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

Good evening to everyone who has joined in to us in person as well as virtually. And a very warm welcome to the Quarter 1 Analyst Meet of Mahindra & Mahindra Limited. We have with us today our Group CEO and MD, Dr. Anish Shah; ED and CEO of our Auto and Farm business, Mr. Rajesh Jejurikar; and our Group CFO, Mr. Amarjyoti Barua. [Operator Instructions] As a reminder, this meeting is being recorded. For the purpose of completeness, I want to read out this statement. Certain statements in this meeting with regard to our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties, that could cause actual results to differ materially from those in such forward-looking statements. With that, I now invite Dr. Shah for his opening remarks.

Thank you, Divya, and good evening, everyone. Good afternoon as well to folks who joined online. And we have a quarter, again, with a strong operating performance which is a common theme. We hope to keep it that way. So let's start with the key messages for this quarter. Auto and Farm continue to be on track with their operating performance. Market share gains being a key theme this quarter, SUV, up 130 basis points; LCV, up 160 basis points; Tractors, up 180 basis points. Margin expansions is the second big theme for the quarter, reasonably substantial, resulting in Auto profit after tax, up 35%; Farm, up 4% in a tough market. Mahindra Finance is finally unlocking its potential. We're starting to see that in the numbers now. This is something we've talked about for a while. We've talked about the turnaround that we started probably 1 year, 1.5 to 1.9 months ago. We talked about a 3-year turnaround. We started to see the impact on asset quality, we were down at 3.4% at the start of this year, a marginal increase of 3.6%, which is the first quarter increase that typically happens. Beyond that, assets up 23% and profit up 37%, also helped by lower credit costs. And this is something that is on the back of a good quarter last year for Mahindra Finance as well, and therefore, it's putting this business very solidly on track now. TechM, the turnaround has commenced. Q1 is on the right track. And this is one where we will look for a lot more over the next 3 years and be able to hopefully deliver on the TechM front as well. As a result, consolidated profit is up 20%. This does exclude 2 onetime gains that were in our numbers last year in the first quarter, specifically KG Mobility, which was over INR 400 crores as well as the sale of MCIE. So those are 2 that we have excluded in comparing numbers just from an operating standpoint, and ROE is at 19.4%. So that is the overall message, as we look a little deeper into the numbers, revenue up 10% and profit is at INR 3,283 crores, up 20%, excluding the onetime gains that we had last year. The key drivers of PAT, Auto and Farm together grew 18%. And beyond the market share gains that we spoke about, capacity is up 3x in the last 4 years, and that is enabling us to be a little more aggressive in the market now and also gain operating leverage, which is helping in terms of our margins and that's something that we will continue to see benefits from. On the TechM and Mahindra Finance front, margins is a key focus for TechM. And while you see a 23% gain from the last year first quarter, TechM's last year first quarter was weaker, and therefore, we're looking more at the longer-term gains that we need to get from TechM, Mahindra Finance was a solid quarter overall. Growth Gems, up 34%. Here, as I mentioned before, the profit number is not the primary focus for us because it is the actions that are going in to build each of these businesses up 5x. So while we are happy with the 34% profit gain, it's easier for me to say this is not a big focus, when this is a good number rather than when this is not a very good number. So it's one that I will consistently maintain. It's more the growth that we're really looking for in these businesses right now. Focusing on Auto and Farm. To start with Auto, we continue to be the #1 player in SUVs. Volume is up 24%. We had talked about mid- to high-teen growth at the start of this year as a commitment for F '25 or as an expectation rather for F '25. We are at 24% to start the first quarter. Capacity, we spoke about, margins are up 180 basis points. So that's been a pretty significant jump in Auto margins. And as a result, PAT is at INR 1,330 crores, ahead of tractors. Tractor comes in fairly close at INR 1,238 crores. And there the domestic industry outlook is improving. Rajesh will talk about that. Some moderation in international markets, but strong execution not just on market share, but also on margin up 100 basis points here. And Farm machinery revenues, up 34%, still a little lower growth than I'd like it to be, while it's a good number, this is one area where we still feel we can get more growth just given the potential we have in this business. Mahindra Finance, we talked about asset quality and asset growth. Beyond that, technology is starting to deliver results. On a number of fronts, we've got 100% of the branches now under central processing, which helps tighter controls as well. Also a number of efforts on improving customer experience through technology. And there's, again, more to be done there, but good wins so far in terms of where we are. And therefore, profit after tax, Mahindra Finance in this quarter is just very slightly shy of INR 500 crores. It's a good mark reach for us and we close the quarter at INR 497 crores. TechM, the new organization is focused on service delivery, demand outlook is still mixed, but the quarter shows some recovery from last year, and we will continue on this path of recovery as we go forward. Logistics execution is better than it has been before, and we feel a lot better about where we are. The Express business did have a loss, but we -- the management team has promised to turn around and a breakeven by end of the current quarter that we are in, and that's something that is on track at this point in time. And as that comes in, the growth in 3PL and Last Mile will help and Logistics will start getting back on track as a business overall. So that's a weaker spot for us right now. Hospitality continues to be a strong spot, 90% occupancy. Membership is growing 300,000 members now. Average unit realization is up 31%. So a good story there. Real estate continues to grow at a very rapid pace, aided by an aggressive approach by the team, a lot of changes made there in terms of how the team is approaching the marketplace as well as the overall market buoyancy. So a combination of that resulting in a 3x increase in presales and [ GDV ] acquired is 68% higher than last year. So as a result, consistent delivery on commitments. This is something we continually talk about. We are at 19.4%. And yes, the bar is still at 18%, not going up to 19%. We'll continue to sort of fluctuate around that. EPS, given the results overall slightly lower than first year because the first year last -- first quarter last year included the onetime as I spoke about. But again, we feel pretty good that we will be on track to deliver 15% to 20% growth on a longer-term basis on EPS. So with that, I would invite Rajesh to come up and talk about more details on the Auto and Farm business, Rajesh?

