Mahindra CIE Automotive Ltd (MAHINDCIE) Q4 FY23 Earnings Concall Transcript

Mahindra CIE Automotive Ltd (NSE:MAHINDCIE) Q4 FY23 Earnings Concall dated Apr. 26, 2023.

Corporate Participants:

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Ander Arenaza Alvarez — Chief Executive Officer

K. Jayaprakash — Chief Financial Officer

Analysts:

Basudeb Banerjee — ICICI Securities — Analyst

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Nitin Arora — Axis Mutual Fund — Analyst

Prashant Kutty — Sundaram Mutual Fund — Analyst

Jinesh Gandhi — Motilal Oswal — Analyst

Priya Ranjan — HDFC Asset Management — Analyst

Nishit Jalan — Axis Capital — Analyst

Nikhil Kale — Invesco — Analyst

Sunil Kothari — Unique Portfolio — Analyst

Bharat Sheth — Quest Investment Advisors — Analyst

Mahesh — LIC Mutual Fund — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to Mahindra CIE Q1 CY’23 Earnings 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, Mr. Banerjee.

Basudeb Banerjee — ICICI Securities — Analyst

Thanks, Nirav. Thanks to the senior management of Mahindra CIE Automotive Limited for giving us the opportunity to host the call. The management is represented by Mr. Ander Alvarez, CEO; Mr. K. Jayaprakash, CFO; Mr.Vikas Sinha, Senior VP, Strategy; Mr. Oroitz Lafuente, Business Controller; and Mr. Swapnil Soudagar, DGM, Strategy.

So without wasting any time I would like to hand over the call to the Senior management of Mahindra CIE to take over. Thanks.

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Yeah. Thanks, Basudeb. Good afternoon, everyone, and good morning to those who are joining from Europe. I welcome all of you, as also Ander, CEO. We are going to talk about the MCIE results from January to March 2023, Quarter one of calendar year ’23, Q1 C’23.

At the outset, we would like to bring to your attention that during this quarter MNM has reduced its share holding in MCIE from 9.25% to 3.19%. We would also like to update on the name change. We have applied to the Registrar of Companies for changing our name from Mahindra CIE Automotive Limited to CIE automotive India Limited. The approval is expected in the coming weeks.

We now start with MCIE India results for Q1 C’23, which are on Page 6. Sales grew to INR13,541 million from INR12,022 in Q1 C’22, which represents a 13% growth year-on year. In this quarter, our EBITDA was INR2,267 million, EBIT INR1,718 million, and EBT INR1,639 million in MCIE India. The sales in MCIE India grew 13% year-on year, EBITDA 25%, EBIT 28% and EBT 24%. The EBITDA margin for India in Q1 C’23 was 16.7% compared to 15.1% in Q1 C’22 and an operational EBITDA margin of 15.7% in Q4 C’22.

Please note that in Q4 C’22, there was a one-time impact of EBITDA of INR378 million, that is on profit of land sale due to which the reported EBITDA margin in Q4 C’22 for MCIE India vertical was 18.5%. Now, the India business has grown on the backdrop of a mixed market scenario. The light vehicle market has grown at 9.5% year-on year in this quarter, but the two-wheeler market has fallen. We would also like to point out that Q1 seasonally is normally a good quarter, it being the last quarter of the financial year.

Now we move to MCIE Europe results for Q1C’23, which are on Page 7. Sales grew to INR9,666 million from INR7,533 million in Q1C’22, which represents a 28% growth year-on year. This increase in sales is helped by a 6.6% gain in forex and a 17% growth in the light vehicle market, year-on year in this quarter. Please note that the forecast for the subsequent quarters in the light vehicle market show a much lower growth rate on account of rising interest rates and uncertainties in the economy.

The Q1 C’23 EBITDA in Europe was INR1,699 million, EBIT INR1,423 million, and EBT INR1,265 million. The sales grew 28% year-on year, EBITDA 55%, EBIT 67%, and EBT 52% in Europe. EBITDA margin in Europe In Q1 C’23 was 17.6% compared to 14.5% in Q1 C’22 and 14.6% in Q4 C’22. This improvement in margins was a combination of higher sales and lower energy costs.

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 in Europe. In Q1C’23, MCIE on a consolidated basis achieved sales of INR23,206 million and EBITDA of INR3,966 million, which is a margin of 17.5% and EBIT of INR3,141 million, which is at a margin of 13.5% and an EBT of INR2,904 at an EBT margin of 12.5%. These margins are the highest margins we have achieved in MCIE history. And this aligns our results with CIE ratios globally.

