Ladies and gentlemen, good day and welcome to Mahindra CIE Q1 CY 2023 earnings 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 this conference call, please signal an operator by pressing star then zero on your 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, Mr. Banerjee.
Thanks, Nirav. Thanks to the senior management of Mahindra CIE Automotive Limited, for giving us the opportunity to host the call. The management is represented by Mr. Ander Álvarez, CEO, Mr. K. Jayaprakash, CFO, Mr. Vikas Sinha, Senior VP Strategy, Mr. Oroitz Lafuente, Business Controller, and Mr. Swapnil Soudagar , DGM Strategy. Without wasting any time, I'd like to hand over the call to the senior management of Mahindra CIE to take over. Thanks.
Yeah. Thanks, Basudeb. Good afternoon, everyone, and good morning to those who are joining from Europe. I welcome all of you, as also Ander, our CEO. We are going to talk about the MCIE results from January to March 2023, quarter one of calendar year 2023, Q1 C2023. At the outset, we would like to bring to your attention that during this quarter, M&M has reduced its shareholding in MCIE from 9.25% to 3.19%. We would also like to update on the name change. We have applied to the Registrar of Companies for changing our name from Mahindra CIE Automotive Limited to CIE Automotive India Limited. The approval is expected in the coming weeks. We now start with MCIE India results for Q1 C2023, which are on page six. Sales grew to INR 135.41 million from INR 120.22 million in Q1 C2022, which represents a 13% growth year-on-year.
In this quarter, our EBITDA was INR 2,267 million, EBIT INR 1,718 million, and EBT INR 1,639 million in MCIE India. Thus, sales in MCIE India grew 13% year-on-year, EBITDA 25%, EBIT 28%, and EBT 24%. The EBITDA margin for India in Q1 C2023 was 16.7% compared to 15.1% in Q1 C2022, and an operational EBITDA margin of 15.7% in Q4 C2022. Please note that in Q4 C2022, there was a one-time impact of EBITDA of INR 378 million, that is on profit of land sale, due to which the reported EBITDA margin in Q4 C2022 for MCIE India vertical was 18.5%. Now the India business has grown on the backdrop of a mixed market scenario. The light vehicles market has grown at 9.5% year-on-year in this quarter, but the two-wheeler market has fallen.
We would also like to point out that Q1 seasonally is normally a good quarter, it being the last quarter of the financial year. Now we move to MCIE Europe results for Q1 C2023, which are on page seven. Sales grew to INR 9,666 million from INR 7,533 million in Q1 C2022, which represents a 28% growth year-on-year. This increase in sales is helped by a 6.6% gain in Forex and a 17% growth in the light vehicle market year-on-year in this quarter. Please note that the forecasts for the subsequent quarters in the light vehicles market show a much lower growth rate on account of rising interest rates and uncertainties in the economy. The Q1 C2023 EBITDA in Europe was INR 1,699 million, EBIT INR 1,423 million, and EBT INR 1,265 million. Thus, sales grew 28% year-on-year, EBITDA 55%, EBIT 67%, and EBT 52% in Europe.
EBITDA margin in Europe in Q1 C2023 was 17.6% compared to 14.5% in Q1 C2022 and 14.6% in Q4 C2022. This improvement in margins was a combination of higher sales and lower energy costs. Now if we go to page eight, we will see the consolidated results, which are a combination of the evolution in both India and in Europe. In Q1 C2023, MCIE, on a consolidated basis, achieved sales of INR 23206 million and EBITDA of INR 3,966 million, which is a margin of 17.5%, an EBIT of INR 3,141 million, which is at a margin of 13.5%, and an EBT of INR 2,904 million at an EBIT margin of 12.5%. These margins are the highest margins we have achieved in MCIE history. This aligns our results with CIE ratios globally.
In closing, we would like to state that we continue to focus on internal improvements and building a stronger company.
With this, we will strive to take advantage of all the opportunities that come our way. With that, we can proceed with 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 touch-tone 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. The first question is from the line of Nikhil Rungta from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thanks for the opportunity, and congratulations on a great set of numbers. Just one thing from my side. In Europe, we have posted very strong margin during the quarter. You indicated it is because of higher sales and lower energy costs. Till what time or till how many quarters do you think we will continue to get benefit of these lower energy costs, basically?
