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

Hi Sriram, good afternoon.

Hi, good afternoon, Anish.

Hi, shall we start?

Good afternoon, everyone. Good afternoon, good evening or good morning from wherever you are joining in. Welcome to M&M quarter -- Q2 FY '22 Earnings Call. We are indeed glad to have you all on this call today. Just before beginning, 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. Now, I would like to welcome our senior management. We have with us today Dr. Anish Shah, Managing Director and CEO; Mr. Rajesh Jejurikar, Executive Director, Auto and Farm Sector; Mr. Manoj Bhat, Group CFO; and also other senior management from both Auto and Farm team, and also the Investor relationship. With this, now I hand over the conference to Dr. Anish Shah for his opening remarks, and then followed by presentations by Rajesh and Manoj. Over to you, Dr. Shah.

Thank you, Sriram, and the greetings, everyone. It's a pleasure to be back with you today. We're going to talk about some very strong results despite some challenges that we will outline. I'm going to outline or start with the framework that you've seen before, but we are starting to really look at our businesses as core, growth gems and digital platforms. And we will talk about the progress on each of those. So the key messages for today are that our core businesses have really seen a resilient operating and financial performance despite some fairly significant headwinds for both commodities and supply chain. Our new product launches have been very well received by the market, and we've talked about that, the XUV700 and below in particular. But it's not just that, it's a set of products that has been there leading up to that as well. And we've seen a very strong recovery from our group companies, Mahindra Finance in particular, but also some of our other group entities. And we've got all our group companies really starting to position themselves very well and deliver results. On growth gems, we're seeing a higher level of profitability from both our listed and unlisted entities, and we're seeing tangible examples of value creation at our digital platforms, that we'll talk about as well. So for today, I'm going to give an overview after which Rajesh and Manoj will take you through the details. Let's start with the numbers first. On a stand-alone basis, PAT before EI is up 29% at INR 1,687 crores. PAT after EI is up almost 9x at INR 1,432 crores. If we were to look at consolidated, here we see PAT before EI at INR 1,975 crores, up 43% after we restate SsangYong as a discontinued operation. But what we announced last year when we gave our results was INR 906 crores, which included SsangYong at that point in time. So if you look at it versus INR 906 crores, it is effectively at 2x return. And similarly, on PAT after EI, it's going up from INR 615 crores to INR 1,929 crores, which SsangYong has discontinued. But based on what we reported last year, it's really going from INR 136 crores to INR 1,929 crores. And that also shows the result of the hard calls we've taken with regard to capital allocation. I referred to the headwinds. They are essentially in three categories, significant increases in commodity prices, which I'm sure we're seeing across the board; the semiconductor shortage issue and freight costs. We have taken significant actions around that, increasing selling price, aggressive cost re-engineering, looking at rejigging our production, commonalizing some components within auto though that does take some time, looking at route optimization for freight and so on. So those have helped us. But this has had an impact. And as we look at the next page, what we see is on the farm business revenue is up 4%, but PBIT is down 14% despite almost a 2-percentage point gain in market share. And that's really driven by the commodity price inflation. What I'm also very happy to say is our international subsidiaries where we've seen significant concerns in the past have turned around. The actions we took on category A, BFC have really worked out well. So the category A and B companies that we continued with have demonstrated a PBIT of INR 105 crores for this quarter, a second consecutive quarter greater than INR 100 crores and a fifth consecutive quarter of being positive. So we're starting to see a real turnaround on that front. And that really leads us to the conclusion of a focused and robust operating performance in the face of some fairly significant headwinds. Auto, again, a similar story, much stronger growth in revenue here at 23%. And PBIT is impacted not only by commodity inflation but in this case by shortages on semiconductors as well, that resulted in a volume loss of 32,000 units. That obviously impacted operating leverage and thereby PBIT is lower. But what we're really excited about here is my earlier comment on XUV700. The bookings are reflective of the quality of the product and the four consecutive blockbuster launches from the XUV300, Bolero NEO, Thar and 700. We've seen some very strong response from the market. The best was in the 700, obviously. And what we are looking forward to now is the launch of the new Scorpio, and we hope to make it a fifth consecutive blockbuster launch, which positions us really well to regain leadership in the core SUV space. Let me talk about Mahindra Finance because this is one that did concern us last quarter. And what we had, at that point, indicated was based on history it was a temporary phenomenon that would get reversed in the following three quarters. And what we are seeing here is that reversal is well on track. PAT is up from negative 1,500 to positive 1,000. In this case, we are not looking at year-over-year, we're looking at the previous quarter because we do want to show a story from the previous quarter as to what happened. So you effectively have a INR 2,500 crores swing on the profit side. That is driven by GNPA, down 2.8 points, though we do expect it to go down further as we go along in the next 2 quarters. And that has resulted in a fairly significant swing with regard to provisions. And we had taken a provision at -- of INR 2,500 crores last quarter. INR [ 760 ] million of that has come back. And based on what the Mahindra Finance team has outlined for its analysts, the rest will come back or 80% to 90% will come back in the next two quarters. So a little more of a deep-dive on GNPA just to give a little more flavor of the numbers behind Mahindra Finance. Stage 3 contracts have come down from 294,000 at the start of the quarter to 216,000 at the end of the quarter. As a reference, in March they were 194,000, so we're getting fairly close to the March numbers, which is what we wanted to get back towards. A lot of Stage 3 rolls into Stage 2 first, and therefore, Stage 2 hasn't seen much movement or has seen no moment in fact. It's gone from 402 to 404, and that is also almost the same number that we had in March 2021. So what we need to do is work on Stage 2 next and start moving that down to Stage 1 or current. And those are the efforts that the team is focused on over the next couple of quarters. Tech M has great momentum. Profits are up 26%, driven by large deals by 5G, by TCV being doubled in historic run rate, free cash flow and 15,000 associates hired in the last quarter, so a very strong momentum for Tech M, and that's something that we have seen based on the tailwind in the industry as well as the performance by the Company. Let's look at the listed growth gems. Logistics has seen some strong progress this quarter even as you see the profit number down 37%. That's driven by some one-time items. But revenue is up 22%, multiple business wins and it's positioned very well in an industry that has a lot of tailwinds. Hospitality, we are seeing a significant growth in profits. Occupancy getting back to pre-COVID levels. Resorts in Finland are operational and a fairly bold approach to driving growth in hospitality. Similarly in real estate, and we are seeing that bold approach starting to pay results. Profits again showing a significant uptick, focused execution and proud to report that we are the only real estate sector company to publish a sustainability report. So that is one that's a huge plus amongst our various actions on the ESG front. So overall, our listed growth gems have seen some very strong traction in profitability. We're not going to go through the unlisted once today, but we'll do that in future conversations as we start highlighting some of them. But let me talk about our digital platforms. We mentioned this before and we've mentioned the fact that FirstCry was at a $1.7 billion valuation, and it was a result of Mom & Me and FirstCry and is along this exponential curve that we've shown. But beyond FirstCry, we've got First Choice Wheels which is being rechristened as Car & Bike, really coming up strong. A fundraise is underway right now, and we do expect to see some good numbers there in terms of market valuation. What I really want to talk about today is Porter. Porter is a business in intracity logistics. The latest round values the company at INR 3,750 crores. This company was set up with a merger with SmartShift. SmartShift was a startup that was set up in M&M with an investment of all of INR 23 crores. And SmartShift became the second largest in the industry, merged with Porter. At that point, we put in an additional INR 70 crores into the company. Overall, we've put in so far about INR 100 crores to INR 120 crores or so, somewhere in that range. And the valuation today is INR 3,750 crores where our share would be somewhere in the 25% to 30% range. So significant value creation. You start seeing the impact of the exponential growth catching up here. Valuation is up 4x in the last 24 months. M&M still is the largest shareholder, but this company is positioned very well in intrastate logistics with 35 cities where it’s the leader. Beyond this, we're going to look at just moving back to the previous slide for a minute now. We are looking at the digital finco that we have put in place now. A good team is already driving action in that space. We're looking at agritech and receivables, that's two more digital platforms, and there will be a couple of other ideas that we have put on the table. But we are starting to see real value creation for our shareholders without having to invest significant money into it because we are looking at external investors coming in to many of these companies where over time we will take a minority stake. So with that, let me hand it over to Rajesh to go through details on Auto and Farm. Rajesh, over to you.

