supply, those 2 or 3 suppliers, they will work to resolve their constraints and everything, and they are working extremely hard to resolve those. Then I think we can see a fairly smooth supply chain. Not that everything is happening automatically like in normal times, but with the effort that our teams are putting and the extra miles that the suppliers are working, I don't know, 2 or 3 suppliers, I think, everything else will be able to manage.

Okay. The next question is from Gunjan of JPMorgan. Can we get an update on U.S. farm business performance? How are we progressing on breakeven there?

Rajesh?

Gunjan, we've seen a very positive retail momentum in our U.S. tractor business. Quarter 1, we had a growth in retail of about 15%, and July was again very, very good month for retail. And cumulative growth this year is about 22% at retail. We are continuing to take this opportunity to correct our stocks. We have put in also, as we've said last time, several measures to improve our cost structure. And we are reasonably sure that next year, we will cut the losses by at least [indiscernible]. Anything you want to add, Pawan and Anish?

No, no.

I would just add that there's a lot of work happening on product profitability, on channel profitability, on working with financing partners. And all of that, as Rajesh said, we're working and the losses will be cut by half this year. But in addition to that, we're also looking at what is the path to 18% ROE that we promised.

Rajesh, on the question on JAWA, anything you want to say? Rajesh?

Yes. Sorry, we missed that in 2 questions. So basically on JAWA, I guess, the demand, we believe, is very strong, and you can see the momentum everywhere. We did take a little longer to make the BS VI transition happen, and that's taken time. That's not under control. And we also were affected by some of the suppliers in the [indiscernible] region. We had some suppliers [indiscernible] 1 or 2 who've taken some time to ramp up and to deliver migration issue. But things have stabilized now, and we hope to see good numbers coming in.

So we have a few questions from Pramod Kumar on the Q&A. It should be good.

Pramod, go ahead. Okay. So a question here is, can you please talk more about the SsangYong proposal, which was cleared by the Board?

Today -- are you talking on today's proposal?

Yes.

Pawan, do you want to cover that?

Yes. So basically, as we look at investors -- or SsangYong looks like investors and investor come in, there is a possibility that Mahindra will have to become less than 50%, and we look at many different options of bringing funding into SsangYong. And that may require for Mahindra will become less than 50%. And as for the company law, we have to get approval from shareholders to become less than 50%. So this enabling resolution that the Board has approved us to go to shareholders to get that approval from the shareholders.

Pramod, you have a few other questions. Are you on the line?

Does it answer most of the question on SsangYong? Is there anything more you would ask?

Yes. Can you guys hear me? Yes, it does. Yes, it does.

We can hear you.

Yes, I have 2 other questions, Anish. The second question is basically, are you open to...

Pramod, you are [indiscernible]. There's too much disturbance on your side.

Can you please...

Pramod, there is too much disturbance.

I'll send the questions to you.

Yes, why don't you send the questions [indiscernible].

Okay. Can you please share the key time line for launches in the PV and tractor divisions? Key -- a time line for the key launches.

Rajesh?

Yes. So let me talk about the SUV key time lines. We had said last meeting that we will launch that in the early part of second half, which implies October, November. We should be on plan to do that. As we just announced, we will reveal the product on August 15. The specific launch date will depend on the pace at which we are able to ramp up for start of sales. So all is ready in all respects, and we'll reveal soon on in August. The next launch in the PV portfolio is the 601, and that should happen in quarter 1 of F '22. And the third launch is Z101, which is in the second half or quarter 3 of F '22. All these 3 products, we believe, are very core to the brand and have all come out very well. They are very refined and deliver on all the values which Mahindra has stands for. So we are very positive and very optimistic about these 3 products that are...

Tractor side, there's -- we did talk about the [indiscernible] platforms last time. And the first of the platforms [ a few years away ]. Otherwise, there will be minor refreshes and so on going on, but no new -- all new platform launches.

I just want to add that you can perhaps imagine the difficulty in doing product development during lockdown because there's so much collaboration that happens, and people are not just within a mile but are across the globe. And there are -- the suppliers, development people, consultants [indiscernible] that's accepting all the work on new products. And each of these products are perhaps delayed 3 to 4 months because of lockdown. But now we are reasonably sure on the trend line for the 601 and for the 501. And the 101 still is about a year away. So hopefully, it will all launch.

There's one more question from Pramod, which is how much of the cost reduction and the project [indiscernible] has been already realized? And what is the incremental target post COVID?

Rajesh?

Yes. Well, as I always say on costs, there's no end to how much we [indiscernible], and we are working on several new ideas. We've learned so many new things in the last 3 or 4 months. And things, which look like can't happen, are all being made to happen. Just to give you an example, we've -- on both our Auto and tractor side, decided to close about 30% of our area offices in the field. And for those that we keep, we are going to keep the setting to only 30%. That means everybody else will permanently work remote. So there are many, many such changes in where we are going to work, and we believe that this is win-win, both for cost and impact. So the -- I'm not going to share a number with you, but there's so much we've learned in the last 4 months on how we can...

Thank you, Rajesh. There's a question from -- yes.

I'm just reading the questions from -- a question from Yogesh Aggarwal which another important question to answer. Are you coming to that?

No, go ahead you can answer that.