Okay. Hello, this is Ander Arenaza speaking. In Europe, you know that during the last years, we have had a huge impact on the energy prices, especially when the war in Ukraine started. There was a huge peak on energy prices, both electricity and gas. During complete past year, we suffered a lot on this because the process of passing through to the customers was difficult and was delayed. Hopefully by the beginning of the year, the energy prices have gone down. Importantly, we are now at about, we can say, an average of around EUR 100- EUR 120 per megawatt. Let us say, the impact on this energy cost in our margin is coming to normality. Okay? Considering that we had already negotiated with the customers the pass-through processes, we have now recovered certain normality in our margins.
This is one of the main reasons to increase our margins in Europe. Also, as Vikas explained in the presentation, the turnover, the volumes helped us also because the market performed really well in the first quarter. What we see right now is that we can have certain uncertainties on the volumes, but it seems that the energy prices, they continue in the range that we have seen now. Okay? This is something that we cannot predict, but if the energy continues in the current range, both electricity and gas, because the gas is even below EUR 50 per megawatt, when last year we hit EUR 180 in certain quarters. Now we are at EUR 50 per megawatt. That is something reasonable. I think we will be able to keep current margins in the next quarters. Okay? Everything will depend on geopolitical movements.
What is going on with the war in Ukraine? What will be the balance on the energy prices between the different countries? That will affect, of course, to the energy prices. Our expectation is that the energy prices will continue more or less stable at these figures. If that is the case, we will be able to keep on with the current margins.
Okay. Sir, just to continue on this particular question, if there is a status quo on the geopolitical scenario, then can we assume that the 17%-18% margin in MCIE Europe will be in a position to sustain that, say, over medium to long term as well?
Yes, yes. I would say that considering this scenario and volume, let's say that the volumes are fulfilled, the market continues running as it is now. Yes. We should be in this range of margins.
Got it. Sir, last question from my side. On MCIE India, I do not have anything to comment. It continues to perform strongly. Just one thing on our discontinued operation. During the quarter, we reported profit of approximately INR 60-odd crore, INR 70-odd crore during the quarter. Do you think we would be in a position to get back basically the goodwill or any impaired goodwill which we would have written off in the past quarter? Given the book value of that discontinued operation now and the quarterly profitability which it is reporting, do you think we would be in a position to get a significantly higher value than that?
Okay. It is, let's say, evolution of our German forgings. We have had some one-offs that are improving our accounts in the last quarters, okay? Especially in this last quarter, we received the payment of several customers that paid us the energy increase pass-throughs from the previous quarters, okay? Because in certain customers, we have delays in the application of the energy increases. So in this quarter, we recuperated these impacts. Also, we received a subsidy from the German government on energy. Additionally, we have also one-off coming from, let's say, incident cost that we pass through to our supplier. We had a quality issue coming from the supplier, and we were able to pass through this quality issue 100% to the supplier. So these things made these really high results in the first quarter.
What we see is that our selling process of the company continues, as we explained in the last call. There is not any new information to share. The process is moving on. We have several interested parties, and we are working with them. We have prepared and exchanged several information with them. We continue with the process of the sale of the company. Let's say that we are optimistic that we will be able in the next quarters, we will be able to successfully close this operation.
Perfect. And sir, what would be your capacity expansion plan in Metalcastello, given that you are working at a high capacity utilization there and we are gaining good traction from big customers, both from Europe as well as from U.S.?
Yeah. In Metalcastello, in the last years, we have been adding capacity. We have been adding new machinery, let's say, state-of-the-art machinery with several power skiving machines, and these are the best-in-class machinery that we are now using to produce gears in Metalcastello. The fact is that we have been also picking up to EUR 75 million, EUR 78 million turnover in Metalcastello. That is the highest turnover that we have ever had in the company. Also, the reality is that in the next quarters, we are monitoring the American market because you know that approximately 70% of our sales in Metalcastello are shipped to U.S.A. And we see a certain decline in the demand in U.S.A. for the next quarters, okay? Because of the interest rate increase, it seems that the economy will cool off a little bit.
However, we continue investing in the critical and most important machines, and we have launched also a couple of machines in the recent days. We adapt our capacity in Metalcastello, but we do it slowly and, let's say, with firm steps because we are not sure that the expansion in the U.S.A. will continue in the next quarters. Let's see. We will wait until we see that the market is really booming, but we have certain doubts in this moment.
The line for the participant dropped. We move on to the next participant.
Okay.
The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.
Yeah. Hi, thanks for taking my question. The first question was if you can talk about on the overseas EV forging business, with respect to the electric, rather the customer acquisition on the electric side, if you can touch base on that part.
Under CIE Forgings, on our acquisition of our EV business.
