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

Okay. Hello, everyone. Good afternoon, good evening, and for those who are joining from the U.S. and Canada, good morning. Welcome to M&M Q1 FY '23 Earnings Call. We are indeed glad to have you all on this call today. We'll follow our regular format of presentations by management followed by Q&A. [Operator Instructions]. The safe harbor statement. I'm just leaving it on the stage -- screen. Okay. Now I would like to welcome our senior management, and thank them for taking the time for this call. 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 other senior management, including the IR team. Now I hand over the conference to Dr. Anish for the management presentation. Over to you, Anish.

Thank you, Sriram, and good evening, everyone. It's great to have all of you here today. Thank you for taking your time to be with us this evening. I'm going to just cover a few key messages and then hand it over to Rajesh to take us through the details. We've done some fantastic work in both the auto and the farm businesses. And then Manoj will walk through the financials, and then we'll open it up for Q&A. In terms of some of the key messages at a stand-alone level, you see revenue up 67%, driven by both auto and farm. At the stand-alone PBIT level, quarter 1 is down 120 basis points overall, driven largely by farm. We haven't seen the benefit of commodity prices flowing through the numbers as yet, which we should see soon. And that has been offset by a very strong operational performance in auto, with volumes really driving operational leverage, and therefore, the PBIT is up 400 basis points. At the stand-alone PAT after EI level, it's up 67% as well, again driven by a combination of operating leverage and cost control and offset to some extent by commodity price increases versus last year at the same time. And consolidated PAT after EI, we see a very significant increase at 5.2x last year. But just to be very transparent on this, a lot of it is driven by the Mahindra Finance phenomena we saw last year where we had high provisions in the first quarter, and they were reversed in the subsequent 3 quarters. And therefore, we are also showing numbers excluding Mahindra Finance, which is up 1.7x, which is, in a sense, a more reasonable number to compare with just because of the volatility of provisions that we saw for Mahindra Finance last year. So as you see on the numbers here, revenue up to INR 19,600 crores, which is up 67%. Profit after tax after EI at INR 1,430 crores, up 67% as well. Consolidated profit after tax after EI, including Mahindra Finance, which is the reported numbers at INR 2,196 crores, up 5.2x. But a more reasonable comparison excluding Mahindra Finance is at INR 2,071 crores, which is up 1.7x. And across the 4 segments that we've been reporting now, core, auto and farm was up 56%. Tech M and Mahindra Finance, you see negative last year, which was driven largely by Mahindra Finance up to a significant positive this year. The growth gems actually have a good story, and they're starting to fire up really well. So from INR 8 crore PAT last year, they're up to INR 132 crores. Investments does include Forex and others. So while you see a significant change from negative [ 19 ] to positive [ 184 ], we just want to highlight that [ 163 ] is a onetime Forex mark-to-market gain, driven a little by the volatility in exchange rates and some of the hedges we put in. So it's -- overall, we got some game there, but the real number to look at there is positive to positive [ 21 ] as compared to negative [ 19 ] last year. So across the board, we see good progress on our businesses as we're driving scale, driving growth, driving profitability. With that, Rajesh, over to you.