Hi, everybody. Good to be with you this evening for us and like Sriram said morning or evening for you all. I'm going to break my presentation into two parts, talk briefly about the quarter that's gone by and then focus more on the path forward, which is the growth and return journey. So on the quarter that's gone by, as you can see here, the stand-alone revenue grew by 15% and the consolidated revenue by 13%. And for the first half, it was 46% and 41% respectively. This clearly is an indication of the fact that H1 was slow because of the COVID lockdown. And we saw some of that effect this year in the way quarter 2 got depressed as quarter 2 last year had got a carryover of the quarter 1 of F '21 into the numbers. Next slide, Amit. When we look at our PBIT, you will see that stand-alone PBIT has come down by 29%. But again, I'm just reinforcing that quarter 2 last year was an exceptionally high base. So this year, the quarter 2 in FPS, even though you see this de-growth here, is actually our second highest ever quarter to PBIT. And it is our second highest ever quarter 2 domestic volume and second highest ever domestic volume. So it has by itself been a very strong quarter. You just have to keep in mind that what we're comparing is on an exceptionally high base on volumes and on margins. Next slide. When you look at the first half, you can see that the stand-alone PBIT has gone up 37% and the consolidated PBIT has gone up by 73%. Next slide. Anish spoke about the turnaround in the international subs of FPS. That has been a major task in front of us. It was slowing down our ability to grow as we were focusing on turning around these and consolidating our performance. As you can see from here, it's five consecutive quarters now of profit and two consecutive quarters of profit more than INR 100 crores, clearly setting us up for an ability to drive growth as these companies get stronger on their path to turnaround. Next slide. A quick summary of the highlights of Farm in quarter 2. Our market share went up by 1.9 percentage points, a very strong launch of Yuvo Tech on the farm side. [ Feature-packed ] product well priced. Exports I spoke about and what we believe is a strong margin performance in the context of the environment. 18.7% is a very healthy margin. The [indiscernible] has been used to margins in the region of 18%, 19%. Last year was an aberration, as I said, with exceptionally high margins driven by volume that built up into quarter 2. And of course, the operating leverage kicked in and commodities inflation had not yet kicked off. Strong price increases have been taken, 88% overall, and material cost is not yet fully passed on. However, you have managed margins by keeping fixed costs under control. Next. On the auto side, a very, very strong launch of 700 or 70,000 bookings. And as you all would have read, 50,000 of them happened in 3 Rs, 25,000 in the first R on day one, 25,000 in the second two Rs on day two and that takes the total cumulative open bookings across all our products, including 700 to 160,000. Strong export performance, and we have been talking about the fact that three-wheeler electric is at an inflection point and you can see that play out now. Very strong growth of 318%, but more interestingly a 68% share of market, establishing the first-mover advantage that we had and now beginning to leverage that as we set that business up for a strong growth trajectory. The auto margins have been under pressure. Clearly, commodity price inflation has hurt us. We've lost about 32,000 vehicles due to ECU shortage in the quarter. And we've taken aggressive price increases, not enough to cover the material cost increase, but a 7% increase over the last year. I'm now moving on to the second phase of my presentation, which is how do we drive growth. As we think about the future, we build a strong base. It's time for us to now focus on growth, but growth with financial returns. By the year 2025, we would look at a CAGR of 15% to 20%. Tractor market share would grow to 40% plus levels. I'm going to spend some time talking about farm machinery because we have been talking about that as a growth engine. And we are talking about hence a 10x growth, and we'll talk about why we think this [indiscernible]. We would like to be #1 in the core SUV segment. I'm going to take a minute to talk about what we mean by core SUV. As we've been talking about the fact that us UVs is a very broad category in the way SIAM is defining it and that has its relevance. We have defined core SUVs in a way that it doesn't make it too restrictive and too niche. So the definition that we're using includes 70% of the UV industry. Our definition is based on bringing alive the SUV character. So a high ground clearance and a high seat position reflect an SUV character. And we have defined that by distance of seat point to the ground. And if that's greater than 660 mm, we believe that is something we can call on core SUV. The other is a capability to go anywhere. Capability to go anywhere is defined by the tire out of diameter, which if it's greater than 660 mm we would consider it as a core SUV, and an engine capacity equal to a greater than 1.5 liter or the engine is turbocharged, so basically a combination of the perceived look and the capability. But we've tried to keep the perceived parameters or the parameters here completely measurable. There are several SUV characters as a part of design language, but we are intentionally not putting that out there because that's driven by subjective judgments. All of these are very measurable parameters and hence, clearly allows us to segment the market in a way which we think is the universe we would want to compete in, and that's 70% of the UV industry. We are number one in the LCV less than 3.5-ton segment, and we would like to stay that way. Next slide. So I'm taking some illustrations of business segments where we'll talk about how we're thinking about the future growth strategies, Farm, SUVs, LCVs, Last Mile Mobility and just a slide on capturing the auto electric [ wafer ]. Next slide This is the way we define the purpose for the farm equipment business. It's about transforming farming and enriching lives. Our people are here to enrich the lives of farmers by providing easy access to affordable and innovative technology solutions, enabling their [indiscernible]. I'm going to talk about exciting new tractor platforms, which are in the pipeline. I'm going to talk more about the 10x by 2027 and 15 new products that we see coming along the way above that. This is the product portfolio that we are building on the tractor side, brand Mahindra and brand Swaraj. A lot of these are underway, and we would start seeing them from next year till '25, '26. A significant part of it is the [ safety ] platform, which we've spoken about. That's 4 new platforms, 37 new products. But that's not the only thing we're doing. There are multiple new products on the Swaraj side, all in work. And we expect to hence have a very strong solid portfolio of tractors to keep our edge and to keep increasing our market share. Next slide. Here's the logic behind the farm machinery story. The domestic industry today is INR 5,000 crores. 18% to 20% CAGR will take it to INR 12,000 crores by 2027. Our market share today is less than 10%. Our tractor market share is more than 40%. We do believe that with everything that we're going to be doing in the next 5 years, our par machinery market share should be 30% plus, which is basically INR 4,000 crores of a INR 12,000 crores projected at us and INR 1,000 crores of exports from India of farm machines will take us to a 10x crore. This doesn't include farm machinery revenue to our global subsidiaries. How are we going to make this happen? A very strong product pipeline, which -- some of which I've alluded to, leveraging it out of our global centers of excellence, exploring partnerships, alliances, acquisitions. We're setting up a manufacturing facility in-house at Pithampur, which will be ready next financial year, expanding our network by 3x over the next 4 years. And most importantly, increasing access. Growth of farm machinery is going to come out of access. User finance or financial packages, leasing models and rental models. So while this may seem a stretch when you talk about 10x, we think it's doable. It's doable because we are a very, very strong rural and farm equipment driven company. And with the right product portfolios and the right go-to-market strategy, there is no reason why we can't leverage the opportunity. It is what it is around the world. And as we've often said in the past, India is tractorized, not mechanized. And there is a big opportunity ahead for us as leaders to drive that pace of mechanization. Next slide. This is what the 15 products look like, just an illustration, products which are tractor-mounted or tractor trail and products which are set prepared. These will come out between now and 2025. Next slide. Moving on to SUVs, and really what we are trying to do in the SUV portfolio is to build a strong and authentic SUV brand. What does that mean? It means creating sophisticated authentic SUVs with an unmissable presence. Products which are advanced by way of adventure [indiscernible] capabilities. We don't say that authentic means SUV. You have to be a 4x4 to be an authentic SUV or that you have to have [ BOF ] body-on-frame. What we really mean is how do we create products which are adventure ready and our whole portfolio is going to be about that, and which is why we would like to measure ourselves with a relevant size of business, and that's what we are calling a core SUV business. We're planning 13 new launches by 2027. Next slide. A very important part is our whole brand transformation exercise. And you've seen us do that over the last 1.5 years. Firstly, the launch of the Thar, now with the launch of the XUV700. We've moved to a new visual identity, the Twin Peak logo, for the SUV business. We are revamping our dealership signages to bring alive this new imagery. And these are our four key focus brands that we'll build on. We may look at creating a new electric brand as well. So here's the strategy about focus, differentiation, transformation. And we believe, based on all the research that we've done, that there are large number of consumers who are very excited with the proposition of what our brand offers, the proposition of buying authentic true core SUV. Next slide. This is what a showroom could look like by 2027, 13 new products. A large number of them made -- are going to be electric. A lot of work is happening on electric. I'm sure you'll have questions, and we'll -- I'll talk a little more about it, but more over the next year. The XUV400 here may make you wonder what that is. We may name that XUV400, the electric version of 300. We believe it has an opportunity to be named differently. It is still a code name, but just to differentiate it from the 300 and you see an XUV400 out there. Next slide. So proposition here is around exploring the impossible. That's the brand idea. Four key brands doesn't mean we discontinue the others, one new electric band, 13 new launches out of which 8 will be electric. And we believe we should be prepared for at least 20% of the UV volume being electric by 2027. Let me move on to LCVs. In the LCV space, we already are latest, planning to strengthen our position with 17 new launches by 2026, 8 of them will be electric. There'll be 12 CNG options available. Next. A lot of these products are underway already. A new pickup range starting from early next year and some new platforms that we're working on and a very exciting product portfolio, the Last Mile Mobility side. Move on to the Last Mile Mobility vertical, we are number one in the month of -- in quarter 2 actually. We had a 68% market share. We believe the penetration in this is going to happen very rapidly, and we would expect a 30%-plus penetration by 2025 in the electric three-wheeler space. We would like to stay ahead by launching 5 innovative start-ups. [ I won't spend any emphasis ] on partnership as we build reaching sales access. Next. Moving on to one slide around the electric auto electric targets, as you may call it. We have been in this segment for 10 years. We have a cumulative 340 million kilometers of growth, lots of learnings out of that. These learnings are going to be spending to creating a portfolio of offerings. So 8 new SUVs, 8 new LCVs and number one in the electric three-wheeler space. We will talk more about the details of our strategy. I'm sure your questions on who are going to be our partners, where are we going to get batteries, but that's not for today. We will talk about that during the course of the next calendar and share with you as openly as we have been over the last two quarters, what our thinking around this is. With growth has to come strong returns and ROC of 18 plus-plus what we target. We are working, and we have been very strong in managing our working capital. CapEx, which is focused around segments in which we're going to play and win and complexity reduction through platform synergy and platform commonality. As a part to driving returns, management of our OPM is going to be critical. We've hence taken upon ourselves target to reduce cost as a percentage of revenue by 3% year-on-year. This will happen by way of driving material costs down. A lot of work happening around it, parts commonality platform configurability. On the fixed cost side, we'll look at new age marketing. We're already seeing that. We've launched both Thar and XUV700 with a fraction of the marketing budgets that we have in the past. That's what new age marketing is about. And we believe that because our products are so differentiated and unique, it allows us to do that more than for many other things. Drive manufacturing conversion costs out, logistics cost down and leverage manpower product. So broadly, as we think about the future, we believe that there is uniquely placed very, very strong pillars to build on to drive growth and deliver very strong financial costs. With that, Manoj, over to you.

