Mahindra CIE Automotive Ltd. (MAHINDCIE) Q4 FY22 Earnings Concall Transcript

Mahindra CIE Automotive Ltd. (NSE: MAHINDCIE) Q4 FY22 Earnings Concall dated Apr. 26, 2022 

Corporate Participants:

Basudeb Banerjee — ICICI Securities — Analyst

Vikas Sinha — Senior Vice President, Strategy

K. Jayaprakash — Chief Financial Officer

Swapnil Soudagar — Deputy General Manager, Strategy

Ander Alvarez — Chief Executive Officer 

Analysts:

Pratik Kothari — Unique PMS — Analyst 

Unidentified Participant — — Analyst

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Nikhil Kale — Axis Capital — Analyst

Sanket Kapoor — Kapoor and Company — Analyst

Deepak Poddar — Sapphire Capital — Analyst

Bharat Sheth — Quest Investment Advisors — Analyst

Raj Kumar — — Analyst 

Presentation:

Operator

Ladies and gentlemen. Good day and welcome to the Mahindra CIE Q1 CY ’22 Results Conference Call hosted by ICICI Securities. [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.

Basudeb Banerjee — ICICI Securities — Analyst

Thanks, Margaret. Good afternoon to all participants from India and Asia, and good morning to all participants from Europe. We are thankful to get opportunity from Mahindra CIE management to host the call and I’ll welcome the management represented by Mr. Ander Alvarez, CEO; Mr. K. Jayaprakash, CFO; Mr. Vikas Sinha, VP Strategy; Mr. Lafuente, Business Controller; and Swapnil Saudagar, DGM, Strategy. So, over to you, Vikas for the initial comments.

Vikas Sinha — Senior Vice President, Strategy

Thanks, Basudeb. Good day, everyone, good afternoon and good morning to those who are joining from Europe. I welcome all of you, as well as Ander Alverez, our CEO. So, we are going to talk about our results for Q1 C ’22. We start with MCIE India results for Q1 C ’22 the quarter — first quarter of calendar year ’22 which is on Page 6. Sales is 15% higher on a year-on-year basis compared to Q1 C ’21 on a year-on-year basis. However, this is mainly due to RM price increase.

If you look at the table on the right that depicts market performance, you will notice that the light vehicles, tractors and two wheeler segments all experienced negative growth vis-a-vis Q1 C ’21. MCIE India sales performance is thus better than the market even after taking into account the RM increase. But the table also presents signs of optimism. The performance of light vehicles and tractors segments is better than in the Q4 C ’21. So, sequentially tractors and light vehicles are better and we expect this trend to continue.

MHCV quarterly data is not presented, but they are also improving steadily. Only two-wheeler segment shows some costs for concern. Despite this uncertain market scenario, we are happy to report that in Q1 C ’22, we have returned to our target level of 15% EBITDA in India. Sales in MCIE were INR12,022 million with an EBITDA at 15.1%;EBIT at 11.2% and EBT at 11.0%. This is evidence that proactive measures like VRS in the stampings business, which were taken in earlier quarters are showing results.

MCIE Europe results for Q1 C ’22 are shown on Page 7. The sales here again have seen growth in absolute terms, but again this is largely due to RM costs, which have been passed through without any margin. The EBITDA margins, however, continue to be affected by the higher energy cost, which had been further exacerbated by the Ukraine crisis. We have been discussing on passing on some of these increased costs to our customers. Thus, the EBITDA margin is at 10.2%, lower by 3.7% compared to Q1 C ’21, but better by 1.1% than Q4 C ’21. So, clearly this measure is helping. Q1 C ’22 EBIT is at 7.0% and EBT at 6.5%.

The forecast for the European automotive markets made between January this year and April now have seen a sharp decline. We use the estimates from IHS, so the IHS estimates for C ’22 for the light vehicle segments were about 18.1 million units in January, but in their April forecast, they have downgraded this to 16.1 million vehicles. It is not expected that European light vehicles will grow by 3% to 4% in C ’22 compared to double-digit estimates earlier. We will therefore continue to focus on internal improvements to tide over this.

And now if we go to Page 8, we will see the consolidated results, which are a combination of the evolution in both India and Europe. MCIE achieved a sale for the quarter of INR24,444 million with an EBITDA of INR3,079 million, which is 12.6% of sales and an EBT of INR2,130 million, which is 8.7% of sales. MCIE consolidated performance is better, both on a year-on-year and consolidated basis, and in fact Q1 C ’22 results are one of the best quarterly results that we have ever achieved in our history.

Also key projects that we had outlined in our year-end C ’21 results call, namely EV orders, digitization and automation, optimizing energy costs in Europe as well as in India through renewable, but they are all progressing well. So, we can report good progress there. Therefore, we are focused on maintaining this good momentum and performance and this we are doing it in an uncertain and volatile market and we hope to be successful.

So thank you and now we proceed to Q&A.

Questions and Answers:

Operator

Thank you very much. [Operator Instructions] The first question is from the line of Pratik Kothari from Unique PMS. Please go ahead.

Pratik Kothari — Unique PMS — Analyst

Hi, good afternoon. Vikas in the presentation, you have mentioned that we have passed on the raw material prices without any margin, but if you look at our –and there’s no volume growth if you compare to the last year. But if you look at our gross profit, we are seeing some substantial growth from INR1200 crores last year to INR1400 crores now and even gross margin in percentage terms remains as seen. So, how do we look at this number then?

Vikas Sinha — Senior Vice President, Strategy

Okay. JP, would you want to take this? This is, I think you were talking more in terms of our European business. Right?

Pratik Kothari — Unique PMS — Analyst

No, I’m looking at a consolidated basis, the one which are reported [Indecipherable]. So if we pass on the raw material prices without any margin then absolute gross profit should have remained the same, but that has also gone up 15% to 18%?