Greetings all of you morning, evening, wherever you are. Good to connect with you again on the back of a good quarter. So go to the next slide. So let me walk through the farm part of the business first. We gained 0.9% market share in quarter 1. This was the highest domestic volume with the volume of [ 112,000 ] and that is a growth of 18% year-on-year. This is the highest ever export volume with a volume of 5,000 a growth of 26.7%. The second highest ever quarter profit PBIT and that booked number of INR 1,074 crores. And again, continued positive profits by our global subs. On the auto side, we delivered a strong market share. We measure now revenue market share where we were #1 and with the market share of 17.1%. This was also the highest ever quarter volume from both SUVs and pik-ups. We had, again, continued our #1 position in last mile mobility electric 3-wheeler business with a 74% market share, the highest ever quarterly 3-wheeler volumes of [ 6,500 ]. And of course, a very strong booking pipeline of 25,000 within the first minute, 100,000 within 30 minutes, representing a booking value of about $2.3 billion that adaptability of Scorpio-N. This slide captures the auto farm revenues. In quarter 1, the stand-alone revenue grew 67%. The consolidated revenue grew 57%. The quarter profits PBIT grew 50%, stand-alone at 43% consolidated. But you could see the big kick in on the auto side, which is the [ 103 ] versus [ 704 ] on stand-alone. Next slide, please. I'm now getting into the Farm Equipment business. On the farm equipment business, the sequential performance represents a 55% growth in revenues standalone and a margin improvement compared to quarter 4 of 15.7% going to 16%, the absolute profit went up [ 58%. ] The news on the monsoon front is good. So there are deficits in some states that you see out there, UP, Bihar, Jharkhand, West Bengal. The acreage is, by and large, similar to the same period last year. So that's not something which we are concerned about at the moment. Next slide. The reservoir levels are reasonably healthy, higher than the average by 39%, and that is typically good news. Even if the monsoons are delayed a little bit, there is the [indiscernible] levels to kick in to help create positive [indiscernible]. Some of the key levers we have, as you see here, we've covered this in the past, strong fortress in domestic business, the aggressive growth plans we have in farm machinery, global expansion and reinventing our cost structure. We launched the Mahindra Yuvo Tech+, that's doing very well in the market. And with the brands, Swaraj and Mahindra are well positioned, gives us a gain of 0.9% share. The channel number of tractor dealers continues to be strong, and we continue to have a strong channel presence. The export volumes have been growing consistently and we've continuously been delivering on a strong profit performance for these global subs. Specifically by the global subs are to highlight the performance of Brazil, where volumes were up 46%. We now have a 5.2% market share in less than 100 horsepower. And this has been the highest quarterly PBT at Brazil. Turkey has done well. Market share is up at 7%, and it's also the highest quarterly PBT for both the Traktor business and the Foundry. Next slide, please. On the automotive business, we've been talking about delivering and creating a strong bank. Multiple actions have happened over the period of the last 1.5 years to create the strong brand value. We are working on a platform strategy, great commonality and also an EV strategy. We're working on transforming our customer experience, derisking our supply chain and also continuing to optimize on costs. This slide represents where we are by way of open bookings and current level new bookings coming in per month for our portfolio. Without the new Scorpio-N, the open bookings is 140,000, out of which 79,000 is on the 700. In spite of a very long wait period, the new bookings continue to fall in at a level of 9,000 to 10,000 per month. Next, please. I think I'm going to skip this to save time and give more time for question and answers. This is a launch video and will be with on the slides. If you like, you can take a look at it. It just captures some movements over the launch. The blockbuster launch of the Scorpio-N, we covered that a little earlier. And again, this is the [indiscernible] on this slide. Next? This is new data that we're putting out today. The top line bookings have kept going up over time, first to the launch of Thar, it was 5%, 700 was 13%. And on the 100,000 bookings that we've had on Scorpio-N, 26% were online. Interestingly, the first 25,000 bookings are -- in that 72% came in online. And that really represents a very strong impact that digital is creating in the way customers are booking and buying [ vehicles ]. At the bottom, you also see that the Scorpio N has got stronger by way of its representation in the South. The current Scorpio, which is the black bar, was almost insignificant in south and very strong in east. And you can see that, that shift is happening by way of the new Scorpio being more south-focused, which really opens up new geographies. And you can see that as well by way of the urban penetration for the new Scorpio as compared to the old Scorpio. Next. We know all of you have a lot of questions on our EV strategy and we've been holding on to our responses, wanting to make it more comprehensive. And we will be revealing more about our strategy in the 15th August, it will be at 5 p.m Indian Standard Time when we'll have the webcast. As we lead into that, we have 2 teasers on currently, and I'd like to play both here. [Presentation]

With that, I'd like to hand over to Manoj to walk us through the financials. Thank you.