In closing, we would like to say that we continue to focus on internal improvements and building a stronger company. And with this, we will strive to take advantage of all the opportunities that come our way.

With that, we can proceed with Q&A.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions]

The first question is from the line of Nikhil Rungta from Nippon India Mutual Fund. Please go ahead.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Yeah, hi sir. Thanks for the opportunity and congratulations on a great set of numbers. Sir, just one thing from my side. In Europe we have posted very strong margins in the quarter, you indicated its because of higher sales and lower energy cost. So till what time or till how many quarters do you think we will continue to get benefit of these lower energy cost?

Ander Arenaza Alvarez — Chief Executive Officer

Hello, this is Ander Arenaza speaking. In Europe, you know that during the last years we have had a huge impact on the energy prices, especially when the war in Ukraine has started, okay? There was a huge peak on energy prices, both electricity and gas. During complete past year, we suffered a lot on this because the the process of passing through to the customers was difficult and was delayed. And hopefully by the beginning of the — of the year the energy prices has gone down. Importantly, we are now at about, we can say in average of around EUR100, EUR12o per MW. So there, let’s say, the impact on this energy cost in our margin is coming to normality, okay? Considering that we had already negotiated with the customers the pass-through processes, we have now recovered certain normality in our margins. So this is one of the main reasons to increase our margins in Europe.

Also as Vikas explained in the presentation, the turnover, I mean the volumes helped us also because the market performed really well in the first quarter. And what we see right now is that we have certain uncertainties on the volumes, but it seems that the energy prices, they continue in the — in the range that we have seen now, okay? This is something that we cannot predict. But if the energy continues in the — in the current range, both electricity and gas, because the gas is even below EUR50 per MW, when last year we hit EUR180 in certain quarters. So now we are at EUR50 per MW. That is something rationale,. I think we’ll be able to keep current margins in the next quarters, okay?

So everything will depend on geopolitical movements. I mean, what’s going on with the war in Ukraine, what will be the balance on the energy prices between the different countries, that will affect, of course, to the energy prices. But our expectation is that the energy prices will continue more or less stable this figures. And if that is the case, we will be able to keep on with the current margins.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Okay. And sir, just to continue on this particular. See, if there is a status quo on the geopolitical scenario, then we — can we assume that the 17% to 18% margin in MCIE Europe, we’ll be in a position to sustain that over medium-to-long term as well?

Ander Arenaza Alvarez — Chief Executive Officer

Yes, yes. I would say that considering this scenario and volume, let’s say that the volumes are fulfilled. I mean the the market continues running as it is now. Yes, we should be in this — in this range of margins.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Got it. And sir, last question from my side. On MCIE India I don’t have anything to comment, continues to perform strongly. But just one thing on our discontinued operation. During the quarter, we reported profit of approximately INR60 odd crores — INR70 odd crores during the quarter. So do you think we would will be in a position to get back basically the goodwill or any impaired goodwill which we would have — which we would have written-off in the past quarter because given the book-value of that discontinuing operation now and the profit — quarterly profitability which its reporting, do you think we would be in a position to get a higher value — significantly higher value than that?

Ander Arenaza Alvarez — Chief Executive Officer

Okay. It is, let’s say, evolution of — on our German Forgings we have had some one-offs that are employer accounts in the — in the last quarter, okay? Especially in this last quarter we have — we received the payment of several customers that paid us the energy increased pass-throughs from the previous quarter. So, because there are — in certain customers we have delays in the application of the net increase. So in this quarter we cooperated this impacts.

Also, we received the subsidy from the German government on energy, so — and additionally we have also a one-off coming from, let’s say, incident cost that we pass-through to our suppliers. I mean, we have that in quality issue coming from a supplier and we were able to pass-through this quality issue 100% to to their supplier. So these things made this really high results in the first quarter. And what we see is that our selling process of the company continued as we explained in the last call, there is no any new information to share. I mean, we continue — the process is moving on. We have several interested parties and we are working with them. We have prepared and exchanged submission with them. So we continue with the process of the sale of the company. So, let’s say that we are optimistic that we will be able in the next quarters we will be able to successfully close this operation.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Perfect. And sir, what would be our capacity expansion plan in Metalcastello, given that you were working at high-capacity utilization there and we are getting good traction from big customers, both on Europe as well as from US.