K. Jayaprakash — Chief Financial Officer

Yeah. So not — so that a large part of the sales is accounted for by raw material prices, but not all of it is accounted for, a large part is accounted for. So, there are a lot of efficiency improvements also. We talked about, say for example, we had done VRS in India. So, that is taking an effect now plus there have been other projects that have been going on, which we have been talking. In general, we have been doing a lot of work on digitization, automation in India that has been going on.

So, it is not that — no, when we mentioned that comment that was made more in terms of sales in Europe where the expansion is quite substantial. Large part of it, maybe two-thirds out of it is coming out of iron growth, but the rest is coming out of a mixture of factors like improvements and product mix, different segments are growing differently, all that. So, it is not entirely due to raw material. That’s the reason why you’re seeing the increase in gross profits.

Pratik Kothari — Unique PMS — Analyst

So in a normalized times maybe few quarters down the line when we are able to pass on these raw material prices and margins also, given the improvement that we have done now, there should be some substantial jump in the numbers we are reporting. I mean, there seems to be a massive improvement in our internal efficiency.

Vikas Sinha — Senior Vice President, Strategy

Yes. There will be an impact when the steel prices stabilize. Yeah.

Swapnil Soudagar — Deputy General Manager, Strategy

I don’t know because I think Mr. Kothari, this is Swapnil. What we’re seeing is when you have steels prices, which is passed on and there’s no margin improvement, but your point is valid that despite that we have a gross value addition of almost INR2 billion, if you compare year-on-year. Yes. And your question is how will we achieve this INR2 billion when volumes are not really growing. So, we cannot say that the volumes are not growing because we had a 20% growth year-on-year. And approximately, let’s say, 10% to 12% — 12% would be the steel price impact. So, we’ve had volume growth in India and some extent Europe urban.

So, there is that contribution of — I think if you’re looking at INR2 billion, we can look at half of it or a little more than half coming through this volume increase. The rest would be definitely improvement, both on productivity. There will be some mix impact because different businesses have different value addition. So, when that mix changes, it impacts and lastly, some price increases that we could have probably got. So, it’s a mix of all these three [Indecipherable] accounts.

Pratik Kothari — Unique PMS — Analyst

So, is this incremental volume that we have seen of maybe 5% odd even in some very different segment, something very high value-added or is it business as usual, the products that we used to do earlier?

Vikas Sinha — Senior Vice President, Strategy

Mostly, like for example in India, for example, the four-wheeler segment has done better than the two-wheeler segment or the tractor segment. The four-wheeler and truck segment has done better. So, depending on what products, so there will be some impact later. So, it’s not as if something has changed suddenly, it is just that some segments have done a little better than the others. So, that’s about it.

K. Jayaprakash — Chief Financial Officer

But noticeable one is of course Metalcastello in Italy, which is doing much better. So, if we may just point out.

Pratik Kothari — Unique PMS — Analyst

Okay, fair enough. And my last question on this other expenses from INR500 odd crores quarter-on-quarter, year-on-year, we are up to INR700 crores, so what would define this?

Vikas Sinha — Senior Vice President, Strategy

Essentially this has variable costs and most importantly, the energy costs and the huge jump in energy in Europe plays a significant role in the increase.

K. Jayaprakash — Chief Financial Officer

Energy costs I believe was — at least in the past used to be about INR110 crores a quarter. Yeah, about INR400 crores, INR450 crores a year, which INR110 crores a quarter.

Vikas Sinha — Senior Vice President, Strategy

Yeah. So, in Europe, it is almost more than doubled. So, that’s one impact of the significant debt. So this is largely variable.

K. Jayaprakash — Chief Financial Officer

This is certainly volume related subcontracting and there are the variable costs which go and sit there, which are volume linked and we are yet to pass on these prices.

Vikas Sinha — Senior Vice President, Strategy

We have yet to run, some progress has been made. But I think there is more to be passed on if it is possible there.

K. Jayaprakash — Chief Financial Officer

These costs are not passed on. But yes, because in Europe, this has been a very special case. That is why this exercise is on…

Pratik Kothari — Unique PMS — Analyst

Fair enough. And thank you so much and all the best.

Vikas Sinha — Senior Vice President, Strategy

Yes. Thanks, Patrick.

Operator

Thank you. The next question is from the line of [Indecipherable] from Asian Market Securities. Please go ahead. [Indecipherable] your line has been unmuted. Please go ahead with your question.

Unidentified Participant — — Analyst

Hello. Yes. Can you hear?

Operator

Yes, we can hear you now.

Unidentified Participant — — Analyst

So I just had one query so regarding energy costs. So, the compared [Technical Issues]

Operator

I’m sorry to interrupt you, [Indecipherable], but your voice is breaking up. Can you please check your phone connection?

Unidentified Participant — — Analyst

Okay. Can I be heard now better or…

Operator

This is better.

Unidentified Participant — — Analyst

Yes. Okay. Yeah. So typically [Indecipherable] to be about 4.5% of sales now and CY ’21 given the fact that in the fourth quarter we had seen a spike in Europe, it’s about 4% for CY ’21. So I think — so what kind of an increase can we expect in CY ’22 [Technical Issues] have already remain quite elevated for now the first four months in Europe. So are we expecting to see some kind of a reduction in the second half or what kind of movement can we expect to see on that?

Vikas Sinha — Senior Vice President, Strategy

JP, what is the expected power costs in C ’22 as percentage of sale.

K. Jayaprakash — Chief Financial Officer

I think this question is in Europe what do we expect going forward on [Indecipherable] I think Ander probably can answer that, how busy the energy cost look for the rest of the year.

Ander Alvarez — Chief Executive Officer

Okay. It’s very complicated — good afternoon, everybody. It’s a very complicated question, but I will try to do give you my view on that. Okay. The energy costs were up in Europe since approximately summer last year, over to September. We already saw certain increase on the gas prices and also the electricity prices. Okay. The energy price increases continued in the last quarter and this affected us importantly, especially in Spain, in our Spanish plants.