Okay. We continue very active in the EV business, let's say, new project acquisition, and we are working with several customers. And of course, we have already got a new business for electric vehicle to, let's say, for battery packs for a truck manufacturer. I cannot disclose the name of the truck manufacturer, but this is a reality. Yes, we are step by step getting more and more businesses for electric vehicles, and we are planning the transition, as commented. It is complicated because how the transition will happen is not clear yet. It seems that in the next four or five years, there will be a jump for electric vehicles. Till now, we are working with all the car makers and with all the truck manufacturers on this transition, and we are very active on that.
You know that we are working for the, let's say, different components in the electric cars, especially in the battery pack, that they are using also steel forging components, and we are working on the chassis components that they are using forged aluminum components. So we already got two, three new businesses. Now, the fourth one with the truck battery pack component. The transition is there. Overall, we can say that approximately one-third of all our new businesses are coming from electric vehicles. So that's more or less the percentage that we have in average. And this percentage will continue growing for sure in the next years. But now, that's the information I can share with you.
That's helpful. Just, going forward, let's say on the same aspect of increasing the EV penetration in revenues and in order book for you. And given our debt has come down a lot, and I'm assuming next two years can be good in terms of your free cash flow. Does acquisition also come into the picture where you can grow faster by acquiring something in the electric side, let's say lightweight and component companies? Or if you have something, strategy there in mind?
Okay. We are quite active also in that field. Of course, we are interested in acquiring these kind of companies. Not so easy because the amount of companies working in this field are not many. Just two or three, I would say. And, okay, not all of them are ready to talk to us. But in principle, our strategy, my answer would be, yes, we are interested in doing something in that field. Also, especially in the Indian market, we are also very active looking for different options to continue our inorganic growth trend. The organic growth trend is being executed properly, but the inorganic growth should come also. We are trying to grow in both areas. As we already mentioned, we would like to grow 50% organic, 50% inorganic. That would be our strategy to grow faster than the market.
Thank you very much. I will come back in the queue.
Yep.
Yeah, thanks.
Thank you. The next question is from the line of Prashant Kutty from Sundaram Mutual Fund. Please go ahead.
Yeah, thank you for the opportunity. If you look at the European market, you seem to have grown much ahead of expectations and also much ahead of probably the industry growth as well. While you just highlighted about the EV part of it, is there a higher share of business which are actually also coming from the existing customers or any new customers who have kind of gotten added into this pack? Just an addition to that, what is the outlook now when you look at the Europe business? Because I presume you also always give a relatively lower outlook in terms of the Europe business. Is the outlook changing now as far as the Europe business growth is concerned?
Okay. Yes. The growth of our European business is coming from mainly the increase of the market. Also, we had an increase in market share in certain customers. You know that in our mix of customers, some of them are performing better than the others. We were lucky this time, and our mix of customers did much better than the competitors. That's the main reason of having this outperformance over the market in this Q1. Regarding the future expectation for Europe, I would say that I'm not very optimistic regarding the continuing the growth. My view is, probably we will see a certain stabilization and certain normalization of the market. That's what we see in our forecasts, and it seems that April will be a little bit weaker, and then in May and June, there is a recuperation.
Let's say that we will see European flat or slight growth in Europe in the next quarters.
Sure. Second point is when you spoke about the margin side of it, that obviously a large part of the benefit, I think you highlighted, is that it's been coming from energy costs reversing and you passing on to the customers. How much of it is actually driven by efficiency? Because like you said, you're working a lot of internal efficiencies, and you actually want it to kind of mirror CIE margins. How much of it you should actually expect to be sustainable in future? Like you said in the past, the CIE margins are typically in the range of 18%+ numbers. Do we feel that we can kind of reach that faster than expected?
Yeah. Yes. Okay, these margins that we already got in the first quarter, we think not only that they are sustainable, we think that we should continue improving them, okay, in the next quarter. We have room for improvement, especially in India, where we are negatively affected by the two-wheeler, business drop. Once the two-wheeler comes back or bounces back, we will be able to improve our margins. That is also important thing. In Europe, what we think is that we have been, let's say, working very hard. Regarding your question of how much is coming from the internal efficiency, I would say that approximately one third of this is coming from energy, one third is coming from internal efficiency, and one third is coming from higher volume impact, okay? So the dilution of the fixed costs, thanks to the higher volumes and bigger operations.
My view, or at least my target, is to not only keep these margins, but to continue improving them, because as you saw that we are already at 17% EBITDA in the consolidated basis. CIE target is 19%. I have still a lot of job to do in order to reach this 19%. That's our task, to make it a profitable business and sustainable business for the future.
