Ladies and gentlemen, good day and welcome to the CIE Automotive India Limited Q2 CY 2023 post-result Conference Call 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 a touchtone phone. 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. A very good morning, good afternoon to all the participants, and thanks to the management of CIE Automotive India Limited, for giving us the opportunity to host the call. We have with us today in the call management represented by Mr. Ander Álvarez, CEO, Mr. Kiyath Jayaprakash, Chief Financial Officer, Mr. Vikas Sinha, Senior VP Strategy, Mr. Oroitz Lafuente, Business Controller, and Swapnil Soudagar, DGM Strategy. So over to the management for their initial comments. Thanks.
Yeah, thanks, Basudeb. This is Vikas. I welcome all of you on this call, and also Ander Arenaza, our CEO. I will present CIE India results for Q2 CY 2023 and H1 CY 2023. Straight off the bat, let us apprise you of some of the key developments that we had highlighted in the last two quarters. After the exit of Mahindra & Mahindra from the company shareholding, the name of the company has changed to CIE Automotive India Limited in this quarter, after all regulatory approvals were received. We had also held our German truck Holdings company for sale, and the project is progressing well, and we should be able to share further details soon. Let us now examine the Q2 CY 2023 and H1 CY 2023 results of CIE Automotive India Limited, formerly known as Mahindra CIE, and in this presentation, we refer to the company as CAIL.
The Q2 CY 2023 results for the India operations of CAIL are on Page seven. The markets behaved as per expectations of seasonality in Q2, which we had talked about in the last results call. The weighted average market growth across segments was flat compared to the same quarter last year, and marginally down compared to the previous quarter sequentially. Some good news was in the gradual recovery of two-wheeler production, which grew 12% sequentially. The two-wheeler retail sales data reported by FADA, the dealers association, also shows gradually recovering sales month-on-month. Going forward, the relatively patchy progress of the monsoons could affect growth in two-wheeler and tractors market. But we do expect growth in the four-wheeler segment to continue on the back of new model launches.
Now, sales of the India operations, that is sales of the India operations of CAIL at INR 13.4 billion was 5% higher versus same quarter last year, and higher than the market growth too, as we pointed out earlier, but marginally lower vis-a-vis Q1 2023. The India operations continue to become more efficient and achieve an EBITDA margin of 16.8% in Q2 2023 versus 14.9% in Q2 2022 and 16.7% in Q1 2023. The Indian operations continue their journey to match the global standards of the CIE group. On Page eight, we have the results for the European operations of CAIL in Q2 2023. These financials do not include the German Holdings business, CFG, which are held for sale. Sales of INR 8.6 billion in Q2 2023 are 6% higher year-on-year versus Q2 2022, but lower than Q1 2023 sequentially.
The flattening in the growth trajectory in our European operations is partly due to the slowdown at Metalcastello, something that we have always expected and spoken about. EBITDA margin in Q2 2023 was healthy, 19.2% versus 15.3% in the same quarter last year, and 17.6% in the last quarter sequentially. These margins are higher than normal due to the stock generation to cover the summer holidays coming up in August. The Q1 2023 operational margins are being maintained on a run rate basis. On Page nine, we see the consolidated CAIL Q2 2023 results. Consolidated sales were INR 22 billion, 5% higher than Q2 2022. EBITDA INR 3.9 billion, 24% higher year-on-year. EBIT INR 3.1 billion, which is 27% higher year-on-year. And EBT INR 2.8 billion, which is 18% higher year-on-year. The first half H1 2023 results for our Indian operations are on Page 11.
Sales increased by 9% versus H1 2022 to INR 27 billion. This was higher growth than the underlying market. The four-wheeler and tractors market grew in high single digits on a half-yearly basis, while trucks and two-wheelers declined marginally. This uneven market performance across segments is expected to continue. The EBITDA margin of 16.8%, EBIT margin of 12.8%, EBT margin of 11.9%, and PAT margin of 9% are all much higher than H1 2022. This reflects good all-round performance, and we expect this momentum to sustain. On Page 12, we have H1 2023 results for our European operations. These are without the German forging operations, CFG held for sale. With sales of INR 18.2 billion, there has been a 17% growth vis-a-vis H1 2022, slightly higher than the underlying market growth.
EBITDA margin in H1 2023 was 18.3%, EBIT margin 15.2%, and EBT margin 13.4%, all much higher than H1 2022, largely on account of stabilization in energy costs and operational improvements. H1 2022 PAT is INR 3.4 billion and includes INR 1.5 billion of profit from discontinued operations, that is CFG. This profit includes a one-time impact of approximately INR 1.1 billion of insurance collection due to 2021 floodings in Europe. Overall, in Europe, we expect the market to have slow growth and are therefore focused on maintaining our profitability. On Page 13, we have the H1 2023 consolidated results of CAIL. Sales was INR 45.2 billion, which is a growth of 12% versus H1 2022. The EBITDA margin was 17.4% versus 15% in H1 2022. EBIT, 13.7% versus 11.4% previous year. EBT, 12.7% versus 11.3% previous year, and PAT, 12.8% versus 8.7% previous year.