Thank you, Rajesh. A warm welcome to all the participants, and thank you for joining the call. I'll just quickly cover some of the key numbers. I think the revenue growth of 67% is driven by auto. I think the revenue growth there was in excess of 100%. And the farm division grew about 26%. At the EBITDA level, again, while farm was flattish, I think we did see a very good growth coming in the auto part of the business. And at the PAT after EI level, again, we are seeing a multi-fold jump in auto profits, while farm has been growing about 7%. So that's a quick breakup of the numbers. Moving to the next slide. If you look at the consolidated view, again, the auto is leading about 102% growth. The farm FES grew about 17%. I'll spend a little bit more time on the group companies, but multiple group companies have shown very good growth. I'll talk a few -- about a few unlisted ones. So we saw very good growth in our MFCW current bike franchise. I think that grew almost 2.5x in terms of revenue. We saw a very good growth in [ Xylo ], which grew about 88%. And then our listed entities, I'll talk a bit more. But I think this quarter, we have seen very, very strong growth and strong rebound in revenues across the group. Anish touched upon it. I think in terms of the reported numbers, while it's 5.2x, I think if we exclude MMFSL and the adjustment bar you see there, that takes the revenue, the PAT to [ 1,251 ] if I exclude MMFSL because there was a loss booked due to the exceptional [indiscernible]. And looking at that number, it's a 1.7x growth in profits. I'll dive a bit deeper, and this is more from a perspective of what to expect in the coming quarters. On the left-hand side, you see the provisions we took in MMFSL and as we took the INR 2,500 crore provision in Q1, we did recoup it over the next 3 quarters. So what happens is as we pick up the PAT on the consolidated books, I think we will see the impact of this coming through. So what would happen is that the PAT from MMFSL will grow significantly as we go into the future quarters. So the growth numbers, I think when we say 1.7x, I think we have to keep that in mind, and that's more from a perspective of transparency and disclosure. And we are very happy with the performance of MMFSL, and I'll talk about it a bit more. I think first on farm, overall 17% growth. At the PBIT level, it was flat, and the market share was up 90 bps to 42.7%. I think the margins have taken an impact because of the lag impact on commodity prices. I think even in April and May, they were higher than the previous quarters. And we have not been able to pass on the margin on the commodity through the price hikes. So all of that have impacted margins, but the market share growth has been very, very healthy. If you look at auto, again, at the cost of repetition, a very good growth in revenue and a multifold improvement in profits, and Rajesh did cover some of this. So in the interest of time, I'll just move forward. I think coming to Tech M. So from a revenue perspective and a deal momentum perspective, it was a very strong quarter. TCV wins of $800 million-plus, which is at the top end of deal wins, if I look at the last few quarters. The attrition also started to moderate quarter-on-quarter and offshoring is on the rise. But the margin pressure was due to the supply-side headwinds in terms of both usage of going outside for talent on subcontractors as well as the increasing wages for -- of all the employee population. And there is a measure on to drive the margin expansion and drive cash conversion up. And those operational excellence measures will bring up the margins as we go forward. MMFSL, I think if you look at the disbursement levels, I think the -- compared to last year same quarter, I think they are up almost and 2.5 to 3x. And they continue an upward momentum even sequentially going from INR 9,200 crores to INR 9,500 crores approximately. The GNPA, which was very high at 15.5%, which is why there was a huge provision we had to take. I think that has moderated down to 7.7% in Q4, and we continue that lower level at about 8%. And that means if you look at the profit after tax, I think what was the loss has converted to a profit of about INR 223 crores in Q1 F '23. A little bit on our other subsidiaries. I think in logistics, we did complete the Meru acquisition. So these numbers incorporate those. On the revenue side, we saw very strong growth because, I think, across the board, the exposure to auto and farm, both M&M and others that drive -- drove the growth in terms of revenue. In terms of costs, I think there is a lot of initiatives on to bring up the profitability of the business, and that will play out in the coming quarters. Hospitality, while Q1 F '22 is probably not very comparable because of the COVID wave, I think what we are seeing is very, very high occupancies, almost record occupancies across resorts and driving resort income as well as memberships. I think the HCRO, which is our European business, has also started seeing occupancies improving, and the cash position continues to remain strong. From a real estate perspective, while last year was impacted, but this year, we have seen a rebound in profitability. The main factor here is, of course, that from a realization and rate perspective, we have seen a good improvement. That's also led to some reversals of impairment provisions, which we had taken in the past. That's also contributing to the profits. On the business side, I think the IC business delivered again, both in Jaipur and Chennai, a very strong growth. And we launched Project Eden, which is India's first net zero energy project, we saw a very, very good response. Summing it up, I think if you look at the journey from [ 424 ] to [ 2,196 ], I think auto and farm contributed INR 512 crores. Tech M and MMFSL was about INR 882 crores, and I did talk about that separately. Our Growth Gems was INR 124 crores. Our Investments was about INR 204 crores and I think we covered it that there is an element there of Forex and others, which is also embedded. And then there was a lesser EI this quarter, which is contributing to a INR 50 crore increase. So thank you, and I'll hand it back to Sriram.