Thank you, Rajesh. Thank you. I think most of you would have seen the numbers. I'm going to run through this pretty quickly. I think if you look at the stand-alone revenue growth of 15%, within that Auto segment showed a growth but Farm showed a slight decline because last year Farm was -- was a very strong year for Farm and so there are two mixed trends in here. Coming to the EBITDA, at an absolute level there was a 19% decline because of some of the reasons which were discussed by Rajesh and Anish in terms of the commodity cost increase. And so the margins have gone down as a percentage and also in absolute terms. Go to the next slide, however, at the PAT level, I think our returns from our group companies are increasing. So our dividends are increasing and most -- many of our group companies have given dividends this quarter, most notably Tech M, that was a large component of this. That's why overall PAT, before EI, grew about 29%. I think PAT after EI was a 9x growth. I think the main reason for this difference between before and after EI was some of our capital allocation decisions last year, which had resulted in certain write-downs, which are not there. During the current quarter, we have an EI of about INR 255 crores, which is embedded into this number. So that's the gap between 1,687 and 1,432 in the current quarter. Can you go to the next slide, please? I think this just illustrates what I was talking about. I think both Farm and Auto, I think because of the commodity cost pressures, I think we have seen an absolute decline. However, group companies, largely led by dividend increase, have contributed to a growth in corporates, leading to an overall growth in the PAT before EI at a stand-alone level. At a consolidated level, Auto led the growth, I think 23% growth year-on-year. Farm at a consolidated level, including domestic and international, was about a 4% growth, while group companies, and this is across multiple sectors, grew by 11%. So I think good all ground growth which we are seeing across multiple companies in terms of revenue growth. If you look at -- excuse me, if you look at PAT before EI, I think there's a 43% growth at a nominal level. And the SYMC effect, which Anish was mentioning, I think that is -- if you have taken that into account, it's a growth from 9.06 to 19.75. Similarly, I think there's a 9x growth coming at a consol level because -- from 136 to 19.29. Please can we move to the next slide? Just splitting that up into the patterns around Domestic, Auto and Farm, I think we are seeing the same patterns [indiscernible] as in the stand-alone, there's an absolute decline. However, international subs where there's been a lot of effort in terms of metric improvement, that's a positive contribution of about 200. And finally, group companies, within this 776 number of group companies, the positive impact of MMFSL is about 411 and the remaining is coming from some of other group companies. So overall, I think the bridge here is that while the Domestic Auto and Farm business is under pressure because of some of the reasons, but we are seeing good growth in terms of profitability in international subs as well as the Group company performance. I think that's all I have in terms of the slides. And back to you, Anish.