Then in the Q1, due to the war that — we have in Ukraine, the energy prices picked again and we are now — the electricity is approximately at INR200, INR250 per megawatt and the gas prices at this moment are approximately INR80 per megawatt. So, we see these high prices will continue during — if the work continues alike. Okay. So [Technical Issues] the prices will go down slowly during the next quarters. It will depend heavily on the evolution of the war in Ukraine. So that will be probably the key factor that will generate price reduction, but we are optimistic on that and we think that during the year, the prices will go down in the normal situation.

If you look at the futures of the energy. They are already highlighting certain reduction for calendar year ’23 and from ’24 onwards, energy comes back to normal prices. So generally speaking, I think that we can say that we have very bad Q1, we will have bad Q2 also, at the same level as the Q1 probably. And from that point. I think from Q3, Q4, we will see certain reduction. Also, I think it’s important to say that the different governments in the European Union are taking measures to reduce and to control the price of the energy. So I think we will be benefited for that political actions.

So, overall, we can say that we are now in the worst moment of energy prices. So, we are negotiating with the customer to pass through these energy cost increases to them. Within the first quarter, we settled certain agreements with them, not just minor part of the customer. But we are in negotiations and let’s say all the automotive suppliers in the industry are dealing with the customers in defense. So, we will see certain improvement in the next months and we are positive. We are optimistic that we will close agreement with all our customers in the next months. So that is the general view of the energy in Europe. Thank you.

Unidentified Participant — — Analyst

[Technical Issues]

Operator

Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Hi, couple of questions from my side. Firstly in India, we have now fairly strong growth as compared to the underlying industry. So, what has been the driver of that growth. I think except for passenger vehicles and to certain extent commercial vehicles, all the segments were relatively weak for industry and for us. So, can you throw light on what drove that 10% kind of growth?

Vikas Sinha — Senior Vice President, Strategy

So if you — on a year-on-year, Jinesh, a lot of it will come from steel price increase.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

And excluding the 10% benefit which JP talked. So even without that it’s another 10% additional growth, which is there. So [Speech Overlap]

Vikas Sinha — Senior Vice President, Strategy

Roughly we were 15%, so it would be 5%. So, yeah, so what has happened is four-wheeler has done relatively better this year, this quarter in trucks. Unfortunately, we don’t have data for trucks, so we have not presented it to you. Trucks have also done well. So these segments in which I think we have even though trucks is small business for us, but one of our plants is quite dependent on them like foundry. So, there they have done well and of course, we have been talking, we have been adding capacity in India.

So, we had the order books. We have been talking about — if you look at in C ’21, we had so much capacity expansion in India. In fact, our capex rate in C ’21 was higher than normal and that was largely because of the investments that we made in India. So, those order books were there and that is why we have been saying all along that our underlying growth will be a bit better than the underlying market and that is what is coming out in India.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Sure. And how is our exports revenue growing in the Indian division.

K. Jayaprakash — Chief Financial Officer

Exports…

Vikas Sinha — Senior Vice President, Strategy

Because just before the export, I think Mexico is also doing well, which is part of India [Indecipherable],

Ander Alvarez — Chief Executive Officer

I think [Technical Issues] regarding India and maybe also the one of the clues, we include also our Mexican activity that is imports Mexico in India [Indecipherable]. So, in Mexico, finally, we are in this moment filling approximately at INR2.5 million per month that is the rate at we are. So we are — we have growth — we have doubled the business in one year. Okay. So that is an important growth happening in Mexico. That’s also the reason that why we last year, invested in the expansion of the building and also the addition of new capacities in Mexico. So, Mexico is doing really well. So that is one of the explanations.

Also as Vikas said, I mean, all the verticals, especially in the four-wheeler are doing well in India and let’s say that our sales could be much better if the two-wheeler sector and the tractor sector recuperates. Okay. And that’s why we are quite optimistic for the future because we will not only repeat this trend, but also we should be able to improve once the two-wheeler and the tractor sector recuperates, okay, because we know that the two-wheeler is approximately 20% below last year and tractor even more 35% below. Okay, once these two sectors recuperates, I think we will see a big jump in nine years in Bill Forge in our magnets and our gear divisions. Okay. So, I think we can be optimistic from that point of view.

And regarding Europe, in Europe, the market is also — from the market point of view, we can say that the four-wheeler market is weak in this moment and despite this weakness, I think our position is good. We are supported by the raw material increase as Vikas mentioned, but also I think it’s important to highlight that Metalcastello is doing really well. Okay. Metalcastello is getting now historical records on sales. Thanks to the good performance on the off-road vehicle market in United States. And Metalcastello growing approximately at 35% rate compared to the last year. So, that’s why one of the supports to this good sales performance that we have in India.

And the rest of the business is their money, let’s say, our CIE forgings in the same [Indecipherable] sales trend and we also expect to improve the sales in the near future because the market once the semiconductor shortage issue and the war in Ukraine are over, I think, we will see important jump in our sales. So, I think that we can be optimistic in this regard. Thank you.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay. Any update on export revenues, how it has grown and what percentage of rate now it is from a debt?

Vikas Sinha — Senior Vice President, Strategy

No, it remains fairly in the same range of 12% to 15% because I think the domestic, as well as export revenues are growing in tandem in India. So, as the proportion it is not growing, but it is growing along with the other revenues, domestic revenues.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Got it. And for the European business, talk about the euro from a constant currency growth with — and the delta are in energy cost pass-through?

Vikas Sinha — Senior Vice President, Strategy

So Ander, the question is, in Europe, if we change it into euro — in euro terms and if we take away the impact of RM and energy price increase, what would be the growth?

Ander Alvarez — Chief Executive Officer

At the moment, we are calculating euro approximately could be — the growth in Europe would be something like about 10% more or less, could be, okay, that would be the growth in Europe.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

And this 10% is after removing RM and energy cost pass through or this is including that?