Last point over here. When you spoke about India, you said that you were largely impacted by two-wheelers. Is there any other impact which is there or, as far as the India margins probably not being as maybe up to your expectations, is there any other element which needs to be worked on? Because over there, like you said, the gap is far higher, on the India business.
I think India business is performing really well. The main impact that we have is that we have three businesses affected by the two-wheelers, mainly it's aluminium AEL. We have a Bill Forge in Bangalore that is affected also by the two-wheeler, and the magnet business that we have here in Pune, it's also affected. These three businesses are negatively affected by the two-wheeler business performance. Then, of course, once the market comes that we all expect that there will be a recovery. We don't know when, but we expect that this will happen. We will see this recovery, and the improvement of these three businesses will give us the additional support to continue improving our margins.
Got it. Thank you so much, and all the very best to you.
Thank you. Thank you very much.
Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal. Please go ahead.
Hi, sir. A couple of clarifications first. When you talk about M&A, this is largely for India, right? Or are you looking to acquire in Europe as well?
Okay. No, just for M&A, what we are planning is mainly in India.
Okay.
Our target is clearly to focus on India. It is the same that all our, even organic growth, CapEx is also focused on India.
Right. Secondly, for the European business, for the energy cost, the current quarter energy cost, which you accounted for, is at $100 and $ 220 per megawatt, and in coming quarters, if spot prices prevail, then it will be at EUR 50 per megawatt. Is that understanding correct?
I did not get the figures. Sorry, can you repeat them?
1Q was at EUR 100- EUR 120 per megawatt.
Yes.
Current is about EUR 50 per megawatt.
No. We need to make a differentiation between the electricity and the gas. In electricity is the previous, we were at around EUR 300 per megawatt last year in the third and at beginning of the fourth quarter. Now we are at between EUR 100 and EUR 120 per megawatt. That is the reality in electricity.
Okay.
Regarding the gas, in the worst moments of the peak, we were at EUR 180 per megawatt. That was also the third quarter in last year. Right now, we are about EUR 50 per megawatt. In the last month, it is quite stable. The futures of the gas are also indicating that next year will be at around EUR 50 per megawatt. That is the evolution of both electricity and gas.
Okay. If current spot price is prevalent, then there will not be any material benefit coming to our margins in coming quarters?
No. I think now if the electricity and gas remains stable, we will remain also in the same level and stable and no negative, no positive impact in our accounts in the future.
Got it. And third clarification was on MSP sales process. You indicated we expect it to complete in next one or two quarters. Is that correct?
Yes. We continue the process. The process is quite active, and let's say that the market is shown big interest on the company. We continue working hard, and our interest is to do it as soon as possible. Okay? We expect that in one or two quarters, we will be able to give some feedback to the market. And of course, the strategy or our target is to close the operation before the end of the year.
Got it. On the EV exposure for our European operation, in the past, we have talked about 20%-25% of revenues coming from IC Engine. Now with MSP exit, would that number still be same or it would be on the higher side?
I didn't catch. Vikas, can you take the question? I didn't understood.
Yes, Jinesh, it will be higher because when we used to talk about dependence in Europe on IC engine parts, obviously, a large part of our truck forgings business was not in engines. It was largely in CIE Forgings. Germany was not on the engine side. So obviously now the proportion of engine parts in our current portfolio in Europe is higher.
That would be roughly about 40%-50%?
We'll have to do the calculations to see, what is our crankshaft dependence. But yes, it will be higher than 25%.
Okay, got it. In terms of the EV components which we are getting in the European operations, you indicated that the battery pack for the series is on steel forging. Is that understanding correct?
Yes.
Okay. Effectively, both steel forging and aluminium f orging is finding acceptance on the EV component side and not just aluminium f orging .
No, in this case, it is development done with the final customer, with the OEM, and the best solution due to certain mechanical requirements of the components was the steel forged components. Okay? For the truck market. In this case, we are talking about big batteries for class 8 trucks.
Right. Got it. Okay. Lastly, this is question on the consolidated interest cost. We have seen a substantial increase on QoQ basis. Is it largely due to mark-to-market of European operations in terms of balance sheet, or there is something else in that?
No, Jinesh, it is actual interest cost increase in Europe. Until December, we had certain tie-ups, but from January, the rates have hit 3%+ .
Okay.
On all the working capital.
This number is what it should have been given where interest rates are.
Yeah.
Got it. Thanks. I will fall back in queue.
Yeah, thanks.
