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

So good morning, good afternoon, and good evening to all of you joining us today physically here in Mumbai or through Webex from wherever you are. A warm welcome to the Q4 F '23 Analysts and Investor Meet of Mahindra & Mahindra Limited. Today, we are joined by Dr. Anish Shah, MD and CEO Mahindra & Mahindra Limited; Mr. Rajesh Jejurikar, Executive Director and CEO, Auto and Farm sector; and Mr. Manoj Bhat, Group CFO. We extend a warm welcome to them and also to other senior leaders of -- from Auto, Farm businesses and group corporate who have taken time to be here today. We follow a similar agenda as what we do in every analyst conference. We'll start with presentations from the management, Anish, Rajesh and Manoj, and then we'll open it up for Q&A. [Operator Instructions] Brian, can we have the safe harbor statement. So I'm not going to read the statement, I'll leave it for a second. And with that, I hand over the stage to Dr. Anish Shah, for the presentation and taking it forward.

Good evening, good afternoon and good morning to everyone here. It's a pleasure to have you join us again, and we are delighted to announce results for the year. Beyond results, what we will also do is talk about strategy as this is something that we will continue to do once a year. And it's something we've taken our board through as well. And we'll give you a sense of where are we going from the foundation that we've built so far. So let me start first with an overview of the key messages. Our consolidated profit after tax crosses INR 10,000 crores for the first time. And it's a quantum jump over where we've been before. So if you look at this, this is 3x the profit that we had in F '21 and 1.6x last year or a 56% growth at the consolidated PAT level. We've consistently delivered on the commitments we've made, and that's something that we've been bold in making commitments at the same time being careful in ensuring that we can actually meet them. And as you will see, exceed them in many cases as well. And most importantly, this really creates a foundation for us for future growth and to be able to take the group and all its companies to a very different level than where we are today. Standalone results first, what you see is a significant growth in revenue at 47%. Profit before EI is up 52%. And because we had to make some impairments, trucks and buses was a significant one. Profit after EI is slightly lower in terms of its percentage growth, but nevertheless, a very healthy percentage growth over last year. At the consolidated level, revenue is up 34%. PAT before EI is again up 40%-plus and then after EI up 56%. This is a result of some of our monetization actions that we've taken, and that's something we'll continue to take because these are businesses that we're building for value creation. And we've really only started our value creation journey. There's a long way we have to go in a value creation journey. Going to request Rajesh and Manoj to take you through some of the details, and then I'll come back to talk about our strategy and where we go from here.

