Ladies and gentlemen, good day and welcome to Q3 CY 2023 post-result conference call of CIE Automotive India, hosted by ICICI Securities. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your telephone. Please note that this conference is being recorded. I now hand the conference over to Mr. Basudeb Banerjee from ICICI Securities. Thank you, and over to you, sir.
Thanks, Sagar. First of all, thanks to CIE Automotive India Limited management for giving us the opportunity to host this call. We have with us top management represented by Mr. Ander Álvarez, CEO; Mr. K. Jayaprakash, CFO; Mr. Vikas Sinha, Senior VP, Strategy; Mr. Oroitz Lafuente, Business Controller; and Swapnil Soudagar, DGM, Strategy. Without wasting any time, I would like to hand over to Vikas. Over to you.
Thanks, Basudeb. I welcome all of you on this call, as also Ander, our CEO. I will present the Q3 CY 2023 results of CIE Automotive India Limited, which was formerly known as Mahindra CIE Automotive Limited. At the outset, we would like to bring to your attention that the sale of 100% stake held by CIE Forging Germany GmbH , which we call CFG, in its wholly owned subsidiaries is complete. It is to be noted that while the transaction has been completed this month, the transfer of business to the seller takes effect from 1st July 2023. As a consequence, we have restated the results of the European operations for Q3 and nine months for last year. So the Q3 CY 2022 and nine months CY 2022 results for Europe have been restated in this presentation. We now start with the results of the India operations for Q1 CY 2023 on page seven.
Sales was INR 14,393 million, EBITDA INR 2,405 million, EBIT INR 1,862 million, and EBT INR 1,746 million. The sales grew 1% year-on-year, EBITDA 12%, EBIT 15%, and EBT 13%. EBITDA margin in Q3 CY 2023 was at 16.7%, compared to 15% in Q3 CY 2022 and 16.8% in Q2 CY 2023. The year-on-year sales growth of 1% was more or less in line with weighted average market growth across the market segments we operated. There are some mitigating factors to consider here. The impact of declining steel prices was significant in this quarter. Also, please note that Diwali was in October last year, while it is in mid-November this year. The festive effect was felt more in Q3 last year, while it will have greater impact in Q4 this year.
Then there has been some delay in the ramp-up of some of our orders, and this has impacted sales growth, but that should be corrected in the coming quarters. Nevertheless, we are happy to note that PBT, profit before tax, grew by a healthy 13% in spite of the anemic growth this quarter in India. Our efforts to maintain our margin trends are bearing fruit. Overall, we have positive expectations on growth and margins from all our verticals in India. The market situation in India continues to be optimistic, with all the core market segments showing good sequential growth, especially heartening is the sequential growth in the two-wheeler segment as the festive season is expected to give a good boost to this segment. Tractors continue to be steady on a high base, with rural income showing recovery, though the erratic monsoon this year could somewhat dampen the prospects a bit.
Now we move to the results of our European operations for Q3 CY 2023 on page eight. Sales grew to INR 7,262 million from INR 6,806 million in Q3 CY 2022, which represents a 7% growth year-on-year and is slightly better than the market growth. The impact of forex and steel price drop mostly cancel each other out in this quarter. The drop in sales sequentially between Q3 CY 2023 and Q2 CY 2023 was 15%, which is in line with observed seasonality, as August has almost a three-week holiday period. The Q3 CY 2023 EBITDA in Europe was INR 1,249 million, EBIT INR 1,009 million, and EBT INR 813 million. EBITDA grew 36% year-on-year, EBIT 42%, and EBT 19%. The slower growth in EBT compared to EBIT is due to the higher interest costs in Europe this year, which is because of higher interest rates.
As you know, interest rates have gone up in Europe. EBITDA margin in Q3 CY 2023 was 19.2% compared to 13.5% in Q3 CY 2022 and 19.2% in Q2 CY 2023. As explained in our last call, the inflated margin in Q2 CY 2023 and the slightly depressed margin this quarter is due to the stock build-up in the month of July and is observed every year. Metalcastello is also seeing the continuing impact of a cyclical slowdown in its end-use market. The market situation in the coming quarters is a bit uncertain with the continuing war in Ukraine and the tense situation in Israel, which are casting a shadow. The EV penetration in the European auto sales keeps increasing. Therefore, our attempt will be to be in step with the market while maintaining our margins.
Now if we go to page nine, we will see the consolidated results for Q3 CY 2023. Sales was INR 21,655 million, EBITDA INR 3,654 million, EBIT INR 2,871 million and EBT INR 2,559 million. The consolidated EBITDA margin for the quarter was 16.9% versus the 14.5% in Q3 CY 2022. While sales grew by 3%, EBITDA grew by 19%, EBIT 23% and EBT 15% respectively. The YTD September nine months results from the India operations are on page 11. Sales was INR 41,375 million, EBITDA INR 6,928 million, EBIT INR 5,303 million and EBT INR 5,045 million and PAT INR 3,685 million. Sales grew 6% compared to the corresponding period in CY 2022, higher than the YTD weighted average market growth.