Thank you. Next question is from the line of Priya Ranjan, from HDFC Asset Management. Please go ahead.
Yeah, thanks. Two questions, one is on the European side. Now the gas cost has normalized, so you have got the pass-through of all the gases for the higher cost. Do we also have to pass through for the reduction in gas cost because now it is normalized? So we have to, I mean, reduce our pricing for the gas component? Secondly, you have also talked about there is some subsidy, et cetera, we have got from the German government for the gas pricing, et cetera. Is there any impact of that in the numbers?
Okay. Yes. Regarding the energy passthroughs, of course, if the energy, the gas goes up, we have an agreement to apply those increases with the customers. If the prices go down, of course, we reduce the prices to our customers. It is a pass-through system, so it is working in both directions. Okay? That is the first comment. Second comment on the German activity. In Germany, last year, there was a big increase on energy prices, and the government took certain subsidies or decided to apply certain subsidies to the companies, and these subsidies came with certain delay and after big paperwork and certain bureaucracy. We have got this impact, it is approximately EUR 1 million in Germany in first quarter 2023. This is a one shot that it will not be repeated. There is no further impact in subsidies expected yet.
Everything will depend on energy evolution and of course, government decision on subsidizing or not the industries.
Understood. The current quarter pricing was based on the EUR 50 per megawatt pricing?
Yes.
Okay. Coming back to India, if the two-wheeler industry doesn't recover and remains at where it is like, say, 15 million-16 million industry, how soon or how easy we can repurpose our capacities to drive for, say, to newer segments like, say, passenger car or truck market or LCVs? Is it easy to do that or we have to do substantial CapEx as well?
Okay. We are quite active on new projects and we are launching all the new projects that we hyped last year. Let's say that there are a lot of projects in the pipeline in this moment. Rather than taking or getting new businesses, you know that the lead time of these new projects will take at least one and a half years, even two years, depending on the product. If we have to, let's say, look for the short term, I think that our expectations are more in the projects that we have already launched in the pipeline and we are waiting for the ramp ups of our customers. I think that will be the proper approach to increase our sales. Regarding the existing lines that are with lower load, mainly because of the two-wheeler market evolution, we are waiting until this market recovers.
We are not planning to refurbish the lines and eliminate this capacity because we strongly believe that this market will come back again. Perhaps in three months or perhaps in six months. But we are now patiently waiting for this market to recover because we don't think that these low volumes will continue for long.
Understood. In terms of the organic CapEx in, say, Europe, if we get some aluminium forging business, so are we ready to invest in CapEx in Europe as well or we are more inclined towards CapEx in India?
No. For the aluminum, we will invest CapEx in Europe also. Just for this strategic EV components, aluminium forging , we will invest and we will prepare, let's say, state of the art lines in order to compete in the market properly. Those are probably the only investment projects that we will have in Europe. The rest of the investment, let's say that 80% of the CapEx in our company will be in India for the different verticals where we expect to continue growing in the next years.
Understood. Okay. Thank you. That is all from me, sir.
Thank you.
Thanks. Priya Ranjan .
Thank you. Next question is from the line of Nishit Jalan from Axis Capital. Please go ahead.
Yeah. Hi. Congratulations on good set of numbers. I have two questions. One more of a clarification. In Europe, what you mentioned is there is a one-off benefit of subsidy, which was about EUR 1 million, which came in Q1, which may not come going ahead. Are there any other one-off benefits that you got, let's say price hikes from any of the customers pertaining to previous quarters, which may not sustain going ahead? I just wanted to understand if there are any one-off benefits beyond the EUR 1 million subsidy from German government. And second question is on India business. If you can highlight any new order wins or any new breakthroughs with existing customers or new customers that you have done in the last six months, either on the passenger vehicle, two-wheeler or the commercial vehicle side, that would be very helpful. Thank you so much.
Okay. Let's say that the subsidy that we got in Germany, it was one-off. In the current, the rest of the accounts, we don't expect to have additional one-offs in the future. If the energy prices remain stable, we will see the same level of margins in the future. We expect stability there. There is no additional impact expected right now. Regarding the new businesses, we are very active in the new project allocation, and we have been awarded for several businesses recently. And yeah, we have got new businesses. Yesterday I was informed that we got one fuel rail business from a customer. I cannot disclose the customer, but this is a very important customer here in India that has already awarded us new business.