Thanks, Anish, and good to see all of you, and welcome to those who are on the virtual format as well. I'll start with FES, I'll run quickly through the slides so we have enough time for Q&A. I guess most of you picked up what's on the slides already. So our Tractor volumes were up mainly because we gained market share. The market was -- had a slight degrowth, but there's a good gain in market share to get to 44.7%. Of course, our quarter 1 market shares are always higher than the rest of the year. So -- but on that base, we've had a good growth. This kind of reflects the fact that our quarter 1 market shares are usually higher as well. The question on what's the future? We clearly see some green shoots. One is improving terms of trade for farmers. We've been seeing that. But in quarter 1, we've seen a more dramatic improvement with output prices going up, MSPs improving, input inflation not being so high. So that's a favorable factor. Monsoons have been good in July in most parts of the country, especially West and South, which was really bad last year. So we would see a good effect of that in the second half, much higher spending by the government in the rural area, and that's known to be a good driver of growth for Tractor. And of course, some part of Navratra will come in the second half of this year compared to last year. The Farm Machinery business has had a good growth as well in the quarter, and we did about INR 265 crores. Anish covered this, so 5% growth in PBIT on the consolidated and flattish revenue. The margins, you can see we've got to 19.7%, as the core Tractor margin, something we've been wanting to get to over the last few quarters. So we can talk a little bit more, if you like, in the Q&A on what enabled this, but this was something that we were very, very focused on wanting to get to this year at close to the 19%, 20% core Tractor margin. And you can see that we've managed this curve of being able to deliver margins in a pretty kind of narrow band over long periods of time, irrespective of what's happening to industry. On the Automotive business, we grew SUVs 24% pickups. The industry was flat again, and we gained share. So we gained some volume there, but the industry was flat. And you can see we gained 1.6 share points on LCVs. There's the second -- we were #2 for 8 quarters on volume. Given our average price point, we think that's a very good performance and a continued strong performance by revenue market share. This is a recap slide which we've used in the previous meetings. The reason we're putting it up here is we've now taken our capacity up several times from where we were 2.5, 3 years back. The reason we've been doing that is, of course, that we fully leverage the opportunity in front. But also more importantly, we bring down the waiting period for customers. And when we aspire to bring down waiting period to customers, clearly, the concept of booking is an antithesis to that. So in a way, we're going to retire this slide after today. And hopefully, we don't -- we continue to grow without having to show what are our booking numbers because bookings of this kind really mean that we're not able to give customers vehicles -- enough vehicles at a reasonable delivery time. So -- but this is what first July was. And since the month is not over, we don't have a 1st August to share. But we did have a very healthy increase in bookings in XUV700 during the month, up from the previous month by more than 40%, 45%. So that is still yesterday. Question, many of you want answered, so we try and answer that here and maybe more in the Q&A because I think you probably want a little bit more. So we took the 700 -- XUV700 price up from launch, which is over 3 years by INR 3.8 lakhs to INR 4 lakhs. This was a function of commodity prices, premiums that we were paying for importing chips, which we had to. We have a large number of chips, so we are paying premium. So that was all getting built into the cost. So we have taken very aggressive price increases. Capacity has gone up in the meanwhile. So we started at 3,500. We went to 6,000. Now we are at 10,000. As we have shared in the February meeting, one of the key challenges that we had on XUV700, we were thinking about growth is to create accessible price point. And in February, we had kind of called out that we will take a series of actions to make the brand more accessible so that we can grow. Very large percentage of the brand volume was coming at the high end, which was good till you were -- till we were at a certain volume. Once you want to go beyond that volume and you want to grow into being a larger brand than 6,000 a month, then average price point of INR 25 lakhs ex-showroom or INR 23 lakhs ex-showroom, with on-road crossing INR 30 lakhs starts becoming a barrier for segments. So -- we first -- the first initiative we took was to introduce a new version called AX5 Select, which came with panoramic sunroof and so on at a more reasonable price point way below INR 20 lakhs and we did feel that we at least in the short run, need to run a promotion, which we branded as a third anniversary offer to kind of make the 2 higher versions as more accessible as well. We think this is not going to have a financial impact or a significant financial impact because it will -- we will get operating leverage through higher volumes. And many of our costs have come down, including chips, but also work that we've done on value engineering. So that's where we are on why we did this. I spoke about the LCV, the LCV market share we gained again in quarter 1. Last Mile Mobility, the penetration of electric 3-wheelers continues to grow, it was close to 20% in quarter 1, which is a very good sign. And we have been saying that we believe that this category will probably be the fastest to penetrate because it's clearly visible benefits to the customer. We had a PBIT growth of 45% on Auto and a revenue growth of 16%. The stand-alone margin came at 9.5%. With that, I'll hand over to Amar. Thanks.