Ander Alvarez — Chief Executive Officer

Yes. Eliminating raw material and energy costs would be — the growth would be approximately 10%. Yeah.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay. Got it. Thank you. I’ll fall back in queue.

Ander Alvarez — Chief Executive Officer

Yes, thanks, Jinesh.

Operator

Thank you. The next question is from the line of Nikhil Kale from Axis Capital. Please go ahead.

Nikhil Kale — Axis Capital — Analyst

Yeah, thanks for taking my question. Just taking this serious discussion forward, you talked about the 10% kind of YY growth, constant capacity and removing the [Indecipherable] energy side. Will it be possible to maybe throw some more color on the different parts of the business. So, for example, what would be the growth in the CIE forgings and also on the JV projects? I mean, will it be fair to assume that CIE forgings — even the CIE forgings will be broadly flattish and almost the entirety of the growth [Indecipherable].

Vikas Sinha — Senior Vice President, Strategy

Nikhil you were slightly unclear. Let me repeat the question for you and then we’ll take it to Ander. So, did you say that you wanted to know that this 10% increase in European business, how much of it was coming from the different parts, CV forging, car forgings and offload vehicles. Right.

Nikhil Kale — Axis Capital — Analyst

Yeah, that’s correct.

Vikas Sinha — Senior Vice President, Strategy

Yeah, Ander. So, he is saying this 10% in constant euro terms whether that growth from what parts, Metalcastello, obviously, is the largest part, but what — are the others contributing to this growth or not?

Ander Alvarez — Chief Executive Officer

Yes, they are contributing approximately the same because German business is doing quite well and also passenger car business is doing well in terms of sales. So, I would say that the best performer was Metalcastello because in the Metalcastello we have this growth and the raw material impact is not relevant in Metalcastello of approximately 30% and the rest is coming from Germany and from our passenger car forgings investing. So, I would say that more or less all the verticals are performing in a similar way, except Metalcastello that has been better than the others.

Operator

So, sorry to interrupt you Nikhil. May I request you to speak on the handset mode, your audio is not very clear. If you are on speaker.

Nikhil Kale — Axis Capital — Analyst

Is this better.

Operator

Yes, thank you.

Nikhil Kale — Axis Capital — Analyst

Yeah, so just taking that point forward, if you look at the production data at least for the less than 6 tonne in the data that you have provided that’s down almost 20% Y-o-Y. So, if you’ve seen kind of positive growth. Just wanted to understand is that — is it the case that maybe OEMs have also built up inventory. And again, I reckon there would be also some benefit of some of the new ordering. So if you could just maybe talk about the same.

Vikas Sinha — Senior Vice President, Strategy

So, Ander, again Nikhil, I am summarizing your question for you. So, the question he is asking, in the car segment, there has been a drop in the market volumes. So how have we grown? Is it because the OEMs are building up inventory or is there some other reason?

Ander Alvarez — Chief Executive Officer

No. We have not built any inventory. I mean, he is asking for CIE or for the car maker.

Vikas Sinha — Senior Vice President, Strategy

For CIE.

Nikhil Kale — Axis Capital — Analyst

No, no, I am talking from carmakers perspective, is it that they are building up inventory of the other parts, whereas there are obviously some chip shortages that are happening, so they are maybe just building up — making — building up inventory for the other parts of the car.

Ander Alvarez — Chief Executive Officer

Okay. I didn’t say that they have been the inventories in this moment. We know that, for example, in Germany, the truck makers, they are building the trucks and they are not selling them because some electronic is missing and there could be certain, let’s say, balance in the next quarter, but it’s not relevant. I would say that most of the truck makers, what they are saying us is that the order book is fully booked in this moment. I mean, they have more than one year of orders in the pipeline. And they expect us to continue producing at the maximum rate in the next months. Okay. So, the information that we are getting from the market is quite positive in that. Okay. So that’s the reality. That’s why we are quite optimistic on sales evolution in the next quarters.

Nikhil Kale — Axis Capital — Analyst

Okay, thank you.

Vikas Sinha — Senior Vice President, Strategy

Yes, thanks.

Operator

Thank you. The next question is from the line of Sanket Kapoor from Kapoor and Company. Please go ahead.

Sanket Kapoor — Kapoor and Company — Analyst

Yeah, good afternoon, sir. Thank you for this opportunity, Sir, firstly, if we take this other income component in our standalone numbers, how should one read into the operational profit on a standalone basis. So, this is a one-off item that has appeared for this quarter of I think so. INR89 crores as being said?

K. Jayaprakash — Chief Financial Officer

Yeah — sorry this is Jayaprakash, if you’re looking at this quarter number of INR937 million includes INR860 million of dividend received from AEL, which gets knocked off in consol. So, in that sense, it is not relevant.

Sanket Kapoor — Kapoor and Company — Analyst

So, sir, this component was not present for the last year comparable numbers.

K. Jayaprakash — Chief Financial Officer

No, no, this is the first time, we have declared dividend.

Sanket Kapoor — Kapoor and Company — Analyst

So then even on a likewise basis when we look at the consol numbers, how comparable are these March number vis-a-vis the last year march?

K. Jayaprakash — Chief Financial Officer

So, okay, so, if we were to knock off at INR860 crores, we would be something like INR50 million, INR60 million, which is comparable with the previous quarter.

Sanket Kapoor — Kapoor and Company — Analyst

Small point, I’m just trying to compare March ’21 and March ’22. So, March ’21 did not have this other income component. Correct.

K. Jayaprakash — Chief Financial Officer

No. So, March. we had INR27 million. If we were to exclude this quarter’s dividend of INR860 million, we would be around INR60 million. Right. So, there’s an increase from INR27 million to INR60 million if you remove the one-time impact.

Sanket Kapoor — Kapoor and Company — Analyst

Okay. Sir. This is the impact on the consol number, the consol number would have been lower in case if we knock off this extra dividend part.