Thank you, Anish. Rajesh and Manoj for those presentations. We now open the floor for questions and answers. [Operator Instructions] We already have some questions lined up. So we will first start with Gunjan Prithyani of Bank of America. Gunjan, can you go ahead with your question?

And congratulations on the Scorpio-N launch. It's really impressive to see these numbers. The first question from my side is essentially on the capacity for UVs. Now, clearly, there are order backlog. And if I look at the bookings run rate, it is still running ahead of the capacity number for XUV700 as well as on which we Scorpio-N at the time of the launch. So realistically, can you give us some sense as to how do we think about the scale-up of the volumes? How soon can it happen? And just in terms of trajectory, where do we get from this 28,000 run rate? And what is the real bottleneck? Is it supplier ecosystem? Is it debottlenecking at your end? Is it semiconductor? What is it purely that is needed to scale this up?

Rajesh?

Yes. Gunjan, thanks and we are struggling to answer this question, which is coming to us from all of you. So let me try and build some more detail into this response. So we have 2 sets of issues. One is, what current capacities running into short-term bottlenecks, which is mainly supplier ecosystem, including, at the moment, in quarter 1, all the challenges that we've had out of the lockdowns that China went into. So that, in a way, is [ ready ] to meet current requirement. And when I'm talking about current requirement, I'm adding the fact that most of the bookings that came in, came in for the highest end version. So the level of electronics needed in the higher end version is much higher. As you know that we've shared earlier as well, even on XUV700, 95% of the bookings came for the AX series, which has a smart core. And 70% of the total bookings were on AX7 and AX7NL, which is the highest-end 2 versions, which are above AX3 and AX5. So that has put in a way, restrictions on being able to fully leverage the ecosystem. So that's one part of it. I don't think, at the moment, we are losing too much by way of ecosystem, not delivery, but my guesstimate will be because of all the China lockdown and so on, maybe any percent of our volumes are getting impacted because of short-term shortfalls. Once that's taken care of, then the question is, by when do we have multiple new capacities coming in? And that, as we've shared last time, have all been triggered. They will start coming in phases. At this point of time, we have not planned to share what is going to be the phasing at which new capacities will build in. But we [indiscernible] in some appropriate forum in the future we can build in a little more clarity around how we are seeing the ramp-up of volumes through the calendar year 2023. So basically, in the short term, the way I would think about it is we are constrained because of managing the ecosystem, including semiconductors, China lockdown, logistics challenges and so on and so forth, to the extent of maybe 10% of what we are doing, which means that 27,000 can be 30,000 plus. It does not fully solve the issue that we have at the moment of demand being so much higher than our supply capacity. So I'm not sure what exactly is going to be needed to be able to ramp up to that level because with, let's say, 70,000-plus open bookings of 700, there's a huge backlog there. That itself is almost [indiscernible] booking. And every month, we are increasing the backlog because we're getting more bookings at the current capacity, and that's coming in even with a 2-year wait period. So really, at what would we desire, we would desire to not have a wait period more than 3 months or 4 months. So if you were to kind of set out and say, what is it that we think is acceptable from a customer satisfaction point of view? 3 months will be the outer side of what customers would accept. So that's where we are at the moment. That being said, we also have to be very mindful as we build -- sorry, I'm just, Gunjan, doing a little longish answer to this because I know this is a question which is going to come in -- as in the mind of many participants on this call as we've been getting early inputs. So I'm just trying to build on this so that you get a more -- everyone gets a more comprehensive response. We also will be very mindful as we build capacity that we get the balance of EV and ICE right? And again, that's something we do keep in the back of our mind in the way we are thinking about building capacities. So we are doing that balancing act by way of the EV portfolio, which you would see more of coming in on the 15th August, where we will put out a schedule. But in a way, we will manage our demand in the future through a combination of EV and ICE. So these are all things at play, but there's a reasonably aggressive capacity increase plan and sometime in the future, we'll try and be more specific.