Let's say that we continue developing all the verticals in the standard way, and the amount of new projects that we are getting are in line with our budget. Let's say that we are optimistic in this sense. I cannot disclose the details because you know that certain customers, they don't like to use their names or their product names in this kind of calls because they prefer to keep certain, let's say, low level on this. But the evolution of our company is solid. The new order allocation is also very interesting in this first quarter, and we continue at the same path that we had last year. That's the evolution that we are having in this moment.
Okay. Just one follow-up here. I know you cannot mention the name of the product and customer, but is there anything like an order book or let's say you have won orders with X revenue potential annually that is still not translating into revenues and will come in the future? Basically what I'm trying to gather is how much faster can you grow compared to the industry production? I just wanted to, whatever numbers you can share, that would be helpful. And then additional part here is there are a couple of domestic passenger vehicle OEMs also which are launching EV models, and they are your customers for different products. Are you getting any, or have you got any orders for EV components in India also from some of your existing customers who are planning to launch EV SUVs in the next couple of years?
Yes. We have got several components for the EVs, especially from Mahindra and from Tata. Both of them we have been very active as we have been awarded with several projects for electric vehicles. Yes, we are active on that. So that process is going on. Yes. As summary, last calendar year, we got EUR 10 billion per year of additional orders in, let's say, in the complete year. And this year we expect to get additional the same figure or just in that range. So we will continue adding more projects, of course, while from the moment that we are nominated till the start of production and going to the, let's say, at the peak volumes, it takes usually two to three years. So there is a decalation, there is a delay in the launch of these products.
But as we have been getting new businesses during all these years, we will continue our growth path, of course, providing our customers are successful with all these products. Also, and this is important to say, that we are starting now also a certain electric vehicle components production in India to deliver to Europe, and the SOP will be in the next couple of months. So this will also give us an additional jump on sales and also our percentage in electric vehicles will continue growing. So yes, there is an evolution. I think probably all the companies in our market are perceiving this change in the portfolios and slowly the electrification is entering into our order books, and probably we will see this transition happening in the next years. What is not clear yet is the speed of this transition.
Because probably in certain regions, the speed, the transition will be much faster than other regions like India, where we can expect a slower transition, but the transition will be there for sure.
Thank you very much for the detailed answer.
Just to add to what Ander said, we have discussed in the past also that in India, we are dealing with two-wheeler OEMs, about two-wheeler EV OEM, five or six. Ander has talked about the main four-wheeler EV OEMs, and we are also very active in the three-wheeler EV space, where, again, Mahindra is a very big customer of ours in the three-wheeler EV market. So we have a comprehensive outreach to EV OEMs. Every year, we keep accruing orders in the EV space. And to your question on the overall order book, of course, we don't talk about an order book number because that is based on the kind of volume that will come in the future. What we normally tell you is that 25%
Of our sales in a year, we target getting from new orders, which we have got in the previous years. And the other thing that we have spoken about in the past is we want to beat overall market performance. If you look at the weighted average market performance, we want to beat that by 5%-10% on a regular basis. So that's how we look at the scenario from the sales perspective. Okay?
Sure. Thanks, Vikas. Maybe I'll come back to you separately for more details. But thank you for the response, both Ander and Vikas, on the question. Thank you so much.
Thank you to you .
Thank you. The next question is from the line of Nikhil Kale from Invesco. Please go ahead.
Yeah. Thank you for taking my question. Congrats on a very good set of numbers. Just on the subsidy part that you mentioned, that is in Germany, so I would presume that it is in part of the discontinued operations, right? So the reported Europe EBITDA is completely clean with no subsidies and retrospective kind of cost or compensation to customers. Is that understanding correct?
Yes, it is correct. Yes.
Okay.
It is a discontinued operation. It is in the profit, not in the EBITDA.
Got it. Thank you. The second question was related to. We are hearing a lot about employee cost inflation in Europe this year. Probably OEMs would be reluctant to compensate you for that. How are you looking at that? If you could just throw some color on that.
Yes. Okay. You know that usually the inflation in Europe in the last eight, 10 years was very low. Even in certain years, we have been with deflation or very close to zero. Unfortunately, in the last two years, we have had a huge inflation. In 2021, in Spain, we had an inflation of 6.4%. In 2022, we had an inflation of 5.4%. That is the impact. Yes, the salary increases, the salary that we have negotiated with our unions are, of course, considering these increases. Okay? We are negotiating with the customers to pass through the inflation, at least partially with them. Of course, the discussions are there, and it is becoming hard to get these pass-throughs, especially regarding the inflation. Not with energy. The energy, they already assume that need to be passed through, and this is accepted.