K. Jayaprakash — Chief Financial Officer

Yes.

Sanket Kapoor — Kapoor and Company — Analyst

And what is the reason for this high dividend, sir, and what is the recurring — would it be a recurring part when — how has this dividend appear for this quarter?

K. Jayaprakash — Chief Financial Officer

Mr. Kapoor, as I said, for consol, it will not make any difference because it’s coming from subsidiaries.

Sanket Kapoor — Kapoor and Company — Analyst

Right, sir. I only wanted to understand the nature of the dividend payout and how can we ascertain the continuity of the [Indecipherable].

K. Jayaprakash — Chief Financial Officer

Sir, this is not only — I mean even from a cash perspective, it doesn’t have, since it is tax neutral. We have — I mean AEL had accumulated cash, so that’s how it has come. Going forward, there will be dividend probably, but I mean we will assess it year-to-year.

Sanket Kapoor — Kapoor and Company — Analyst

And sir, the reduction in the finance cost, which we have seen on a quarter-on-quarter basis from INR126 crores for the December quarter and on a consol level to INR84 crores, INR85 crores. Is this a sustainable number and what factors have attributed to the significant reduction in the finance cost?

K. Jayaprakash — Chief Financial Officer

Okay. So, it is not crores, it is million. So it has come down from INR12.6 crores to INR8.5 crores. Okay. This reduction there are some one-time elements. There is a ForEx gain, which has gone there of about INR20 million and the interest subvention was announced by the government in India in this quarter with a retrospective effect. So, there is a one-time impact there. I think I would rather leave it at the earlier possible number for future prediction, I didn’t get the last point, sir. Come again. We had interest subvention announced by the government, with announcement came in this quarter, but had a retrospective effect from October 1, 2021. So, these are one-time impact. Therefore, if your question is whether it is sustainable, I would rather go by the last quarter number going forward.

Sanket Kapoor — Kapoor and Company — Analyst

And last quarter numbers are okay. And sir, for the energy cost part as the CEO has mentioned, do we have any hedging mechanism wherein we are hedging our forward energy cost in some way or the other?

Vikas Sinha — Senior Vice President, Strategy

We don’t have it, but I think Ander, he’s asking if we taking another contract.

Ander Alvarez — Chief Executive Officer

We don’t have any system for the energy. Okay. What we are doing now is we are negotiating with the customers and we are looking for [Indecipherable] to index the energy price to this price. Okay. That’s what we are trying to do and let’s say most of the customers, they are negotiating with — not only with us, let’s say, with all the supplier and probably in the next month, we will see the certain agreements and we will be able to offset part of this pain that we are having now in our accounts.

So, that our EBITDA margins in Europe were 10%, 10.2% that is far below that we had previous year and the main reason of this drop in margins is coming from the energy that we are still negotiating with the customers. So, we don’t have any energy system, but we think that we will reach an agreement with the customers in near months.

Sanket Kapoor — Kapoor and Company — Analyst

Right, sir. Okay, sir. Last point, and then I’ll come in the queue. On the utilization levels front, taking into account the order booking from the OEM part, what are the likely utilization levels for plant across our geographies? What have been for this quarter on an average and what are we expecting in the coming foreseeable future? Hello? Vikas, can you hear me?

Yes. Vikas, the question is, what is the utilization level of plants in India and in Europe? Of course, in India, we have been adding capacity, so therefore that clearly is an indication that we are running close to utilization. So that is the question, what is the utilization levels in India and Europe.

Vikas Sinha — Senior Vice President, Strategy

Okay. In India, it’s true that this is different in different verticals, we have different situation. But most of the businesses are running close to 100%. That’s why we are adding this capacity and probably we will have additional capacity of 20%, 25% in the next month once all the capacity expansions are in place. So, India is, in this moment, at the high saturation, I would say. And in Europe, we can be — in the moment at 70%, 75% of capacity utilization, okay. So we still have capacity available to grow, but we don’t see the growth coming until the war in Ukraine is over, okay. So that, let’s say, we will be able to keep this trend and the gross volume will come once the war and the geopolitical restrictions are already in Europe.

Sanket Kapoor — Kapoor and Company — Analyst

Thank you, sir. Thank you for all the elaborate answers.

K. Jayaprakash — Chief Financial Officer

Yes. Thanks, Ankit.

Operator

Thank you. The next question is from the line of Deepak Poddar from Sapphire Capital. Please go ahead.

Deepak Poddar — Sapphire Capital — Analyst

Yeah. Thank you very much, sir, for the opportunity. Sir, I just wanted to understand in your opening remarks..

Operator

I’m sorry to interrupt. Mr. Poddar, your audio is quite low. I would request you to come closer to the phone on the handset.

Deepak Poddar — Sapphire Capital — Analyst

Yeah. Is it better?

Operator

Yes, this is better. Thank you.

Deepak Poddar — Sapphire Capital — Analyst

Okay. So I was just looking, any kind of outlook that you can share for CY ’22 in terms of growth and margins?

Vikas Sinha — Senior Vice President, Strategy

No, no. We don’t make any forward-looking statements. But as you have heard and speak, I think we are pretty much optimistic both in India and Europe. Of course, a little bit more optimistic in India, because the situation in Europe is a little bit unstable. But nevertheless, I think we hope to improve from here.

Deepak Poddar — Sapphire Capital — Analyst

Yeah, hope to improve. So, this 12.5% kind of EBITDA margin on the console level, so that one can assume as a base going forward as we look to improve?

Vikas Sinha — Senior Vice President, Strategy

Let us not go there in terms of forward-looking statements. Please also realize that there is cyclicality in our business. In Q3, you will have — in August, you will have the holidays in Europe and then we’ll have the festive season in India. So those things factored in, as I said, we hope to keep improving from here. Let me now talk about what is the base rate and how much it can become. What we will say is that we want to be as close as possible to 15% EBITDA in the near-term. That is the kind of the number that we are working with. And we hope to be higher than market growth. So these are the two things that we definitely are working with. And as I said, we are optimistic. You heard our CEO speak.