Yes. Thank you, Anish, Rajesh and Manoj. We now open the floor for questions and answers. Just as a reminder [Operator Instructions]. First question we have today from Pramod Kumar from UBS. Pramod, would you like to go ahead?

Hello, Sriram, can you hear me?

Yes, please go ahead.

Yes, sorry. Thanks for the detailed presentation. Before I start off with my question, just a clarification on Slide 42 where you've mentioned a 3% cost reduction as a percentage of revenue. Just wanted to clarify, is it Auto plus Farm and if -- and also the timeline for the same?

It is Auto plus -- that's Pramod, right?

Yes, sir, yes.

Yes, Pramod, that is Auto plus Farm. That is a common slide. All the financial slides were common for Auto and Farm.

And time line, Rajesh?

The timeline for the ROC is 2025. That's where we are putting the revenue and that doesn't mean it won't happen before. But clearly, when we say year-on-year, it starts now.

Okay.

It's year-on-year.

Okay. And my first question, Rajesh...

I just wanted to clarify, Pramod. Pramod, you want to clarify, it is as a percentage of revenue.

Yes, that makes it quite impactful actually. That's why I wanted to clarify that upfront.

It need not always be absolute. I just wanted to clarify, that's percentage of revenue.

Yes. Thanks, Rajesh. The first question is actually on the EV strategy. We've seen off late a lot of transactions on EVs, lot of appetite in fact to participate in the India EV story. And given that the wide EV mobility platform what you have and reasonably good capabilities already in terms of born electric platforms, I was just wondering, are we still open to partnerships because we had this thought a couple of years back, then we moved the EV subsidiary into the main business. So what is the thinking going forward, because you seem to be having a very busy launch pipeline across both Auto, Farm, non-Farm? I missed all this. Is there something which you can benefit from by partnering with someone? So just wanted to understand your thoughts on that.

Yes, Pramod, I hope you mean busy in a positive sense.

Yes, of course.

Anish, you want to take that first?

I'll take that first, Rajesh. So Pramod, we are looking at leadership in the EV space. As you rightly said, there are lots of capabilities we have today. And to directly answer your question first, yes, we are open to partnerships. We are open to investors coming in as well. We had Mahindra Electric set up as a unit, which was doing some very specialized things on the EV front, but we need to go broader than that. And that's the reason we have merged it back with the Company right now. We will look at all potential options of the partner coming in. But where we stand today is leadership in three-wheelers, as Rajesh has talked about, 68% share in a market which is moving to EV very quickly. I've shared earlier that there are three drivers of EV, cost of ownership, range anxiety and infrastructure. All three have been met for the three-wheeler space. We're not quite there for the four-wheeler space as an industry, and therefore volumes today are very low. But as volumes pick up, we will be a big part of that and we've got a range of products coming up for that as well. So EV is going to be a big part of our story going forward, and we are open to all options in terms of partnerships and investments.

Thanks, Anish. Second question is more towards Rajesh. Rajesh, between XUV, Thar and some other products you have like over 150,000 bookings, and I am pretty sure with Thar you did get a lot of new customers. So between Thar and XUV where you have like 70,000 bookings, if you can help us understand how has the customer profile has changed for Mahindra compared to the previous products, because what I'm trying to get at is we had a very strong positioning in certain pockets of the country, certain product categories, and I'm just trying to understand, are we seeing a change in customer profile, which should benefit more and more as we launch Scorpio, for example, which is historically a semi-urban rural kind of a product, not seen so much by office going public in Mumbai, for example. I may be wrong, but that's my general understanding. So I'm just trying to understand, are we managing to attract more new customers who were not the typical Mahindra customers historically?

I'll give you a data point which will make it very illustrative of the fact that we are getting a very different target audience. Thar has 50% auto transmission, just a very clear indication there. It's a very different profile from what we have had before. Even XUV500, which was a metro driven product, had less than I think 10% or 15% total transmission. So when we launched Thar, Thar has gone in with 50% auto transmission and 25% gasoline. As we've got into XUV700, of course it's a number of 50% plus, but AX7 and AX7L are in the range of 65%, 70%, right at the top. And 95% of the portfolio is AX and just 5% is the MX portfolio by way of bookings, right? So you can clearly see that this is a very, very different segment and hence sets us up. And that exactly was our intention. The whole brand transformation exercise is about attracting new or different usage -- user segments. And just going back in time 20 odd years, when Scorpio was launched it was a very metro product and you did see it a lot in cities. It's just that with time, as newer products have come in, Scorpio became more a semi-urban rural product and was -- lost traction in the city. I'm sure as we launch the Z101, we're going to come back very strongly in cities. Now that is not going to say that XUV700 or Thar are not selling in our strongholds. What we are doing is getting a completely different base on top of what we have. We're not doing anything by which we're isolating or losing our space. And actually, anecdotally, this holds true even for Neo. Neo is starting to sell in Delhi NCR, which Bolero never did, and is starting to sell in South. So we are clearly opening up new markets, new segments with our new launches.

And Rajesh, before I go, XUV400, I see the timeline on the slide as '24, '26. Is that understanding right? I thought we have...

No, I mean it's -- see, the time lines here on a slide like this have to be a little loose by way of band. It will be much earlier.

Yes, next -- thanks, Pramod. The next question is from Kapil of Nomura Securities. Kapil?

First of all, I appreciate that the management has laid out an impressive vision for both EVs and farm machinery. Thanks very much for that. That was a key ask from us. My first question is on EVs again. We've executed very well in case of SUVs although we are yet to see the fruits of that. When you envision this number one position in SUVs as well and also E3 with us, what are the capabilities required for the same in your view? And where is M&M on that? What are you doing to get there? Also, if you could talk about external funding requirements and whether you are exploring that or not?

Rajesh, go ahead.

I think, Anish, you answered the first question -- second question Kapil asked, which is around funding requirement. Yes, we are open to any form of funding that may come in to enable us to achieve the objective that we want. So we're not at all close to that. The first point around what capabilities we need is what I would like to take a few months before we can come and share with you. We will want to do a very specific [indiscernible] communication around how we are preparing and building our competencies ourselves. So we are at that stage of defining what we're going to do ourselves, what we want to get into partnerships on and who that partnership and what that partnership ecosystem will look like. But we wouldn't want to share that in an ad hoc manner like this. It's not a 30-second answer. So we will come back sometime in the next calendar year with a comprehensive plan. Anish, do you want to add on to that, please?