Okay. The question was from the time SsangYong is divested, would you have to fund the losses, like the INR 900 crores losses in this quarter, our cash loss [ is permanent ]. No, we do not provide any more cash funding of any losses to SsangYong. As Anish said in the beginning that we had Board approved [indiscernible]. And after that, we have not put in any funding of SsangYong. And SsangYong is taking care of the losses on their own. But please bear in mind that bulk of the losses are noncash because of the very high level of depreciation [indiscernible]. And the cash loss is less than half of the [indiscernible]. But again, that's funded by internal generation. Or in this quarter. The previous quarter, there was an asset sale, and it is over KRW 100 million, which has helped in funding the losses. So there is no contribution from Mahindra in funding the cash contribution. But of course, it gets consolidated in the Mahindra consolidation, but no cash loss.

Yes. And just to add to that, to expand on it, in fact, as Pawan said, our consolidated losses will show losses from SsangYong until it continues to be a subsidiary. In the first quarter, that was close to breakeven because SsangYong had a onetime gain in terms of sale of assets. And where it continues to be a subsidiary, there will be consolidated losses. But there are accounting provisions that within this year, if it ceases to be a subsidiary, some of those will be written back as well. So you'll see that on the consolidated line, but again, they are not cash losses. There's no further cash going out for SsangYong.

Yes. Thank you. There are a couple of questions from Binay Singh again. One is in terms of MANA. Is there a complete exit? What have we written off in MANA? And second is, Can you say breakup of exceptional item in...

So those are...

We'll have to make -- after this -- this will be the last question -- after this one, we'll take one more question. Please go ahead.

Yes. Yes, we have not -- we do not have quarterly information that we shared. We share information consistently across. Going forward, if that's an important part, we'll look at how we share it quarterly. But at this point in time, we will not give information on impairment by subsidiary on a quarterly basis.

The question also on the MANA, is it a complete exit? What have we written off this?

On MANA, it is not a complete exit. We have, at this point, decided we are not going to bid for the U.S. Postal Service contract, which was a stand-alone contract in its sense. And the Roxor has faced some clouds with regard to the FCA litigation. So we have to see a clear up and then see the [indiscernible]. So that business will have the same evaluation as all our other loss-making international subsidiaries. But there is no decision to exit MANA at this point in time.

And one last question. This is from Venugopal of Bernstein. I noticed a flash on Bloomberg that you are looking for investors for electric unit. What is the nature of divestment we are looking at?

Yes. So that is correct. This, we had mentioned earlier also that we would be -- we will be actively looking for investment in electric vehicle. As we look at the next 3, 4 years of our product development on development plan, there is approximately about $100 million worth of investment that will happen in this, and we are hoping that all of that has been generated from outside sources. We are in talks with several -- multiple people right now, and some of them have already gone through due diligence phase before they can submit...

So that -- with that, we around 8:00. So we can close with this.

One second. Just give a minute. I'm just looking one or two questions. Anish, you want to answer this question that in the -- thirdly, in the quarter, interest cost is generally at INR 30, INR 35 crores. This quarter, it has been on the higher side. Any one-offs?

So the interest cost has been on the higher side because at the start of the quarter, given the situation outside, we decided to go and raise some debt just to make sure we had a very strong cash balance. Our debt balance also continues to be on a very, very strong side. And what we are seeing now is given the fact that this quarter, in fact, generated more cash than is used. We will start using our cash to repay some of the loans that we have to make some prepayments, et cetera, and bring our debt levels back to what they were, which is very...

Rajesh, EBIT losses for subsidiaries in farm segment have reduced. Which subsidiaries in global farm segment have been -- have seen improvement? I don't know if you want to get into that details.

I don't think we share specific numbers in the -- quarter-wise. But I just want to say that around the world, on the farm side, we've seen positive momentum. I did talk about MANA. Our companies in Turkey saw both -- especially the tractor business, industry grew over 60% in the Jan, June period. The agriculture business, also industry, saw growth of over 50%. So Turkey, as an industry, saw positive momentum. And we -- as we've said earlier, have a strong focus right now on cutting back on losses in FES international subsidiaries. And it's a very strong plan with a very clear direction of profit over growth at this point of time...

And last thing again from Kapil Singh. Can you please share long-term growth outlook for farm implements business?

Yes. So we actually continue to be very buoyant on the farm [indiscernible] business. We've seen very, very healthy growth in quarter 1. And definitely, with everything [indiscernible] like labor going back and overall shortage of labor in many, many states, the move towards mechanization [ has been ] further accelerated. And we are preparing ourselves for a very good growth story for...

And let's close with one last question, which is for capital allocation, rationalization, where do you see low-hanging fruits? The major focus really is on the international subsidiaries because, as we've shared before, that has been a significant part of losses for us. And that's something that we will see a very strong turnaround on as we go forward. So that's the low-hanging fruit. And then beyond that, as we did in 2002, we have this very firm line drawn on financial discipline, and we're seeing all our businesses really start looking at that line and seeing all our capital allocation decisions meeting the ROE targets. So if I were to look at the 3 things that the management team is going to be accounted for, it's EPS growth, ROE and free cash flow. So all decisions are going to be based on that lens. It's not just the ROE, but we have to have EPS growth and free cash flow on this one as well.

So thank you. I think with that, we come to the end of this conference. Thanks a lot for everyone for participating in this. And I thank Anish, Pawan, Rajesh and the entire senior management for being here. Thanks a lot, and have a good evening.

Thank you, everyone.

Thank you, everyone.

Thank you all. Bye-bye.

Bye-bye.