Deepak Poddar — Sapphire Capital — Analyst

So just a clarification. This 15% you’re saying for the India business or as a whole?

Vikas Sinha — Senior Vice President, Strategy

Is it as a whole. But as I said, of course, in India, things are a little bit, I must say, easier given that the market situation is less volatile here, but we want to do it on an overall basis. Of course, Europe right now is at 10.6%. So it is a little further away, but what we are talking about is in terms of consolidated. That is something that we would like to do.

Deepak Poddar — Sapphire Capital — Analyst

Understood. Yeah, that’s it from my side. Thank you and all the very best.

Vikas Sinha — Senior Vice President, Strategy

Yeah, thanks.

Operator

Thank you. The next question is from the line of Bharat Sheth from Quest Investment Advisors. Please go ahead.

Bharat Sheth — Quest Investment Advisors — Analyst

Hi. Congratulation in showing an excellent performance in a challenging time to Ander and your team. So, Ander, the question is though, in India, we have performed much better despite two-wheeler is not doing well. So — and also, you said, some of the capex as well as new production line has also helped us. So have we gained some kind of a market share in other PV and CV as well as tractor? Or are you on want two-wheeler also, if one has to look at from that perspective?

Ander Alvarez — Chief Executive Officer

Yeah, I think that — okay, Vikas, go on, sorry.

Vikas Sinha — Senior Vice President, Strategy

No, no, no. Ander, over to you.

Ander Alvarez — Chief Executive Officer

So, I was just going to mention that, yes, we are improving our market share. And it’s clear that we are affected negatively by the two-wheeler sector drop. And if the two-wheeler sector recuperates and the tractor sector recuperates, that’s our expectation in the next quarter. We will see further growth in our company. But coming back to the four-wheeler function, just concentrating on that sector. Yes, we think that we are growing our market share and division. We said some verticals like forgings or like foundry. It’s something we are growing our market share and we are recuperating the market share that we had before. So, I think that in that sense that explains our growth trend in India.

Bharat Sheth — Quest Investment Advisors — Analyst

In line, I mean, in Europe, if we remove Metalcastello which has performed much better, so in the remaining part of the business also, have we gained some market share or it is the same where we were earlier?

Vikas Sinha — Senior Vice President, Strategy

I think in the rest of the business, we are in the same position that we were earlier. We don’t see market share growth, except in Metalcastello where our position with our American customers is very strong and they are performing well. We are also growing importantly. But in the rest of the businesses in commercial vehicle forgings and passenger car forgings, we kept their position. No, there is no big change there.

Bharat Sheth — Quest Investment Advisors — Analyst

And question on — coming to this Metalcostello in your earlier comment, we said that we will be expecting now this year to go, what was the level we have picked out in FY CY 2018 or ’19 of INR19 million. So what is current rate of Metalcostello per month and how do we see going ahead?

Vikas Sinha — Senior Vice President, Strategy

Metalcostello will have this year the best historical sales in non-dilutive in the year that we know. In Metalcostello, we were at the peak of approximately INR70 million in 2018. This year, we will hit probably INR80 million, okay. So there will be an important growth. Unfortunately, we cannot say more because our capacity is fully — completely booked in Metalcostello. So we will be 100% load in Metalcostello this year. And we are also adding additional capacity, but that will take some time, but we are quite optimistic on that. Thank you.

Bharat Sheth — Quest Investment Advisors — Analyst

And is it a fair understanding, Jayaprakash, that because of Metalcostello, we have been able to improve q-o-q margin in the Europe business. And once we get some kind of a pass-through of the energy costs, so there is a further room to improve?

K. Jayaprakash — Chief Financial Officer

Europe?

Bharat Sheth — Quest Investment Advisors — Analyst

Yes.

Vikas Sinha — Senior Vice President, Strategy

Yeah, I think understood that, right, with energy cost across.

Bharat Sheth — Quest Investment Advisors — Analyst

And with Metalcostello, which is highest contributing margin business because where there is large parties, our — I mean job work kind of or machining kind of a thing. So, overall, Europe margin will further improve. Correct? Is that fair understanding?

Vikas Sinha — Senior Vice President, Strategy

Yes. Metalcostello helps.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. And can you share, I mean, our — yeah, go ahead please.

Vikas Sinha — Senior Vice President, Strategy

You mention properly. I mean, we are negatively affected in Europe in this moment by the energy and the inflation costs. Okay. Those are the two impacts that are affecting us. And also, it’s important to say that the raw material price increase, we felt margin is also up into the market, okay, affecting between 1% to 2% on our margins just for the raw material increase that has been passed through 100% to the customers. So, those are the main impacts in our accounts. And it’s true that we should be able to continue improving if we are able to pass through the energy cost to the customers.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. And any new order win in the Metalcastello do we have in this current year or whatever book we have will be able to help us grow, I mean, even next year?

Vikas Sinha — Senior Vice President, Strategy

Not new big businesses. I mean, just some — on that new orders, but not big one to be highlighted in this moment. In this moment, what we have now repaid in Metalcastello is the plan for the future where, as you know, we are 100% of our capacity utilization. So if we want to continue growing, we need to add additional capacity. That’s the situation we are happy in Metalcastello in this moment.

Bharat Sheth — Quest Investment Advisors — Analyst

Ander, earlier, I mean, we moved some part of the order to India. And is it possible that getting more order we can move those part of the order to India, in case of this capacity constraint is not really been resolved?