Hi, everyone, in -- here in Worli, Mumbai, and those who are online. I'm going to start with the Farm Equipment sector first. So as you can see here, we had, in quarter 4, a volume of 89,000, which is a growth of 24% and a 2.3 percentage points increase in market share. Through the year, we did over 400,000 or 15% growth in volume, and we gained 1.2 share points. and over a 2-year period, we've had approximately a 3% gain in tractor market share, taking us to 41.2%. This is a chart which we normally show you all by way of a quarter-wise movement. The interesting thing here is that quarter 4 market share is the highest we've ever had in the last 12 years. Normally, for the FES, quarter 4 is not a good market share quarter as you can see from the graph, but this was good gain in market share even at quarter 4. We have introduced what we're calling internally as Naya Swaraj, which is right now in 5 markets, comes in with the new style, as you can see from here. A lot of enhanced features, digital cluster, upgraded engine and lift capacity, launched in select horsepower at the moment in 5 states, very good feedback, and we'll be rolling out this with other horsepower categories over the next few months. This is a very important part of making Swaraj appeal to the young and new customers by still retaining the loyalists. A lot of work went into this styling upgrade, which gets the balance right between keeping loyalists comfortable and still being appealing to the new generation. On the 2 June, we're going to reveal the lightweight tractor platform of Swaraj. It's a new segment for Swaraj. We're not -- Swaraj doesn't have a lightweight portfolio. The platform is going to be in 25 and 29 horsepowers. We'll start by launching that in phases again. It's a segment for specialist spraying and interculture, which, as you know, with the growth in horticulture is a very evolving segment and we'll certainly get growth momentum for Swaraj. On 15 August, as you know, is an important day for Mahindra, it's -- we've done some significant events around that. And this year, we'll be launching OJA, which is -- has code name K2 up until now. It's a global launch. And with that, we will start the launch in phases in India and also around the world. We see significant upside for us in both global markets and of course, by way of gaining in India as well. We don't have a product portfolio which is strong in these segments at the moment, and this will allow us to take on a new segment of the market. So through new product strategy in tractors, both Swaraj 2 initiatives and the very big launch of the Mahindra OJA, which we think will give us a very good upside on tractor market share even from where we are now. The Farm Machinery business is one where we want to scale up significantly. We've been talking about that. We had a 38% growth this year, very good increase in rotovators. We are #2 in the rotovator segment. And there are multiple other things that we're doing through F '24 and beyond to scale this up significantly, and I'll talk about that a little later. You've seen most of these numbers. I'm going to skim through them very quickly. What you see on the slide here is our Farm growth in quarter 4 financials in revenue, PBIT both consolidated and standalone. And this is the data for F '23. It's been a good year with very good growth in revenue and profit in both the segments. What you're seeing here is the data we are sharing for the first time. We've helped you -- helped for you all to separate out what is our core tractor margin from the FES. Total the FES does have an effect right now of the Farm Machinery business. And we thought while we are investing in Farm Machinery business, it'd be useful for all of you to be able to see what -- how we are doing core tractor margin. Core tractor margin is domestic plus exports from India. That's now gone up to 18.3%. We see a substantial increase with time and not that far away from F '19, which is when commodity prices were at their best. So directionally, we're seeing a very good improvement in core tractor margins. El Niño much talked about, maybe if you had seen the IMD news a little earlier, we may have dropped this slide. So IMD today put out a forecast on a normal monsoon, but just for all of you to understand, you may have done your own analytics or analysis around this. In 50 years, there was 17 years of El Niño. Out of the 17 years of El Niño, there was below LPA rainfall in 5 years. And tractor industry had a degrowth in only 2 of those 5 years in which the LPA was below normal. Out of which some of you who have been tracking the sector for a while, we know 2002-2003, was a year in which industry did a major stock collection, which is why you see the degrowth. So actually, the only conclusion you can make from this slide is there is very little correlation between tractor industry demand and El Niño. So there would be a set of other factors which will enable whether tractor market grows fast or doesn't grow fast, but El Niño doesn't seem to be one of them. Moving on to the Automotive business. A strong growth in quarter 4 volumes and for the full year at 50%. Revenue market share at 19.6% in quarter 4 which is a 1.7% share point improvement; and for the full year, a 3.7 share point improvement in revenue market share. That's a metric that we started tracking because our products are higher -- much higher price than the industry average. But for the last several months, we have been even #2 in volume market share. So it's not that we are very far away on volume market share, while we are tracking revenue market share as our delivery metrics -- metric. This chart shows you the pace at which we've grown our volumes and our market share over the last few quarters. This is the chart on the open bookings. On the one hand, it seems like good news, the open bookings have gone up. It's not desirable from the standpoint of customer waiting period. We have seen very strong demand come in on the new Thar. And all existing models are get -- continuing to get a very good new booking rate. So even though we've now ramped up to 33,000-odd a month through the last quarter, the open bookings has actually ended up going up. We are seeing cancellations less than 8%, which is in line with what we've seen. So there's no real change on that. And we've, like I said, getting 57,000 new bookings every month against which we are today supplying about 33,000. As a context, there's a question in the media meet on how much did we lose to semiconductors in the last quarter, roughly, the number was about 10,000, so about 3,000 a month. Mainly on Scorpio and XUV700. And if you kind of -- if we had not lost that, then we will be close to the 39,000-odd capacity that we now have ready. Quite a few of you were there for the Hyderabad launch. I've seen these products. It was a great event. We've subsequently also shown these products to our dealers more recently last weekend, all 300 of them. We've also been showing this to consumers around and really, the belief is that this -- these products will open up the category and be category creating concepts or products because they will be very desirable and aspirational like what we are seeing with some of our launches on the ICE side today. LCV, less than 3.5 tonne is a very strong story. As a market leader, we've gained 5% share point through the course of this year. Started with the launch of the Maxx beginning part of the year, which has helped us strengthen our lead the products done very well. We've now last month launched all new Bolero Maxx pick-up, which is really transform the full pickup range to an upgraded product. We also introduced a 2-tonne product, which was not there and is significantly helping the category to grow because there's a lot of demand for a 2-tonne payload segment. The iMaxx Telematics has some very interesting features and it's providing a very good interface for the drivers, root mapping as well as our fleet owners were able to track movement of their entire fleet. So very well-received feature in this segment. Of course, this is there in trucks and buses, but in the LCV segment, this is a very good value addition. Last Mile Mobility, you can see the light blue chart, which highlights that electric as a percentage is now becoming significant. We sold 14,700 electric 3-wheelers in the quarter 4. We've retained our market leadership in electric 3-wheelers with 67% market share. You do know about the fact that this will be spun-off into a separate company, the last Mile Mobility Company, Mahindra Last Mile Mobility, which has a valuation of about INR 6,000 crores with INR 600 crores infusion that is expected from IFC. We will be making an investment in Zaheerabad on new production lines and a battery assembly line there as well. We also opened a new Treo manufacturing line in our Haridwar plant. I'm just going to skim through these quickly because you are familiar with these numbers, very strong growth in Auto quarter 4 financials, both on standalone and consolidated as well as for the full year, where we've ended up the year standalone at INR 3,780 crores. I think this is an interesting chart. We've seen a sequential improvement in margin. And the margin in F '23 now is not that far away from F '19, which is the most benign commodity cost here. Since F '19, as all of you know, we've seen BS VI, we've seen BS 6.2, we've seen commodity inflation of the kind not seen before continuously for over 2 years. And to come back as a margin percentage to something which was close to F '19 has been a result of a lot that we've done by way of driving costs managing our model mix and multiple other initiatives. So we know this is a question that you track and watch closely. And we just thought this chart will kind of bring alive the fact that margin as a percentage now is actually reasonably close to what it was at F '19. Just a quick snapshot of the 3-year journey on the FES consolidated side. You can see that we grew revenues 1.5x, PBIT 1.9x, and the consolidated ROCE went up by 28 percentage points. on the Auto side, we grew revenue twice. We grew PBIT 2.8x and ROC went up from 11% to 31%. Now this is a chart we had put out in May 21. Talking about commitments that we make for Auto Farm for the year 2025. So I'm just going to give you a quick update on how we progressed. We said 15% to 20% revenue growth. Over the last 2 years, we are a 34% CAGR. We had steady leadership in the SUV segment by way of revenue, we are there. Leadership getting stronger in the LCV, 3.5 tonnes, we gained 4% share over F '21. We grew tractor market share 3% over 2 years. We are on the path to quantum growth in Farm Machinery, 38% is not something that excites us, but we think it's a good start. And we are on the top of SUV Brand Affinity scores. And we had said 3% year-on-year reduction in cost as a percentage of revenue that's got done. And we had said ROC of 18% plus, plus. We are at ROC of 42% in F '22 between Farm and Auto together. What next is strategic imperatives on the Farm side. It's, of course, to strengthen ourselves in domestic tractors. So we do believe we have upsides on market share with a very exciting new portfolio of products coming in, both in Swaraj and Farm. They are new segment products. They're not just upgrades of current. So they will give us market share upside because these are products in horsepower segments in which we are not currently very strong. So there is a clear upside potential on market share with the launch of these products. We are talking about 10x the Farm Machinery business by F '26, and that's why I said 38% is not something we feel good about. F '23 was a year, which was very slow for harvesters, but we will see a lot of that opening up as we get into F '24. We see international business grow up 1.6x. We are looking at bringing in many new technologies, which we will get to see starting with OJA, IoT devices and so on. We're also working on electrification and automation and leverage partnerships in both Farm Machinery and for global growth. On the Auto side, strengthen our position in the ICE SUVs, strong product portfolio. We do think the ICE is still going to be there for a while, at least 70% of the volume even 6, 7 years from now. So keeping a very exciting product portfolio is important on the ICE side. We, as I mentioned earlier, our Born Electrics, we believe, will create a new category of people who want exciting vehicles with a very different experience. And electric will be just part of that decision-making process. We believe the products themselves are going to create a huge amount of affinity and desire. The whole new portfolio on pickups is going to gear us up for the next 3 to 5 years to strengthen our position in the LCV 3.5 tonnes. We are looking at starting to scale up international operations 2.5x by F '26. We can talk more about that if your questions and, of course, to strengthen our brand and customer obsession. So with that, I'll hand over to Manoj. Thanks, Manoj.

