Mahindra CIE Automotive Ltd (MAHINDCIE) Q2 FY23 Earnings Concall Transcript

Mahindra CIE Automotive Ltd (NSE:MAHINDCIE) Q2 FY23 Earnings Concall dated Oct. 18, 2022

Corporate Participants:

Vikas Sinha — Senior Vice President, Strategy

Ander Arenaza — Chief Executive Officer, Mahindra CIE

K. Jayaprakash — Chief Financial Officer 

Analysts:

Nikhil Kale — Axis Capital — Analyst

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Unidentified Participant — — Analyst

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Siddharth Dand — Goodwill — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to Mahindra CIE Limited Q3 CY2022 to post-results 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. [Operator Instructions]. 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.

Operator

Thanks to Mahindra CIE management for giving us the opportunity to host the call. We have with us Mr. Ander Arenaza, CEO of Mahindra CIE, Mr. K. Jayaprakash, CFO, Mr. Vikas Sinha, Senior Vice-President, Strategy, Mr. [Indecipherable], Business Controller and Swapnil Soudagar, DGM, Strategy. So over to you, Vikas for your initial comments and will take a call ahead accordingly.

Vikas Sinha — Senior Vice President, Strategy

Yes, thanks, Basudeb. Good evening, everyone, and Good afternoon to those who are joining from Europe. I welcome you all on this call as also our CEO, Anders. Thank you for attending the call despite a relatively late starting time especially for Asian investors. Sorry for the quick turnaround between results and call we won’t make this a practice. We start with an overview of the legal structure of MCIE. We would like to point out that during this quarter, CIE has bought out some of M&M’s stake in MCIE and consequently CIE’s has gone up from 63.44%, to 65.71%, while that of M&M has come down to 9.25% as against 11.43% earlier. This movie again reiterates CIE management’s strong belief in the growth opportunities available in the Indian market and the fact that they look towards MCIE to continue outpacing the market.

Let us now move on to Q3, C ’22 results for MCIE, which is on page seven of our investor presentation. Q3 C ’22 sales for India were at INR14,294 million, which represents a 34% growth compared to Q3, C ’21 and a 12% growth versus — sequentially versus Q2, C ’22. Like the last few quarters, the revenue growth rates are higher than the underlying market growth rates. MCIE India EBITDA margin in Q3, C ’22 is 15% despite the adverse impact of commodity prices, RM prices, and also an increase in the cost of energy in Maharashtra, where many of our plants are located.

EBIT was at 11.4%, which is better than both year-on year 10.8% and sequentially 11.1%. In India, the month of September, has seen good sales across all segments. Especially four-wheelers and we largely expect this trend to continue. The festival sales are also going well. However, historically due to the cyclicality in the tractor demand we could see slight slowdown after the festive period in this segment.

On page eight we have the Q3, C ’22 results for MCIE Europe sales were at 11,632 million, plus 28% versus Q3, C ’21 and, a little lower versus Q2, C ’22. But we have to remember that roughly three-fourth of August is closed in Europe so about 20 days is not there in this in this quarter. And of course, in this quarter, there were headwinds on RM prices and unprecedented energy cost raise. And of course the effect of the usual August holidays that we talked about. And also we would like to mention that in this quarter there was a negative exchange rate translation impact of about 11%, so on a Euro basis we have grown by 39% year-on year. The sales drop compared to Q2, C ’22 was 9%, which is explained by. all the factors that I talked about. The EBITDA margin in MCIE Europe in Q3, C ’22 was 10%. This margin is lower sequentially than Q2, C ’22, of course, some of it is attributable to the seasonal drop-in sales explained above. And also the energy price increase. We are confident that just like the energy impact in Q1, C ’22 will be partially able to get some of these increases to our customers in the coming quarters. On the demand-side, even though the customer schedules have not decreased, It is very uncertain as to what impact energy prices will have in Q4, C ’22 due to the Ukraine war situation.

And now if we go to page nine we will see the consolidated Q3, C ’22 results, which are a combination of the India and Europe results. Q3, C ’22, consolidated sales were INR25,927 million-plus 31% versus Q3, C ’21 and plus 1% versus Q2, C ’22, this quarter represents one of the highest-ever quarterly sales that we have — we have had and the other aspect that we would like to point out that now, India is much, much higher than the 50% mark that we are talking about in the total consolidated sales in this quarter.

Consolidated EBITDA margin in Q3, C ’22 was 12.8%. The Consolidated EBIT margin was 9.4% and this consolidated EBIT margin is almost close to the 9.7% that we achieved in Q3, C ’21 and 9.8% in Q2, C ’22 in-spite of all that is happening in Europe. Consolidated EBT in Q3, C ’22 was INR2272 million at 8.8% which is higher in absolute terms than the INR1790 million at 9% that we achieved in Q3, C ’21. In fact, if you see profits in absolute terms are increasing Q3, C ’22 consolidated EBT is 27% higher than the corresponding quarter last year in-spite of the margin changes.

On page 11, we have the nine months C ’22 results for MCIE India. Sales were 39,109 million, EBITDA of 15%, EBIT reached 11.2%. Page 12 we have nine months-to MCIE Europe results, sales were 36871 million, again, India is much higher than Europe. EBITDA at 10.6% and EBIT at 7.5%. Consolidated nine-month sales were 75 — almost INR76 billion. EBITDA at 12.9% and EBIT at 9.4% EBT. So we have a solid company performance despite the complicated scenario in Europe. We believe geographical diversification and empowered management at local levels is helping us deliver these results. These two factors, some of the key features of CIE’s strategic philosophy and we’ll continue to work along these domains. So with that, I close my remarks. We wish everyone the call a very Happy Diwali and a prosperous New Year in advance. May the festival spirit uplift our industry. And let’s now proceed to Q&A.