Ander Alvarez — Chief Executive Officer

Yeah. The situation in the gear business in India because you know that Metalcastello is gear producer and we have also the gear division in India. The gear division in India has been also in the last year at 100% of the capacity utilization, okay. We were fully booked. Last month, we are a little bit better because of the drop of the two-wheeler. But once the two-wheeler recuperates, we will be again, let’s say, at 100% of the capacity utilization in India. That’s why we are expanding our activity in Rajkot where we opened a new plant. And we are now preparing that plant to continue growing. And also, we are expanding our capacity in our Pune plant where we will continue adding capacity to continue our growth trend, okay. So it’s a good point that you mentioned to use the capacity in India. But the point is that in India also, we are fully booked in the gears position. Okay. So the expectations are very good in both regions. And that’s why we continue our growth and capacity expansion strategy in both regions.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. Last question, Ander. On this FTA Free Trade Agreement that India is negotiating with the Europe, happening of that, I mean will it benefit Indian subsidiary?

Ander Alvarez — Chief Executive Officer

Bharat bhai, we’ll have to study that. We have not looked at that, how the free trade agreement, if at all it happens when it happens will affect us. Please allow us to have a look at that and then we’ll come back to you.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. And on the capex guidance for the current year?

Vikas Sinha — Senior Vice President, Strategy

JP, 5% to 6% of sales. But, JP?

K. Jayaprakash — Chief Financial Officer

Yeah, yeah. I think it’s 5%, 6%, yes.

Bharat Sheth — Quest Investment Advisors — Analyst

Okay. Thank you and all the best.

Vikas Sinha — Senior Vice President, Strategy

Thanks, Bharat bhai.

Ander Alvarez — Chief Executive Officer

Thank you very much.

Operator

Thank you. [Operator Instructions] The next question is from Nikhil Kale from Axis Capital. Please go ahead.

Nikhil Kale — Axis Capital — Analyst

Yeah. Sorry, just one follow-up from my side. On the RM price increase that you’ve talked about, just wanted to understand is there also component for — within that, is there a component for previous quarters or is this pertaining to just this quarter?

Vikas Sinha — Senior Vice President, Strategy

Normally all the RMs pricing — the steel price and aluminum price increases are settled within the quarter. Ander, can we confirm that there was no steel or aluminum settlement from earlier quarters in this quarter?

Ander Alvarez — Chief Executive Officer

No, no. I think you probably answered, Vikas. I think all the raw material increase in this quarter is coming from this quarter. There’s no settlement, perhaps small corrections in certain customers but not relevant at all.

Vikas Sinha — Senior Vice President, Strategy

Okay. Okay. Thank you.

Operator

Thank you. The next question is from the line of Jinesh Gandhi from Motilal Oswal Financial Services. Please go ahead.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Hi. My question pertains to your European operations. So, can you…

Operator

I’m sorry to interrupt you, Mr. Gandhi. May I request you to come on the handset mode please? Your audio is not very clear.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

I’m on handset only. I’ll try to speak louder. So, for European operations, can you indicate what was the impact of unabsorbed energy cost, which was in pass-through in 1Q and what further impact to expect in the coming quarter?

Vikas Sinha — Senior Vice President, Strategy

Jinesh, you’ll have to come again, impact of unabsorbed…

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

The energy cost, which has not yet been passed on to the customer.

Vikas Sinha — Senior Vice President, Strategy

So the question is, what proportion of energy costs have been absorbed and what needs to be passed through, right?

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Right. In fact, in this quarter because of energy cost on margins. Okay. So, Ander — so the question is, have we — what proportion of our energy costs we have been able to pass on the increase, say like maybe all customers or 50% of whatever, that number as to what was the impact of unabsorbed — on the energy costs that we were not able to pass through in quarter one, what was the impact on the margin, whether it is 0.2, 0.5 or whatever.

Vikas Sinha — Senior Vice President, Strategy

Yeah, I think we pass through approximately one-third of the real cost increase, okay. That can be the value between 25%, 30%, that later on [Indecipherable]. That’s what we have been able to pass through the customers. So, of course, we are negotiating with them, and probably we will recuperate part of this loss in the next quarter. Okay, that’s the expectations. So — and the margin that we lost due to this NSA increase.

Ander Alvarez — Chief Executive Officer

Approximately 2% or 3%, that can be the impact that we lost due to the NSA in the quarter.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Right, right, right. Okay. And second question is from probably debt business. So, on the free trade side, we have been seeing inflation in 1Q. Do you expect further inflation-based on where spot prices are continuing in the second quarter as well or you are seeing some stability in your procurement prices now?

Vikas Sinha — Senior Vice President, Strategy

Jinesh, I think the steel prices are still in an inflationary market.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay. Okay. Do you expect any increase in India, not in Europe where still price has already increased. And we think that the price will be stable in the next months and quarters. But in India, there is some pressure to continue growing from the second quarter onwards, okay. So we will see probably set an additional inflation in raw materials in the next quarters. And any idea what could be?

Vikas Sinha — Senior Vice President, Strategy

No, it is not expected.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Yeah, sure.

Vikas Sinha — Senior Vice President, Strategy

But it is difficult to say.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

It will be double-digit, okay.

Vikas Sinha — Senior Vice President, Strategy

Yeah. Because mainly it’s negotiated sometimes directly by the customers and they are at field level. So we are not aware of the amount — payment probably will be increasing by the next quarter. We will be able to see it in our state [Phonetic].

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Got it, got it. And last question on the Mexico business. So, it has seen a very strong evolution over last couple of years. Now, with monthly run rate of INR2.5 million of revenue, do you see further growth in this business based on the capacity and the order book, which we have or the peak revenues would be about INR2.5 million per month?

Vikas Sinha — Senior Vice President, Strategy

In this moment, we are at the peak of our revenues. Regarding the original plan that we have for this company, when we set up, our peak was at the current situation. So, it took a couple of years more than what we expected, but we are already there. But hopefully we got additional customers, so we are adding capacity and we have a new price ready to be installed. In fact, we are in a setup mode in this moment in Mexico. And yes, we expect to continue growing the business in the next quarter, okay. So we have already — the order book is already confirmed from the customers and we expect to continue growing in Mexico in the next year.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Okay. So based on order book, should we expect revenues to double from here in next two to three years?