While sales grew 6%, PAT grew by 15% year-on-year, and this was achieved by expanding our EBITDA margins in India to 16.7% compared to 15% last year. The YTD nine-month results for Europe are on page 12. Sales was INR 25,486 million, a 14% increase over the corresponding period. Last year EBITDA was INR 4,592 million, EBIT INR 3,776 million, EBT INR 3,262 million and PAT INR 5,877 million. Margins have recovered to levels seen before the energy crisis as power costs have stabilized. Please note, PAT includes INR 3,356 million of profit from discontinued operations, that is CFG. This profit includes a one-time impact of approximately INR 1,100 million settled insurance claim and others. PAT also includes INR 2,090 million of foreign currency translation reserve, which is non-cash credited to P&L on sale of German business. Normalized EBITDA overproduction value is at about 17%.
The recurring PAT is INR 2,521 million, while YTD sales grew 14%. Recurring PAT in Europe, which is taking out all one-time value grew by 26%. The consolidated YTD nine-month results are on page 13. Sales was INR 66,861 million, that is roughly INR 6,700 crore, a 9% increase over last year. EBITDA was INR 11,820 million, INR 1,152 crore, EBIT INR 9,079 million, EBT INR 8,306 million and PAT INR 9,562 million, that is INR 956 crore. As explained in the previous section, PAT includes INR 3,356 million of profits from the discontinued operations. Excluding that, consolidated PAT for nine months YTD September 2023 was INR 6,206 million, that is INR 620 crore, and we are on track to have the highest PAT in our history in 2023. It is to be noted that while YTD consolidated sales grew by 9%, the recurring PAT grew by 20%.
Recurring PAT, which is without any one-time non-recurring profits from the discontinued operations. Therefore, to conclude, in spite of hiccups from the top- line, we are on course to deliver an impressive improvement in earnings per share without any one-time factors. Thank you very much. You can proceed to Q&A.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Hi. Quickly, if you can share what was the impact of steel price decline or the commodity cost decline in the India business?
Steel price.
It has been an impact of almost around 3% of decrease.
3%?
Of decrease, sorry. Of decrease.
Yeah.
3% decrease in sales.
Okay. For the European business, we have seen a change in the euro revenues in euro terms have declined by about 5%. Is that correct? Is that largely because of steel price or customs?
Gandhi, you are saying Europe revenues have?
European business euro revenues, on currency basis, seems to have declined by about 5%.
There is also a steel impact there. The forex impact and the steel impact are actually canceling out in Europe in this quarter. What you see is the rest of it.
Got it.
It is not actually declining.
Got it. The outlook for Europe business, given that-
For Metalcastello, in fact, as the exchange rate impact and the raw material impact are canceling each other, the reality is that our business in Europe grew more or less at the level of the market. Our growth of 7% is in line with the market. It is slightly below because we have the impact of Metalcastello. As Vikas explained in the script,
Right
Metalcastello is selling a little more because we are selling, exported to the U.S., and the U.S. market is going down because of the higher interest rates there. The off-highway market is relatively affected by this impact. We think that the recovery will come during 2024. There is a temporary decline, and Metalcastello will recover during 2024. That is our expectation.
Got it. Can you update us on the EV order wins in the European business? What is the cadence of that now for EV in the European business order book?
Jinesh, as we have explained, we are looking at four major orders. Two in Metalcastello, which are expected to start ramping- up in. Some small bits have already started, so they will start ramping- up next year in Metalcastello. We have talked about EUR 28 million-EUR 30 million. These are two orders. We have orders both at CIE Forgings, steel plates , aluminum forgings. Right now they are small, but what is happening in Europe is that EV sales per model is very low at this point of time. Even though the penetration looks high, the sales per model is small, so the ramp-up is a little slow. We expect all these four orders or four or five orders to start ramping- up from 2024 onwards, and we will see good results there.
Also as a summary, since it is different after speaking, just as a summary of the new project allocation, the new orders that we are getting in Europe, for example, you can see that 74% of our new orders this year, everything that we got, 74% of what we got this year are for electric vehicles. You can see that the move and the launches in Europe are concentrated in EVs. This is good news for us because we are in line with what the market is doing. In Metalcastello, all the businesses that we are getting from all this market, 50% is also for electric vehicles in this year. That means that we are also well-aligned with the future.
In India, you know that electrification is coming, but it is slower and at a lower pace and lower speed than in the rest of the regions. Approximately 10% of our new orders are for EVs. Our new order portfolio is perfectly aligned with the market evolution. I think we can be comfortable with this transition to happen. Of course, the key thing for us will be how to manage this transition. Because, for example, in this moment, most of our programs, EV programs that we are waiting for to start are being delayed by the customers because of different reasons. Some lack of batteries or certain market difficulties that our customers have. But they will come for sure. During next month, we will see these new projects starting and ramping- up.
Overall, we can say that the evolution of the new orders is pretty exciting and also that we will see the new projects starting and ramping up soon as our customers promise us.
Got it. Good to know. Lastly, can you talk about the net debt at the end of the quarter, where we are in that? I am presuming this would be after the proceeds of the German operations.
Come again. What, Jinesh, we couldn't get that.
What is the net debt, net debt at the end of the quarter at consolidated level ?
Yeah, J.P.
It's about one point. Yeah.
Can you answer?
Hello.
Yes, if required, please.
Yeah, it's INR 1.1 billion.