Got it. No, this is very, very clear, to be honest. Just to be -- just in terms of numbers, when I think about it, you mentioned 27 can be 30 and 30 plus 6 can be [ Scorpio ]. Is that the fair way to think about it, because 27 doesn't include Scorpio yet?

Yes, that's reasonably a good way to think about it. Though there are parts which are common between 700 and Scorpio-N. For example, the Adreno system is a common part. Now that itself has a large number of chips. So till that ramps up, we kind of [indiscernible] available on that. So there are issues of that kind. It's not all exclusive parts that are on Scorpio and it's not completely -- from a supply ecosystem standpoint, not completely unconnected to 700 because of the Adrenos, just taking that as one example.

Okay. Got it. And just second question, if I may. On your second question to you on the performance of the subs. Clearly, there has been great outcome in the last 2, 3 years. But when I look at the specifics that came through in the annual report, the 2 which stood out to me in terms of still having losses with Peugeot and Pininfarina. Could you share your thoughts as to how are you thinking about those 2? Is there a rethink in terms of classifying them in category C? Or I mean, just some thoughts process around those 2 terms?

Sure. So Gunjan, on PMTC, we had initially classified it as category A, which is we felt that it would get on a path to 18% return in a reasonable time frame. And what we've seen is that COVID has hit it fairly hard because of various challenges in Europe, challenges in China, the freight from China to Europe. So all of those factors have resulted in performance being worse than what we had planned for. So the milestones that we had outlined as we've done for all our A category companies were not met, and therefore, it is under review right now. So we are going back and reviewing it saying should we change it. Should it be A or C. And we will come back with the final answer on that once we complete the review. On APF, it was very clear that we were not investing a lot more going beyond the Battista. So the Battista, as we've talked earlier, has been reviewed by Top Gear of the U.K. as hypercar of the year, it's actually come out as a very nice car. Sales for that will start shortly in the next couple of months or so. And as sales start, we'll see funds flowing in. So the investments we had to make were to get this up and running. But beyond that, we have publicly stated we're not investing any further in the next set of models. We will look for potential investors and work with investors who can take this company to the next level. So no change on the APF front. There, what you see is the numbers are as a result of the Battista sales not starting as yet. Once they start, we start seeing APF getting back on one stronger footing, but that will not change our investment plan.

The next question is from Jinesh Gandhi, Motilal Oswal.

Can you hear me?

Yes, we can.

So a couple of questions. One, can you talk a bit more about our [indiscernible] launches on the IC side over the next 12 months on the [indiscernible] portfolio? And secondly, the EV teasers, which you showed suggested that we are getting into the coupe range with electric. So how does that fit in our strategy of focusing on S2?

On the lighter note, Jinesh, before Rajesh addresses is we had 5 blockbuster launches. How many more do we want. Rajesh, go ahead.

I think your question was specific around what are the S2 launches in the next 12 months, and SUV ICE launches. There aren't too many SUV new ICE launches in the next 12 months. As Anish said, we -- right now these are all new launches. We've had 3 in the last 18 months, plus Neo which is the fourth, plus 300, which is not that long back. So it's a fairly refreshed new product portfolio, which is very attractive. The other things that we are working on, which we've shared, which is expanding the Thar portfolio, so on and so forth, making it more affordable, accessible, to increase the size of the franchise. So there are multiple other things that we are working on. Of course, we're going to launch the Scorpio Refresh, which is going to be called the Scorpio Classic very soon in the 1st of August this month. There are multiple other launches on the ICE side, which is the new pik-up and so on and you'll hear more about that as we go through. On the question on coupe versus on EV to wait for more details. Now, we're not going away from our core. We will be very as you wish. But electric and SUV is not exactly the same as electric and ICE. And they -- which is the reason we're teasing to give you a sense of what's coming, but we're not moving away from our core of SUV.

The next question is from Kapil Singh from Nomura.

Can you hear me?

Yes. Go ahead.

First of all, congratulations on the wonderful launch of Scorpio N. What I wanted to understand is from a, Rajesh, you've talked about capacity, but just how you are thinking about it as we head into the next financial year because eventually we may have 50,000 bookings or 100,000 bookings, it won't matter if you are not looking at a big capacity expansion, right? So will it be bidded as supply and lock that there'll be a 10% increase or something like that? Or next year sometime, you are looking at setting up a additional line or something where there will be a big jump that is there? The reason to ask this question is if I add up your bookings, you are already at about 34 000 a month kind of booking you're getting without the Scorpio-N. And maybe -- I don't know if you can give some color as to post the launches of Scorpio-N, how many bookings we are getting for Scorpio Classic as well? So just some thoughts around that would help.