Ander Alvarez — Chief Executive Officer

Sorry, I didn’t catch you properly. Vikas, can you hear me?

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Based on the order books and the capacity expansion over next three years, should this monthly run rate of INR2.5 million further double?

Vikas Sinha — Senior Vice President, Strategy

Yeah, could be. Yes, that will be the best case, but the expectation would be to — if we are now at INR2.5 million probably having the company selling at INR4 million could be [Indecipherable] even 5 million if we got new orders, okay. But with the current orders, we will be not doubling the business but growing 50%, 60%.

Jinesh Gandhi — Motilal Oswal Financial Services — Analyst

Got it, got it. Great. Thanks and all the best. I’ll fall back in queue.

Vikas Sinha — Senior Vice President, Strategy

Yeah. Thanks, Jinesh.

Ander Alvarez — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Basudeb Banerjee from ICICI Securities. Please go ahead.

Basudeb Banerjee — ICICI Securities — Analyst

Yeah, thanks. Couple of questions. One, sir, in last quarter con call, you mentioned that there has been certain surge in EV two-wheeler-related order book in India from select OEMs. I missed out. So, any further development on that this quarter?

Vikas Sinha — Senior Vice President, Strategy

No, it is continuing along those lines. So there is nothing very specific to report. But yes, EV — booking EV orders is now an integral part of our working. So it is continuing.

Basudeb Banerjee — ICICI Securities — Analyst

And any new customer addition in the two-wheeler EV space as such?

Vikas Sinha — Senior Vice President, Strategy

Not to report in this quarter.

Basudeb Banerjee — ICICI Securities — Analyst

Okay. And second question would be very much repetitive. So, sorry to ask it again. If you can again mention how much was the steel inflation y-o-y in Europe business and how much was the pass on for that?

K. Jayaprakash — Chief Financial Officer

It’s JP. In Europe, how much was steel inflation that was — one part of the revenues was steel inflation.

Vikas Sinha — Senior Vice President, Strategy

12% is the price impact on the growth, we mentioned that. Out of the 20%…

K. Jayaprakash — Chief Financial Officer

Out of 20%, 10% was because of inflation. And commodity inflation for you was how much overall?

Vikas Sinha — Senior Vice President, Strategy

No, I didn’t get that commodity…

K. Jayaprakash — Chief Financial Officer

Cost of steel per ton for you sourcing cost, that how much came? You will note that number, what is the steel price increase? I mean, it would be around 25%?

Vikas Sinha — Senior Vice President, Strategy

It has been around 10% [Speech Overlap].

Basudeb Banerjee — ICICI Securities — Analyst

Okay. And you are saying that’s still under recoveries there. So there is some scope for under recoveries to continue to result in further price hike [Indecipherable]?

Vikas Sinha — Senior Vice President, Strategy

Not on steel. Steel is pass through.

Basudeb Banerjee — ICICI Securities — Analyst

And the power cost you are saying you are planning to pass-through in the coming quarter?

Vikas Sinha — Senior Vice President, Strategy

Steel is pass-through, power is still under negotiation.

Basudeb Banerjee — ICICI Securities — Analyst

Thanks.

Operator

Thank you. The next question is from the line of Raj Kumar [Phonetic], an individual investor. Please go ahead.

Raj Kumar — — Analyst

Yeah, good afternoon. Can you hear me?

Vikas Sinha — Senior Vice President, Strategy

Yes, please. Go ahead.

Raj Kumar — — Analyst

Yeah. So, thanks for the opportunity. Congrats for the good set of numbers. So I have just one question. Sir, given that many of the auto ancillary units are not doing well because of the significant steel price increases and the other inflationary spend, I just want to know what is your view on — will there be any further consolidation that’s going to happen, particularly in India? And also if Mahindra CIE looking at any M&A opportunities in India?

Vikas Sinha — Senior Vice President, Strategy

Thanks, Raj Kumarji. Of course, given the very volatile situation, the kind of scenario that you’re painting, can happen. But as we have mentioned in the past, looking for M&A opportunities is part of our business strategy, but we are going to do an M&A only to fill strategic gaps. As you can very clearly. see, we have enough order book, enough opportunities to grow in India. You heard how strongly we are growing in Mexico. Even in Europe, you saw how strongly Metalcostello is growing. Plus when the war situation eases out, then the European light vehicle markets also we expect a rebound. So there is enough growth opportunities in our existing businesses. So any M&A that we will do, we’ll do it very selectively. And we’ll do it to fill up any strategic gaps or any specific capability, any specific customers that we want on board. So right now, we have our hands full dealing with the situation that we talked about in terms of growth, but we keep looking for it. At this moment, we have nothing specific to report on the M&A side.

Raj Kumar — — Analyst

Yeah. Okay, sir. Thank you.

Operator

Thank you. As there are no further questions from the participants, I now hand the conference over to the management for closing comments.

Vikas Sinha — Senior Vice President, Strategy

Yeah, thank you. And I’ll hand you over to Ander for his closing remarks.

Ander Alvarez — Chief Executive Officer

Okay. So, thank you, Vikas. I just want to thank you all of you for your participation and for your interest in questions and your interest in our company. And I hope we answered the questions properly and accurately, okay. And my message is that despite the difficult market and geopolitical environment as we living in this moment, I think our company proved once again its resiliency and good management, so we were able to recuperate part of our margins that we lost last year and we expect to continue this trend in the near future, okay. And as always, I want to say thank you to all my CIE — Mahindra CIE team. They are doing a good job with good dedication, commitment in very difficult times. So I’m sure that we will continue proving ourselves in the future. So thank you very much everybody.

Vikas Sinha — Senior Vice President, Strategy

Yeah. Thank you very much. Have a good day, guys.

Operator

[Operator Closing Remarks]