Thank you, Rajesh. Good evening, everyone. So I'm going to run through a few slides at the consolidated level and then hand it over to Anish to give an update on how the future looks like for us. So if you look at the numbers, I think if I look at the 31% growth led by Auto, 35% growth in Auto, 29% growth in Farm. If I look at the profit before EI, Auto leads the way, more than 100%, 108% to be precise, growth in profits. And Farm grew 39%. And finally, if I look at the EI impact, there is a negative EI of about INR 425 crores during the quarter. That's largely because of some of the actions we took during the course of the quarter. If I look at the consolidated numbers, for the quarter, 25% growth. Auto grew 34%. Farm grew 30%. If I look at some of the group companies, I think real estate did really well, growth of 61%. If I look at holidays, a growth of 31%. So a lot of the group companies are contributing to the growth now. If I look at PAT contribution PAT before EI, Auto grew about 137% compared to the same quarter last year. Farm grew 26%. The others, I think there was a mix, and I'll cover it towards the end in terms of contribution. And EI impact was minimal during the quarter, about INR 37 crores only. Coming to the full year standalone. Auto grew 63%, while the overall revenue was 47%; and Farm grew 22%. So very strong numbers coming from both Auto and Farm. And if I look at the profitability growth, I think Auto grew 185%, so a significant increase in profitability; and Farm grew 15%, more or less in line with the revenue growth. And if I look at EI about INR 1,200 crores of negative EI during the course of the year, and we have talked about some of them in the past. I think there was MTBD and there are some of the other actions which we took during the course of the year, which are contributing to this EI, which is pulling down the profits for the year in the standalone level. If I move to consolidated, a 34% overall increase. Auto grew 62%, Fram grew about 18%. Again, real estate and holidays have done well, as I mentioned. And if I look at PAT before EI Auto grew about 268%. Farm grew 14%. Mahindra Finance was an exceptional contributor and I'll talk about that in one of the slides. And at the EI level, I think there's been a positive contribution of almost INR 1,500 crores, which was a combination of several actions, which we took during the course of the year. So at a consolidated level, EI is positive for the year; at the standalone level, EI is negative for the year. Quickly talking about Tech Mahindra and Mahindra Finance. Tech Mahindra, from a revenue growth perspective, grew 19%. I think if I look at metrics like total contract value 1 about $2.9 billion-plus. So it's been a good year from that perspective, but there is a certain slowness in the market. And margins are under pressure. So that's the next big initiative in margins, and we will take it up as we go forward. In terms of Mahindra Finance, which is a bottom box, I think a very sharp increase in disbursements, about 80% up to about almost INR 50,000 crores. And if I look at PAT, it has doubled. Now PAT has doubled. One is a function of growth. The second is a function of focus on collections and reduction of NPA. Both of them have helped PAT grow to about doubling of PAT during the course of the year. If I look at some of our other listed growth gems, logistics, I think there's a 50% increase in PAT. Now this is despite the losses we have absorbed because of acquisition of Rivigo, which happened in quarter 3. And despite that, the PAT has grown 50%. From a revenue perspective, very strong growth, 24% growth in revenues and EBITDA margins were also up. And this is something where we are focusing on acquisitions and integrating them as we go along the path of scaling up this business. From a hospitality perspective, good set of numbers, I think 71% growth in profits. The 2 drivers. One is occupancy was 84%, which is a very high number, and that reflects the kind of demand we have seen in this segment. And towards the end of the year, we saw a turnaround in our Finland property, which is HCRO, and that was not doing well during the whole year, but I think they're starting to see recovery in Q4. And finally, real estate, I think this is a business, which the numbers don't really reflect it because I think in F '22, there were certain one times. And in any case, the real reflection of the performance comes a few years later because of the accounting. But some of the key metrics, I think, record sales -- residential sales of INR 1,800 crores-plus. We also went into society redevelopment. We won 2 new deals. And finally, the ICE business is also starting to pick. So all engines are firing, and so this is poised for a good level of scale up as we go forward. So just a quick summary of how the profit adds up from the last year. So last year, we were about INR 6,577 crores. Auto and Farm contributed to an increase of INR 23 crores, INR 22 crores. Tech M and MMFSL was INR 286 crores. Now most -- MMFSL actually was the most significant contributor. Tech M actually dragged the number. The growth gems put together was about INR 64 crores. And EI was a big element, and I did speak about it that on the consolidated level, EI has been a positive in the course of the year. Just a quick look at cash flow. So we started the year with an opening cash balance of almost INR 12,100 crores. During the course of the year, between inflows from group companies in the form of dividends and certain repayments as well as operating cash flows, we generated INR 12,677 crores. The CapEx was about INR 3,500 crores. And then capital deployed. Now the capital deployed here also includes our investment into the Growth Gems and also includes our investment in Swaraj. So -- and some of the other investments we did during the course of the year. So that number is about INR 3,100 inclusive of both those also. And debt repayment continues to remain a big focus in looking at the balance sheet and finding the right optimal capital structure. And so we continue that journey, about INR 2,300 crores was repaid during the course of the year. And then finally, there was a dividend payout. And the closing balance was INR 14,410 crores. So this is a very, very healthy cash position from that perspective. If I look at deployment, and this is an update to the slide we presented a few quarters back. And if I look at this slide, we had told you that net of BII investment of INR 1,925 crores. We have overall outlay, including monetization and partnerships of INR 15,075 crores over F '22 to '24. So we are updating that. So first is from a high CapEx, excluding MEAL. We are looking at another INR 1,600 crores. Now this is on account of some more capacity addition work which we are undertaking as well as regulatory change work, which we are starting in advance. If I look at the EV side of things, we are upping that by about INR 1,000 crores. This is based on certain changes we are seeing in the marketplace, and that's something we are adding on and that brings the total investment net of BII at INR 3,200 crores. Farm CapEx remains the same. Auto and Farm investments, I think the main reason here is I think we have already done some of these investments in F '22. So I think we're just -- from a F '24 perspective, there's no change, but this is something we did during the course of the year, especially PMTC. And then we looked at more external investor funding, which has happened during the course of the year. So our investment for group companies is coming down from INR 2,700 crores to INR 1,600 crores from our side. And monetization and partnerships has gone very well. As you know, we've sold off MCI fully now. And so we believe that, that number, the target would be instead of INR 2,500 crores, that new number is INR 3,800 crores. So when you add all of this, I think the net number goes to INR 15,900 crores over a 3-year period. With that, I hand it over to Anish for his section. Thank you.