Overall, we have had strong performance both in terms of growth and margin on a half yearly basis, delivering a double-digit EBT on continuous operations. On Page 15, you will see our enriched consolidated balance sheet, which shows the healthy state of CAIL. Return ratios have crossed 20%. Return on net assets has increased to 21.7%, and return on equity to 20.7%. Return on equity on continuing operations, though, should be noted as 15.5%. The cash flows are shown on Page 16. The company generated operating cash flows to the extent of 70% of consolidated EBITDA, which is good performance. Growth CapEx for the first half of the year was INR 1.7 billion, largely focused on projects in India. Overall CapEx for H1 2023 was 5.4% of sales, which is in line with our norms. Cash outflow due to dividends was INR 948 million.
Before we end, a word on EV order portfolio. Electrification of powertrains has seen rapid adoption in Europe with a market share of greater than 10% and is picking up in India as well, especially in two and three-wheelers. At our Spanish car forging plants, we have had orders for steel forgings used in battery packs and aluminum forging parts for chassis. We have orders from a couple of U.S. OEMs for EV transmission parts at our Italian plant.
These orders should compensate for any potential drop in revenues due to EV penetration in the medium term. On the other hand, in India, EVs represent an opportunity, and our annual report features the extensive EV-specific parts portfolio that we are developing in the Indian market. To end, we are confident that we can utilize future opportunities and face future challenges with agility in order to meet the shareholders' expectations of sustainable growth and profitability. With that, we proceed to Q&A. Basudeb, back to you.
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 your touchtone 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. Our first question is from the line of Nikhil Rungta from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thank you for the opportunity. Sir, a couple of questions from my side. First is on the EBITDA margin side. In Europe, you have reported 19.2% and you have highlighted that on operating basis, we are at 17.6%. Basically, we have continued the 1 Q thing. In 3Q as well, do you think we will be in a position to maintain the 17.5%-18% number, or how we should look at the same?
On an operational basis, yes. There might be some variations due to the stock because that is a holiday. Q2 has almost three weeks of holiday. So the stocks have been built up in this quarter. So to that extent, there will be some variation. But on an operating basis, yes, the margins will remain the same.
Just to continue on Europe side, if you can just throw some light on the Metalcastello division. You already highlighted one-liner on that, but if you can just elaborate on that.
So you are looking for Metalcastello is a very high-performing plant, but you are looking at the volume trajectory. Is that what you have in mind?
Yes.
What we saw in the last month in Metalcastello is that we are producing in Metalcastello a lot of gears and components for the off-highway vehicles, especially for our main customer, Caterpillar, in the U.S.A. What we see in the American market is that due to the interest rate increase and, let's say, the strategies of the Federal Reserve of U.S. to control the inflation, there is a certain decline on the economy in the last month. Okay? We saw certain reduction in the orders. We think that this is a temporary effect, but in this last quarter and probably in the next quarter or perhaps two quarters, we will see this market to decline a little bit. We still think that in the medium term, we will see the recovery again, and we will come back to normal figures in six months, approximately.
Okay. Last question from my side. If you can just elaborate a bit on our discontinued operation. Even though the operations are discontinued, the numbers being shown by that operations are quite significant. Is it just because of the insurance claim during the quarter, or is it something else?
No. The performance at CFG, why is it so good in the first quarter?
It's mainly due to the exceptional item of the insurance partnership during Q2. That has been the driver for this performance.
The insurance is the main driver, Nikhil?
Okay. Perfect, sir.
It is mostly one time. Let's not get very excited about the performance .
Sure, sir. Perfect, sir. That's all from my side. Thank you so much.
Thank you. Our next question is from the line of Prashant Kutty from Sundaram Mutual Fund. Please go ahead.
Yeah. Thank you for the opportunity. The first question is on the revenue side of it, especially on the domestic side of the business. While you have actually highlighted over a longer period of time that you would want to grow much ahead of the industry growth rate, I think you even tabled a number of about 8% -1 0% higher than the industry growth rate. We seem to have seen a slight bit of deviation in this particular quarter. Just want to ask, anything specific to highlight? And more so because in the passenger vehicles, we found that passenger vehicles, especially the higher end, where our processes and products are used more, we actually haven't seen ample amount of growth coming over there. So just want to ask, is there anything to highlight over here?
As far as the India growth is concerned, in Q2, of course, as I said, there were differential performance across segments, and there was differential performance across customers also. So that has had an impact, a little bit of that. There is also impact on certain product mix changes. For example, there is more of the new Scorpio now in the product portfolio, which has had an impact. But to your original point, on the India revenue side, yes, we are focused on going higher than the market, and we have said, quarter -to -quarter, there might be deviations, but in the medium term, that is what we are planning to do. In fact, we have highlighted that our customer base has increased quite a bit, quite significantly in the last three, four years. A lot of those customers are in the ramp-up mode. We are investing heavily in India.
Even in this half year, you see the growth CapEx, which is almost 90% in India. It's substantial. And most of this CapEx is backed up by commitments from our customers. So from the point of view of what we are trying to do on the revenue side in India, nothing has changed. But these hiccups here and there, one quarter to another, they remain, but that focus of going 5% - 10% higher than the market, weighted average market growth in India, is there. I think it is backed up by the CapEx and the order commitments that we have.