Okay. And this is after considering the cash at German operation, right?
Yeah.
Okay. So this won't further go down.
The cash of the German operations will receive in the month of October. Okay. In September, the sale was not yet secured. It was secured in October, so this is including the German operation. The debt will be reduced with the amount that we will get from the German operation sale.
Okay. This will probably become net cash post this receipt. Any thoughts on repaying debt at the Europe operation level, given the sharp increase in direct costs, considering we have cash in [inaudible] ?
Jinesh, we are looking at our cost of borrowing and the income we get in the cash flow. We have some arbitrage there. To the extent we have a positive arbitrage, we will continue until we have some real business use of cash, instead of netting it off.
Okay, got it. Great. Thanks, and all the best.
Yeah. Thanks, Jinesh.
Thank you.
The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Thank you for taking my question. Just on the Europe production side, though when we look at your nine months production versus your sales, you are pretty much in line with what market production is. Just wanted to take a heads-up from you. When we look at Q-on- Q production have really declined very significantly in Europe. Can you throw some light, is something transitory in nature, or you think this pressure will continue on the production? If you can throw some light on that, and then I will take up the second question.
You are talking about Europe sales in this quarter, INR 7,2 62 million versus the previous quarter, right?
Basically, when you gave the market update in your presentation, you spoke about production, which is down 16%, 17% July to September versus April to June.
Okay.
You have given in your presentation in Europe results. I was just trying to understand that is that, because Q-on- Q obviously will go down because of the summer season, but the trend of fall is quite drastic. When we look at your nine-month production data of Europe versus your sales, it is pretty much in line, 14% growth. We are trying to look that is this something you are looking more production run rates continue, or there is some improvement is coming in Europe as far as production is concerned for your clients?
The Q-on- Q, that drop of 17% or 15%, the market has dropped 17%, we have dropped 15%.
Yeah.
This is very much a factor of seasonality. In August, almost three weeks are off. So three weeks out of 12 weeks is off. Like in a quarter. So you see that kind of drop in the sales, that is all.
Okay.
In Q4 also, please bear in mind, in December, one week is off. So obviously, in Europe, H1 is always better than H2. In India, it is the reverse because we have the festive season in the second half. So this is very much in line with seasonality. The market is what it is. There is no panic in the market. There is no demand drop in the market. This is pure seasonality.
Every year there is seasonality, but we do not see that much drop. It is fine. I will take it off. That is fine. Second is, when we look at your, just on the India business, especially on two-wheelers, because one of your large clients is still ramping- up on exports, which we are not seeing this ramp- up happening. Generally, on the two-wheeler side, you are seeing production ramp- up happening. That is one. From your, let us say, large clients and few other clients. Second, in terms of margin improvement from here, we are seeing that few of the OEMs are drawing back margin. They are not giving easy margins out to the ancillaries and down the chain. Can you throw some light on that as well, as far as margins are concerned? Just those two questions.
On the two-wheeler side, you are right. The exports has not recovered as much as we had thought. On a YTD basis, two-wheeler exports are down about 20% on a YTD basis overall. You are right. One of our strategic anchor customers, Bajaj, is very dependent on exports and of course, we suffer accordingly. But the point is the domestic market is certainly looking up. If you look at the retail sales data from the dealers association, FADA, you will see there is some good news there. Yes, it is slow growth, but it is coming back. So on two-wheelers, we do think that the festive season will give a little bit boost to the two-wheeler market, two-wheeler numbers in India. To your second question on margins from OEM, that is a constant dialogue that we have with our OEMs. Yes, OEMs are always interested in optimizing their margins.
We are obviously interested in optimizing our margins. We are partners, and this dialogue continues.
The question was that, is something 16%- 17% somewhat will try to maintain or you see further from synergies? You have articulated earlier also that maximum synergies have been taken in. Do you see further scope from here of improvement?
Okay. That is a very good question. In fact, what we think is that we still have room to improve our internal efficiencies. That is our main fight in our operations. We have all the verticals doing a great job to continue improving, and we think that we will be able to continue this journey. The room for improvement is there, and we have already identified the gaps. My answer is clearly yes. Also, this market growth that we expect and business growth that we are expecting for the next quarters will also support us on this margin improvement. We have a lot of projects in the pipeline that are delayed, as I explained before. Once these projects are ramping up, we will see certain improvements also. Overall, I would say that the margin improvement is a never-ending story. We need to continue improving.
Always, we said that the gap compared to our European or Mexican operations is still high in India. We think that we can do our production even better. That is what we are doing, trying to be really competitive in India and get the appropriate margins for the company. My answer is very clear to you, is yes, we need to improve the margins. We think that we can do it.
Great. Thank you so much, team. All the best. Thank you
Thank you.
Thank you. The next question is from the line of Nitish Rege from ChrysCapital. Please go ahead.
Hi. Thank you for the opportunity. I have a few questions. The first question being, you mentioned new project ramped up in the PPT. Could you please elaborate on those? Are these large projects, and which segments are we targeting for this?