Thanks, Manoj. So before we look at the road ahead, it's time to reflect on the past 3 years and what we've committed, what we've done, what are some of the lessons from there. You've heard me say before that M&M was the best performing stock in the NIFTY from 2002 till August 2018, and then we fell off a cliff. Well, happy to say that we are back up above the cliff now, and we are back at being the best performing stock in the NIFTY since 2002 for the last 20 years. A lot of this has been driven by results over the past 2 years. And obviously, the resulting growth in market cap over the last year. You've seen some of this history before. And we've shown the period from '02 till '14 where we grew very well. This is PAT growth, 43% annually. And then you've seen the part where we've been flat to negative as well, which is '14 to '21, where we actually had a negative 5% annual decline in PAT. But after that, we've seen a 75% annual growth for the last 2 years, which effectively is a 3x growth in profits over the last 2 years. And we're not taking the bottom point there. If we went to the bottom point of F '20, we'd actually see a much further growth. But there, it's a SsangYong effect, a little bit of a COVID effect, all of those factors that come into play. So we are a very, very strong trajectory right now. We're not promising for 75% growth every year. Let me be very clear on that. So what drove this? The first year F '21, we focused on capital allocation. And at that time, we had mentioned to everyone that we're not going to look at anything else. We're just going to clean up. We talked about category A, B and C, and I'll provide a brief update on that as well. And then as we did most of that in that first year, we pivoted to growth. And we talked about transforming our core businesses, we talked about growth gems and having them contribute to a much greater share of profits for M&M. We made commitments of 18% ROE and 15% to 20% EPS growth. On EPS growth, we had said F '21 to '26 will be at 15% to 20% annually. I think we've hit that already. And as a Board, very rightly said, you've done that, that's a past now, go back to 15% to 20% from where you are today. So sometimes you can't take full credit for what's happened. Setting the bar high means you want to keep delivering at a higher level as well. And as you've seen from the numbers, we've closed this year at 19.9% ROE. I'm actually glad it was less than 20% because we're not setting the expectation that it will be at 20% or higher. It will be at 18%. We're going to drive growth now. And you will see it at 19%, sometimes 17% sometimes, but we're going to drive growth, but maintain the fiscal discipline around ensuring we hit ROE at 18%. So this is the update on our category A, B and C. Categories A and B on the left-hand side, and they've largely been turned around except for 2. That's MANA and Automobili Pininfarina. And we are on a good track right now as well. So we're expecting that to be completed as the Batista sales have started now as MANA is on a much better track. And then you see a long list of companies that we've exited. As we put this together, even we were a little astounded at, okay, that is quite a lot of exits. But that was important to getting us back on track and ensuring that we maintain very strong fiscal discipline. And that has helped us get rid of the drag of INR 3,400 crores that we had on our profits from these loss-making entities to almost breakeven right now as we turn around the other 2, we shall start getting into positive territory and beyond. But more than capital allocation, the story is really about transforming our core. And you've seen that happen in the auto business with the new launches with the products that have come out, as Rajesh talked Thar recently had 50,000 bookings. How often do you see a model actually 3 years after its launch to have 50,000 bookings in a short time period? That's the strength of the brand. And beyond that, you see bookings across every category to be continually higher. And that's, again, a testament to the transformation of the Auto business. You've seen the market share go up from 13% to 19% in a very short time period. And that's something that we expect will only go higher. The Farm business has performed exceedingly well even from a very high base at 40% market share, we typically don't expect to grow significantly, but for the numbers that have been achieved with a significant. And beyond that, the focus on Farm Machinery and Farm Machinery will depress the overall margins that you see, and that's something again, we've shared this time. We had said last time that we will break them out. We have done that now. It's a 160-basis point impact from Farm Machinery, and that's something that we will take for the next 3 or 4 years. Till we build scale, we want to go to 10x and then ideally 20x. And that's when we will start showing results in terms of profits there as well. So treated as an investment that we're making right now for hyper growth in that space, which has a huge opportunity. Mahindra Finance has seen a very strong turnaround, and that's evident in the numbers now. We've seen the GNPA go down from 8.5%-or-so to 4.5%. And this was the normal NPA, not COVID related. This was pre-COVID, which is why we've taking the time period pre-COVID. In COVID, it had gone up to 16%. We have committed to ensure that it stays low. And even in periods of future economic stress, it doesn't go up very significantly. And that's what the team is working on a very strong asset quality. While maintaining that strong asset quality, where we had to out certain customers, disbursements have grown 80%. assets under management have grown 27%. So very strong growth to the business. But more important than growth, it's technology, it's data. It's a very strong team that's coming and that's driving this business forward now. We are not done with the turnaround. I'd still expect another 12 to 18 months before we can declare victory on this. So there's still more upside. Our price to book is lower than many of our competitors. And as we complete the turnaround, we expect to be back among the leaders because we've got a very strong model with rural and semi-urban areas. And then finally, Tech M. Transformation hasn't started as yet. And it's something that will start now. And margins is a key factor there. We are much lower in margins as compared to our competitors. And what you will see is a target first of 300 basis point increase. And then over time, we'll look at even a greater increase in margins as we look at transforming Tech Mahindra. So that's really the big story. The second part to it is establishing our growth gems. And while I won't go through every single one on this page, what I will point out is the valuation that you see to the right-hand side. Last Mile Mobility was less than $100 million in terms of valuation 2 or 3 years ago. It's $730 million at this point in time. As based on an external investor coming in, not based on our view of valuation. Similarly, as you look at various other growth gems, many have increased in valuation. Susten you won't see a big increase because we had put it on pause for 2 years. But with the new investor coming in, it has a 5x growth plan over the next 5 years. And therefore, Susten will have a very strong growth path going forward as well. There is a little more work to be done in some of these, but they're off to a great start. And that start now has to translate to a Sprint as we go forward. So we've delivered, but more importantly, we built a strong foundation for growth. And you see that in all our numbers, ROE, EPS, market cap. But what I really want to highlight is what's below those numbers. Because those are the elements of our foundation. Our purpose, talent, technology and data, synergy, customer experience. And we spent a lot of time and effort building that. That's what's helped us transform our core. That's what's helped us with the growth gems, and that's what will help us as we go forward. So having looked at the past, we look at what is the opportunity today. And what we see is across the various macro trends that we've analyzed, India is actually very well positioned. More than that, India is also ready to deliver and not just India as a country, but many of the companies, including Mahindra, are ready to deliver world-class products. As I've always said, if we can beat our global competitors in India hands down with our SUV portfolio, why can't we do that elsewhere in the world? And that's what we're ready to do now. And third, what you will see from the next couple of pages is Mahindra is very well positioned to capitalize on the growth opportunities in India based on the sectors that we play in. I'm going to show a page with lots of words, but I'm not going to go through this. This will be on the website. You can refer to this. At leisure, you may in fact know most of this. But we've outlined the micro trends that we saw around the world and what is the India advantage for each of these macro trends. India will add INR 4.2 trillion towards GDP by 2030 based on various global estimates. Where will this come from? This is an estimate based on some experts that we work with to look at the various sectors where this is going to come from. And more important than where this is going to come from, if you look at how Mahindra is placed. We've got very strong businesses in all of these sectors, except for 3. Healthcare, which we may or may not play in. Infrastructure, which we are not going to play in. And the third one was telecom and a few other miscellaneous things, which again we're not going to play in. But where we are playing is where the bulk of the opportunity lies. And we've got 4 core businesses today, which are large in scale. And we've got a number of growth gems, which are good midsized businesses, but they offer a very strong foundation for rapid growth from here on. And therefore, as we think about our future, the next phase for us is to deliver scale, is to capitalize on the market leadership we have. #1 in SUV, #1 in tractors by a big margin; #1 in LCVs, 45% market share; #1 in electric 3-wheelers. If we've got a lot of businesses that are very, very well positioned, #1 in rural finance. And Tech M has to establish #1 as well, which we will, at some point in time. Holiday is extremely well positioned. Our solar business is extremely well positioned. Real estate. So we've got a whole bunch of businesses here that are poised for significant growth. And that's where our value creation comes from as well, plus being resilient in the face of the world that we live in. We want to make sure that we are well position to be able to address any issues that come up. So the question there is how do we deliver scale. Capitalized our market leadership, which I talked about, unlock full potential in both Mahindra Finance and Tech M. And what you see in the third bucket is the next challenge for our growth games. We talked about growth gems being companies with a potential and plan to deliver $1 billion market cap in 3 to 5 years. What we are seeing now is that's not enough. Our growth gems also must have a 5x potential and plan to deliver a 5x growth in the next 5 to 7 years. That's when it will start becoming material for us and start becoming a significant part of the mine portfolio because we don't want only 4 core businesses, we want other businesses to start becoming core for us as well. And if you were to look at it from that perspective. This portfolio today, we would value at about $3.4 billion. That would get to $17 billion in the next 5 to 7 years. That's the value creation story. Rajesh talked a lot about Auto and Farm. So I won't cover this at this point in time. We'll leave a little more time for questions. Unlock full potential. Mahindra Finance has to continue on a path of strong asset quality, technology and data, getting into or diversifying into new businesses, which will also help asset quality. And Tech M, the primary focus is going to be transforming margins to get 300 basis points higher and a number of things will lead in technology. So that's our plan for Tech M and Mahindra Finance. And with the 5x road challenge, again, each of the businesses, I won't go through this in detail either, is well positioned to be able to deliver on that 5x challenge. There are clear plans that have been laid out. A couple of places need a little more work, which we will complete. But by and large, we've got good plans laid out to be able to take on this challenge. So in summary, we've talked in the past about reigniting value creation. I would submit today that we have reignited it. We are very well positioned to tap into the opportunity in India. And therefore, our focus is to deliver scale and deliver scale by capitalizing on our market leadership and by tapping into a growth gems, which have a very strong platform to start with and significant potential to go from here. And it's important for us to also address the fact that we are a leader today, and we will continue to be a leader in sustainable development. That's an important part as we drive purpose and values across the group. With that, we will open it up for questions. Thank you.