Also, raw materials are accepted, but inflation is more difficult. We are approaching in two ways. One is at least partial recovery from the customer, and a certain, at least partial offset with internal efficiency improvement. Okay? That is the approach. What we have set as a target is that no any loss, any cent of margin loss due to this. Okay? We need to be able, either with the compensation plus the internal efficiency to compensate 100% of the inflation impact in our P&L.
Okay. Got it. Thank you. That is it.
Thank you.
Thank you. The next question is from the line of Nikhil Rungta from Nippon India Mutual Fund. Please go ahead.
Yeah. Hi, sir. Thanks for giving me the follow-up chance. Sir, you indicated that you will continue to look for inorganic opportunities as well. Just wanted to check what would be the cutoff ROCE which we would be looking at in our incremental acquisitions?
Nikhil, this is difficult. You know that our M&A activity is focused on India. In India, we have the valuations are what they are. What we normally look for is in three to five years' time, the marginal return from any acquisition should go back to 15%. That's the simple way of looking at it. If you look at it, whatever price we buy today, in three to five years' time, that business should be at a marginal RONA of 15%. That's all.
Okay. And sir, just one more clarification. The stake which is left with M&M, I said that last year CIE already reached to a cutoff range of 5% till September itself. Incrementally, if M&M comes out with their remaining stake, CIE definitely might participate in the same, right?
As MCIE, we cannot answer that question, but CIE has increased stake in CIE in the past, so they will constructively look at the scenarios. But that is not something that is on the table as of now.
Got it, sir. Sure. That's all from my side. Thank you so much, and all the best for the future.
Thank you.
Thank you. The next question is from the line of Sunil Kothari from Unique Portfolio.
Thanks for the opportunity, and very hearty congratulations to team Vikas. My question is to you regarding this Indian growth, which we achieved roughly 13%. Normally, your objective is to grow 5%-10%, or maybe nearer to 10% than the industry growth. If you can, a little bit, give detail about how industry separately has grown, which segment, like six tonner, less than six tonner, MHCV, tractor, two-wheeler, and where we are in this objective.
Of course. This quarter, if you look at the less than six tonner grew by about 9.5% on a year-on-year basis. Two-wheelers, which is our next biggest, de-grew. It reduced by -3%. Trucks reduced by 8.8%, and tractors showed a healthy growth of roughly about +30% on a year-on-year basis, because Q1 last year was quite low in the tractor business. Weighted average would be somewhere in the range of 8%-9%. And we were at 13%. A little bit of that was due to Bajaj. Because Bajaj and Maruti, both of them were much lower than the market growth. I think Bajaj de-grew by much larger than the 5%. I think Maruti was also much lesser than the 9.5% growth.
Because of these two, because they have almost a 25% weightage in our India business, I think you are seeing a bit of a skew as far as the out-performance is concerned. That is the reason that it could have been better if you ask us that way.
Vikas, recently after the Bajaj Auto results and call, they are giving some indication of bottoming out process of domestic demand and maybe industrial also. Do you feel, or would you like to comment on two-wheeler demand scenario locally or maybe exports?
Boss has already commented. He said that three to six months, we do expect the two-wheeler market to be better, and that is correct. If you look at the retail data which FADA puts out, you are seeing an increase on month-on-month. Also you see the inventory data that they give out, that data is also coming down. Both these factors, we think that at least there is momentum on the retail side. Of course, whether it will recover to previous highs is a different question. That may not happen. But last three months, retail data is quite optimistic. January, February, March, all three have shown growth.
Excellent.
We think, as Ander pointed out, we do think that the two-wheeler market will be better for sure going forward.
Great, Vikas. Basically, CIE is now benchmarking every best performers or best of best performance in terms of profitability and growth. That's why I think our expectation is a little bit more than what you maybe or you are doing, but I'm sure you'll be doing better and better. Best wishes for that. Thank you very much.
Now, Sunil, just to add to that, as we have been pointing out, we will keep on focusing on improving our operations, bringing it as much in line with CIE global performance requirements. Market will go up and down, but our focus remains on becoming more and more competitive. In one quarter or the other, as we keep on saying, you will see depending on the customer portfolio. Just like in India, we pointed out that our customer portfolio did not help us as much in Q1. But the reverse is happening in Europe, as Ander pointed out. Our customer portfolio is actually helping us gain sales growth in Europe in Q1. Because of the diversification, it is helping us. In India, the portfolio did not do as well, but in Europe it did better. That will always be there.