Thank you, Rajesh. So just to sum up everything that you heard today. I'll start off with this page that you have seen before, but just again highlight the key points. We tend to focus a lot on the pattern, that's great. But I do want to call out the very strong revenue performance as well. Auto was up 16% within this 10% growth. Farm was flat in environment where the domestic market is kind of flattish as well. So they've grown domestically, gained share. International is where there's some pressure. And that's something that is mostly coming from the U.S. and some of Europe. And then within this, you continue to see the growth that is coming in through the asset growth in Mahindra Finance. And also very important to highlight that 8 out of 10 Growth Gems had very strong growth in line with our expectations. They are the 2 that didn't -- were also, as part of our plan, like, for example, Susten, which has sold off its assets to the InvIT so doesn't see much revenue growth year-over-year. I'll spend a little bit of time on the PAT because I think it's very important that we address some of the other income conversations that happen all the time. And we don't provide guidance. So this is not a guidance on the number. This is a way for you to think about other income. For us, other income is basically the income we earn on the surplus funds that we have. And mark-to-market on any investments that we have. That's primarily what goes into other income. There's very little that happens outside of that. Last year, we had INR 405 crores of KG Mobility, mark-to-market gain as the stock got listed. This year, that number actually turned to a negative. So that's a significant swing. But you will see we don't call out the negative because it's not material in the M&M scheme of things. But the gain last year was significant, INR 405 crores is way above our materiality threshold. So that's how we always look at this. And when you think about how to think about other income, unless you hear of something that we are doing, either in terms of stock -- share sale, which is also intimated to the SE or significant variation in some holding, you should not typically have a lot of movement in this account, outside of mark-to-market, which frankly, even we can't estimate. That really depends on share price or valuation on a day. The other thing that we are calling out here is the stake sale that we had in MCI. That actually comes through the investment in associates and JVs and was part of that number, that was around INR 358 crores. So that's what makes up the INR 763 crores. That, again, is not something that you'll see every year or every quarter, it is a one-off, and that's how you should think about it. Dividend income is something that will come in periodically and you know the cycle that we follow for dividend income. That's something that will come in through the investment line item. So excluding that, up 20%, again, tremendous performance you heard from Rajesh on Auto margins, on Farm margins. And then I should also call out very strong performance from Mahindra Finance, up 37% in income. And TechM, while very, very early, does -- is showing some signs of recovery, so 23% up. We'll have to see how that goes. Growth Gems were up 34% within this number as well. This lays out what I just talked about. And I call this page our strategy in action because you will recall, Anish keeps talking about capitalizing on market leadership. So you still see Auto and Farm delivering a lot of margin improvement year-over-year. And then this unlocking the full potential is where you are starting to see some of the strength of the strategy. So hopefully, with time we can see that number, at least the services number growing even faster. Finally, I need to call out the very strong performance on the stand-alone side, both in Auto and Farm. You saw the margin performance. Volume was up 11%, margins up 23%, and that's primarily coming on the back of the significant improvement in PBIT, 9.5% in the case of Auto and 18.5% in the case of Farm. Okay. So I'll wrap up here and we'll take some questions.