Sure. But generally, I am talking about, again, from the growth perspective, especially on the passenger vehicle side of things, if you look at it, the growth is obviously, like you said, a little divergent. So the larger of the BUs actually have done much better. And I presume that we would have probably got a higher share on account of that. So that's the reason for asking is that, is there any deviation from that perspective or is it just a timing effect then probably it will probably normalize as quarters go by?
No, I don't think there is because the growth is on the higher-end vehicles or anything like that. Yes, customers have grown differentially. Within the customers, different platforms have grown. So you will have variations in product mix because of that. I don't think there is anything to worry about. Let me put it this way.
Understood. Sure. On the international operation, I think towards the earlier participant was asking, at an overall level, you still seem to be growing better in general, if I look at it, I think. Just want to ask, and this is also on the back of a relatively higher base over the last couple of years. Just want to know if this growth is expected to sustain. Are we expecting acceleration? We did highlight about that there is a bit of slowdown in the Metalcastello operation. But in general, at an overall level, in general, we believe that probably this number of, for high single-digit number or a mid-single digit number seems to be a reasonable target.
Okay. Yes. We mentioned about the Metalcastello's evolution, mainly because-
Yeah.
... of the U.S. market slowdown. So we will expect that this trend will continue at least a couple of quarters. Then we also expect to have a rebound later. Let's say that we are optimistic because in the Metalcastello, we have also some new customers for the electric vehicles, and we will start the production in the next quarter. So in that sense, we will see the recovery. Then regarding the rest of the business, you know that the European market is kind of flat.
There is no growth expectations in the next years, according to the forecasts from IHS Markit. So what we expected to continue our trend and to continue, let's say, in a good shape. Till now, what we see is that our order book and the orders are well fulfilled, and we don't see any reason to reduce the volumes in the next quarters. Okay? We expect to be at the same level of the market or even a little bit above the market in the next quarters. We are also optimistic on that.
Sure. Lastly, one last point is, what is the proportion at an overall level of exposure to EV at this point of time at an overall company level?
Okay. The exposure is low because you know that our percentage of the electric vehicles in India are really low. I would say that it is not even 1%. We are selling certain components for the EV and especially to the three-wheelers. In that sense, both in composites or magnets and gears division, we are selling components for the EVs. The percentage in all Indian activity could be 1% approximately. It is not very much. In Europe also, the percentage is low because we are now adding the new products, and we expect that all these products will be produced and industrialized in the next years. Right now, the percentage, I cannot give you the exact number, but it can be something like 3%, 4%, 5%. Okay?
Sure. Thank you so much, and all the very best to you.
Thank you.
Yeah, thanks.
Thank you. Our next question is from the line of Jeetendra Khatri from Tata Mutual Fund. Please go ahead.
Yes. Thank you. Sir, I wanted to know for your two quarters first up, your revenue contribution by vehicle segment and also by product segment, your gears, stamping components, et c.
No, vehicle segment is more or less the same as we indicated at the end of 2022 results. As far as around gears, et c, we will report that at the end of the year in our annual report and in our investor presentation. More or less, the growth is similar across. Frankly, we have always been saying, whether it is margins or it is growth, more or less, we try and have similar performance across segments.
Okay.
The segment wise is more or less the same as what we have reported at the end of 2022, roughly about 49% in India for four-wheelers, roughly about 23% for two-wheelers, 20% for tractors and 8% for trucks, roughly. That's the breakup in India.
Okay. And what would be the share of EV in revenues in Europe and India?
No, that is what Ander just said. In Europe currently, we are not talking about the future. Currently, it would be 3%-5% in Europe and anywhere between 1%-3% in India.
Okay. Thank you.
Thank you. Our next question is from the line of Vimal Gohil from Alchemy Capital Management. Please go ahead.
Yes. Thank you for the opportunity, sir. Sorry, I just want to harp more on the growth that we've seen in the India business. You mentioned that there is a mix change, plus there are some customer level changes as well. Could you just probably give us some more detail there? Is it that some of your top customers, we have seen slower growth and some of the newer customers that you've added, which are still ramping up, have probably grown faster, which led to slower growth? Can you give us some more details there?
No. It is not as complicated as that. Very simple thing. M&M has done very well, but within M&M, we have the newer models of M&M doing better. On the newer models of M&M, the older models of M&M also had stamping. The external parts outsource as far as Genting is concerned. On the newer models, you have less of that. That is one aspect. The second aspect is, of course, within the two-wheeler market, Bajaj Auto has underperformed a little bit, and we expect Bajaj Auto to recover August onwards as their exports get back on track. Bajaj Auto exports almost 50%. These are one or two things that are happening. Of course, our newer customers are doing well. It is basically, as I said, within the market, some customers doing better or worse, and within a customer, some platforms doing better or worse.
And you can confirm that you haven't lost any share in any of the platforms?