Good evening to the team. And many congratulations for meeting all the commitments that we talked about, particularly happy to see the value creation that we have delivered. My first question is on capacities. What I want to understand is in 2 phases. One is more short term where how are we tracking on the commitment we talked about? We talked about 39,000 by March '23 and 49,000 by March '24. So from a supply point of view, how are we tracking on that as you see things today? And also you can contextualize a bit because you've launched some variants like 2x2 Thar and all. So does it require any specific new lines or something where there could be bottlenecks? The second phase of the question is more longer term. What I'm trying to understand is that the market has changed, right? It's a 4 million market, 50% of the volumes are coming from SUVs, and I suppose there are some white spaces in ICE as well that you might look to fill. So do you need to think of much bigger scale in terms of capacities as you think of next, let's say, 4, 5 years?

Yes. Yes, thanks. So I'll try and go in the sequence in which you asked the question. So 39,000 we set capacity will be ready, it is. We are not able to convert to 39,000 because we are having roughly 10% to 12% semiconductor shortage mainly impacting Scorpio and in XUV700 both, which is leading to about 2,000, 3,000 vehicles lost totally per month, let's say, 3,000, about 1,000 in each of these and a little bit -- 1,000-plus in each of this a little bit in the XUV300 and so on. So the capacity for 39,000 is complete. The capacity for 49,000 should be ready by Jan, Feb, if not earlier. So we'll be ready for that. As a part of that, Scorpio-N and XUV700 will be in the region of 10,000 each. So that's the main increase. There's also some capacity coming in for Thar to take care of growth and also the launch of the 5 door, which we think will do very well. So the 49,000 is on track as well. I think the way to interpret capacity is capacity will be ready, but there will be some short-term supply chain issues, which will not enable full utilization of setup capacity. Our guess at the moment is that may be 10-odd percent. So like we are around 39,000 capacity. But at this point of time, we feel that we'll be probably at 34,000, 35,000 because we are running short of something or the other every month. So that's the way I would kind of think of the capacity utilization story. To your last point on how are we thinking about the future going beyond? We have the EV capacities coming up as well. So we need to think about what's the total mix of capacities between ICE and EV. So a substantial amount of investment will come up towards creating EV capacity, which we believe will be in the next 3 to 4 years, around 20% to 30% of our portfolio, as we've said. So that's on top of the 49,000 -- that's not in the 49,000. So that's being planned on top. And an appropriate time, we'll share more details around what that total capacity number would look like. So 49,000 doesn't include the new capacity coming up for the BUVs, does include the 400 capacity. Does that answer all your questions?