I just want to touch upon the three-wheeler EV that you mentioned, Kapil. On that front, we do have clear market leadership today with a 68% share. We have all the capabilities required for that. It's been driven essentially by our experience in electric vehicles over the last 10 years because it's the same battery that's really being used for this. We've had vehicles driven over 340 million kilometers and a lot of expertise in battery, packaging and other areas that are required for it. So on the three-wheeler front, we are well positioned today. We need to demonstrate more on the four-wheeler front, which is what we're focused on.

Kapil, do you have any follow-up questions? Okay. Thanks, Kapil. The next question is from Pramod Amthe, Incred Capital.

There seems to be a -- mixed signals on the rural demand environment. Would you give some -- what -- your thought process in terms of how rural is shaping up for your products or overall scheme of things over the next 6 to 9 months?

Yes, Pramod -- Anish, should I [ take that ]?

Go ahead, Rajesh.

Yes. So Pramod, two things to consider. One is for most products, rural is on a very high base because, as we all know, last year when urban was very slow, rural had really taken off, of course for tractors, but we had also seen it in all our auto products and I think it was visible across categories. Rural was extremely buoyant. As we've come into this year, so we have to keep in mind that all categories are on a very high base [indiscernible]. The other thing to keep in mind is rains have got delayed this year. Sowing happened late to begin with and then rains have flown into or carried over into the, so to say, festival season. And it's been particularly bad in the East, that is UP, Bihar, West Bengal, kind of belts. South some of the southern markets, Telangana, Andhra have been slow as well for the same reasons. So my kind of take would be at this point of time -- and these are things which will evolve as we get a deeper understanding with time, but my current take is fundamentals of rural economy are very strong. Crop outputs are very good. And overall, we'll see buoyancy going into rural over the next 6 to 9 months. But there is going to be a base effect. And any time we look at rural, we have to keep in mind that we are comparing on a very high base. Does that answer your question, Pramod? Kind of answer your question, right? I can't -- I'm sure it doesn't fully answer your question.

Pramod, can you talk -- there seems to be something...

I think he's on mute. He's gone on to mute, Sriram. I think if somebody...

Yes, I think there seems to be some technical issue with the new WebEx. This mute-unmute seems to be a little bit of an issue. Can you -- Pramod?

[indiscernible] gone mute from our side. And let's do that for Kapil as well. I don't know whether he was...

Yes, thanks, I'm back. Thanks for unmuting. Yes, Rajesh, that helps to answer the question to -- a little bit. Second one is with regard to the new model launches, good to see that you guys are back on successful new launch successes and garnering a good amount of bookings. Two questions related to the same. One, looking at the aggressive pricing stance which you are taking, it looks like that till the time your cost structure comes into place we have to assume the lower margins for automotive division to continue for some more time to come. That's one. Second is looking at our execution capabilities, challenges in some of the responses like Thar, how do you plan to successfully address it in the future models? Like we have never seen you guys hitting 50,000-plus type of bookings, and how are you planning to ramp up your supply chain so that you can deliver these customer expectations?

I just want to be sure, it's Pramod, right?

Yes, Pramod Amthe.

Sriram? Yes, Pramod, yes, okay. Pramod, hi. So the first question is I guess around pricing of new products and the overall margin story. And they are connected and they are not connected. So firstly, when you look at our auto business right now, the margin is a blend of multiple categories. It's a blend of SUVs. It's a blend of LCV less than 3.5 tons. It's a blend of trucks and buses, right. So what you're seeing is a blended margin, and each of these have different factors at play. What we have seen right now is an unprecedented commodity price inflation. And when you look at our margins today, they are still best in class, pay above all our peers who may have higher volumes than us as well. So we have been aggressive in taking our prices up. And while, of course, margins have dropped, they have -- they are still way better than others. So I wouldn't right now, at this moment, read new product pricing into margins that we are seeing in Q2, not to say that it won't make [indiscernible]. Just to give you an example, we did not take Thar prices up for many months because we wanted to protect customers who had booked Thar in the early months. We could have easily taken it up but we felt it would be very noncustomer-centric for somebody who's booked a product in 15 days or 20 days to get a product at a significantly higher price even though we always capture that in the booking form. So we have taken some of these calls to protect interest of customers. We learned out of that - in XUV700, we did two rounds of pricing. So we did 25,000 bookings, we stopped and we changed the price. We knew upfront that if we don't do that, we'll get locked into the same situation as Thar. So these are some [indiscernible] we learned out of these things and as you see the XUV700 profile of bookings, as I just mentioned, is highly skewed to the top end. So I won't necessarily read too much right now into new product pricing, not to say that new products are not going to be aggressively priced. They will be aggressively priced. We know that's the way to win when you have a good product. And we know that in the past, whenever we've succeeded at this, the ability to take prices up is seamless. So we believe that there will be some play that we will put in, in the short-term to get the right prices out for all our launches, and we will be able to take them up with success. We've done that in Thar. We've taken a very aggressive price increase, which has come into play now in November. So -- and that hasn't affected the booking momentum at all. So that's, I think, the question on margins. It's a mix of commodities, which is very aggressive. We think commodity will see a down cycle in the next 2 to 3-year period, has to. All past evidences, whenever you see an increase of this kind, it does correct. And you can't say when it will correct, but it will definitely correct in the three years. Your point on execution I'm guessing is to do with what kind of capacity we are setting up for. And we had set up Thar for 2000, 2,500 kind of capacity. We are now at 4,000. The Thar capacity is ready for 4,000. However, with constraint continues to be the availability of the ECUs and sometimes the infotainment. So the constraint is not our capacity planning at the moment at the semiconductor. And we are -- we've already triggered investments to take that 4,000 up quite substantially. Likewise, 700, we are ready with a very, very good capacity. We were prepared with the strategy of AMX and AX variant that we would see a very strong demand. But again, we are constrained by multiple semiconductors that impact us. The AX7 variant I think has over 170 semiconductors. I mean that's the extent of technology that's there in that product. So these are things that we're going to have to navigate with. Some of them are environmental, some of them we are learning out of. And with every new launch, we learn something new and we factor that into the number. Pramod, does that answer your question?

Thanks, Rajesh.

Thanks, Pramod. We're bringing back Kapil. I think we lost Kapil earlier. Kapil, you are back on line.

Firstly, just one clarification on the product launches on EV side. How many are you launching by FY '23 end? And in terms of chronology, is the E700 coming earlier or is E400 coming earlier?

E400 is coming earlier, and that will be the first launch. And that will happen in the financial year F '23, probably towards quarter four.

Okay.

Calendar '23.

And I -- because I see e-KUV there as well, so first comes the e-KUV.

Yes, e-KUV we may lead as a primarily export product with maybe little bit of plane domestic. KUV100 is a very strong export product, North Africa, like -- countries like Tunisia, South Africa and so on. Also some neighboring countries like Nepal. So we may have used that more as an export.

Got it. The second question was on farm machinery. So we -- when we are looking at this 10x growth, can you talk about what are the kind of innovations you are thinking that would disrupt or grow at -- help us grow at that pace? And would the export play be much higher in the long run in these kind of products?

Okay. The first part of the question is clear. I'm not sure I got the second part. When you mean export play would be higher, you mean higher than what? You mean higher than 1,000 or -- I'm not sure what you're comparing?