You normally don't lose shares Q1 to Q2. That normally does not happen. Any loss of share will be reflected over a period of time. You will not really see that kind of change between Q1 and Q2.
We have not lost any market share in this period.
Okay. And sir, the next two questions would be, if you could just give us CapEx for 2023. And on the Galfor deal, do we expect some resolution by the end of this year? That would be my two follow-ups. Thank you.
CapEx, we have indicated in H1, our overall CapEx growth plus maintenance is roughly in the range of 5.4%. We always maintain 5% - 6% percentage of sales would be our CapEx. That is the thing that will continue for this year also. The full year also, you will see a very similar number, anywhere between 5% - 6%. As far as your second question, not Galfor, it is the CIE Automotive Germany deal, CFG deal that we are talking about. Yes, it is progressing well and it should happen pretty sooner than later. Let us put it this way.
Understood. Thank you so much, and all the very best.
Yeah, thank you so much.
Thank you.
Thank you. Our next question is from the line of Rishi Vora from Kotak Securities. Please go ahead.
Yeah, hi. Thank you for the opportunity. First on the Europe side, you highlighted that in the Europe business you have won orders from EV OEMs. Can you just highlight what would be the quantum of that, and by when should we see the ramp-up of EV revenue happening for these OEMs?
No, what we had referred to was at Metalcastello. I think Ander has talked about in maybe results, in the Q3 result call, I think. We had talked about two orders on transmission parts for Metalcastello, which overall would amount to, say, somewhere between EUR 25 million-EUR 30 million per annum, but that will be at the peak. All of it will not come at the same time. When it will start, as Ander has indicated, maybe in the next few quarters, I think. But more likely you will start seeing the impact next calendar year on the Metalcastello revenues. And of course-
Nothing on the PV forgings?
Yeah.
Nothing on the PV forging business on the EV side?
No, no. That is the other two things that we are talking about, steel forgings and aluminum forgings. Aluminum forgings, yes, orders have begun, but in a very small way. We are talking about 3%-5% sales. That is part of it coming from aluminum forgings. Also some steel forging parts in the battery system. I will ask Ander to elaborate on it. Since you talked about PV forgings.
We have already got several orders from German car makers for EVs. We are talking about differential crowns for EV applications. It is a very important business, and also as Vikas mentioned, we are going to produce forged battery plates for truck manufacturers also in Germany. Okay? So these kind of products, and we are now getting from the market and we are industrializing and during the next calendar year, during the next exercises, we will see these products to ramp up and to increase our share of electric vehicles. In the previous calls last year or even during the last call, we mentioned that approximately more than 1/3 of our new orders are now coming from EVs. Okay? So we will see this percentage of the EVs growing up slowly during the next quarters.
Understood. On a QoQ basis, how much would be the decline of Metalcastello business revenues?
About 15%. Yes.
15%. Last one, follow-up on Europe business. You highlighted that we would see some wage revisions in the coming quarters. Where are we on that, and when should we expect that coming through?
When it come again?
The wage revisions in Europe.
Wage revisions in Europe. When are they? Wage clauses.
Salary.
Okay. It depends on the country. Okay? In Europe, the wage revision in Spain, for example, are done from 1st of January. So the wage revision has been already done. Okay? So we already applied from 1st of January. For example, in Germany, there are- We had last year certain revision according to the IG Metall agreement and in August or September, there is an additional increase already agreed. So we will see in the next couple of months, we will see this salary increase again.
Understood. Thank you. That's it from my end .
Thank you.
Thank you. Our next question is from the line of Nikhil Kale from Invesco. Please go ahead.
Thank you for taking my question. Just wanted to understand, there would be some impact of RM deflation as well, right? Would it be possible to highlight the growth in India and Europe on a kind of constant RM basis on a year-over-year numbers?
On the RM side, I think we would have to look at that, but at least in India, it is not having a major impact. In Europe, it will have some impact.
There is not any relevant impact on the evolution.
Yeah. I think in India, RM is now no longer that big of a factor. Of course, there is some impact will happen if it moves up and down, but it is not a major thing.
Got it. On the slide, which talks about your cash flows, you mentioned that the excess cash is sitting in CFG, right, through intercompany loans. Just wanted to understand that arrangement, why that has been done.
What we are doing there is, as we are preparing the companies for the sale, we are taking out all the excess of cash that these companies have in a day, and it is not required for the day-to-day operation. We are bringing that cash back to the holding company and leaving the German operations plant only with the required amount of cash to operate the plant. All the excess, we are taking it back to the holding company, to Galfor.
Sorry, the voice was not clear. Vikas, can you just help understand?
Yeah. JP, will you please explain in terms of the company will be sold on a debt-free-
Exactly.
No, cash-free basis. Any extra cash that we have generated so far has been transferred to the intercompany loan to the holding company.
That's it.
Okay. When that sale kind of happens, you will be getting all that cash back.
No, the cash. Yeah, JP, explain please.
No. Nikhil, the money that is cash, which was there in German operations, we have left only cash that is required to run the operations. All the surplus money that has been received is paid to the holding company, that is Galfor, and it is earning interest at the rate of over 4%+ , cash per day.