So basically, on ICE, do you have more white spaces to fill, and you have the 5-door Thar also coming, right? So just in terms of existing facilities, I was trying to understand what is the potential here. And when do you need to kick in fresh CapEx for new capacity.

I think at this point of time, for ICE, we think 49,000 would be a good number. At this point of time, I don't think we need more than that. It will have a reasonable amount of capacity for Thar. Most of the aggregate capacities of engines and so on also being ramped up as a part of this overall move. There are some things which we were not prepared for, which we are doing now like we didn't think called Scorpio Classic will get the kind of demand that it's getting. So that was capped at its earlier level. So that's been triggered. That will kick in now. There's new capacity coming off of pickups, we haven't spoken a lot about pickups, that's built into the CapEx number as well. So we are seeing a big upside in pickups with the new portfolio. So all of that is by and large factored in. Needless to say that if we see the need for another round of increase in capacities, we will not hold back from doing that. Clearly, the return on incremental investment on capacity addition is like very quick payback. I think Manoj had flashed a number on what we have spent beyond, what we said last time of capacity. That's a very small number for the incremental volume that it gives. So we will not hold back. But I think right now, it will be good to watch us, get to a number of 40,000-odd per month SUV before we really think of another one because we have to think at the pace at which the EV ICE transition will happen. As I've been saying, our belief is that our products will create market because they are very, very desirable products. And when people see them, they will want to own them. They will overcome multiple barriers that may be there. I mean it's an amazing drive experience, very, very tech and feature loaded, software-defined vehicles. There's a whole bunch of things going in them, and that will change the way people buy. So we have to get this balance right, and we're going to watch for that.

Understood.

Yes, Kapil, just to add to that. The one factor here also is that we're looking at launching 5 new on electric SUVs. And we're ensuring that there's a very strong focus on that. We are on track for that right now in a probably slightly ahead, but it's a very important part of our journey. If that were not the case, we would be more aggressive on ICE because you're right, we could do more than 49,000. We could do 59,000 or 69,000. There will be global demand for these products. So from that perspective, yes, we could have looked at more white spaces, et cetera. But a big reason why we are not doing more of that is to make sure that electric really kicks off at a very, very strong pace.

Understood. That's quite helpful. Second question is on margins. When we go from, say, 34,000, 35,000 a month to, let's say, 30% higher or 40% depending on where it goes. How should we think of the margins for the auto business directionally? Are there any negative factors here to keep in mind or general operating leverage should kick in from where we are today?

Yes. So Kapil first. I think the 1 thing to keep in mind is margins as a percentage will not be comparable once EVs come in because EVs will have a very different percentage. My percentage margin structure apart from the unit margin structure. So the 1 thing that I think all of us have to keep in mind is once EVs come in, the margins are not going to be comparable to the past. So that's just 1 thing that I want to put out because the numerator denominator effect apart from everything else because the taxation structure is different, and hence, you're going to have a different net revenue number, so the denominator is going to be very different. So that's one thing that we have to keep in mind as EVs start coming in the portfolio and margins will not be comparable. We personally believe that commodity price movement is a bigger determinant on what's happening to margins than necessarily operating leverage because when commodities go up and we see a lot of inflation like we have, that kind of tends to overwhelm anything else that you remember doing because the effect of that margin, not passed on as you call it, on the inflation, has a very big effect on the overall margin structure. So in spite of everything that we've done to bring down costs, we're still not able to get to F '19 margin just because the numerator-denominator effect of the inflation we have seen through BS VI, BS 6.2 and the huge commodity inflation. So we've had literally 3 years of inflation of a kind not seen before. And in such an inflationary environment, you're not able to pass margin on top of the cost. You're just starting to get your cost covered. So that does have a very big impact on percentage margin, not so much on unit margin, but unit level margin but definitely on percentage margin. So if commodity is benign, operating leverage is going to have a very big impact on margin, let's put it that way.

Okay. Great. Manoj, just 1 small clarification for Q4. We had very high increase in other expenses for Q4. So almost 40% Y-o-Y growth. So anything to call out there, any one time or lumpy numbers?

So if you look at that increase, about half of it is variable. So that's linked to kind of volume. So you can take that out. Out of the balance, I think, again, half of it is related to certain Q4 kind of charges, which come through and this is something which will continue. So I don't think you should look at it from a quarter perspective, I think you should build it more from a year perspective. I think that's the way -- correct way to look at it.

Pramod here from UBS. Congratulations again to the team. My first question is on the electric vehicle side. If you can just help us get an update on the demand for XUV400, where are we on the capacity ramp-up side there? Because you clearly want to accelerate your plans on EV. And how should one look at the potential investments, which you may have to do given what's happening on the private equity side? And on the side note, if you can help us get a update on the BII rescheduling of the payment? The money was supposed to come in. I think it's got rescheduled if you were to believe the media reports. So if you can help us understand that first.

Yes. The BII, let me just take that first. Things are on track. There was a certain schedule that was laid out. I think when the first time the announcement was made that wasn't fully captured in the way, so there was just an update to the stock exchange on that. But there's no delay in any form, and it stays on track as we had planned it.

Okay. And then on the demand update on XUV400, the performance, the customer feedback, anything which you want to share there?

Yes. So we had orders of more than 20,000. We've sold about 3,000-plus so far since we started deliveries in March. Customers who bought it are very happy with the product, especially the drive feel is excellent. There is feedback on need to improve the infotainment screen and interior switch, I guess all of you know, we will do that as we go along. Right now, by way of ramp up, our focus is on going slow because we want to -- it's the first time we are doing electric vehicle of this kind. We want to go slow, make sure we stabilize quality. So we're going slow. We expect to back-end the supplies to the second half of the year. So at the moment, we are producing, but we're -- for the next 2, 3, 4 months, we want to stay at about 1,000-odd a month and not ramp up very first.

Rajesh, any color as to when do you expect to hit the 5K number there? Or any milestone you have like beyond the next few months where you want to stabilize the product and all of that?