Questions and Answers:

 

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] Ladies and gentlemen we will wait for a moment while the question queue assembles. We have our first question from the line of Jinesh Gandhi from Motilal Oswal Financial Services Limited. Please go-ahead.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Hi, firstly can you talk about the impact of energy prices in Europe in this quarter and what we expect in coming quarter?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Good, afternoon everybody. This is Ander Arenaza speaking. Okay, the energy prices during the third-quarter this year were the highest energy prices we have ever seen, okay, even higher than the worst moment when the war in Ukraine started in end of February, beginning of March, okay. At that time the energy, the electricity price for some part of it went up to something like EUR300 per MW in March 2022, and in July, August we have been hitting EUR400 per MW, okay. That has been the huge peak that we have been suffering in all the European countries. Okay, it is different in each country but average would be like that, okay. Even in Germany, we were touching EUR700 per MW in certain days. This situation of course is not sustainable and hopefully, the trend has been. Going down and we have seen cool-off of the energy prices during September and October up to just EUR250 and EUR300 per MW where we are now, okay.

We have been dealing with all the customers to pass-through. I mean we have reached agreements with, all of them to pass-through, partially this impact and that’s how we are trying to manage this situation. Of course, there is a delay in the application of this — of these agreements, so we will see a certain — so certain impact on the Q3 margins and we expect to recuperate at least partially in the next quarters. But that is the impact in the — of the energy prices in Europe, in all the industry and I would say in all economy has been really-really terrible.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay but, can you quantify impact in 3Q for the European operation? How much of our margins were impacted just because of the energy cost inflation?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

We have had, depending on each of the technologies, we have different impact, but generally we can — you can consider that energy impact in certain products where we have the heat treatment, plus heating of the forging operation could go up to, more than 10% on this — on the prices. This is the big the that we can have in certain products, but the real impact in our P&L after negotiating and after passing-through can be approximately 1% to 2% on the results on the margins.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Okay, okay got it. And do you also foresee a risk-on the continuity of operations because of availability of power or energy in fourth-quarter or that is definitely not a concern, cost is only concern.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay, in this moment, we don’t see that risk or we let’s say that we are producing — normally we have availability of electricity and gas in all our operations. In this moment there is no signal of shortage of energy in our businesses but it is true that they are some rumors and some comments in Europe especially in the Northern Europe, I mean Germany, Romania, let’s say, all the Central Europe, where it could happen that there is a lack of gas available, so that the industry could be affected, okay. But in this moment we do not see that from the — order point-of-view and I think from the demand point-of-view from our customers we are now, quite satisfied because the demand is still strong. They keep fulfilling our order book and the order book is really strong in this moment so, let’s see what’s going on with the gas situation with the negotiations with the gas suppliers, mainly from Russia or from the state on also from the Middle-East and we are waiting for the outcome of those of those agreements, okay. My view is that probably there will be a certain slowdown down on the economy until the final solution is reached but in this moment as I mentioned our all our operations are running smoothly with no problems but okay the risk and uncertainties is there.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Got it, got it. And, you talked about, agreements have been reached for passing on this cost inflation, so would it be to the similar magnitude like in the recent past where we are between 60% to 70% of cost inflation was passed when balance was dropped by us? Is the magnitude of pass-through similar at this time as well?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yes, the magnitude is similar to those of you mentioned, yes. In that trend that is the — they have it in the market, yes.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Got it and last question before I fall-back in queue is on the European demand-side so on one-side your OEM customers are indicating, very strong demand and on the other side if I see the outlooks for light vehicle production which you have given from IHS, that talks of decline from CY ’22 as well as a sub 3% CAGR over the next three to four years so, clearly there is a dichotomy between these two. What is your sense with respective to — what kind of a growth can we expect in Europe going-forward. I mean presume the chip-related issues are largely behind us at least from 3Q onwards. So how do you see growth going-forward?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay. The reality is that okay for me it is a very complex question to answer because the word that is used more frequently in the Board that we finished some, some [Indecipherable] the uncertainty, okay. The real certainly that we have. On one-hand we see our customers. They are continuiously pushing us to produce and to let’s say to launch the raw-material orders because they will need the product. They will need them perhaps [Phonetic] in the next months and our order books our EDIs are full and the demand is really strong. On the other hand, we also see that there are market signs that okay, there could be an energy shortage so that could affect the industry so there is a risk of that could happen. So that’s where we are now trying to navigate, okay, in this uncertainty. My view — my personal view is that the automotive industry in Europe in the last three years has been completely depressed. I mean especially the European after the COVID when we were at approximately 15 million car in Europe, in the COVID year in 2020, the following year due to the semiconductors we were also up 15 million cars. In this year 2022, because of the war, because of the energy, whatever, we had again at 15 million cars, so we are in a depressed mode in this moment, okay. So. I think we can only go up and I will — I expect to have a recovery as IHS said in the last report of 7%, 8% of growth for 2023. So my expectation is that hopefully the market will go up and we will recuperate in the next years yes.

Jinesh Gandhi — Motilal Oswal Securities — Analyst

Got it, got it. Thanks, I’ll fall-back in queue.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Thank you.

Vikas Sinha — Senior Vice President, Strategy

Thanks.

Operator

We have our next question from the line of Nikhil Kale from Axis Capital. Please go-ahead.