So we are looking at a step to increase in capacity. There are specific step jumps that are going to happen. For example, engine capacities have -- are a constraining factor at the moment because the new lineup of engines is going in -- the whole entire new portfolio is the new line of engines. So we -- at our end and with suppliers, we are doing that as well. So the constraint that we have are less with us, more with -- one is for the whole engine portfolio, both gasoline and diesel, then the supplier ecosystem around the engine and aggregate portfolio. We don't have to do any significant investment at this point in our own plants. It is more [indiscernible] investments and some investments in aggregates and capacities thereof. The next phase of investments, and some of you were in Jharkhand during the Scorpio launch, you've seen we've just got a new paint shop going. So the next round of investments in manufacturing capacity will -- we can wait for a couple of years. And we are, of course, planning for that because that's needed even for the EVs. But that can wait at the moment, that's not the constraining capacity. Our capacities are not as much a constraining capacity, except for engines. Does that, Kapil, answer your third question how we care about capacity?

I also wanted to know about Scorpio Classic. What kind of demand are you seeing post the launches for Scorpio-N over there?

We've actually not launched Scorpio Classic are. So we -- Scorpio Classic is a refresh version of Scorpio. The Scorpio Classic will be launched later in the month. But at this stage, we're just basically playing down the inventory of the word Scorpio.

Okay. And...

Between -- basically towards the middle of August and then more details on pricing, et cetera, towards the end of August for the Scorpio Classic. But a second more to respond to your question. As I shared earlier in the data, a lot of the current Scorpio volumes come from the East, which is the -- specifically, Bihar is a very big market. And as you saw the bookings skew for Scorpio-N is Northwest and South and not relatively as much East. So we are seeing current Scorpio move through in markets of its stronghold belt. So it's not like as we're liquidating the old Scorpio that stuck.

Okay. And the second question is on margins. So -- in 2 parts. One is that in terms of -- if you could talk about the price increases we have taken in the second quarter in both the segments, auto and farm, and do we start to see the commodity benefit from current quarter? If so, have you -- can you quantify in what range will it be? And the second part is that auto margins are at about -- roughly about [indiscernible]. How do we -- how do you think about the evolution of these because you -- on one side, you will be launching a new product Scorpio. On the other side, volumes will go up and maybe some commodity benefit would also kick in. So how do you see the evolution of margins from here on for autos?

Yes. So a lot of the commodity benefit will be lower, we are hoping into Q3 because we have contract, we have some inventory, which was already on order, so on and so forth. So really, the correction started maybe like May, June. So we're not going to see too much effect of that, we think, right now in Q2, and we really think the effect of commodity benefit will be more in the second half of the year. At this point of time, that's the view that we have on how commodities will impact us. But commodity itself is pretty volatile and the correct -- fundamentally, the corrections should be more than what we are seeing at the moment is our hope. The corrections right now will be insignificant compared to the kind of hike we've seen in commodity prices over 20 months or so. On the question of margins, of course, margins are not at the level at which we want because we've not really yet been able to pass on even the full cost of commodity increases. And of course, in both the businesses, there is the impact of margin not passed on what we internally call a numerator/denominator effect, which becomes pretty significant. Even as we have done on BS VI, and we've spoken about that, we were able to pass on the material cost increase of BS VI, but we were not able to pass on the margin on the material cost of BS VI. So that itself led to a decline of 1.5% or 2%. So there are -- there is right now a huge cost escalation. And when you're looking at margins, you have to keep in mind that we are not able to pass on with such deep escalation margin on cost. We are just about able to pass on [indiscernible]. And at the moment in both the businesses in Q2 we've taken between 1.5% and 2.5% price increase depending on the [indiscernible].

The next question is from Pramod Kumar, UBS. Pramod?