[Operator Instructions] Vinay, go ahead.

Many congratulations for a very strong quarter 1. I stick to 2 questions, both on the Auto side. First is billings versus bookings. Our booking number remains quite healthy at around 50,000, but the billing number has not moved up, any sort of guidance that you would see, when do we see that moving up? Secondly, we called out in February about XUV700 price action and then we finally saw that. Any other part of the portfolio where you feel there is opportunity or need to do something similar at some stage, so these 2.

Rajesh?

Thanks. The first question is around billing versus booking. When we look at bookings, there's a cycle of conversion, and that does take time based on the season or based on what -- you can hear it. You can hear? Okay. So we -- June, I think, was a time which was slow for a lot of people on converting for multiple reasons, heat wave, so on and so forth. So you had bookings, but customers are not actually coming in to showrooms, even though they were on our booking list to get into conversion and hence, retail and then you don't want to end up billing beyond a point. Also when you're doing a variant transition like we were in 700 introducing AX5 Select, then you've got to down stock some other ones, which is likely to cannibalize. So you kind of also look at making sure that you're not holding stocks of wrong variants when you're trying to introduce a variant with a different price point. The third factor that we've been working on carefully is what we do with the Thar 3-door because needless to say there will be some cannibalization. And we have to be very calibrated in the way we build that in because it won't stay at the same level as it was. And we expect the total volume to go up, but it's very unlikely and we're doing 6,000 of 3-Door a month, and it will stay at that level and then we will add 5-Door as well. So again, moderating what we're going to do with 3-Door, we don't fully know what is the level of cannibalization that may happen. So also, we've been careful a little bit on how to think about Thar 3-Door. So there are multiple such factors, but I think one of the reasons was overall June conversions were low even on existing bookings. So then you get into -- if that happens, then your dealer stock has gone up a few days, so you want to correct that and try and stabilize that so you can start moderate billing. So it's a combination of multiple things. Does that answer the question or...

To that extent it should see trending up [indiscernible]

Yes. I think the honest answer to that is after Thar 5-Door, we start billing because still then we are going to see a little bit of pressure on Thar 3-Door because existing prospects are into a wait and watch as well. So everyone wants to see what this is before deciding which are the 2. So there is a little bit of wait and watch so it's going to take a month or 2 for that to stabilize. The second question was around will we do more such pricing? We would only where we really feel it is needed from a right long-term strategy. So what we've done in the case of 7-Door below is not a knee-jerk reaction. It's been thought-through, planned over months, financial impact studied. And on the balance, we believe that it is the right thing to do to drive growth, make the brand more accessible. Like I said in the presentation, it was becoming expensive for getting volume because there's too much perception of the average price of the product being more than INR 30 lakhs on road. That's not a place we wanted to be. So it was a strategic reason to change the price perception around the brand. So wherever if there is a need for taking a strategic call on a portfolio in a way that we are able to look at the need around price perception, growth, margins, then we would kind of do that trade-off. But we're not really believers in kind of, okay, let's run lots of discounts to get a current [indiscernible] going. I mean this is not what this is about. It was a thought-through planned intervention, which we feel was needed for long-term growth of the brand and business.