To answer your question, of course, Ander will add to whatever I say. You have to understand, in India, we have been making growth CapEx of about INR 200crore -INR 250 crore, like INR 2,000 million-INR 2,500 million for the last twoto three years. A substantial growth CapEx close to, I would say, if you take from the year 2021 to now and even one more year ahead, if you look at it, we could be in the range of some good, as I said, average of INR 200 crore-INR 250 crore every year. All of this is against committed orders. Some of these orders have not ramped- up to our satisfaction, but they will ramp- up because we know that there is growth in the market.
When these ramp- up, you will see better growth results also, not just margin results, but better growth results in India. That was the point we were making. In terms of what are those, for example, we have a new plant at CIE Hosur . We have had expansion in the aluminium EV , four-wheeler space at our aluminum plant. We have made investments in Mahindra EV's new models, which have in the course of ramp- up. New tractor models are coming in from Mahindra. There is a whole lot. As I said, in India, we have been investing across the board in almost every vertical. Every vertical we expect growth. Some of this has been delayed. Therefore, we are saying growth will come. We have been caught up in this quarter at a bad time. But other than that, we do expect all of this to ramp- up.
Ander, if you want to add.
You answered perfectly.
Yes.
Okay. The next question being, is there any update on the sunroof strategy for India business?
Sunroof. No, there is no news at this moment on this. The sunroof business in India is doing well. It is growing, and we will analyze internally and come back to the board and, of course, then to the market.
Right now, we have not taken a decision. We have noted this. I think even in the past-
Yes
this has been asked. We have noted this. We will come back to you with an answer. Give us some time on this. Okay.
Okay. Just one more question, the last one. So as per my calculations, we will be ending with around INR 500 crore of cash this year. So, any thoughts on M&A?
M&A is an integral part of our day-to-day operations. We keep looking for stuff. We are looking for stuff. At this stage, we are not at any advanced stage that we can talk about. But yes, we are looking for opportunities in India. We are not looking for opportunities outside India. We are looking for opportunities in the areas where adding customers, adding new ways of doing business. So different segments like aluminum, four-wheelers, we are looking at a new customer base, et cetera. We keep looking for it. But one thing I must say is that we will not do an M&A just because we have cash. We will do M&A if we think it is appropriate for us. That is something, please bear that in mind. Yeah. Hello?
[Mr. Jalan], are you done with your question?
Yes.
Thank you so much.
Thanks. Thanks, [Jalan ji].
The next question is from the line of Nikhil Kale from Invesco. Please go ahead.
Yeah. Hi, thanks. My first question was on Metalcastello. Can you just help me understand what was the decline in Metalcastello revenues for Q3 and also for the nine months period?
In Metalcastello, we have a decline because of the market evolution in U.S. of approximately 15%, from 15%-20% in this Q3 and Q4. That's what we expect for the next quarter, too. What we are told is that during next calendar year, there will be a recovery. So the situation is that now we have this 15%-20% drop, and then perhaps in Q2- Q3 next year, we will see the revamp again on this business. However, also we have new programs for the electric vehicles in U.S. that we are now launching and preparing everything, so the ramp-up will start. So we will be able to compensate this drop, anyway, with this electric vehicle business.
Just the numbers that you mentioned, EUR 28 million-EUR 30 million kind of orders for Metalcastello, it will take couple of years to kind of ramp- up to pre-pandemic. Is that correct?
Yes. It will go ramping- up gradually during these years. It will depend also on the introduction of these vehicles in the American market. The expectation is that we will see, let's say, a smooth growth during these years.
Okay. Just recently, I think IHS is kind of forecasting production to be broadly flat for Europe car market next year. But given your commentary on the order side of ramping up, can we assume that you would kind of outperform the end market production growth?
That's our interest and our intention. But it's true that the IHS is saying that the European market will be flat in the next four or five years at around 17 million cars. That's why together with electrification, we will see a very challenging scenario in Europe. However, with the two new project allocations that we have had in the electric vehicle field, I think we will be able to, let's say, overcome this situation and of course gain market share. That's our interest. Yes.
Okay. Thanks. I understand. Thank you.
Yeah. Thanks, Nikhil.
Thank you. The next question is from the line of Vimal Jamnadas Gohil from Alchemy Capital Management Private Limited. Please go ahead.
Thank you for the opportunity. Sir, my question is on the India business. You commented that you spent almost INR 500 crore-INR 750 crores on those CapEx with committed businesses from customers. Just trying to think aloud as to why will the customer not go ahead despite the market seeing good signs of growth. If you look at the new models, they are flying off the shelf right now. So where exactly is the challenge? The orders potentially should have come. Why should there be a delay in the first place? Yeah. Thanks.
Sure. It depends on specific projects, Vimal. You are right, the markets are not doing badly, especially for four-wheelers. Two-wheelers is not doing well. Some of the models that I talked about are EVs. We talked about the aluminum four-wheeler EV production. There are specific areas. Of course, in general, the markets especially for light vehicles is doing well, no doubt about it. Some of this is for exports. In specific areas, the ramp-up has not been as fast as we thought, but it will happen. You are right. I am not saying there is a market problem and that is why this thing is happening. No, it is just a delay. It will come. No issues.
What you are saying is these are newer models which are taking time to ramp- up. Maybe the customer is looking, focusing on the existing models. Is that understanding correct?