Nikhil Kale — Axis Capital — Analyst

Yeah, thank you for taking my question, and congratulations on a good set of numbers. Can you help us, I think in the previous quarters you had talked about constant RM growth — revenue growth at constant RM so can you just help us at the numbers for this quarter?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yeah. Okay. In India, we had raw material — growth coming from the raw-material with 6% approximately. And in Europe 15%, okay that’s the figures that we have.

Nikhil Kale — Axis Capital — Analyst

So this is the RM impact, positive impact?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

That’s right. Those are the positive impact because of the higher raw-material price.

K. Jayaprakash — Chief Financial Officer Analysts

Year-on year.

Vikas Sinha — Senior Vice President, Strategy

Yeah and that can change impact of 11% for Europe.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yes and that’s also an additional impact of 11%. And we have 11% negative due to the currency in Europe.

Nikhil Kale — Axis Capital — Analyst

Okay but yeah very clearly, you’re seeing really strong outperformance versus the industry so just if you could just provide color, I mean, which segments are you seeing especially in Europe, is that, I mean what could be the revenues of Metalcastello? I think there we were running at full capacity. So, maybe just some color on the PV projects and Metalcastello and also the truck coaching?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yes. Metalcastello is working at full-rate in this moment. As we mentioned in the previous call Metalcastello is doing really well and most of our Metalcastello production goes to the U.S. The U.S. market is still pushing very-very hard and we are working 24 hours, seven days, okay. So and we are adding capacity to fulfill the demand so in that sense, yes in Europe one of the winner is our Metalcastello company evolution. Regarding the passenger cars forgings, yes also the trend is, also very strong and we are selling at a very-high rates in this summer time. You know that usually in the summer, we have the summer holidays when our customers stop about three weeks completely and this year we have seen that we were expecting probably higher drop but in fact the demand was really strong and you can see in the figures that we were out in Euros 39% above last year quarter Q3. Okay so, yes the evolution is really-really strong. But of the 39% of growth is coming from the raw-material as I stated before, approximately 15%. But we can consider that passenger [Indecipherable] doing also really well.

And the commercial vehicles sector, also grew and also show certain a good performance probably is more cyclical and we expect certain decline in the next quarters and we could foresee that but overall, I think the market continues quite strong.

Nikhil Kale — Axis Capital — Analyst

Okay but just coming to the CV forgings [Phonetic] part, I think you’re seeing really strong growth but at the same time, we’ve been talking about scaling down that business over a medium to longer-term so, how does — how do both these things now kind of play-out in your plants?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yeah, the point of this business you know that CV Forgings in Europe has been less profitable business that Mahindra CIE has worldwide. This businesses poor profitability is affected also negatively in really high inflation scenario and also with high raw-material plus energy price increases so the evolution of all of these businesses more-and-more difficult again. So that’s why we rather prefer to slow-down rather than growing, and having additional difficulty. So our strategy there is to we continue trying to improve the business and trying to get the maximum efficiency on one hand and on the other hand of course we need — we have no chance then passing-through the cost increases to the customers in this business we cannot accept 60% or 70% of pain shedding because then we would be in negative point so we need to be — we have no chance than being more aggressive to pass-through these cost increases, okay. So that is the reality of this business. So in the future we will decide — we will have to decide what will be the strategic growth for this business.

Nikhil Kale — Axis Capital — Analyst

So, for the time being, can we just assume maybe growth will be in-line with [Indecipherable] and let’s say the industry in Europe kind of [Indecipherable], we will continue to grow at similar levels?

Operator

Growth in Germany, yes will it be in-line with CV industry growth?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

No probably what we will see in Germany will be a lower-growth than the market growth. Okay, we will probably reduce certain products where we are not profitable, so we will see a certain reduction in the turnover.

Nikhil Kale — Axis Capital — Analyst

Okay, thank you.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Thank you.

Operator

Thank you. [Operator Instructions] We have our next question from the line of [Indecipherable] from Metaverse Equity Funds please go ahead.

Unidentified Participant — — Analyst

Hi actually my question is related to war only. I mean in the aftermath of the Ukraine war and China, how will your business strategy change prior to the war and post?

Operator

How has the Ukraine war, changed our business strategy?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay. In fact we have not changed strongly our strategy because CIE’s strategy has been always been local-to-local supply, okay. We preferred to produce in America what we sell-in America. Produce in Europe, what we sell-in Europe and produce in Asia what we are we sell-in Asia, okay. That’s the strategy — so we keep this strategy. Now also because of the environmental requirements and more stringent targets that we have, we are also trying to avoid unnecessary logistic cost and emissions. So in that sense these local-to-local strategy is reinforced. Considering that we are a global company and we have our, — let’s say we are positioned in all the automotive markets around the world, I think this is the appropriate approach and that’s exactly what we have now perceiving from our customers. Our customers, they are now more-and-more looking-forward this strategy that I think is more sustainable and it avoids logistic costs, currency exchange costs or risks, emissions, and also geopolitical tensions that okay time-to-time happens and we know that this can disrupt and-or break the supply — supply chains around the world, okay. So, I think that is the strategy. So we will reinforce our presence in India to growth in locally and to produce locally for what we sell here and also we will keep the European business and the Mexican business and the American business there in order to supply locally to all the all the markets. That’s the strategy. There is no big changes in our view because we have had this strategy from the beginning.

Unidentified Participant — — Analyst

Okay, got it. Got it. Thank you for taking my question.

Operator

Yeah, thanks [Indecipherable].