Just to add to that, this was in a sense, signaled in February saying we're going to start thinking of this consistent with our approach to it because as the cost comes down, the operating leverage goes up, it was the right action to take as well even as the margins are going up. So on balance, we really don't expect much of a financial impact as a result of this because of the other balancing factors. Yes, Kapil?

So my first question is on demand environment itself. We had set a target of mid- to high teens growth. How do you feel about demand right now? Do you see that things are slower and you need to drive -- you need to take effort to drive growth faster? Because we've seen some price reductions by you and the competition and the industry is seeing very tepid growth now. So it's -- you might need to drive too hard to drive growth. So just your thoughts on that first.

Yes. You've been around Kapil, for a long time tracking the auto industry. And Anish was asking me this also in a different context earlier, now saying. Of course, the demand and the environment has been tepid, but why is that not affecting 3XO? I mean, why is there? It's in the heart of the most competitive segment, but we're seeing huge momentum there, right? So it's also freshness, what you're doing new. How strong is the value proposition so on. So I think it's a function of many things, right? So right now, we have that advantage with 3XO. We will have the advantage with Thar 5-Door. But when a product is 3 years, 4 years old, there is going to be a little bit of a fatigue and then we've got to make the right interventions. But overall, let's say, the buoyancy as an industry clearly, I think that's not there. We've got to be honest about that. Then it's a question of what is each individual brand and players approach to thinking about growth versus profit and so on and so forth. So we would be inclined to drive growth and which is why we stay with the mid-to high teens as the objective for the year. Because with 3XO still ramping up, with 5-Door Thar coming in. And with what we're doing on other brands, we think we'll easily get to mid- to high teens. We see -- and anyway, we have started the quarter 1 with 24% growth. So if you're going to end the year with mid- to high teens then we already have the right first 3 months to work out from.

And second question is on ASPs and margins. This quarter when we compare to Q4, the Auto ASP has come down. There will be a mix impact. But is there -- like how should we think about it when we are building this forward? Do you see further drop in average selling prices, looking at -- on positive side, you'll have the 5-Door Thar coming in, on the negative side, you'll have a price cut and maybe higher volumes of 3XO. And similarly, margins, we have seen a good improvement in both the segments. So what is the outlook there? What were the factors that supported margin expansion this time?

Yes. So the quarter-on-quarter average selling price, fundamentally, 2, 3 things. One, is that we had a very low share of XUV300 in Q4 because we were phasing it out. And then we have -- I mean, just as a comparison to -- from XUV300, which was a ramp down share in our mix to enhance -- significantly enhance share in quarter 1. Obviously, there's some effect of that when you're comparing Q4 to Q1. So it's not a like-to-like comparison because XUV300 itself was significantly ramped down in the overall. So that raised the average selling price. There is some minor effect of XUV400 where the quarter 4 number was higher, and that set a much higher average selling price. So that's a second factor. The -- I don't think the -- it's too early to count the effect of either the X5 Select on the mix or whatever because that was just coming in towards the later part of the quarter. So I don't think that's really significantly baked in. But we have been seeing over quarter 1, the overall ratio of AX7, AX7L was 70%, 75% in quarter 1 that was -- by June, we had come to 50%, 55%. So we've already started seeing some of that in June, and you'll see some of that in the quarter-on-quarter margin. So what -- the large corrections we've actually taken are in AX7, AX7L, which is now clearly, as you would interact and find out from the market, what this is doing is enabling people to come back to AX7, AX7L because you're creating accessibility perception with AX5, but when they come into the showroom, AX7 is a WOW proposition. So we're already seeing a huge move to AX7 and hopefully with time to AX7L. So we'll come back to a better AX7, AX7L mix, which will actually elevate margin and average selling price, both. That's the first part of your question, I think. The second part was what did we do to get the margins on the Tractor side...