Ander Arenaza Alvarez — Chief Executive Officer

Yeah, in Metalcastello, in the last years we have been adding capacity, we have been adding new machinery, let say, state-of-the art machinery with several powertrain machines and these are the best-in class machinery that we are now using to produce gears in Metalcastello. The fact is that we have been also picking up at up EUR75 million, EUR78 million turnover in Metalcastello, that its highest turnover that we have ever had in the company.

Also, the reality is that in the next quarters we are monitoring the American market because you know that approximately 70% of our sales in Metalcastello are Shipped to US. And we see a certain decline in the demand in USA for the next quarter because of the interest rate increase. It seems that the economy will cool-off a little bit. So they — however, we continue investing in the critical and most important machines and we have launched also a couple of machines in the recent days. So we will — we have upped our capacity in Metalcastello, but we do it slowly. And let’s say, we have firm steps because we are not sure that they the expansion in the US will continue in the next quarters. Let’s see. We will wait until we see that the market is really booming. But we have certain doubts at this moment.

Operator

Sir, the line for the participant dropped. We move onto the next participant.

Ander Arenaza Alvarez — Chief Executive Officer

Okay.

Operator

The next question is from the line of Nitin Arora from Axis Mutual Fund. Please go ahead.

Nitin Arora — Axis Mutual Fund — Analyst

Yeah, hi. Thanks for taking my question. The first question was, if you can talk about on the overseas EV forging business, I mean with respect to the electric, rather the customer acquisition on the electric side, if you can touch base on that part?

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Ander, in CIE forgings on our acquisition of EV business.

Ander Arenaza Alvarez — Chief Executive Officer

Okay. So we continue very active in the — in the EV business. Let’s say, new project acquisition and we are working with several customers in, and of course, we have already got new business for EV vehicle to, let’s say, for battery packs for a truck manufacturer. I cannot disclose the the name of the truck manufacturer, but this is a reality.

So, yes we. We are step-by-step getting new and more and more businesses for electric vehicles and we are planning the transition as commented. It is complicated because the transition — how the transition will happen is not clear yet. It seems that in the next four-five years there will be a jump for electric vehicles. Till now we are working with all the carmakers and with all the truck manufacturers on this transition, and we are very active on that, okay? You know that we are working for the, let’s say, different components in the electric cars, especially in the battery pack that they are using also still forging components. And we are working on the chassis components that they are using for aluminum components, okay?

So, we already got two or three recent new businesses, now the fourth one with the the truck battery pack component. So the transition is there. I mean, we had the — overall we can say that approximately one third of all our new businesses are coming in from electric vehicles. So that’s more or less the percentage that we have in average, but, and this percentage will continue to grow in for sure in the next years. But now that information I can share with you.

Nitin Arora — Axis Mutual Fund — Analyst

That’s helpful. Just, going forward, let’s say, on the same aspect of increasing the EV penetration in revenues and in order book for you and given our debt has — has come down a lot, and I’m assuming next two years can be good in terms of your free cash flow. So does acquisition also comes into the picture where you can grow faster by acquiring something in the electric side, let’s say, light-weighting component companies or if you have something strategy there in mind?

Ander Arenaza Alvarez — Chief Executive Officer

Okay. We are quite active also in that — in that field, okay? Of course, we are interested in acquiring these kind of companies. Not so we see because the amount of companies working in this — in the field are not — not many. I mean, there are two-three or three, I would say, okay. Not all of them are ready to talk to us, okay? But they — in principle our strategy — my answer would be yes. We are interested in doing something in in that field.

Also, we are especially in the Indian market. We are also very active looking for different options to continue our inorganic growth trend, okay? The organic growth trend is is being executed properly, but the inorganic growth should come also. So we are trying to grow in both areas as we already mentioned, we would like to grow 50% organic, 50% inorganic, that would be our — our strategy to grow faster than the market.

Nitin Arora — Axis Mutual Fund — Analyst

Thank you very much. I’ll come back in the queue.

Ander Arenaza Alvarez — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Prashant Kutty from Sundaram Mutual Fund. Please go ahead.

Prashant Kutty — Sundaram Mutual Fund — Analyst

Yeah. Thank you for the opportunity. If you look at the European market, you seem to have grown much ahead of expectations and also much ahead of probably the industry growth as well. You just added about the EV part of it. Are there any — is there is a higher share of business which will actually also come in from the existing customers or any new customers have kind of gotten added into this pack?

And just a addition to that. What’s the outlook now when you look at Europe business because I presume you used to always give a lower outlook in terms of the Europe business. Does the outlook — is the outlook changed as the Europe business growth is concerned?