Got it. Thanks. That is all. Thank you so much.
Thank you. Our next question is from the line of Navin Matta from Mahindra Manulife. Please go ahead.
Yeah. Hi, thanks for the opportunity. Just one question. For the discontinued operations, just to get a color of how the underlying performance has been, can you give a sense of how was the revenue and EBITDA for the first half or the quarter versus your contract?
CFG first half performance.
Overall, the performance of the German operation has been quite good. We had above expectation sales, mainly because of the strong performance of the truck market in Europe in the first half of the year. From the sales point of view, we performed really well. Regarding the operations point of view, also the recurrent margins are really nice and even above our expectations. Of course, we have this exceptional item because we recovered the money from the insurance, from the floods that happened in Germany two years ago. But overall, in the recurrence, we can say that the performance and the company is really balanced and performing well.
Any quantification, if you can share some, that will help. What was the top line and the EBITDA?
Yeah. We can be between 9%-10% EBITDA margins in a recurrent, in this moment. Also the important thing of, let's say, one of the main reasons is that we have long-term contract agreed with our customers, with our main customer, with Daimler. So we see certain stability also for this activity in the near years, next years.
Okay. Just-
Given that we are in a process, I think, Navin, let's skip. I think the EBITDA margin is roughly higher than what we used to do, about 4%, 5%. It is just in the range of 8%-10%, I think as of now, operational EBITDA. Over and above that, you have had these insurance payments and other one-time issues.
Yeah.
Numbers are definitely looking good. Sales are higher than what we normally used to do. The run rate of this company used to be EUR 220 million, so on a yearly basis, it is higher than that run rate basis. Since we are still talking about this with various parties, let's stick to this kind of exposure.
Sure, Sir. Perfect. Thank you. That's all from my side.
Okay.
Thank you. Our next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.
Hi. A couple of questions from my side. One is for the India operations. We do still expect about 5%-10% organic growth to be higher than the underlying industry growth, right?
Yes, correct.
This is after building in for the EV orders which we have got now, that you were talking about for the India operations.
Right now, of course, EV orders are not significant as you see. EV orders, whenever they become relevant, they become relevant. This in general is what we are talking about, is what we are doing. In fact, if you look at the weighted average growth in this quarter, I think the weighted average growth in this quarter was 0.4% market growth. We grew roughly about 5%. Sequentially, the weighted average sequential growth Q-on-Q was about -1.2%. or something. To that extent, yes, we have maintained that figure. Yes, we are a little bit on the lower side, probably around 5% and not higher than that. But yes, that gap is there. That 5% gap is there between the market growth and our book growth. In general, yes. We would want this to be higher.
Okay. When we say 0.4% final weighted average growth is for your customers, factoring for volumes of your customers and not for-
No, the growth is for our segments.
... of your segments.
This is what we can track publicly. Those are the numbers that are best available. Within that, of course, different companies grow differently. The data that we have presented, if you look at the Q2 India growth, that page number is on Page seven . On Page seven, if you look on the right-hand side, it gives you the market data. There you apply the weights. A colleague earlier had asked the question of what the weights are. So less than six ton is 49%, two-wheelers are 23%, tractors are 20%, and trucks are 8%. You apply those weights to those growth numbers, you will get that figure. There was another colleague who had asked to go one step lower and see what is happening on the customer side. That is not what we are saying. Of course, on the customer side, there are different things happening.
You are seeing a few customers doing better, a few are doing less. Within, say, for example, M&M, which is doing very well, some newer products are doing better than the older products. Given that there is more stamping business on the older product, obviously any transition from older M&M models to newer models will have a little bit effect on the volumes. That was the gist of the discussion we have had so far. When you talk about weighted average market segment, it is the market segment level growth that we are talking about.
Got it. Secondly, coming to the European operations. Considering on year-over-year basis, there would be a substantial benefit of INR depreciation against EUR. Any sense on how has been the euro terms revenue growth for this quarter on year-over-year basis?
In terms of-
Constant current flow.
More or less in a flat situation. The euro has had an appreciation of 6%, 7% more or less, so euro terms has been a flat evolution.
It's flat more or less for us.
Flat more or less. This is against industry which would have seen some growth. Which is what we have been indicating that we'll be focused on margins in Europe as against growth.
No. Take into account about a 15% drop at Metalcastello. That is a big factor in the Europe thing. Remember, in the previous calls, Ander has talked about how the Metalcastello market is cyclical and therefore, we have been preparing with these two EV orders, the transmission parts which are actually from a different segment. Because the current segment of Metalcastello is related to the off-road market, with Caterpillar Inc. being the biggest customer. This market is very cyclical. If you look at the 2020 figures, we were about EUR 38 million in Metalcastello. Those numbers are publicly available. Last year we had reached about EUR 80 million. That is the kind of cyclicality you are looking at. To offset some of the cyclicality at Metalcastello, we had talked about that, another colleague had asked, what is the size?
About EUR 25 million -EUR 30 million orders of EV parts, which is a completely new part from Metalcastello that we have got. We are hoping that this will offset any of that cyclical decline that Metalcastello will have. But of course, the timing will always be a little different. It has come a little earlier than what we had expected because the EV orders will start ramping up only, say, Q4 onwards, and you will see more impact on our P&L in the next calendar year. That you have to take into account as far as Europe is concerned.