Okay, I request that the participant is -- during the -- when you are asking the question please don't unmute -- mute it, then we need to unmute it again. So that's taking a lot of time. So when you are asking the question, please on the unmute only. Nitin, can you unmute Kapil again?

Yes, that's what I meant, that in the long run, could this INR 1,000 crores could also be a multifold opportunity with these products beyond 25 -- 2025.

Okay. So the first part of your question, Kapil, is around what innovations. I think the innovations are going to be multifold. There will be product innovation because in this category you have to have hyper local delivery. Products will perform differently in different soil conditions around the country. How do we create a scaled-up model, which allows hyper-local customization? The second part of innovation is going to be around logistics -- logistics/localized production facilities. The third part of innovation will be around access, finance, leasing, rental. So there's a bunch of areas we have to look at by way of innovation to enable this kind of a growth because at the end of the day what we're looking at is creating a category. And category innovation, category growth will come out of innovation on multiple fronts, not just one. The second part of your question I think is very interesting. And we strongly believe that India can be a global center of manufacturing for farm machines. We have everything to enable that will happen. And yes, eventually, as things pick up, we could look at a greater than INR 1,000 crores revenue. Also many of our subsidiaries have a very large pharma machinery presence. So in MAgNA, almost 30% to 35% of the revenues come out of farm machines and some of them we may make in India, which are currently being made in US or other parts of the world. So there could be an upside on exports, but too early to talk about.

Thank you, Kapil. [Operator Instructions] Next question is from Gunjan of Bank of America. If Gunjan is not online, then we can go to Jinesh. Nitin, can you unmute Jinesh?

Yes, sir, I unmuted.

Am I audible now?

Yes. First question is on clarification on the XUV700 capacity. What was the number you shared, Rajesh?

That was a good catch, I didn't share a number.

Any number which you can put to that? I mean, the capacity which you are starting up?

Yes, I don't want to put that right now, Jinesh, not for any other reason, but it's going to lead to speculation of what's going to be the waiting time. And that's going to create a lot of discomfort among customers who are already speculating. So the way we are dealing with this right now is addressing each moving pieces. So we right now have given out a delivery schedule to the first 15,000 people. We will do that very shortly for the next group. So we complete the first day 25,000 bookings and put out a schedule for them. And then we're going to put out a schedule for the balance 25 and so on. The reason we are not putting out a number on our capacity because -- is right now the constraining capacity is going to be the ECUs and not necessarily be our own capacity. And putting out a number of what our capacity is not relevant because if you don't have, the ECUs are not going to be able to leverage our capacity. And everybody is going to get into projecting what their waiting period is going to be. That waiting period is also going to be very dependent on which version they got out because there are multiple semiconductors that are at play, like I mentioned earlier. So there is -- just a simple example is wireless charger needs a semiconductor. That's in shortage. Now, we have to probably create an alternate variant to give customer a choice if they want the 700 without a wireless charger. So there are multiple such things that we are working on, Jinesh. So just bear with us a little bit. We don't want to jump the gun and put out something right now which creates discomfort amongst people who have booked. I hope you understand. That's the reason...

Sure. And on the semiconductor part, what is the visibility you have now given that there is some improvement on the supply side? And secondly, can you update on the tractor Diwali sales for the industry, how are they, whether they were down or flat on YoY basis? Thanks.

Yes, so the semiconductor question, I may have to be honest, it continues to be dynamic. We would know now -- about now in a few days what December availability is going to be. So it's really a month-to-month thing. And like I said, it's not just [indiscernible] issues, multiple things. So at the end of the day, it's very dynamic production planning of the kind I don't think any supply chain people have ever experienced, so many moving parts all the time continuously for over a year. Really, the -- what planning has very little relevance in the current context. But as we've said earlier, the last year has been hit by multiple extraneous factors. There was a semiconductor factory in Japan which had caught fire and they were down for almost a month. Malaysia was hit for almost a month. There were some storms in US a few months back and some capacity have got out of commission there. So there have been multiple extraneous factors. Hopefully, we won't see more of those. And then it's going to be a normal demand-supply gap. And that's not going to be as bad as what the last few months have been. So that's on the semiconductor question. Your question was on -- the next question was on the tractor Diwali sales. I wouldn't want to put out a number yet because, right now, our view is that Diwali sales are going to spill over into parts of November because of delayed sowing, delayed rains and buying is extending beyond the festival time. So we're just going to wait and watch how November goes rather than conclude that Diwali was the end of it. We are seeing postponement in the market. Not...

Sure.

Not buying. So it's just better to wait out November.

Yes, sure.

Yes, Jinesh just to add a listen to Rajesh's point on semiconductors, the two factors driving it were COVID and the supply-demand gap. COVID really caused a much bigger disruption, and that's what we've seen. Hopefully, that's behind us. Unless COVID rears its ugly head again somewhere around the world in a much bigger way. So if that's behind us, then things should be much easier to manage going forward. Yes, there will be a supply-demand gap, but it will be much easier than what the COVID issues were.

Okay. Thanks, Jinesh. The next question is from Sonal Gupta, L&T Mutual Fund.

Hello?

Yes, Sonal, we can hear you.

Yes, so just a few financial-related questions. So could you sort of tell us what is the other operating income in this quarter and what was the corresponding number in Q1?

Manoj, go ahead.

Just one second. So the other operating income is what we showed, it was about INR 852 crores [indiscernible] and -- just a second. What was the other question? I'll come back to this. I'll give you the exact number.

And I was asking the corresponding number for the first quarter as well. And my other question is the lower employee cost in this quarter, if we see sequentially is there a one-off here or how do you see...

So there are some swaps in terms of our performance pay, et cetera. So I think that's an impact of about INR 30 crores, which should be normalized. So it's lower by about 30-odd crores.

Got it.

I'll come back on the other operating income.

Sure. And would you be able to share the absolute EV number, EV three-wheeler number for this quarter?

You mean EV three-wheeler volumes?

Yes.

Rajesh?

Rajeev Goyal, do you have that readily available? But I do remember the last couple of months have been in the 1,000-plus range. So we did 2,000 in October in the month -- 2,000 plus.

2,000 in October?

Yes.

And that includes the e-rickshaws as well, the e...

E-Alfa and...

Okay. So -- okay, sir.

Rajesh, do you want to add anything, Rajeev Goyal, if you're on?

I think Rajeev is...

Not to worry. Maybe you can share it -- maybe Sriram, you can share the details...

Yes, Rajesh, actually we did 1,600 in September and over 2,000 in October. And that has basally around 1,200 numbers of Trios and 800 number odd of e-Alfa Minis.

Yes.

I have that on the other operating income, the dividend, INR 58 crores in Q1 and INR 852 crores in Q2.

No, sir, I meant the other operating income, which will be incentives, et cetera, from the government, et cetera, which would be coming above the EBITDA line.

Okay. So let me come back to you on that.

Sure, thank you.

I think, Manoj, last year in Auto we had a...

One-time extra.

One-time of IPS, which is incentive -- promotional incentive, and this year we didn't.

Yes, Rajesh, INR 63 crores was onetime last year because IPS, which was pertaining to the previous year, which is [indiscernible] this time, there is no onetime.

But what would be the number overall, other operating...