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Thank you, very much.

Operator

Thank you. We have our next question from the line of Bharat Sheth from Quest Investment Advisors Private Limited. Please go ahead.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Hi, Ander. Thank you, very much for the opportunity and a good set of number — congratulation on good set of number on the whole CIE. Ander, earlier we had moved some off — I mean — one order from Metalcastello to India, around 5 million so how this has gone successfully and are we, seeing some of these U.S. business orders of Metalcastello to transfer into Indian manufacturing? So what is the strategy over there?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yeah, we have transferred part of the production from Metalcastello to India and — due to different reasons, okay. First reason is that the final customer was located in India so it makes sense as I told before, the local-to-local approach. I think it makes sense to produce those parts in India. And secondly also because of the lack of capacity and the let’s say bottleneck that we have in Metalcastello, Italy. So that also made pressure to us to move this production to India. So we have done this transfer. — The transfer was successful and we are producing in India. With normality to the final customer so. Also, this is important to say that we have had during these years we have done they the technology transfer from Italy to India and now we are producing really complex parts in India and we have now the knowledge. We have the machinery to produce the same kind of product, that we produce in Italy, we can produce them also in India. So this process is ongoing and is ongoing successfully. So both the [Indecipherable] division in both regions is doing fantastically.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

So in future do we expect, I mean to get more [Indecipherable] business because the way. I mean capacity constraints we are facing in Metalcastello to transferring into India and is that — how big is the opportunity?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay. In this moment also in India we have let’s say certain bottlenecks, because of the capacity constraints. Not exactly in this moment because you know the tractor business is now quite low and we produce a lot of gears in India for the tractor business, but once the tractor business come up that will come for sure. Our capacities in India are also limited. So our plan is to continue investing and growing in India and we have our plans to expand our gear division in India and also we have plans to build new plant to continue our growth trend and take the opportunities that we have in the market in this moment, okay. So not necessarily more transferring from Metalcastello, some of the projects could be transferred from Italy to India if it makes sense, but the real day — the current market in India is giving us enough opportunities to continue our growth in India without the need of transferring production from Italy.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Okay, thank you and second question now [Indecipherable] EV so Europe and India how we are — I mean the things are playing out and second thing what we have been listening that some of the people, I mean powertrain manufacturers are reducing cranked up capacity or transfering to other products and so but [Technical Issues] business so how do we see a gaining a market there on the [Technical Issues] business over-time.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay in Metalcastello as we have already explained in previous calls. We got new businesses from electric vehicles, very large business that we have now, let’s say increased. I mean we have been nominated for additional electric vehicle products. So we see the trend clearly. And the new orders are now more-and-more coming from the EVs and hybrid vehicles. So in that sense, in Metalcastello the transition will be absolutely natural because the market is pushing us to those to that kind of components.

And coming back to the internal let’s say the rest of the forging, I mean the crankshaft business is not affected yet. I mean we are not affected till now because due to the mix of [Technical Issues] that we have — due to the mix of customers plus the market evolution. We don’t see a reduction but what we are now preparing ourselves is that in four-five years, we will probably see a decline on the demand of these kind of products and we will prepare ourselves to change our product portfolio to other as we mentioned also before from chassis component and also aluminum forgings and all the other kind of products that we are developing in this moment.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

So. I believe that is Europe we had started — or we were to start only aluminum forgings or so. Where we are at this moment?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay we have had our first orders in the aluminum forgings and we continue developing the technology plus the products and we are working on it. I mean there is no additional information that I can disclose but we continue working on it.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Okay, on India business, any addition of new clients or any addition of the new business in Q3 vis-a-vis earlier quarter? And how those new customer, which have been added over last 12 months is performing?

Vikas Sinha — Senior Vice President, Strategy

Any new big orders, no but in terms of new capacity additions, I think capacity additions are ongoing in almost every vertical there, as we have reiterated in the past, you have magnetics where there is an expansion program, which will substantially increase capacity. We have a new plant at gears, a new plant is being setup at AEL [Phonetic]. All these are ongoing programs. You have CIE, Hosur where you know most of the infrastructure has been setup, and first order we have started to generate revenue from that place and it is now in the process of being ramped-up. We had the warm forging plant which has been partially set up at Jharkhand. So we will put in more machines there. So this is — the capacity addition is an ongoing process, in terms of order book, if there are any significant new orders, at this time we don’t have that maybe we will talk about it in the year end call. But we’ll let you know about the order book on the new orders generated in this year during that period.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

So Vikas, my question was related to more on the new client acquisitions. Or increasing the content per vehicle from the existing plan. If you can give a little more color on that side also.

Vikas Sinha — Senior Vice President, Strategy

No in terms of increasing our share or having more business from our existing clients that’s going on whether it is Mahindra. As you know Mahindra is going through a lot of new model launches so we are there in all of the new model launches. [Indecipherable] has also the model launches next year in the EV space. Same case as far as Maruti is concerned. And also we have a very strong situation developing in Tata Motors also. So that is in the four-wheeler segment. In the Two-wheeler segments, we have talked about how CIEm Hosur. We have had new orders. CIE, Hosur is setup for new orders — new orders that we have got from BSA and Royal Enfield. So that is there. So we have — like for example, Ander talked how he is bullish about the tractor segment which will have an impact on our plants at Rajkot and Zaheerabad. We are receiving some of the new model launches by multiplying the tractor segment. You know, a lot of them are slated in the coming few years, not necessarily in the next, few quarters. But we have a strong pipeline of that there and we will be present in, all of them. So to that extent, you know, we are quite comfortable in this area.