Got it. For the European business, the passenger vehicle business, you talked about a few orders on the EV side. Any sense on the size of the annual run rate of revenues of those orders?
Right now, Ander did mention about 3% - 5% of European sales. They are actually coming from all of those car coating orders only, because the Metalcastello orders have yet to start.
Okay. That is already commercialized and supplies have started.
Yes. In a small way. We are talking about aluminum forgings, those two new orders that Ander talked about. It is on a small basis, but it is ramping up.
Got it. Lastly, any further update on aluminum forgings? How are we going ahead with that segment? We had converted one line on aluminum forging. Any further progress on that?
Aluminum forging. Yes. We already informed that we already got a couple of projects on aluminum forgings, and we continue working with several customers, and we are trying to develop this business in our Spanish forging plants. There is no news to add regarding our previous comments. The orders are already there, and some of them we expect to come soon. The development of this technology or this product is going on as expected.
Okay. We do not need to further invest in terms of capacity, at least in the current phase.
No. What we are doing is we are updating our current facilities to produce this kind of products. Of course, we will add additional machinery, specific machinery for these aluminum products, mainly heat treatment ovens and certain finishing activities. But overall, from the forging point of view, we will try to refurbish our existing capacities.
Got it. Great. Thanks, and all the best.
Yes. Thank you.
Thanks Jinesh.
Thank you. Our next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.
Yeah. Hi. Thanks for the opportunity and congrats on good set of numbers. I have few clarifications first to start with. These loans to related party is outside of the listed entity, CIE Automotive India. It has been given to the CIE Automotive parent, the CIE Automotive, S.A. Is that correct understanding?
JP?
Yes. It is given to the CIE parent entity.
Just wanted to clarify, any reasons for that or why we are keeping cash there, that entity needs cash. Could we not have parked that cash in the listed entity, any of the subsidiaries, or transferred to India? Any tax implications or anything on that?
See, transferring to India would mean tax losses, and if you had to do it on a loan basis, we would have exchange challenges. We are earning a very good return in a very safe investment. That's the idea. We've evaluated, and between this interest rate that we can earn, and keeping the money safe, this would clearly, it scores over other options.
Got it. And see, hypothetically, if we do any acquisition in India, which we have stated in the past that we are looking out, would we be able to use that cash that we have in European entity to do the acquisition, or it will not be able to do that or possible to do that?
As I said, moving it as dividend is clearly. We are evaluating those options, Nishit. I have no immediate answer on that. We have been looking at various options. As of now, there is no clear answer.
Got it. Okay. Second question is on the Europe business. I think, as well understood that there is some cyclical slowdown, and hopefully new orders will compensate for that next year. But if I look at the overall revenues, the Europe PV industry has grown by almost 14%-15%. I would assume that there is some underperformance in the PV forging business as well. Is this some lead lag impact or your customers are not doing well or something of that sort? Can you give some more clarity on that?
Okay. There are several reasons for that, certain impacts that are affecting to this, let's say, lower performance in our forging activity in Europe. But mainly, you can consider that, yes, the product mix and the customer mix could have certain effect on that. Also, if you look at our Q1 results and sales, you saw that we overperformed, and now we are a little bit below the market. So probably there will be certain stock transition from one side to another. Okay. So we will probably sell more in the first Q, and now we are selling less. I don't think this is just an operational tactical thing from the customers, not any impact.
Finally, also we have a certain impact on the. Did you know that our scrap surcharges is updated every quarterly, and there has been a certain reduction in the scrap surcharge compared to the Q2 last year. Okay. So this approximately EUR 100 per ton less, EUR 120 per ton less this year. So this is an additional impact that could happen. All in all together, it's generating certain reduction effect, but I don't think it is relevant, and we expect that during the next quarters, we will come back to the normal evolution according to the market.
Got it. Now, coming to the India business. If I may ask two questions on that part. One, on the new order wins, anything you can highlight on the new meaningful order wins without naming the customer also, if possible, which would ramp up in, let's say, in the next couple of two, three quarters, which will help us grow ahead of the industry? That is one. Number two is, if I look at in India business, your standalone margin, EBITDA margin has improved quite significantly, but looks like the subsidiary performance have been tied lower. So I would assume it is because of Aurangabad Electricals. Anything to highlight here or anything that you can give more clarity? That is it from my side.
No. I will answer the second question on Aurangabad Electricals. I will ask boss to talk about it a little bit, but as far as whether we have new orders or not, as I said, we have put in a growth CapEx in India this year would be roughly in the range of INR 140 crore in the first half itself. It is happening across the board, as we have been pointing out, all backed by order commitments from our customers. There are many customers that we have highlighted that we have added. We have talked about Stellantis, for example. We have talked about Bosch. We have improved our business at Hyundai Kia. We are talking about Royal Enfield. So there are a lot of customers that we are speaking to in India. I think, as I said, from our perspective, we are very confident of ramp up in India.