Of course. But best of luck as well, handling those elevated customer expectations given the bookings. And, Rajesh, first question on farm equipment. We're going to be around 900,000 as the industry this year, if everything goes fine. So what do you think will be the ramp for this particular sector as a whole? Because 900,000 per se is not a small number when you look at it in absolute volumes or when you look at it in context of what passenger cover [indiscernible], right? So any analysis or data what you -- which kind of gives us a bit of more color on the longer-term sustainable CAGR for this industry, right? So if you can help us on that, that will be great. Then I have a question on automotive.

Okay. So Pramod, our outlook for tractor industry this year is in the region of 3% to 5% growth, it doesn't quite take us to 900,000. It's also a little short if we get in that range of 3% to 5%. If your question was around ramp-up and supply chain, I think that's reasonably covered for that level of volume. I think your question, though, is more around what is the implication of that on longer-term growth and tractor penetration. We keep updating our analysis on this issue because it's, of course, very important for how we see it in the future. And, typically, the modeling that we do is what's the total area that's to be sold? How much is mechanized today? What needs to be mechanized as we go forward, including tractor part. And hence, what's the unsaturated demand. And our sense is that, with the volatility with this industry will continue to have, 7% to 8% CAGR over the next 7 to 8 years is a reasonable expectation based on this penetration gap.

Okay. That's great to hear. Rajesh, second is on automotive. From -- given the PBIT transaction, what we have done and the incremental funding how we want to raise there, and the ICE portfolio kind of more or less in terms of new brand platforms being kind of played out for the medium term. Because I guess the extended version of Thar won't cost you a lot of money. So given all that, how should -- how are you looking at automotive cash flows? Because historically, that's been a cause of concern in terms of whether can we go beyond being self-sustaining and then start generating healthy free cash flow for the company because [indiscernible] cash flow generation historically. So if you can just share what is your broader thinking given the response you're getting? And the kind of margins what we already achieved and where the margin ramp could be? How should one look at the cash flows from the Automotive segment because that could be a key...

You want to take that, Manoj?

And linked to that, Anish, on the implication for dividend payouts from the stand-alone business, so if -- sorry for that, if it's kind of a bit more longer than what you expected, but yes.

So, Pramod, we do see more robust cash flows, obviously, driven by a stronger operational leverage. CapEx will move to EV. And that's part of what we've shared so far as well, which is also why we've shared that we feel comfortable with regard to the plans for EV that we have and the CapEx we need for it. After that as well, we will have excess cash generated by the auto business. And as we have talked about earlier, we will not be using cash from auto and farm for investments. We will generate cash from investments for further growth there. And therefore, that will free up greater cash for dividends and potentially return back to shareholders in various forms. So it is consistent with what we said so far. No deviation from there. And as we look back over the last couple of years, our first focus was to clean up all loss-making entities. Our second focus was to put us on a path to 18% ROE. Our third focus was to drive scale, growth and profitability. And the fourth one is to start returning cash to shareholders. I think the first 2 we've done well. The third one is well underway, and the fourth one we'll start as it does -- as it needs to.

So Anish, no time lines as such even like, say, medium term, anything on the first part?

So what I would tell you is we gave time lines for the first one, we met them. The second one, we gave a 3-year time line, we are close to 18% ROE right now, and we should be able to get that completely closed as well. On the third part of scale and growth, that will be ongoing. So from that perspective, it's not a time line where I would say we would sort of stop and say we've sort of gotten to a point we want because we will continue to want to scale and grow faster. Exports and becoming a global auto business will be a big part of the future, and we can talk about that [indiscernible]. And on the fourth part, which is time line or turning more cash to investors, I would say, within the next 3 years, it may be faster.

We have another -- we have a question from another Pramod, Pramod Amthe from Incred Capital. Pramod, go ahead.

First question is with regard to [indiscernible] pik-up truck in the coming future. Just wanted to know what's your thought because you are a leader in the overall pik-up segment. What is the opportunity size you are looking at and what you plan to do there? That's first. Second, with regard to tractors, you have talked about the implements and new technology coming. The -- interestingly, there will be more disruption and competition expected in the tractor industry, which points to the belief that it's a very low-tech industry. And hence, least of the threat for a leader. So would you like to elaborate what are you seeing in these 2 subsidies?

I commenced Pramod first part of pik-up question I missed. Can you just repeat the beginning part.

The first question is...

I heard the pik-up truck part, but I just missed the opening line.