Margins and also the outlook, if you can talk about the various factors, which you are seeing from your vantage point right now?

This is the question Kapil, both for Tractors and Auto?

Yes, please.

Okay. So on the Tractor side, we've been -- when you come out of a downturn, so to say, that's a period in which you're bringing every cost completely down, you cut all the extra expenses because we are -- I mean, none of us like the margins that we were doing over the last few quarters. Of course, we understand it because of commodity inflation, the fact that the industry was not growing, but it's not a level of margin, let's honestly say, Hemant was feeling good about. And we, like I said in the presentation, we did want to come to get our core Tractor margin to reasonably to where we were, which was around 19.5%, 20%. So we did get into trying to do a lot around cost. And then because we gained market share, we've got a 5% volume increase, you straight away saw the benefit of managing cost well with a 5% volume increase and commodity was reasonably benign, which was helpful. I wouldn't say it had gone down, but it was reasonably benign, which helped. So that was on the Tractor side. On the Auto side, it was a little bit of a commodity benefit, so we did get some of that. The benefit, if I may use that word, are some of the price increases we've taken got fully baked into the full quarter number. So you got to see a full quarter of that. So I would broadly describe it as these 2 things which affected the Auto margins.

And the outlook?

You know we don't share outlook, Kapil, but you -- I thought your question then finally got filtered to tell me -- tell us the levers which got you there. So these were the levers.

Okay. No, I mean we've had a price cut as well, right ? In light of that, do you see that you need -- you're passing on some of this margin? Or should we expect that putting everything together, margin should hold on?

No, we've answered and Anish reinforced that the decision that we've taken on 700 pricing, we believe will have a negligible effect on the financials over this quarter or the next. So we're not really factoring in that as a major driver of what will affect our margins. We have a certain assumption of what kind of volume growth we should be able to get with price with this kind of pricing. Hopefully, that would play out. If that plays out, we're good, or anywhere in that range. So overall, I think we are comfortable. And we have also got the flexibility. If it doesn't work out the way we want, we can always go back to pricing because it's announced as an anniversary promotion. So it's not a price drop. So we always have the option of going back to any price that we feel is the right price from November.

I just come to you, will take a couple of questions online as well. Anish, this one is for you. Does Mahindra plan on venturing into any new segment in the PV business?

PV business.

The PV business.

In the passenger vehicle business? Any new segment. I would actually have Rajesh answer that question, sir. Back to you, Rajesh.

I'm just wondering how to think about that question. The Passenger Vehicle itself is a segment. So ...

[indiscernible]

Yes. So, think at this point of time, we've been very focused that brand Mahindra will stay as a pure SUV authentic SUVs player. So it is with brand Mahindra, we will not get into any other segment.

Raghu, please go ahead.

Congratulations on the strong numbers. Sir, first question was on the Tractor demand side. So Q1, we have started off with East, West and North regions doing well. Even Central has done well. South part, which is declining, but the monsoon progress in South region has been very good. So assuming things improve in the South region and you also have that Navratra effect in the second half, would you say that full year 8% to 10% growth is possible in Tractors? That is on domestic. Second, on the export side, we have done almost 50% growth in Q1, and OJA launch has helped. So how do you see that sustenance of export? At maybe this 1,500 to 1,800 per month kind of a level. So whatever we have done last 3 months, is it sustainable?

I wish I could give you a very numeric answer to question one. But I think we'll wait 2, 3 months to give you a more numeric answer. Right now, we would stay with the 5-odd percent growth rate. But based on the slide that I had put out, the several indications that things could be better than what we thought a month back. But -- we've -- it's so early in the monsoons to kind of give a new outlook that we would just rather wait a couple of months before we change a formal outlook. But all the factors that you said, especially the rains in South augur very well for a good second half. So I don't -- I think it's a little premature to say whether that may be 8%, 9% for the year. But it does look like the second half will be good.