So not just for the next two to three quarters, I think we are confident for the next couple of years easily as far as the ramp-up in India is concerned. So that is your first question. Second question, obviously, you have highlighted it rightly. AEL is a little lesser than what we would expect it to be, and we have put into place a program to improve the operations there, and we do expect to see good results in, say, the next half year or so. So that is the overall perspective, but I will request Ander to talk a bit about AEL.
What you said, Vikas, is correct. We expect to continue the improvement trend that we started a couple of years ago in AEL, so the margins of this company will continue growing as the efficiency and the operations are improving. Also, we have been negatively affected due to the fact that AEL is a Bajaj dependent company, and during the last quarter, we have been in a very weak turnover situation. But this trend seems to change in the next quarters as we all expect that Bajaj Auto will start the export again soon, as Vikas explained. So we are quite optimistic on that. On top of that, we are getting new programs, and we have been appointed, and we are launching new programs for EVs, for Tata Motors, for example, and these programs are starting right now.
In the midterm, we will see a recovery growth both in turnover and also in margins. Then coming back to other business where we made a huge investment in the last year with our new plant in Hosur. This plant has been already launched, and we started the production, and the programs that we launched there are ramping up, and we will see a big jump in the next quarters in this factory. We are also optimistic on the evolution, the big growth in CIE Hosur with the margin recovery, and I think that it will be a success history in the next quarters, and you will see that in our next quarter results.
Overall, I think that all the activities that we have done, we have deployed in terms of CapEx and investment in the last year will show results in the next quarter as we are now showing in these years. And my expectation is that, we are affected by the market variations or market volatility, but in the midterm, we will see the consistent growth, and the order book is relevant, and every month, we are receiving new orders from the customers. We expect that the growth history will continue in CIE India.
Great to hear that. Just one follow-up, if I may. Can you remind us what was the kind of CapEx that was incurred in the new line in CIE Hosur, and what could be the incremental revenue potential from there?
The CapEx we had there was something like INR 1.7 billion. That is the CapEx in building, machinery, everything that we already spent. And the sales, the turnover in this moment, we are at about approximately INR 1 billion, at a rate of INR 1 billion sales. And at least we should double that in a very short term. And probably after doubling it, probably we will go further. But I would say that doubling the sales in Hosur should be the next step.
Got it. Thank you. Thank you for all the clarifications and all the best.
Yes. Thanks, Nishit.
Thank you. Our next question is from the line of Aman Agrawal from Carnelian Capital. Please go ahead.
Sir, thank you for the opportunity. My first question was on the Europe revenues. If I see, on a Q-on-Q basis, our revenues declined around 11%. Even if I take that 15% decline for the Metalcastello business, that translates to around 3%-4% overall decline in revenues, even if it is 20%-25% of our Europe business. Still we have like 7%-8% kind of decline versus around 2% decline for the industry volume. Just wanted to understand why this underperformance versus industry.
No. Ander explained that there was this scrap sales that he was talking about. There is a bit of that effect also there. But all these things will straighten off going forward. The Metalcastello decline is there definitely. Other than that, it should be okay in line with the market going forward.
Understood, sir. Second thing, sir, on the Germany business sale, any timeline when we expect to finish it, like complete the sales process?
In my opening remarks, I said sooner than later. Beyond that, you know how all these M&A transactions are. That saying about the cup and the lip, I don't want to jinx anything. Let's leave it at that. We are saying sooner than later.
Understood, sir. Thank you for the opportunity. Thank you.
Yes. Thanks, Aman.
Thanks.
Thank you. Our next question is on the line of Pratik Kothari from Unique Portfolio Managers. Please go ahead.
Hi. Good afternoon, and thank you. Sir, my first question on India. In the past, we have spoken about our productivity being lower or substantially lower than our counterpart operations in Europe, Spain, Germany, et c. Just if you can highlight what kind of measures are we taking to improve this. Where are we on this journey of improvement?
This is Ander's favorite topic, so I will leave it to him.
This is something that we are measuring month-by-month in all the verticals. Because, yes, what we see is India is a very competitive country, but a lot of this competitivity is lost because of the lack of efficiency in the production. We are continuously working on this, and all the verticals are performing, I would say month-on-month to improve our efficiency. The kind of activities that we are doing are, we are transferring technology in terms of, let's say, layouts, how we produce the components with the new layouts that makes the production more efficient. We add certain automations. We also change certain cutting conditions or production conditions so we can improve the cycle times. Also, we reduce the labor and sometimes there are unnecessary operations that we avoid.
Those are the kind of things that we do, and we transfer to the different plants in India, so we are able to improve the efficiency. We measure the added value per employee in each of the vertical every month. We monitor this evolution. This is something that we can see also in our EBITDA margins, where five years ago, six years ago, we were below 10% EBITDA, now we are close to 17%, which is a fact. Also, we are growing and our customers are relying on us. That means that our reliability from the delivery and quality point of view has also improved, because it is not only working on the efficiency but also working in the reliability. That's something that we are doing. In fact, that is my main task in the organization, to be sure that all this process is moving.