We're just talking about Auto. So Manoj -- we can give you a more confidential...

Yes, I'll get back to you after the call. I'll give you a number on that piece, yes.

Sure, thank you so much.

Okay, thanks Sonal. The next question is from Amyn Pirani of JPMorgan.

Hello?

Yes, Amyn. We can hear.

My question was with respect to the specific guidance that you've given on LCV market share and SUV market share. Now on the LCV side, for a very long time we've seen that the #1 position between you and Tata is determined by meters zero to 2 tons doing better or the 2.5 to 3.5 is doing better. So when you're talking about leadership, should we expect that the 2 to 3.5 ton will keep getting better or are you going to do some product interventions on the lower zero to 2 ton where you are relatively weaker?

You did see that chart out there, and we did talk about a new platform, and that's what we'll take on the lower segment. So yes, it will include both.

Okay. And just on the SUV market share, so you mentioned that you want to be number one in the core SUV, which will be like 70% of the SUV market, which will effectively place you like a number one or a very close number two in overall SUVs also. So again -- so should we expect that -- because you've stayed away from that small cross-over car-like SUVs. So again, are we expecting that the market will now start shifting towards the mid to larger-sized SUVs and that's how your dominance in that category will lead to a higher market share?

Yes, so 70% is based on today's market composition, not future -- not a projected market composition. So it is 70% today, the way we are defining it. And we've been very mindful to define it in a way that you don't come back and tell us that you have defined a category to suit your convenience. So we are not saying the market is for Thar and Scorpio kind of products, and we are going to be number one in that. We have taken the bulk of the market, only excluded clear outliers which are either completely MPV or car cross-overs. And clearly, [ Asperars ] should not be counted as SUV. And we are hence keeping a very reasonable size. So the 70% is based on today's vehicles in the market, not based on a projected conversion.

And your market share there right now would be number one already or you would -- according to your own calculation?

No, we are not number one and we are not measuring our market share in a context that we are supplying so badly. So we'll just play out that -- play out a few months before you see the real value of where we are.

Thanks, Amyn. The next question is from Yogesh Aggarwal of HSBC.

Sriram?

Yes, Yogesh.

Yes, hi. So just quick clarification, Rajesh, you talked about this growth expectations for the next three years 15% to 20%. But you also talked about this base effect in rural India. So -- and all of us are expecting a bit of moderation now in tractor cycle next 2, 3 years is quite likely, right. So bulk of that 15%, 20% will be driven by non-farm -- non-tractor business, one could expect, or our assumption for Farm business is softer?

Okay. So let me answer this question by saying two things. A lot of global players in the farm equipment space always talk about mid-cycle and we tend not to do that. And we are actually thinking that maybe at some stage we need to talk mid-cycle rather than a point in farm, because it's such a cyclical industry, right. So if we say there's going to be something in 2025, that may be a year in which the industry has crashed. And then you say, okay, I mean, whatever happened to everything that you said? And a lot of people correct to take an average and -- or take a mid-cycle. So there will be ups and downs, but we've consistently maintained that we expect an ongoing CAGR for tractors to be in the region of 7 to 8% or 8 to 9%. We believe all the fundamentals are right for that. So you will see years when there are 20%, 27% growth as it was last year. And that is going to see -- you may see two such years and there it will correct, but you may see one year and it may correct and it may come back. But as you look at data over the last many, many years, you will see that a 7% to 8% CAGR is a very, very reasonable assumption to make for tactical. And we believe that, that still holds.

Okay. Thanks, Rajesh. Just other quick one, and you talked about this farm mechanization 10x growth. Is there a change in farmer behavior economics as well around implements because they cost a lot and historically, they have been sharing, right. So what will change the mind of a farmer to start buying it or buying it from you versus a local unorganized guy?

That's a great question, Yogesh. And I'm kind of going back to the comment I had made earlier on innovation needed in multiple fronts. Clearly, you have to think about access. Access may come out of rental models, it may come out of leasing models, financing models, as one key area. Competing with local players is going to need a different supply chain structure. You can't make a one place products of this kind and supply around the country. You'll probably have manufacturing hubs closer to market. So there are multiple such things that we will -- we are looking at putting into play. So it will have to be innovation at multiple levels where farmers don't -- where you're converting unorganized to organized, you have to have a cost structure which is able to switch or a finance package to compensate for.

Let me just add here that if I were to look at the macro view, we shared this before, globally the farm machinery or implement segment is 2x tractors. In India, it's a fraction. So that in itself gives us a significant level of opportunity. Now all of that is not going to happen overnight. But that will require a new set of products. It will require working with farmers to have them [ include ] products. But the positives here is we are seeing greater affluence for farmers. And that's going to drive behavior towards getting some of these implements that make their lives easier. And you will see from us a set of innovative products that come out as well that will be better than what farmers use today as implements and make their lives much easier, and that will drive this demand. So that's the market we are going after when we talk about a 10x growth in farm machinery. And that will really help offset some of the slowness that we may see across the industry for tractors in itself.

Thank you. The next question is from Gunjan.

This is Mihir from Avendus.

Hello? Okay, Gunjan, you are coming away our audio. Are you connected?

This is Mihir from Avendus.

Yes, go ahead.

Yes, hi. Thanks for the opportunity. One is on the tractor side, you said that you will wait for a month. So just want to understand, what's the inventory situation out there given that -- given by what, sir, you have said that it looks like the retail would be negative? So where are we in terms of inventory position in tractors? And what is the short-cycle guidance for this year in terms of -- do you have any guidance for this year in terms of the tractor growth which you see? That's my first question. And my second question is with -- related to partnerships. So we have seen competitors doing this in a manner where they have got their products and their market share gain in the IC space and also launching the EV products and then scouting for investments and partnership. We have had a mixed view -- we had a mixed view in terms of having partnerships, be it with Ford or be it with Renault. So are we looking at differently where we will launch new products given that till 2027, you have targeted EV launches which will be there? So you will be launching few products and then looking at investments, or how are you looking at -- so these are my two questions, if you can answer.

I'll take the first one, Anish, and maybe you want to take the second. So Mihir, on the tractor stock, we always realize that when the industry is going through volatility, we have to watch for stock. In the month of October, we already initiated down-stocking. We are amongst the people who had started the process of down-stocking in October. And we will be correcting stock in November as well. So we build -- whenever we talk projections for it, it has to be realized that it is about up-stocking and down-stocking in the tractor industry. So when we say industry grew 27%, almost half of that is -- or let's say, x percent of that is both inventory pipeline build. When you start seeing a down cycle and you say, good, there's a minus growth of 20%, x percent of that is because you are correcting stocks because at the end of the day [indiscernible] billing number. So the billing number always adjusts for what's happening to retail and we start correcting our stocks. Our anticipation is that by December, January, we would be back to our normal stocks. So as things stand, we would -- we are factoring that into our projections. To your specific question on how is industry growth for this year, for the full year, we would stay within the flat to low single digits. And that's what we've been saying from the beginning of the year. And many of you have been saying, how can that happen if quarter one grew so much, and we have been saying consistently we are on a very high base in the balance part of the year. And we were not going to get growth on that base. So we stay with the flat to small single-digit for the industry. And from our standpoint, that includes stock correction. And it -- yes. So nothing more to add to that, Mihir, unless you have a follow-up. Anish, you want to take the second one?