Bharat Sheth — Quest Investment Advisor Pvt. Ltd — Analyst

Thank you, Vikas and Ander. All the best.

Vikas Sinha — Senior Vice President, Strategy

Thanks.

Operator

Thank you. [Operator Instructions] We have a next question from the line of [Indecipherable]. Please go-ahead.

Unidentified Participant — — Analyst

And good afternoon, everyone. Thank you for the presentation. I have two questions. The first one is regarding bottlenecks constraints that you have in India. Do you foresee the need to accelerate the capex allocation in India next year or with the ramp-up of the current investment this will be enough to supply the market? Thank you.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay. It is true that we have in certain businesses, in certain verticals we are limited and we cannot continue growing if we don’t invest but our investment plan is solid and is done from let’s say several years ago. Okay even in the COVID, year 2020, last year 2021, and this year we are investing heavily to let’s say prepare ourselves to cope with the demand that we foresee from the market, okay. So this year, we are investing on these I can give you the figure out but close to INR4 billion rupees on capex. Most of it is located in India and we are adding capacity and we are adding plants in almost all the verticals, okay. So we continue our capacity expansion trend and because we needed to continue growing in the market. So we expect that during this year that, we will need to have an important capex in India. Next year we will have again because we think that the Indian market we will continue growing.

And also regarding the mix of customers that we have, we see that, okay we are growing a lot with Mahindra as it is normal. I think Mahindra is doing really well and with their products — with the new products they are launching. They are having a big success and I think that will be a good opportunity for us to continue growing. Also with Tata, also with Maruti, I think that we are well-located to continue our growth satisfactorily [Phonetic]. Okay so to your question, yes we had we have had limitations but we are now launching additional capex aligned with our customers to fulfill with the demand, okay. So our strategy is to continue our customers as much as we can.

Unidentified Participant — — Analyst

Thank you very much. The other two questions are regarding profitability in Europe. [Indecipherable] in the Q4 you mentioned that there has been some delays in the pass-through energy inflation to some clients so my question is taking into consideration the spending pass-through and you know the limited basically [Indecipherable] we have on-market demand, should we expect [Indecipherable] profitability improvement in Q4 taking into account the spending pattern [Indecipherable].

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay if the situation of the energy market is stabilized and the demand continues as it is now, yes we should have this recovery, okay, because we will be able to recuperate what we lost in the previous quarter. The point is that we, don’t know what will happen with the market in the next quarter and we, don’t know what will happen with energy, okay. So that’s, why, I cannot say total yes or a very solid yes to your question. Because it will depend on how the energy market plus the demand behaves, but in normality, yes. This if you recall from the previous quarters, in the Q1 we were negatively affected because of the start of the war in Ukraine and in February-March, the energy went up and we had difficulties, so we lost certain margins in the Q2. We recuperate now in the Q3 when the energy is picking-up again, we go down again, so that the scenario we are suffering. Very-very complex scenario and it’s really, really tough situation to manage with this uncertainty, but yes I agree that in normality we should be able to recuperate part of the of the margins that we have lost in this quarter.

Unidentified Participant — — Analyst

Thank you very, very clear and then last question is you spoke about Q4, next year obviously is going to be the year the huge inflation in Europe pass-through to players. How confident as you of being able to pass-through the labor inflation in Europe, which will be the first time in [Indecipherable].

Ander Arenaza — Chief Executive Officer, Mahindra CIE

It’s a very, very difficult question because the — my feeling is, during the negotiations that we have had in this period with the customers, they refused to apply any price increase due to the inflation.

Unidentified Participant — — Analyst

Okay.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

They consider that they can — they should pay the raw materials because commodity is coming and they paid. The energy price at the beginning they refuse but finally they agreed and this is generally agreed by all the OEMs, otherwise they will destroy the supply-chain so this is clear. But the inflation that is complex scene to pass-through because they consider that we should offset these with efficiency gains and productivity gains internally. So my — if you want to know my request to all the teams in my businesses in Europe or what we have done is we have to set an internal target to offset this inflation in labor and we should be able to offset that impact through the growth in the business at that [Indecipherable] or through let’s say [Indecipherable] or let’s say fighting people in order to increase our efficiency to be able to keep with the margins, okay. So that’s the strategy. There is no way then resisting and improving internally to offset those impacts on inflation.

Unidentified Participant — — Analyst

Okay, okay thank you very much.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Thank you.

Operator

Thank you. We have a next question from the line of Nikhil Kale from Axis Capital. Please go ahead.

Nikhil Kale — Axis Capital — Analyst

Yeah, thanks for taking my question again. So just wanted to understand so again going back to the Europe performance, have we seen any benefit because some suppliers are based out of Ukraine or Russia, have been impacted so are we kind of gaining market-share because of this kind of an impact any examples of this?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

No, not from Russia from Ukraine. We have not seen these impact or with we have not been benefited from production coming from Russia or Ukraine. No not — it’s not the case. What we have been benefited in some small businesses is from some small companies that has been close to bankruptcy because of the special situation in the European market. So there is a consolidation there so, yes we expect to see certain consolidation in the market because of the bankruptcy but from European suppliers not the Russians or Ukrainian suppliers.

Nikhil Kale — Axis Capital — Analyst

Okay, got it. Got it. And just on the capex side, I think you mentioned that you seeing really good demand in India especially and you’re looking at capex. So what is the capex guidance for this year, we would meet say close to — or would the capex be close to INR5.5 billion for the full-year on a consolidated basis?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yeah, the capex in global, I think would be about 5% of our total turnover, I’d say that’s the figure that we manage.