No, it is not that. Look at the EV models, for example. For example, in this year, on four-wheeler EVs, there has been some slowdown in some model areas. I am not saying customer is doing this or that. This is general evolution of new models. Sometimes it gets delayed. A project gets delayed by two, three months, four months, six months. That is normal.
Right. And the signs of revival, are we already seeing it or is that a few months away still?
Revival of what?
These projects ramping- up.
Yeah. It will ramp- up. Yes, we are looking at it in the next few months. Yes.
Right. As we speak, we are seeing signs of these orders coming back or ramping- up.
These orders have not gone away. It is just that those introductions are just taking more time. That is all.
Understood, Vikas sir. Metalcastello, we have a very large exposure to off-highway vehicles. Is that understanding correct? Which is why we experience seasonality.
Yes, that is right.
The revival should be sharp, right? Because if the slowdown has been bad, the revival should be equally sharp. Has it played out similarly in history and can that be expected in the future as well?
Yes. We expect that, yes, we will see the revamping of this business in the next months. Probably not immediately, not in the Q4, not in the Q1, but mid- next year, we will see this recovery for sure. As I told you before, we will have additionally all the entrants of the electric program that we had got for U.S., for another customer. So with these two effects, we will see that our sales in Metalcastello will come back to the normality and we will see growth again. But yes, as we are now in the bottom cycle, we need to suffer this drop in the next one to three quarters. That's our expectation, but we are optimistic and we have everything prepared to go up and to ramp- up again soon.
Just one follow-up there. The EUR 28 million - EUR 30 million order is in the passenger vehicle vertical, for Metalcastello.
That's right. For Metalcastello, yes, for the U.S. market.
Okay.
Light trucks.
Light trucks.
Yes.
Okay. EV light trucks. Okay.
Yeah, that's right.
Understood. All right, sir. Thank you so much, and all the very best.
Thank you. The next question is in the line of Harini from Sundaram Alternates. Please go ahead.
Good afternoon, sir. Just one clarification. Our goal was to grow, as for the market growth, we at least tend to or have a target of growing more than 5%-6% higher than the industry growth line for the markets where we compete, either in India or in Europe. At least from the past quarters we have been seeing a bit of a slowdown on that front. How do you see it coming forward in the next one to two years? Do you see that expectations coming back in place?
Yes. That is what we have said. Some of our ramp- up has been delayed. But yes, you are right. Our aim in India is to grow 5% + higher than the weighted average market. We have different segments in which we operate. We have to take a weighted average. Yes, in the medium term, if you are asking a question over two to three years, yes, that is our intent. That is also our intent in Europe. As Ander just mentioned, Europe, the market is flattening, but even there we want to grow higher than the market through all these new orders that we are looking at. So in over a two-year period, whatever we have said in the past holds. This quarter, as I said, it is a specific case of ramp- up not having happened. Let me put it simply.
This quarter is not representative of what we are planning to do when it comes to growth numbers in India.
Understood, sir. Another question, if you could just give out, generally we have the new customer orders contributing to around 25% of the growth. Are we in the same track going forward? How is the thing on the new customer additions? Are we somewhere on track in that?
Is the question, ma'am, is that are we making new customer additions? Is that the question?
Yes, sir.
Just to put things in perspective, I think in India, we have almost 50 customers with more than sales of INR 10 million per annum. Okay. Out of this, almost half would have been added in the last two to three years. Customer addition is an important part of our strategy. It includes increasing our selling to our existing customers, trying to grow our middle customers, and adding new customers. All three aspects we are looking at, and we will continue to look at, and that is what I'm saying. We now have 50 customers in India with more than INR 10 million sales per annum. Okay.
Understood. Okay, sir. Thank you.
Thank you, ma'am.
Thank you. Before we take the next question, we would like to remind participants that you may press star one to ask a question. The next question is from the line of Pratik Kothari from Unique PMS. You may please go ahead.
Hi. Good afternoon, and thank you. Vikas, again, on India growth. Sorry, multiple questions have been asked, but again, in the first nine months, we have grown at 6%. Industry volumes have grown at 6%, but on a sales basis, industry has grown at 15%-20%. Be it Mahindra, Bajaj, Ashok Leyland, Tata, our major customers, the major OEMs which have reported numbers and what is expected. I understand that new platforms are taking time to ramp up. Sir, this is incremental growth which needs to come in. But for existing model plan, for existing production, existing industry which itself is growing at 15% in these nine months, or maybe Maruti has grown at 25% in the first nine months, so it is expected to grow at 25% for a second.
Where our growth is only say 6% on a sales basis, how do we reconcile this number?
I don't think, if you look at the production numbers, the weighted average production growth for YTD nine months is about 4%. If you look at it, we had a very good Q1 if you remember. Q2 and Q3, Q2 was around 5% for us. Then the weighted average market growth was 1%. So, there are different numbers that are reported, but if you look at the production numbers of various OEMs, then you can clearly see the weighted average growth for YTD nine months is roughly around 4%.