We have Indian engineers in Spain being trained. We have had Indian engineers in Mexico being trained. A lot of people is coming from Europe to India to implement and to, let's say, transfer the technology and to implement the improvements. The people is trained and then they are able to copy and paste all these improvements in the rest of the machines. These are the kind of things that we are doing every day.
I'm sure this would be a continuous journey and there's no endpoint. But even when you started this exercise, say four, five, six years back, would it be fair to say that a large portion of it we have already captured?
No, I would say that we have done a good job, but we still have a lot of things to do. Okay? I would say that we can be in the middle of the road. I think we still have more than 50% of improvement ahead of us. We will continue doing this, and as you mentioned, this is a continuous improvement, a continued journey. We will continue improving. In fact, because we are also improving in Europe, we have no chance than improve in Europe. Once we make the improvement in India, but we do also the improvement in Europe, the gap remains, okay? We need to continue. This is a never-ending story. Yeah.
Very true. Sure.
Yeah.
Lastly, if you can share the export numbers out of India and what is the trend there?
Export number roughly remains in the range of 13%-15%. Of course, on a half-yearly basis, I think exports have grown a little faster than our other domestic revenue, but it would still be in the range of 13%-15%. Overall, I think it will increase going forward.
Okay, sure. Thank you and all the best.
Yeah, thank you so much.
Thank you. Our next question is from the line of Basudeb Banerjee from ICICI Securities. Please go ahead.
Yeah. Thanks. Most of the questions have been already answered. Just wanted to understand. So like, PAT of almost INR 220 crore quarters, annualized somewhere around INR 850 crore, INR 900+ crore I NR 300+ crore of depreciation. So, INR 1,200 crore kind of number. So against that, we have 5%-6% CapEx to revenue. So still you are getting a decent cash flow. So, what's the timeline in terms of inorganic growth either in the plastic part business or say a sunroof or EV parts, at least in India, with growth being in single -digit on the other side?
So on the roadmap for M&A, of course, we keep trying for it, but we really can't give you a date, nor will we put pressure on ourselves by giving a date so that we end up doing whatever is available. Yes, it's on our mind. We are serious about it. But as I said, we'll do it when we have a good target that we come across.
Like recently, there was an article, one, another domestic component maker venturing into the sunroof space for passenger cars, which has been another area where CIE has been working in global market. Any outlook from that aspect, where sunroof penetration is also increasing pretty well nowadays in India?
No, that's a good point that you make. As you know, CIE is very strong in the roof systems space. On a worldwide basis, it is one of the major players. We have yet not, or not we, I think CIE has yet not decided on what the sunroof strategy in India is going to be. So at this stage, I don't think we can answer that question. But yes, it's a question well taken, and we will try and get back with an answer in the coming months.
Sure. Okay, thanks.
Thank you. Our next question is from the line of Bharat Sheth from Quest Investment Advisors Private Limited. Please go ahead.
Hi, good afternoon, and thanks for the opportunity. Ander, my question is, when we are working on improve productivity in India to global level, holistically, how do we see our EBITDA margin journey from here to next three years? If you can give some color on that, it will be really helpful.
Okay. It is quite difficult question, but I will try to answer, saying that one of our main targets in CIE Automotive India is to match the margins that our parent company, CIE Automotive, has worldwide. Okay?
Yeah.
These, let's say, global margins that our CIE Automotive parent company has is between 18%-19%. That can be our target for the future.
Around 18%.
Well, he said 18% - 19%.
Sorry.
I will talk 18%, he will talk 19%.
Okay.
But it would be Let's not use too much. Our idea is to match the margins that CIE has. Okay? That is the proper answer.
Overall growth also would be in a high double -digit or top line growth or, say low double- digit, if you can give also. Will it be required to achieve that kind of a margin trajectory?
Yes, we are expecting to grow above the market.
Okay, fair enough.
We have to have at least 5% above the market should be the target. That will depend on also our new order allocation and also our performance and our competitivity in the market.
Coming to Europe business, the kind of slowdown that we are seeing in Metalcastello. Do we expect that full year on the continual business, we are expecting some mid-single digit kind of a growth, so it will be a more or less lattice kind of a thing in Europe?
Okay. It is difficult to say because it is true that the Metalcastello business will continue depressed at least one or two quarters, that is our expectation. Regarding the rest of the business, now we have the Q3 coming where this is the seasonal EB is affecting because of the summer holidays. So we will see weak quarter. Then, we expect the market to recover. Okay, so what we think is that we will see, we still have a growth in Europe. Till now, we are at 17% growth compared to the last year. I think that we will end with certain growth the complete calendar year.
Okay. Thank you and all the best.
Thank you very much.
Thanks, Bharat. Bye.
Thank you.
Thank you. That was the last question of our question and answer session. I would now like to hand the conference over to the management for closing comments.
As always, I would like to say thank you to all the participants for the well-directed questions and very clever questions that you made. Also I would like to say thank you to all CIE India team for the fantastic job, and I hope that I will be able to continue growing and improving the business in the next quarters. Thank you very much, everybody.
Thank you. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.
Yeah. Thank you, guys. Have a good day, have a good week.