Nikhil Kale — Axis Capital — Analyst

Yeah, that should continue going ahead for the next year as well right and that could be shape assumptions.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

That’s right yeah.

Nikhil Kale — Axis Capital — Analyst

All right, got it. Thank you.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Thank you.

Operator

Thank you. [Operator Instructions] We have our next question from the line of Siddharth Dand from Goodwill, please go-ahead.

Siddharth Dand — Goodwill — Analyst

Yeah, could you give me the German — PBT number of German operations for three months and thus for the quarter and nine months of Mahindra Forgings?

Vikas Sinha — Senior Vice President, Strategy

I think we don’t have it readily available, right? We will share these PBT numbers about the German business at the year end. But what we can tell you in terms of gross margin performance it is more or less similar to what we have done in the earlier quarters in Q2.

Siddharth Dand — Goodwill — Analyst

Okay, but the PBT level, is it positive or negative?

Vikas Sinha — Senior Vice President, Strategy

No it is not negative. It will be around the 0 mark even last year-on a full-year basis it was something around that only. PBT, 0 to 0.5%, so it will be something like that only.

Siddharth Dand — Goodwill — Analyst

Okay, okay and my second question is about the debt figures. So what would be the approximate figure now in India and Europe? And will interest-rate have an impact over there?

K. Jayaprakash — Chief Financial Officer Analysts

Okay Sid, if you’re asking about net financial debt we are about, 7.5 billion.

Siddharth Dand — Goodwill — Analyst

Okay.

K. Jayaprakash — Chief Financial Officer Analysts

And yes it will have an impact because margins or the — rates have gone up both in Europe and India by 2%.

Siddharth Dand — Goodwill — Analyst

Okay.

K. Jayaprakash — Chief Financial Officer Analysts

But, I think overall if you see in our scheme of things finance cost is not really significant.

Siddharth Dand — Goodwill — Analyst

Okay so INR7.5 billion that is around INR750 crore right?

K. Jayaprakash — Chief Financial Officer Analysts

Yes, yes.

Siddharth Dand — Goodwill — Analyst

And what’s the split in India and Europe about the debt?

K. Jayaprakash — Chief Financial Officer Analysts

In India would be about a billion.

Siddharth Dand — Goodwill — Analyst

India would be about a billion so mostly it is Europe debt.

K. Jayaprakash — Chief Financial Officer Analysts

Yeah, yeah.

Siddharth Dand — Goodwill — Analyst

Okay, so [Indecipherable] numbers it is actually issued if you’re looking for interest cost impact.

K. Jayaprakash — Chief Financial Officer Analysts

Yeah okay, you can look at it that way, because we earn also the same. So that’s okay, yeah.

Siddharth Dand — Goodwill — Analyst

Okay and my next question is can India — so what is the India EBIT top-line target by DIY ’25 and can the margins reach like 17% to 18% like the parent margin? For the India business?

Operator

So MCIE India C ’25?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yes, we have always had internally the target to have the same margins in India as in the rest of CIE so that is clear. Okay, we don’t disclose long-term target, in our company but as a strategy or at least our wish in our in MCIE, yes we would like to be there for our booking [Phonetic], so what we see clearly is that the growth in India will be higher than the rest of CIE markets and the margins should steadily — it should be able to recuperate and to grow, to reach or let’s, say, through-pass CAE margins, yes.

Siddharth Dand — Goodwill — Analyst

And growth, and what are the growth target for the India business? Around 15%?

Vikas Sinha — Senior Vice President, Strategy

No-no, we don’t have — we don’t have any such target that we’ve set for ourselves. What we normally say, normally work towards is whatever is the weighted-average market growth we will grow maybe higher by 10% then that. You know, earlier we used to say 5% to 10% now it will be closer to 10%. We will be higher than the weighted-average market segment. When I say weighted-average market segment we have a certain portfolio spread in India across four-wheelers, two-wheelers, tractors, and trucks, so based on that weighted-average, we want to beat the market let’s say by 10 percentage points yearly as a general rule.

Siddharth Dand — Goodwill — Analyst

Okay and about the interest cost has gone up for us and so what was the cash pooling deal that we had with CIE? Is the interest cost still 1.5 over there?

Ander Arenaza — Chief Executive Officer, Mahindra CIE

No, it is [Speech Overlap].

Siddharth Dand — Goodwill — Analyst

[Indecipherable] okay. Okay, I’ll come back if I have any other questions, thank you.

Operator

Thank you. We have our next question from the line of [Indecipherable] please go ahead.

Unidentified Participant — — Analyst

Yeah, [Indecipherable]. Sir. I had a question on [Indecipherable]. For considering the interest-rate hikes worldwide and the headwinds which the auto industry is going to face or is facing, sir how do we think about the growth because obviously our underlying business is linked to the automotive industry, so can you share some thoughts on how we will grow whether it will be purely organic, inorganic because organic growth it seems to be difficult to come by.