When we had kind of announced the pricing, we had said we're aiming to do about 18,000 vehicles this month -- this year. And directionally, we would be there, except will be backended to the second half, like I said. But that's the number we have in mind for this year.

And our electric SUV -- BEV SUV pipeline remains intact or are we going to be accelerating some of them with the additional investments that we are making on the EV side? Any plan to do that? Because the reason I ask that is diesel is increasingly coming under regulatory -- as in it's already under the regulatory microscope, but I think there's more scrutiny. There are -- you would have seen that some panel recommendation that there should be a ban on diesel cars and all of that. So there's a lot of confusion. So I'm just trying to understand is there a need for us to accelerate our BEV switch over because of the -- because of our diesel heavy portfolio?

Yes. So on the panel recommendation, there is a clarification from the ministry that is there is no view that they have on it yet. And hence, I think it was nothing more than a recommendation with many panels make it at this point of time. So I would personally overreact to that panel report. And if something was to happen, I'm sure there'll be a time line. We don't see anything happening in the immediate short run along those lines. The electric launch plans are on schedule. And we would start producing our first lot of Born electrics towards the last quarter of next calendar year for launches in early 2025, which is along the schedule that we had announced. I think one of your questions was, is there any change in our product plan based on the additional investment? So Manoj partly spoke about that, Pramod, but basically, when we had put those numbers out in 2021, we didn't have a clearly laid out product road map. It was, okay, we need to invest this kind of money in electric. After that, we got into a sharper definition of we're going to create an inflow platform. This is what going to be spec at. These are the top pads that are going to come on it. all of that. Now when all of that is costed, we have a new number. And that new number over F '22 to '24 is what Manoj shared.

Yes. And just to add to that, there are a few new product ideas that are coming in as well. Now we'll finalize what the delivery time line that there is 1 was revealed in Hyderabad, which was a rally, which was in addition to the 5 products that we had talked about earlier. There is -- there are 1 or 2 more that are coming in as well that have been looked at. So some of those costs will go into scoping them, but we will have the launch dates for that at some point in the future when we're ready with it.

Raghu here from Nuvama. Sir, 3 questions. Firstly, on the tractor outlook side, how are you seeing the triggers or the positive catalysts ahead I mean, over the past few months, in terms of trade is turning a bit favorable compared to what it was 6 months ago and run up to the government elections, how do you see the positive impact there? So that's one. Two questions to Anish, sir. One on the growth gem side, good to see that there is a profit of INR 330 crores. Would be the ROE there and which of the growth gems you see the ROE ramp-up happening first towards that 18% range? And lastly, standalone business, net cash position is pretty strong. And the dividends are still -- payout is still around 25%. So how do you see the rewarding of shareholder part because that is also triggered to the ROE? So what is your thoughts on the dividend policy?

I'll take the easy one. Okay. So terms of trade for tractors, yes, has improved. Positive enablers are, good reservoir levels, good rabi crop, terms of trade, we expect government spending to go up in rural India. So all of these are positive. Right now, the mode on the monsoon also seems to be positive. And like I covered in my slide El Niño, doesn't really -- is not really correlated to either rainfall deficit too much or definitely not to tractor demand. So I think all of these are positive. At this point of time, we still are saying that we would expect the industry to grow at single digit -- low single digits for F '24. As many of you track the industry know that you can't read much right now into April and May number because last year had 2 Navratras, which is uncommon. So basically, this year Navratra moved to March. So last year, actually had 2 Navratras, so you can't compare April of this year, with April of last year because last year, April had Navratra, this year April didn't. That is an industry size shift to 20,000 approximately. So it's quite a large industry size shift that happens of a shift of Navratra it's a very big buying season in the large part of North India. So obviously, we all know that tractor demand has to be watched closely. Many, many positive enablers. But given the uncertainty and volatility of this market, we are still maintaining low single digit for the year, but we'll update that by the time we come to July.

So to answer the other questions, the way we are thinking about it is, first, you want to be able to maintain an 18% ROE across the portfolio. And we've gotten there, in fact, as I said earlier, much faster than we expected as well. Once we've gotten there, and that's a question we have for our investors, and we love your feedback as well, in various meetings we have, is what would our investors like beyond that? Would they like a 21% or 25% ROE? Or would they rather have the growth that we can deliver because we are in a position today to build some very strong businesses. If you look at holidays, for example, we've delivered the best family vacation experience that anyone else can deliver in India today. You've got a business which has 180,000 members and consistently has been able to deliver that across 100 resorts in India. How can we grow that business because even what we're doing right now is addressing a miniscule part of the total demand that's out there. So we've got a model that is based on delivering vacations for families which not many others are doing today. Most of them are on business travel or looking at hotels and cities. But this model that we have can grow multifold. We talk about 5x and even in discussions at the Board, one of our Board members said, "Look, it's good to have 5x here, but aren't you limiting the growth of this business if you put 5x? Why are we not thinking of 10x or higher?" Similarly, if you look at logistics, we've got a very strong business today. And there we can deliver, again, 5x to 10x growth in the next decade build a much stronger, one of India's leading logistics companies. In real estate, leveraging the Mahindra brand is so much more we can do. We haven't done that right now. So our focus right now is to take each of these growth gems, make them core businesses. All of them have to get to a 15% to 18% ROE, and I'm not saying 15% today to dilute the number we had. The group level is 18%. But what I've always maintained is if a business is growing at 35%, you're going to be very happy with the 12% to 15% ROE for that business in the short run right now. Once it grows, it will deliver ROE as well because once you have scale, much easier to deliver returns at that point in time. So we're looking at it as a portfolio approach. What we want to do is built very strong businesses across all the key sectors in India. And that's our primary focus. And therefore, today, the businesses will not be at 15% or 18%, my question to them is not how fast are you going to reach 18%. My question to them is how fast are you going to get to 5x. And as you get to 5x, then we'll start talking about getting to 18% after that.

On the dividend side, any thoughts?