But the fact is, we will keep focusing on becoming more competitive, becoming more and more aligned with CIE performance requirements globally. As we keep repeating, if that happens, growth will follow.
No doubt about that. Thank you. Thanks a lot.
Yeah. Thanks, Sunil.
Thank you. Next question is from the line of Bharat Sheth from Quest Investment Advisor.
Hi, Ander and the team. Congratulations, Vikas, you and JP also. My questions, one first is on the India business. As you said that this two-wheeler is expected to really do balance, means full year 2023, 2024 than the 2022, 2023. That is one. Second, tractor is expected to some kind of a slowdown. With that background, as well as for the export from India is expected to start or improve for EV products. How do we see India business growth for current year as well as next couple of year, and what kind of a CapEx that we are planning?
Bharat, as Ander pointed out, 80% of our organic growth CapEx is aimed at India.
Correct.
We have pointed out in earlier calls and in earlier meetings also is that this CapEx is across verticals in India. It is not as if it is concentrated in one or two verticals. It is across the board. So all verticals are growing in India. To answer your question, how should you look at growth in India? I think we maintain whatever we have said before that, whatever be the weighted average market growth, we will grow higher than that, 5%-10%, closer to, on the higher side rather than on the lower side. So that remains our objective. The reason why we are saying that is, as again, Ander pointed out previously on this call itself, there are a lot of capacities that will come on board. When the question was on, are we shifting two-wheeler capacities elsewhere?
The answer was that a lot of new projects are expected to come ramp up in the coming few quarters, and that should help our growth profile. There is absolutely, from a perspective of India growth, there is no change in whatever we have been saying.
Second question is, if Ander is there, how do we see export from India, what he stated that will start from next couple of months and for the EV related product. What if you can give some kind of a color, more detail, which kind of a product are we looking to export from India and for EV business in Europe, and what could be the potential?
Yeah. We are now starting the export of certain forged and pre-machined steel components for electric vehicle applications in Europe. This trend will continue, and we will, let's say, I think we will see important growth in that range. Some years ago, we decided to increase our export rate that was at about 12%-13% in our company, and we wanted to increase this export rate to 25% as a target, okay?
Correct.
Fortunately, during the last two years, especially because of these, let's say, turbulences in the geopolitical area in the world, we saw that the transport costs, all the freights and everything were going up in terms of cost dramatically. Also, lack of ships to deliver the materials. Let's say everybody and all the car makers and the OEMs, they were really, really frightened. They decided to go to the local strategies, or at least to protect themselves better than in the past. Right now, when all the logistic issues have been already solved and there is certain stability. We don't know what will happen, especially with the Ukrainian war situation. But it seems that the situation is more stabilized and the logistic cost has come down again to a normal figure.
It seems that the exports will continue growing from India or China or Korea to Europe and the States. Then there is a second important factor in this that we are already internally debating because we have more and more pressure to calculate the CO2 footprint of our products. With this CO2 footprint reduction requirement, the long deliveries from overseas probably will be reduced or at least will be minimized in the future. Now we are trying to adapt to this new scenario. We will see what are the requirements from our customers. As a company, as we are located in the different regions, we are proposing to go local for local as a main strategy. The export will continue growing, but it will not be a main strategy, mainly because of the two reasons I gave you.
We see that the export base will continue growing, but we need to see what is going on in the market and with the geopolitical scenarios.
Sir, Ander, and last question, with your permission. In India business, we reported 16.7%, and you said that still there is a room. What is our aspiration for India business margin? If you can give little more color from two, three year perspective.
We had this target to align our margins in India to CIE global margins. The CIE global margins are around 18%, and with the target to continue improving to 19%. I would say that in the short term, our target would be to be at 18%. That is the short term. In the midterm, we should hit CIE's targets, too.
Great. Thank you very much, and all the best.
Thank you.
Thanks Bharat.
Thank you. The next question is from the line of Mahesh from LIC Mutual Fund. Please go ahead.
Hi, sir. My questions have been answered. Thank you so much.
Okay. Thank you.
Thank you very much. Ladies and gentlemen, we will take that as the last question. I will now hand the conference over to the management for closing comments.
Okay. No, just as usual, I would like to say thank you to all the participants for their well-directed and well-prepared questions. We hope that we properly answered and logically answered to all the questions. If anything is needed, you can contact either Vikas or Swapnil to continue with the further details. As always also, I would like to say thank you to the Mahindra CIE team for their fantastic job and commitment during all this quarter. I hope to see you in the next quarter with similar results or even better. Thank you very much.
Thank you very much. On behalf of ICICI Securities, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.