But we are comparing industry's volume growth to our sales number. That is
You have to also take into account the steel impact, which is not there. We did mention steel impact in this quarter was about 3%. So if you take that steel impact, 6 % plus 3% roughly is 9% versus a weighted average market growth of 4%. But steel is you have to keep it aside, because at the end of the day, growth is what it is. And to your specific question on different OEMs, different OEMs have done differently. Mahindra Auto continues to do exceedingly well. There is no doubt about that. Mahindra Tractors on a YTD basis may be a little lower than on a YTD basis. Maruti and Bajaj, again, may be similar. Bajaj might be a little lower. If you look at their production numbers, you have to understand Bajaj is 50% exports. So that is the situation.
So we do track the market and this is our reading. On a weighted average basis, about 4%, we have grown 6% without the steel impact. Steel impact has been substantial this year. As we have said in the past, that is something which is part and parcel of the business. And so when you talk about the YTD results, this is how we look at our results. And going forward, things will be better.
Sorry, point taken. My only limited point was steel also impacts the OEMs, as you said. OEMs are growing at 15% on a sales basis. Our growth is 6%.
No, we look at numbers, their production numbers. Their sales numbers, we don't track. We look at their production numbers. And what we are talking about when we compare the market, we compare the production numbers. For us, that is what is important. Whether, how they pass on the sales, et cetera, we have not looked into that. We have not analyzed that for the OEMs. But whenever we talk about the market, we talk about production numbers. Not even sales, domestic sales. Production numbers includes domestic sales and exports, and the effect of inventory, et cetera, that they have. So that is how we look at the market.
Fair enough. Sure. And speaking on margin, first of all, a commendable job. We have come all the way to 17%. Our aspirations are even higher. So given we are a process engineering company, it's commendable what we have done over. Congratulations on that. Just a question on that, given we are not a product company and a process engineering company, so how is it that our customers, the OEMs, who also would be looking at the numbers, the margins that you report, how do they allow us to make this kind of margin? And given our attempt to keep margins at such a high level, and this might be one of the best in the industry, in terms of competition, et cetera, does that not hamper us given the margins that we are achieving?
No. Our customers are our partners, so we are not in competition with our customers. As long as we meet their requirements and based on our efficiency level, that is to us. So when Ander speaks about margins, he talks about efficiencies. That does not mean we will not meet the requirements of the customers, whatever they are. As long as we meet the requirements, it's okay. And if they ask us for price reductions, et cetera, that of course, we'll have to work that out. That's a constant dialogue. Our customers are our partners. We are not in competition with us. As I said earlier, they optimize their margins, we optimize our margins. Our focus when it comes to margin improvement in India remains efficiencies.
In fact, you had asked the question in the last call and Ander had given a long answer on what we are doing to improve margins. If you go back to that answer, it has nothing to do with pricing, it has nothing to do with customer requirements. They are all internal. If you recall, it was automation. It was production per person, input-output ratios, layouts. These were the things that we talked about last time, and that is the focus for us. Therefore, whenever we talk about efficiency improvement in India, there is a long way to go on the engineering aspects itself. After that, of course, whatever the customers ask us, we will try and meet their requirements as far as possible. They are our partners. They are not our competitors. Okay?
Correct. Sir lastly, the efforts that we make internally for improvement, efficiency, largely it is for us to keep and not that we have to share it with the customer.
No, there could be different arrangements there. Customers might require. They might have their own requirements. All that I am saying is our margin improvements in India, we do think that from an engineering aspects, we still have room to improve. How much we share with our customers, what we share with our customers are different issue. All that we are saying is we do see lot of prospects for improvement on the engineering side in India. Still, that is where we are at this moment.
Great. Thank you.
Yeah. Thanks, Pratik.
Thank you. The next question is from the line of Priya Ranjan from HDFC Asset Management Company. Please go ahead.
Yeah. Thank you. Just one thing. If I am not wrong, I think because you have mentioned around 6% growth, have an impact of, say, 9% of adverse impact of commodity. So for a YTD basis, is it safe to assume that the volume growth was 15%? Is this what you wanted to say?
No. The weighted average volume growth of the market was 4% on a YTD basis in India.
That I understood. But for you, because you had a 9% adverse impact of commodity or steel price. So your volume growth was 15%.
Not 9%, 3%.
3% of decrease.
So 3% for this Q3 for YTD?
For YTD, we will have to work it out, but you take this as representative. That is what we were talking about.
Okay. So the volume growth probably will be 3% + whatever YTD.
Yeah. No. It is not that we do not have growth. Yes, normally, when the market is growing very high, the steel impact does not matter as much. But right now, because of tractor growth and two-wheeler growth, which is a little like Bajaj, Mahindra Tractors, even Maruti is on a YTD basis zero-zero. So when you see this, then the steel starts having an impact. But having said this, as part and parcel of our business, we cannot keep talking about it. It is what it is. But yes, when our ramp up happens elsewhere, I think you will see better growth numbers.
Understood. Any thoughts on the two technology which we have been talking in the past, particularly on the aluminum forging side as well as the plastics in India? Any thoughts on that? When can we start with aluminum? I think because of the electric situation in Europe, we may have to stop some plants or whatever changes it might have to do in the plant. So how soon or how fast we are in that process?
Aluminum forging is in Europe. That's what we are doing. We have already started to do it in a small way.