Yes, Mihir, on partnerships I'll share a few thoughts. First is, we are very open to partnerships as long as there's a clear objective that's shared between both partners. When we look at our partnerships that we referred to, Renault and Ford from 20 years ago, they were very successful in terms of partners achieving their objectives and which is where we looked again at Ford in a recent partnership. And there, I would say that we have tremendous respect for Ford and the leadership team there. It's a great group of people. It was just where we found more recently that our objectives were not fully aligned and that didn't make sense to then get into a partnership where you have different objectives. We are today focused on the future of auto. We are focused on EV. We're focused on growth driving that space. And those are areas where we will look for partnerships, where we have a full alignment of interest.

Okay, thank you. The next question is from Binay Singh of Morgan Stanley. Binay?

[indiscernible] going ahead. If you could talk about two things. One is that we will see product [indiscernible] XUV700, so will that put pressure on margins? And secondly, the leverage gains, when we look at automotive run rate significantly lower than what you used to do at the peak. So if volumes were to normalize, what kind of leverage gains can we see on the automotive side in the margin? Thanks.

I kind of answered this question earlier. So Anish -- there are lots of questions, I don't want to be very long in responding to that. But margins are driven, like I said, by multiple things. Firstly, we have multiple businesses in the Auto portfolio. There's SUVs, there's LTV less than 3.5 tons, there's trucks and buses. So you see a blended margin across the business units. Within the portfolio of each of course there are multiple margins. Then there's the evolution of new products, which obviously we are going to price aggressively in the early phases. And as I said earlier, we are -- when we create success, we are able to take prices up and margins improve. And we are seeing an unprecedented cost cycle at the moment. Commodities, freight, everything is on an up-cycle. So over time, we believe that commodity will correct. Our ability to take prices will go up and we are going to improve our business unit and model mix portfolio. So we -- when we talk about an 18%-plus ROC over a 3-year period in Auto, we are factoring in the fact that we will improve our margins in multiples areas.

And any comments on the operating leverage point because that also would have been a significant hit to margins today, right?

It is. It is a hit to margin because volumes are nowhere near what we want them to be unfortunately. So there is a clear upside that's going to come out of operating leverage, as we've significantly improved our cost structure. So when cost structure has improved so dramatically, we're going to see upside as volumes pick up.

On that context, Binay, I would also add that even when we talk about the XUV700 and you mentioned the question, someone else mentioned earlier, excessive pricing, but as we look at what's happened there, we expect to be raised prices twice in 2 days. So we started with a certain price for the first 25,000. We had a higher price for the next 25,000. And then after that, there's a higher price that will be applicable when the car is delivered. So if you look at that journey combined with the fact that the model mix in XUV700 is also geared very much towards the high end and there's an operating leverage that compares with that, I think we will have some good numbers overall in terms of margins for new vehicles as well.

And with that, will it also be fair to -- could you comment on the ASP expansion that we saw in the automotive side? We've seen quite a nice jump in automotive ASPs on a sequential basis. Any sort of a one-off you would call out and how would you look at it going ahead?

Manoj, will you take that? You mean automotive ASPs...

Average sales price, Rajesh, so it's probably a mix thing which is impacting in terms of the pricing.

Yes, it is -- I guess it is mix and the fact that we've taken price increases. So -- and the price increases are probably more aggressive on the higher-end model. Manoj, I don't know if you want to add anything?

No, Rajesh, I don't have anything to add on that.

Great, thanks now, I'll follow-up.

Thanks, Binay. The next question is from Chirag Shah of Edelweiss. Okay. If Chirag is not ready, then the next question is from Nitin Arora of Axis. Can you take Nitin online?

Yes, Nitin is online.

[ question ], and I'm sorry, Rajesh, if I ask you again on the Auto business because my question came late. But straight question, you're trying to -- I'm asking this question because a very nice visibility beyond FY '25, '27. I understand there are changes, there are challenges right now. But in the Auto business, there was a tweak in the morning saying that Mahindra will supply 14,000 XUV in January itself. So the question is more because when we look at your strong backlog today, a company which does 15, 20,000 units on a monthly basis, standing on a 1 lakh 50 backlog, optically -- once the paper thing comes into the execution, optically your market share will look very big. So the question more is that, is there any other challenges are you facing apart from the supply chain on the chip side because some of the OEMs and the Koreans or the Japanese OEMs, are still improving day-by-day on the chip side. So what I wanted to know is the visibility for the next 6 to 8 months' time frame in terms of execution, number one. And number two, straight belief that you will not make money on this backlog because these are very aggressively priced products. So I understand you've given us FY '25, '27 visibility, is it possible to guide how the margins of an Auto business will look like in the next one year, because you have the booking in your hand, you know which product people have booked with you. And when you do the execution, I'm sure you would have the certainty on that. So those are the two questions, really straightforward.

Okay, Nitin, I'm going to try and give you as straightforward an answer as I can. We are making positive margin on the XUV700. We've not priced [ tools ]. So now how that is comparable to the rest of the portfolio is not something I'm going to be able to get in today, but it is a positively priced -- positive margin product and so are all our other brands and products. What we -- I would kind of go back to what Anish has been talking about over the last year, which is delivering ROC and ROC is a function of multiple variables. I mean, we just had a discussion around operating leverage. So at the end of the day, we are going to have to balance margins, volumes, market share gain, ROC, right. So the two things we are focusing on at the moment is how do we deliver market share, which gives you confidence that we are playing a game which is successful, and we've heard over the last 2 years consistently that we are not able to execute a successful SUV strategy, now you see that play out. There is a successful SUV strategy. We've got four very, very successful launches in the last 1.5 years or 2. And we're going to have fifth one, which is going to be very successful as well. The critical thing is now -- okay. So that's one peg to put in. The second is to manage our cost to optimize margins, and it is an exceptionally bad commodity situation. I mean you're seeing everybody's margins whoever are published, and our margins are much better than them. And then how are we going to optimize capital in a way that we are able to give the right return. It's a function of these three things. And at the end of the day, we should be clear which of these three we want to prioritize. What we are prioritizing are market share and ROC.

Yes, I will just add that we feel very comfortable around where margins will be though there are many variables that do not allow us to give a direct answer to what that number is. But if I were to just build a little more on what Rajesh said, our 700 pricing started with positive margin in the first instance. They will further enhance or will increase pricing for the next 25,000. And they were built based on a commodity price that was extremely high because it was -- this is more recent. So this is not pricing that was done in the past. So given all of those things and you combine operating leverage with that and what the product is and what it will deliver, our sense at least right now is it is going to be a very profitable product. Now what those numbers are, we will have to wait to see what happens over time. But I just had multiple questions on pricing of XUV700, so I wanted to address this very badly.

Thank you. So with that, we come to the end of this conference. Thanks a lot, all the participants, for taking your time and being here. And also thank Rajesh, Anish, Manoj, and others. It's been two long days of back-to-back meeting, and thank you for doing it the evening of the second day of the Board meetings. Thank you all, and stay safe.

Thank you, everyone.

Thank you, everyone.

Thank you. Bye-bye.