Yes. Okay. Dividend, again, we debated that, and we've grown dividends 40% right now, but our profits have grown higher than 40%, which is where that question comes in. And where we are today is we've got huge potential across a large number of businesses to invest in drive scale. In both Auto and Farm, we will go global in a much bigger way. We've got the ability to do that. I spoke a little about that earlier as well. In Farm, we've got Farm Machinery is a major area of focus, where we will invest more. In some of our growth gems, we will invest more as well. So we've got a business today with great opportunities to invest. We will maintain the fiscal discipline. So there is a very, very high bar on investment. We keep getting lots of new ideas outside our core focus areas. And the quick answer to all of them is no. We're not interested in doing that. So we are not going to use the cash to go and sort of get into 5 new areas and start looking at various different things, that we're not going to do, right? If we find something really compelling, maybe 1 more area, we'll do that, but that has to be really compelling. But the most important focus is on where we are today and the opportunity we have today to scale our businesses. And that's what we want to invest in. So message I would actually send with that is we've got great opportunities to invest in, which is why we are not giving more dividend. We will actually create more value for our shareholders, and that's what we want to do.

Rakesh?

I'm Kumar Rakesh from BNP Paribas. My first question on the -- was on the tractor business. So it has been impressive that you have expanded your market share in that segment, which has been very difficult to increase historically. So first part of my question is that what is driving this market share? What is helping you? And typically, we have seen when the tractor industry goes into a down cycle, Mahindra loses market share because there's higher demand for lower horsepower tractors where market share for Mahindra is lower. But you are confident of further expanding market share going forward, wherever the cycle be? So what is driving that confidence?

So Rakesh, firstly, thanks for acknowledging the tractor market share gain performance. Some key enablers to what happened so far. And on the of Mahindra tractor brand side, which is Farm division, as we call it, the Yuvo Tech is a product, which has done very well and got a significant momentum, and that's helped add a lot of market share. On the Swaraj side, again, not -- no new major new product launch, but just a lot of work around channel and efficiency and throughput, which has got a share. So I think the 2 drivers have been Yuvo Tech for the Farm division and Swaraj is just doing more of what they were doing. What gives us confidence that we'll build share is adding new products and segments in which we are not there. So firstly Swaraj, the whole new upgrade is a very significant upgrade. We will back it up with significant marketing actions as well to support the whole transition to the new Swaraj. So that becomes -- will give us upside. We're very confident, very good product, which will be aggressively marketed, and you'll see more of that after August, September. The entry into lightweight both in India for the Mahindra brand with OJA and the Swaraj lightweight brand, which we'll share more of on 2 June. That market is roughly 50,000 to 60,000 tractors per year at the moment in that horsepower range. And our share in that is below our national average. So we would see with these product launches and upside coming in that as well. So that, I think, is something that will happen. I'm not sure on your point on low price tractors, necessarily gaining share in a downturn. I think low price factors are at a level at which they will buy and large be. They've made momentum up to a certain point. It's not that easy to manage channel money, cash flows, credit periods, all of that for subscale brands if they want to go national. It's -- as we all know, very difficult market. You need consistency in channel, good throughput, good service levels for products to establish and farmers know that by now, they don't want to buy a onetime cheap tractor, which then stuck with problems for a long period of time. So there may be a little bit of variation around that, but I don't think that market share has moved significantly because of that. So we believe that with the right product and everything else that we're doing on building our brand and channel, we will gain market share as we go forward even from where we are now.

My second question was for Anish. It has been an impressive work for all the group companies that you have turned around, but Tech Mahindra remains one of the company where you would agree that out of work is still left to be done and you're targeting 300 basis point margin expansion. Any timeline which you could give? And also with the new CEO coming in, this is an industry where growth is the largest driver for margin expansion and Manoj also talked about that demand is challenged in that industry right now. So what gives you the confidence on driving this margin expansion?

First, on timeline, I will let the new CEO set the timeline for it. We've set the target for the new CEO before the person has come in. So it's only fair for us to sort of give them the time to set the timeline. All I can say it's not going to be too long because our patience wears out when it becomes too long. And what -- the second part of your question, I would actually first give a lot of credit to the business and the team that's built it because there are lots of pluses in this business. It has a very high degree of customer centricity, a very a degree of agility. And as we talk to various customers in the industry, that's something that is appreciated. And -- the team also does acknowledge that what has got us here will not take us to the next phase. And therefore, as we go to the next phase, it does require a little more standardization. It does require -- I mean, today, we will customize everything for everyone. And that's what impact margins. That's what drives growth. That's what impact margins as well. As you start standardizing more, it starts improving margins. And for our next phase, we need to be able to standardize it and be able to deliver at a high level. So the entire team actually is in sync with that to say that we've done well to come to where we are today, but we need something else for the next phase, and that's going to be the direct impact on margins. There's a very clear view on what needs to be done. That is very clear.

Yes. Thanks, Rakesh. I'll take a couple of questions from the participants online. This is from Jinesh Gandhi of Motilal Oswal. This is on tractors. What would be the size of market in India in the lightweight tractor segment where Swaraj and OJA products are going to be launched? And a couple of other clarificatory questions on what is the benefit of commodity cost deflation in FES in 4Q. Do you expect any significant benefit from commodity prices going forward? And the last question was on the revenues of Agri Equipment business in FY '23.

Sriram, Jignesh, the first question we've just answered, which is 50,000 to 60,000 tractors per year in the lightweight segment. And our market share there is below our national market share. So that's the first question. On the second question, my understanding is Q3 to Q4, Rajiv just confirmed, that's the input I have, is sequentially no change. We haven't got a commodity benefit in Q4 over Q3. So none of that is -- the margin hasn't come out of commodity benefit from Q4 to Q3, especially on tractors, mainly because rubber, I think, hasn't gone down in Q4, which is a key part, and sheet metal is not such a big thing tractors anyway. So Q3 to Q4 being flat commodity. At this point of time, in Q4, we do see some inflation over Q4. It's not to us going down over Q4. And the third question was on?

Farm machinery. Revenue from Farm Machinery.

Yes. Farm Machinery revenue in F '23 was INR 600 crores in M&M, and we have a subsidiary company called, MITRA which is now fully ours. They make sprayers, which is another INR 50 crores, so INR 650 crores. And we would look at least 40%, 50% growth from there.

Okay. The next question is from Gunjan Prithyani of Bank of America. Can you give us more color on Auto CapEx? Capacity-related CapEx was announced earlier so what does INR 16 billion increase pertain to? And I'll come to the next question later.

Okay. No, no, I think, Rajesh, you did answer the question. In the course of one of the other answers, basically -- that we are looking at even on the ICE side, basically regulatory changes and capacity increases as and when we see markets move. So I think that's a short answer, but if you want to add some color?

Can you just clarify the question, Sriram.