There are chassis parts, big parts that we have in Europe. There we have said same machine is being used, but the process is slightly different. You need to do heat treatment. Aluminum is a soft metal, so some process parameters would be different. So in Europe, we have already started doing it. In India right now, the need for aluminum forging is limited. Whenever it happens, we can do it. As I said, we are doing it at Galfor, so we can bring the know-how to India on the process side, not a problem at all. As far as plastic is concerned, I think we have always said that we'll go the M&A route for plastics. We already have composites, which is doing very well, by the way. Composites, when we talk about EVs in India, we normally don't talk about three-wheeler EVs.
But three-wheeler EVs in India is a success story. It's a very big success story, especially Mahindra three-wheeler EVs. That division of Mahindra is doing very well. We are big suppliers to them, and our composites division is doing well. So that will hopefully continue to do well. On the plastic side, otherwise, we will do through an M&A is what we have always said, the inorganic route. That depends on opportunities. Right now we have nothing in the pipeline, but yes, we keep looking for it.
Understood.
Yeah.
Lastly on this, the strike in the U.S. So any potential impact in the fourth quarter numbers because of the strikes at various OEMs in the U.S.?
Till now the impact of the American workers strike in Ford, in Stellantis, and in General Motors is very limited, okay? I'm talking about first CIE impact for CIE was very limited in September. Probably we can have in those customers an impact of 10% till now in October. Okay. So it's not relevant. Coming back to CIE India, we have only certain impact on our forging activity in Mexico, where we supply to GM through Tier- 1, and we are seeing certain minor impact there. So till now, the impact of this strike is not relevant. We will see what's going on in the next weeks. But until now, the situation is completely under control.
Thank you.
Yeah.
Thank you. The next question is from the line of Jigar Shah from Svan Investments. Please go ahead.
Thank you, team, for taking my question. I am Vishal Shrivastav here from Svan Investments. I have few questions. Most of my questions have got answered. I have some questions regarding European operations. Just wanted to know, is there any trigger left in the margin improvement in the European operations from here on in CY 2024 and 2023? If yes, where this improvement will come from? Will it come from the mix of new orders which you have already bagged, the kind of product mix improvements or value addition improvement through that? Can you throw some light on that, please?
Okay. The margins in our European operations were negatively affected last year. During 2021 and 2022, we were negatively affected because of the energy price increase and the steel price increase. Also, the third reason that is the big inflation that we have been suffering. During 2023, we have been able to first, the reduction of the energy prices. I mean, the energy, electricity prices has gone down to stable levels at around EUR 100 per megawatt. That is where we are now. So this reduction in cost has allowed us to recuperate certain margins. Also, we have negotiated with the customers all the steel and energy updates systems. Most of our customers have accepted that these cost drivers need to be indexed. So that has been done. So we have recuperated the margins that we lost.
Finally, we have the inflation where we are negotiating with the customers and okay, that is a much more difficult issue to discuss. But overall, what we have done is we have been able to recuperate the margins that we had before the crisis. Then for the future, we expect to keep our margins, to keep our business profitable. It will be very complex in this flat scenario to continue improvement. So businesses are really stretched and optimized and further improvements are not easy to get. But overall, I would say that our aim is to maintain our margins in the current situation once we have recuperated them from the last year drop.
Fair, sir. Thank you. Sir, one more question regarding the new orders which we have got in Europe. Sir, are these orders through replacement of the existing programs or these orders are new programs which will lead to our market share gain?
Okay. You know that most of the products that we are getting in Europe are for electric vehicles that will replace the current internal combustion engines. Okay? We can expect that the electric vehicles will replace the internal combustion, the current programs. This is a clear substitution. Okay? The good point or the good news for us regarding these new programs that we are allocated now is that approximately 75%, I mean, exactly 74% of the total new orders are for electric vehicles. Okay? That means that in the future, we will see more and more electric vehicles in Europe, and we will have important growth in that segment. That's the message. But coming to your question, yes, I think there will be a substitution from the electric vehicles substituting the internal combustion engines.
Okay. Sir, just last question, if I can squeeze in. Sir, as our mix towards these execution of these electric vehicle programs improves, I think, is my understanding right that in that case, our probability of margin improvement will be more as our value addition becomes higher, in those kinds of platforms?
Value added that we are getting is improving. Of course, we will have the opportunity to improve our margins. In the case of Metalcastello, for example, when we are talking about these electric vehicle components that are much more complex components, yes, we expect to improve our margins as the added value and the complexity of the product is growing. Also, I can tell you that in India, we are doing also the same process. We are increasing the added value of our components, growing in the complexity. That means that we will be able to continue growing. Perhaps I missed this point in my previous answer when we were talking about the improvement on internal efficiencies, but also the change of the portfolio and the increase of the complexity of the products will give us room for this margin improvement.
Of course, we need to take the risk of making more complex products. It is also additional effort from our engineers and from our production people. But that's the trend, and that's exactly what we are doing in Europe and also in India. In both regions, we are with the same path.
Fantastic, sir. Sir, thank you for taking my question, sir. Thanks and all the best, team.
Thanks, Vishal. Thank you. Thank you very much, Vishal.
Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited. Please go ahead.
Hi. Thanks for the opportunity. Question is for Ander. Hello, am I audible?
Yes, Bharat. Loud and clear. Come on.