On that, if I follow the queues from what the Fed governor or the RBI governor does, we'd say that we are still at 5%, but the arrow looks upward.

Yes, yes. And that is absolutely true. The point on export, I just maybe add a nuance perspective, which may not be so apparent or obvious. So in the U.S., we have 3 sources from which we get product supply, all under brand Mahindra in Tractors. So it used to be from Mahindra, India. It was from our joint venture or partner company, Mitsubishi Mahindra Ag from Japan and from a company in Korea as well. So through OJA, what we've done actually is re-moved some of the other sources back into Mahindra sale in a Made in India format. So all the growth that is coming from OJA is not necessarily extra growth in U.S. It's also a reallocation, if I may use that word of supply chains from other partners to Mahindra, India. So as part of OJA that's one of the things that we've done. So in a way, what I'm trying to kind of say is there's a reasonable amount of sustainability, but not just -- all of this is not leading into market share growth in North America. Some of it is substituting what we were buying from somewhere else, and that's getting routed through Mahindra, India. Does that help you think about it? The U.S. market, Tractor market right now has actually had 8 months, 10 straight quarters of de-growth, the segment in which we play. So it's -- the market itself is at a little strain at the moment in the less than 100-horsepower in North America. Part of that is the interest rates going up. And I think maybe that's why Fed is on top of Anish's mind. So hopefully, they'll correct their interest rates, and that will bring back some of the buying there in this segment.

Yes. The green for us is the up arrow, the green for them is down arrow.

And over a period of time, the share of Swaraj has been going up in the Tractor side. And with all the product actions we have done, how do you see Swaraj and Mahindra portfolios playing out in the future?

You mean the mix between the 2?

Mix between the 2.

So we were 2 heads when we talk to each team and each team aspires to be #1. So we'll let them play the game the way they want to. And we're very happy if one of the brand goes ahead of the other. And that way, at least #1 and #2 are fighting really hard.

Either way, you win.

Either way we win as a total. As long as we ensure that, which is what we try to do. That's -- these are the only guardrails. Otherwise, we do want them to fight and when Hemant talks to the Swaraj team or I talk to the Swaraj team, we will energize them to want to be #1. We'll never tell them that you have to stay #2 because there's another brand in our portfolio, which is #1. So as far as we are concerned, both should fight to grow.

On the Last Mile Mobility, as per FY '24 annual report, the margin is about mid-single-digit, 4%, 5% EBITDA margin. Now that we have PLI certification for the products, how do you look at the profitability going forward? And also the volumes have been increasing.

It's a difficult question to answer because of so much uncertainty in the regulatory environment with FAME going away, MPS coming in, and FAME 3 coming back in the process of that, the quantum of FAME 3 -- FAME 2 came down. I mean, first came down because the methodology and then came down through EMPS. Part of that gets offset by PLI. Every time the scheme changes, you have to do a recertification and then we lose some money in the transition time because the dealer stocks or the pipeline stocks are not covered. So that's the cost we need to incur. So it's a little dynamic right now. So at least our focus at this point of time is as long as we are making a reasonable amount of money but driving growth in EV penetration, that's the objective right now because it's with the current dynamism, if I may use the word on policy changes, it's very hard to kind of pin and say, okay, this will be the margin at this point of time. So I'm honest. But, the business has a good cost structure. Sales costs are coming down. So hopefully, our brief to the business will be to try to grow EV penetration as quickly as possible. And there's still large pockets and many, many districts where EV penetration is close to nothing. There's a huge SKU district wise in the way penetration is happening.

That's a very good story overall because industry penetration has gone from 0% to 20% in a very short time. And we feel that by 2030 will be 100%. And by 2030, the industry will not need incentives. So PLI will end by then, and at that point in time with battery cost coming down with scale coming in. So overall, FAME 2 has helped a lot and a lot of credit to the government for that. EMPS has helped. FAME 3 will be essential to continue that momentum because the price gap is fairly high and the consumer is not going to be able to take the impact without FAME 3 nor will the business be able to take the impact. And therefore, that's an important bridge that's required. But once we get to 2030, we're not going to need incentives beyond that.