Vikas Sinha — Senior Vice President, Strategy

No no, Ankur, as far as organic growth is concerned, we don’t think that at least in India that would be the case that we would not grow. And I also mentioned that. We have a lot of medium-to-long term expectations from the Indian market not just in MCIE but also our Parent, CIE’s has that kind of expectations. So we do expect the Indian automobile market to grow. Of course, in there are certain headwinds that we know around inflation and around the geopolitical scenario and expectation of recession in many places of — in many countries but nevertheless we do believe that the Indian automobile markets in all segments will keep growing, why we say that? For example, You know the penetration ratios both in two-wheelers, tractors, and four-wheelers, is much lesser compared to the global average in the case of four-wheelers it is only 28 per 1,000 which is, much lower than even other emerging countries. In tractors also we believe that the tractor realization levels there is a lot of scope for improvement in terms of you know horsepower per hectare. Two-wheelers, maybe only 50% of the households in India have two-wheelers and two-wheelers is a necessity. So there is enough scope for growth. We also think that yes, there will be headwinds but income levels will keep growing. It could be at a reduced rate compared to what could have been if there was no such headwinds but nevertheless it will increase and therefore this combination of demand as well as income we do think that the medium to long-term in the Indian automobile market will be good.

To answer your question around Europe, I think Ander did mention that the European market has come down to very low levels, you know what used to be in the range of 20 million light vehicles per annum, today this year is probably in the range of 15.2 to 15.3 million, it was 15.5 million in the year before, it was around 16 million the year before that in 2020, so it is already at a very low-level compared to what it used to be and therefore there will be some recovery at some stage even in the European market because the base levels are very low. So we are not ruling out organic growth at all. We are quite — we are quite hopeful as far as the organic growth is concerned.

As far as your inorganic question. We have said that we will normally not want to do inorganic — we have not want to do any acquisition for the sake of growth. We want to do acquisition to fill-up capability gaps in our portfolio whether it be say for example any new technology or any new customer that we would like or any new segment that we could service. It would be largely for that and not necessarily to push growth that we would — we would be doing an acquisition. So inorganic we keep looking at it and whenever we find something that really fits our bill, we will certainly go for it but, I don’t think we are relying on inorganic strategy for growth. We do believe organic will be there, that from a market perspective and overall and as we explained in the question that Sidhanth had asked and especially in India we do think that given our order book scenario, given the fact that we have been able to improve our efficiencies and competitiveness in the recent past, we’ll be able to grow faster than the market. We talked about a 5% to 10% or closer to 10% kind of figure higher than the India market growth. So not only we expect the market to grow we also expect to grow faster than the market in India. So that is our thinking at this point of time.

Unidentified Participant — — Analyst

Okay, okay. And sir one more thing like, — like I heard about an interesting strategy, which MCIE is following that you know localized manufacturing and production. Like the context is that you know, I was just thinking from a company operational perspective and you know the way inflation, the energy prices and all of it, it is hitting the manufacturing operations for each and every company, so considering that aren’t the customers like the end OEM is looking-forward to a low-cost manufacturing base but rather than just a localized base. Yes maybe temporarily till the time there are logistical issues or any of those sort of issues, it is understandable but let’s say in the medium-term to-long-term one these OEMs, big OEMs think about rationalizing their cost structures and shifting you know their supply chain maybe — you have diversified supply-chain but to a lower-cost supply can like the base which we have in India. So like — can you share some thoughts on that?

Vikas Sinha — Senior Vice President, Strategy

You know — you know when we say it is CIE’s stated strategy as far as local for local is concerned, by and large it would continue like that. Yes you are right there will obviously be a quest to look for lower-cost sources of manufacturing and this has to be balanced with all the logistical risks that companies have faced in the recent past whether it was due to COVID or due to the semiconductor issues that people were facing or even to the shipping cost situation that happened last year. You know there was a container — container shortage that was, so all these things, they have to be balanced together. So there is a need for low-cost manufacturing and then there is a need for these balancing of supply-chain. So when it is said that local-for-local it does not mean local means Maharashtra-for-Maharashtra or you know something, or just only India-for-India, by and large that could be the case, but wherever as low-cost markets wherever we have opportunities to export, we will export. So that is — it is not as if we will not — or you know like whether this China Plus One strategy, are we benefiting, yes in areas like gears, in areas like Magnetics. We gain from this kind of situation. So both the things are correct. So what you’re saying is also right wherever we see an opportunity we will take care of it but by and large OEMs now try to balance their supply-chain risk and that is the reason why CIE has that strategy. Yeah.

Unidentified Participant — — Analyst

Okay, so can you just quantify the amount of exports from India, like a percentage of sales from India?

Vikas Sinha — Senior Vice President, Strategy

Roughly about 12% to 13% and we have said in the past that we would like to increase this. About two years back I think if you go back to our transcripts we had mentioned that we want to take it up to 20%. But after that there has been a very strong domestic demand you heard like how we are increasing capacity in each of our verticals. A lot of it, you know, a large part of it is to service the demand from our customers in India. So to that extent, our first priority is definitely to service our existing customers. So yes we do have at the back of our mind, but at this point of time our first priority is to fulfill the demands of our existing — of our order book essentially, that we already have.

Unidentified Participant — — Analyst

Okay, okay. And sir, one more — like one more point it is just coming from a perspective that there is one of the portfolio coming like let’s say that of commercial, okay. So let’s say this particular company it does manufacturing certain parts in India, okay, and it is supplying to some of the supply-chains worldwide. So like from a CIE perspective, if CIE is looking at their supply chains from synergy point-of-view that you know let’s say there is a particular part which they are able to source it well from India, in a better way or let’s say we are able to source it better from Italy unit in a better way, so are we — I just wanted to know that are we using the global platform from this and the global manufacturing platform from this to actually benefit from this — benefiting from the many things like cost and other things. So are we — are we open to do that because you know local-to-local it seems like especially if I think from a medium-to-long-term perspective it seems pretty tough.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Okay, the local-to-local strategy is a general strategy. Okay, it doesn’t mean that the 100% of the production will be local-to-local. There will be a percentage that’s for sure for cost reasons, for synergies even for technological reasons could make sense that we could concentrate in the production of one component in one region and then export from there, okay so. And in that sense, India of course is well-located because the cost base is much more competitive than the rest of the regions. So yes I — we can see what you proposed — you mentioned depending on each product. As a general rule we prefer to go local-to-local and but in certain cases of course we will — we will produce in India and we will export okay and especially for example in certain technologies that are only available in CIE in India we will produce for sure in India and deliver to the rest of the countries.