So, Ander, Vikas has given some color on these aluminum forging. Whereas we have aluminum forging in Europe and aluminum casting in the India side. How are we seeing, and when do we expect that really aluminum forging to really emerge for a big business like aluminum casting in India? What are the challenges, the difference between these two processes? If you can give a little more color as well as the end user.
First question is, when will aluminum forging come up in India? What is the challenge in making aluminum forging?
Okay. We will see the aluminum forging coming to India soon for, let's say, a small product and small applications. Probably in the two-wheeler sector, we already have certain aluminum forging components. For the four-wheelers, forged aluminum is a premium car component. That is why the volumes that we can expect in India for aluminum forging are lower than other technologies, mainly because of these premium cars that they use this kind of aluminum forging. In Europe, we are getting these new programs, these aluminum castings component for premium cars. We are talking about premium cars like Jaguar Land Rover or Mercedes or BMW. Those are the companies that they use these castings component in making aluminum, very expensive components. That is our bet for our European business.
If this trend is coming to India, if there are these premium cars being produced in India in the future, we will be ready to do that, okay? My view in this moment is that these aluminum die-casting components will be produced in Europe at the first stage. For the two-wheeler, certain small components will be also produced in India. Okay? That is the answer to your question.
Okay, fair. Second question, Vikas, when we are saying this two-wheeler is down, we understand it is largely export, whereas in domestic, how are we seeing? Because in our presentation, we have said that CRISIL is anticipating 7% of our growth in two-wheeler post FY 2024 and then growing. How do we really read this? What is on ground things are happening?
Hello. Who is saying 7% growth in two-wheeler market in 2024?
I mean CRISIL statement, which we have published in CRISIL research.
CRISIL research. Okay.
Yeah. 9%,-10%-11% in FY 2024.
No. CRISIL publishes sales data. We are talking about our production data. When you are looking at those sales numbers, they are domestic sales. Domestic sales is recovering in India, as we talked about. Export sales has yet not recovered. I think the latest data suggests that exports in India on a YTD basis, I have said this earlier in this call itself, was 20% down. You have to look at both. But yes, the good news is the domestic market for two-wheelers in India seems to be recovering, but it is recovering slowly. It is not as if there is a huge recovery. I think that trend will continue.
Okay. Tell me on the tractor, how do we really see on the ground, there was a concern on the monsoon and September was a good rain. How are we seeing?
On tractors?
Yeah.
On tractors, I don't think, at least for the next few quarters, we think it will be stable on a sequential basis. That is our expectation of the tractor market. You are right. The monsoons, unfortunately, in India was like a sinusoidal curve. June was very bad. July was extremely good. August was extremely bad. If you remember, the driest August in
Correct
25 years, and September was decent. Now that has its own impact. Even agricultural expert will tell us that has its own impact, the water bodies, et cetera, and all that. We don't expect tractors to grow too much in the coming months. Of course, there is a festive season that will have some impact. But tractors, we expect it to remain stable. If you look at the tractor number, I think Q3 numbers were negative year-on-year. But we do think it will remain stable at the sequential level. That's our reading. If we are proven wrong, we'll be happy about that.
Okay. Last question to end up. In Europe also, we have seen some decline in Q3, and Q4 also will remain softer. Whereas in India also, our volume ramp up has not been in line with our expectations. How much operating leverage do we have to again, apart from our internal efficiency to improve the EBITDA margin?
Okay. As I mentioned before, we are continuously working on internal efficiency improvement. We are following our internal metrics on productivity, on, let's say, cycle time reduction, cost reduction on the maintenance cost reduction, all these kind of things we are doing in order to improve our margins. I can tell you that most of our verticals are well prepared to continue improving. We all have a certain room for improvement, all verticals, and let's say that we have a strong action plan in each one in order to continue improving. That means that if we improve, we can be also more competitive in certain components and gain more market. Overall, our approach is to be really efficient in order to be in the market with the proper margins.
Also, I mentioned before that the new products that we are launching are much more complex products than the products that we were producing before. With these new products, we have a higher investment and of course higher added value, and this requires higher margins in order to get the return on investment. Everything is linked, and the company's evolution in the last years have been really good. You can see that our EBITDA margins grew from 2015, we were at 10%, and now we are hitting the 17% with the important growth. We expect to continue growing and matching CIE margins. I mean, our current margin, that was the ultimate target that we have. Overall, the room for improvement is still there.
If somebody in the market helps us and there is an additional jump in the market, we will have easier job to improve the margins. If the market continues, let's say, as a little bit decelerated as it is now, we will be struggling, but we will be working in order to get this 0.5% more or 1% more to our EBITDA. The room and the actions are clear. Everything is identified. All the verticals has the opportunity to improve. In that sense, I am optimistic and that's my main job in this moment. The new orders are also being acquired at a good pace. We need to launch and to wait to see our customers succeed with the launch of this product.
Sure, and thank you and all the best to you.
Thank you very much.
Thanks, Bharat. Bye.
Thank you. We will take that as our last question. I would now like to hand the conference over to the management for closing comments.
Okay. As always, I would like to thank you all the participants for their well-directed and clever questions they made. Thank you for supporting in our company. Also, I would like to say thank you to all the CIE India team for their hard job and the good results they are getting thanks to this effort and in these difficult times. Thank you very much, everybody.
Thank you.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.