Absolutely sir. Even that the penetration is increasing so fast and sooner or later, the ICE and EV margin gap should narrow and like one of your competitor indicated that like they look forward to making same margins in ICE and EV for 3 [indiscernible]. So that is where I was coming in by when -- maybe in the next 2, 3 years, do you think it would be possible that the gap will be significantly narrow and EV, Last Mile Mobility will be making double-digit margins?

That, as Rajesh said, just given the flux in policy, we're not completely sure of that. But I'd say it's fair to say that by 2030, at least we will have back to normal, what happens 2 or 3 years before that will I think depend on some of the policy and on the pace of change as well.

Rajesh, first question on Thar. You guys have had a hot hand on launches. But how do you think about Thar, because something which is very unique. Thar 3-Door has already done what it has done. Incrementally, do you see the Thar 4 has something with the extension of Thar 3 or it can something which can open up a wider segment for you, because we don't have a product like that, which is -- which can work for a family because Thar 3-Door has limitations in terms of, it can't carry 4 or 5 of them in comfort for long drive, for example. Accessibility, as you know, to the back seat is a bit of a workout. So how should one see Thar 5-Door?

Wider segment.

Wider segment. And how wide?

I think you may want to wait for 15th August to hear how wide, but it will be pretty wide.

Pretty wide. So in that sense, we can expect a pretty long [indiscernible] ladder so that the [indiscernible] probably during the mid ...

I'm not even going there.

And second question on the pricing, but what you alluded to that once you hit the INR 30 lakh price mark, kind of becomes a bit for a family or anyone. So how should one think about EVs in that context? Will we have the same hurdle for even EVs, which you will launch because the end of the day, the customer will look at it as EV as a substitute to his existing ICE or XUV or a Scorpio or anything, right? So how should one look at EV pricing in the context of the point what you made?

I'm glad you think that we'll -- our EVs will sell at more than INR 30 lakhs but we have not given any such indication.

Rajesh, with that kind of spec and 60 and 80 kilowatt hour battery and our intention to make margins? Help me there, as if I missing something.

I think [ Pramod ], that's a conversation for 2025.

Fair enough. And on the export side, because given the kind of success we've had in the market against pretty well engine global competitors. Why can't we think differently on the export side, probably partner with some of our existing alliance partners or anyone, is there anything which we can do because our products are quite complementary to some of the other global players like say, if you pick Volkswagen, some of the products can be very complementary to their portfolio in many emerging markets, for example. So is there something which you can think, which can widen our product reach on the export side?

So let's first just talk about it a little organically. And then, of course, in today's world, we have to explore every other alliance opportunity to get a win-win. But organically, we're already seeing very good traction in markets where we are present with our new products. So for example, the response to XUV700, Scorpio and in South Africa or even now the 3XO as it just getting to go to South Africa, Australia and New Zealand. So see some of the new markets we've gone to. We think the big disruptor will be when we do the global lifestyle pickup because there are not many people playing there and we have been strong in pickups in many markets around the world, but it was an aging product, the Scorpio pickup. The global pickup is going to take it to a totally different scale. So we do think that international will be a very big opportunity for us, but we'll do it in a very calibrated way and choose markets that we have a presence and then add slowly. I don't think we are planning to do one fine day now let's go global kind of thing.

The inorganic side, alliances or...

If you have any ideas do share with us?

I just...

Yes, we'll keep that in mind...

And this is to Anish Shah. Anish, there are -- there have been media actors talking about some of the global players looking for India and alliance partners and also uploading equity. So how should one think about your approach to such moves or say, offers, right? Because the problem we would have as analysts says that if you take equity exposure to existing business, which is like loaded with legacy costs and subscale business. So if you can just help us understand from your -- from a capital allocation prism and the written focus, how should we think about it if it were to -- something were to [ 55 ] ?

So, I look at it the same way as we've talked about on new area, which is the bar is very high, right? It has to make sense for us from a financial standpoint because it has to be able to generate returns that will be outsized and we can define what outsize is relative to the industry. If all of that happens, then that's something we will look at. So that bar continues to be maintained in everything we do.

Great to -- good to hear that Anish.