So let’s say that we have very open-mind set on this. We said that our general strategy is and what is true is that because we explained before saying that we were planning two-three years ago that our export rate should grow importantly and pass from this 12% to 20% and even 25%. In this moment we think that this is not the right strategy because first the local market is demanding more than enough in India so we are struggling to supply to the current customers here in India so that is a good thing and secondly there is a, the logistic cost now has gone up dramatically also not only the cost because the availability in certain moments we were not able to find ships to deliver our product and also there is big pressure in especially in the European and American customers to reduce the CO2, — the carbon footprint so, let’s say considering all these things I think we will focus our efforts on locating the production in the — in each of the regions and of course if there is an opportunity and if there is a need and if there is a certain product that makes sense to produce and export we will do it for sure.

Unidentified Participant — — Analyst

Okay and sir, just a last question, sir I was just going through the annual report and there was this very interesting data point which I found that you know currently the incremental vehicle sold are more of hybrid vehicles than pure battery-operated electric vehicle, okay. So can you just share your viewpoint on the trends and the way your customers are pursuing our strategies — like are they pursuing — like are pursuing the strategies from a very open perspective and letting the market discover or they are particularly saying that you know hybrid vehicles is going to take the lead. Can you just throw some points because this is important because it has also returned Annual Report that if it is a hybrid vehicle the content per vehicle for Mahindra CIE increases.

Vikas Sinha — Senior Vice President, Strategy

You are talking about Europe, I guess…

Unidentified Participant — — Analyst

Yeah, Europe. Sorry, Europe.

Vikas Sinha — Senior Vice President, Strategy

Yeah, so in Europe, that trend remains the same battery-electric vehicles even in this quarter YTD this year up till September at about 10% and hybrid are around 20%, overall between the petrol and diesel they are close to 55 odd percentage. Now it is whether it is deliberate strategy or that is the way — no, the market is evolving so at this stage it is very hard to say whether it is because the OEMs are pushing or the market is evolving, you know, what we think based on last year’s aggressive plan that the European Union had announced on the 55% reduction in emission we do think that by 2030 about half of all the vehicles sold-in Europe would be pure battery-electric vehicles, but that’s 2030. So that’s the expectation based on, whatever you know, like for example, IHS is telling us on based on this new revised — the new revised guidelines that the European Union has issued.

Earlier of course this number was 30%, pure battery-electric vehicles by 2030 it has gone up to 50%. How between now and then how this mix changes, et-cetera, we’ll have to see whether this is will be hybrid or only pure battery-electric vehicles it’s based on many things that is charging infrastructure, that is the way you know people drive long-distance, short distance, the inflation considerations, the subsidies that the government give, so there are lot of variables so exactly between EVs and hybrids how is it going to be we really don’t know but to your point in the medium-term do we perceive that it could be advantageous for MCIE, the answer is yes. Not just from hybrid point-of-view but also from the traditional powertrain.

The traditional powertrain is still large part, as they said almost 50%, even if it comes down to 30% of say, 16 million, 18 million market is a huge number. So there and you know not much investment is going into the conventional the traditional powertrain component manufacturing, so to that extent you know the opportunity lies there also. So in the medium-term actually there is a lot of opportunity, not just risk to look-forward to in this transition, but to answer your original question it is very hard to say whether the OEM are pushing this or it is evolving and I guess I’ll request Ander also to add his views on to this.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

I agree because I mean the — I think the hybrid vehicles are the best solution for Mahindra CIE because the amount of components it’s higher so we have both electric components plus the internal combustion engine components but I see the hybrid solution as a temporary solution okay so. It’s a bridge. The hybrid will give the bridge to the electric vehicles — to the pure electric vehicle in the future. So I think it’s necessarily a step it will be used and it will be probably massive in the next four to five years and then once all the charging infrastructure is orderly set then there will be the transition to the — smooth transition to the pure electric vehicles, okay so. That’s my view so I think there will be growth on the hybrids and then there will be growth up from let’s, say 2030, 2032 then we will see a pure battery vehicle growth importantly.

Unidentified Participant — — Analyst

Sure, sure. Sir thanks a lot everyone. All the best.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

Yes, thank you.

Operator

Thank you. I would now like to hand the conference over to the management team for closing comments, over to you, sir.

Vikas Sinha — Senior Vice President, Strategy

Yes, thank you. Thanks for your time. I’ll request Ander for the closing remarks.

Ander Arenaza — Chief Executive Officer, Mahindra CIE

So thank you to all the participants for the well-directed and clever questions that you did. I hope that we answered properly and you have now better knowledge of our company. As always, I would like to say thank you to all Mahindra CIE team, that has been working in a very hard and difficult conditions, during all these months and I thank you for the [Indecipherable], their commitment and their work, okay. And finally, I just wanted to say to have nice and happy Diwali festival and, enjoy with your families and dresses because I think we will have after the festive season we will have to fight again in this complex market. Thank you, very much.

Operator

[Operator Closing Remarks]