You say you have talked about the urban pik-up truck, right? You plan to launch urban pik-up truck. So what is the opportunity you see there? Why you feel there's a specific model required? And what type of a business opportunity it makes sense because considering that you're already a leader in pickup trucks.

Actually, I read about the urban pickup truck like you maybe in the month of [indiscernible]. So we haven't really said we are launching a separate urban pickup truck. We are -- our pickup, too, sell in urban areas today, and we are capitalizing building on that. We also have a separate portfolio, Pramod, of pickup trucks named as Scorpio which gets exported in multiple markets in the South Africa, Chile, it does very well. So at some stage in the future, we would look at upgrading or updating that portfolio to create what we may call a global lifestyle pickup. But that -- if we're doing is more for our global markets. And it will, of course, have some lower benefit in India, but that's not a primary part of our pickup strategy. The primary part of our pickup strategy is what I played out is upgrading our current pickup portfolio to make it more tech. And we'll talk more about that in the year, more about that or through the month of August as you do the first of that.

Yes. And about the tractor, the second question.

Farm machinery and implements and the role of tech and competition rate, that was -- So I would compartmentalize these into 2 different buckets. One is what's the opportunity in the farm machinery side? And is there anything that a big growth opportunity, we have spoken a lot on that in the past. We're doing multiple things to strengthen our farm machinery portfolio. On the specific question on competition in tractor, certainly, it's not low tech. I don't think it ever has been. And we continuously -- our platforms, you will know [indiscernible] and the K2 that we are working on are all pretty bold, very strong platforms doing well around the world, current platforms, including North American market. So they are good well-developed, designed tech products. So we don't think that we are behind the curve at all on the tech evolution on the tractor side. And you will see many things coming out as we also start launching the K2 platform over the next year or 2. Anish, you want to add something on the tractor piece?

I think you covered it well.

The next question is from Binay Singh of Morgan Stanley.

Just a few follow-up questions from some of the earlier questions on bookings. With looking at the data, do you have any insight into, if at all, if there's any double booking on overlap in booking a customer who's getting a 1 year waiting in one brand and shifts on to the other one. Any sort of insight on that? And secondly, in the last call, we talked about 10%, 15% cancellation rate and bookings. Any update on that side? And the last question is just on the Automotive margins. I think, in November last year, we had talked about almost 300 basis point of expansion growth in the automotive margins from the level at that time, which was around 3.7% or so. Since then, we've seen commodities actually moderating, but volumes going up. So any sort of -- any aspiration on the automotive margin.

We will take the auto margins question first. And Manoj, step in if you want to add something more to that. So when we are seeing commodity prices rolling off, it's a very, very, very relative to [indiscernible]. It is cooling off from the escalation that happened in Feb, March post the Russia, Ukraine war. It is nowhere near cooling off compared to the kind of escalation that we've seen over the last 18 to 20 months. And this is published IM data. So that's very accessible. You can see the shape of the curve or the critical commodity. There may be sharp corrections in commodities, which don't have a very significant part of the development area of automotive. But in primarily what's going into automotive speeds and so on and so forth, the corrections are not that high. There is also, of course, the dollar exchange rate, which is not favorable to anything that is imported at the moment because we've also seen an adverse impact on foreign exchange at the moment of material costs, wherever there are -- anything that's getting imported. That being said, there is a very sharp focus on improving our cost structure. And we have shared earlier in the year F '22 compared to F '19, we brought our fixed costs down in auto and farm by about INR 900 crores in absolute terms. There's not a system cost percentage impact, which of course, is very significant. But in absolute terms, we brought back about INR 900 crores down. In quarter 1 this year, again, compared to quarter 1 of F '19, we brought absolute fixed cost down. We're comparing F '19 because we -- in a manner of speaking, that it was one year where everything was steady state before COVID kicked in or BS VI transition started coming in and so on. Again, we've reduced over INR 200 crores of fixed costs on quarter 1 of F '19. So there is a very significant correction that we have done on the fixed cost. A lot of work is going into improving the -- doing value engineering of our current model. So the overall cost structure is continuously improving, and that was the 3% that we had spoken about earlier, which is strengthening our cost structure. That makes the business leaner and fitter. And at some stage, the commodity cycle will significantly correct, and I guess that's when we start seeing the upsides -- real upsides translating to margin of all the actions that we are taking. Manoj, do you want to add on?