Ander Arenaza Alvarez — Chief Executive Officer

Okay. The growth of of our European business is coming from mainly the increase of the market. Also, we had an increase in market share in certain customers and you know that in our mix of customers, some of them are performing better than the others, okay? So we were lucky this time and the — our mix of customers did much better than than the competitors, okay? So that’s the main reason of having this outperformance over the market in this Q1, okay?

And regarding the future expectation for Europe, I would say that I’m not very optimistic regarding the continuing the growth. My view is probably we will see a certain stabilization and certain normalization of the — of the market. That’s what we see in our forecasts and in saying that April will be a little bit weaker and then in May and June daily [Indecipherable] cooperation. So, let’s say that we will see European flat or slightly — a slight growth in Europe in the next quarters.

Prashant Kutty — Sundaram Mutual Fund — Analyst

Sure. Second point is that you spoke about the margin side of it that, obviously, a large part of the benefit, I think you highlighted is that it has been coming from energy cost reversing and you passing on the customer — passing around to the customers. How much of it is actually driven by efficiency? Because like you said, you are working on a lot of internal efficiencies and you actually want it to kind of mirror CIE margin. So how much of it you should actually expect it to be sustainable in future? And like you’ve said in the past, the CIE margins are typically in the range of hitting those numbers. Do you feel we can kind of reach that faster than expected?

Ander Arenaza Alvarez — Chief Executive Officer

Yes, okay, the — these margins — the margins that we already got in the first quarter, we think not only that they are sustainable, we think that we should continue improving them, okay. In the next quarter. That’s we have room for improvement especially in India where we are negatively affected by the Two-wheeler business drop. Once the Two-wheeler comes back or bounce back, we will be able to improve our margins. That is also important thing.

And in Europe, what we think that we have been, let’s say, working very hard. Regarding your question of how much is coming from the internal efficiency. I would say that approximately one third of this is coming from energy, one third is coming from internal efficiency, and one third is coming from higher volume impact, okay? So the dilution of the fixed cost, thanks to the higher volumes and bigger operators.

So my view, or at least my target is to not only keep these margins but to continue improving them because as you saw that we are already at 17% EBITDA in the consolidated basis, but CIE target 19%, okay? So I have still a lot of job to do in order to reach this 19%. So that’s our task to make it a profitable business and sustainable business for the future.

Prashant Kutty — Sundaram Mutual Fund — Analyst

And last point over here, if you look about India, you said that you were largely impacted by Two-wheelers. Is there any other impact which is there or– as far as the the India margins probably not being as, maybe as per your expectations? Is there any other element which need to be worked on? Because over there, like you said, the gap is far higher on the India business.

Ander Arenaza Alvarez — Chief Executive Officer

I think India business is performing really well. The main impact that we have is that this — we have three businesses affected by the Two-wheelers, mainly aluminum oil. We have a [Indecipherable] i n Bangalore that this affected also by the Two-wheeler and the magnet business that we here in Pune is also affected. So this three businesses are negatively affected by the Two-wheeler business performance. Then, of course, when the the market comes that we all expect that there will be a recovery, we don’t know when, but we expect that this will happen. So we will see this recovery and the improvement of these three businesses will give us the additional support to continue improving our margins.

Prashant Kutty — Sundaram Mutual Fund — Analyst

Sure. Thank you so much and all the very best to you.

Ander Arenaza Alvarez — Chief Executive Officer

Thank you. Thank you very much.

Operator

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

Jinesh Gandhi — Motilal Oswal — Analyst

Hi, sir. Couple of clarifications first. When we talk about M&A, this is largely for India, right? Or are we looking to acquire in Europe as well?

Ander Arenaza Alvarez — Chief Executive Officer

Okay. Yes for M&A, what we are planning is mainly in India. Our target is clearly to focus on India, in the sense that all our — even though organic growth, capex is also focused on India.

Jinesh Gandhi — Motilal Oswal — Analyst

Right. Secondly, for the European business for the energy costs, the current quarter energy cost which accounted for use $110 to $120 per MW and in coming quarters if spot prices level then it will be EUR50 per MW. Is that understanding correct?

Ander Arenaza Alvarez — Chief Executive Officer

I didn’t catch the figure. Sorry, can you repeat them?

Jinesh Gandhi — Motilal Oswal — Analyst

1Q was at EUR100 to EUR120 per MW, and current is about EUR50 per MW.

Ander Arenaza Alvarez — Chief Executive Officer

No, no. Okay. We need to make a differentiation between the electricity and the gas, okay? In electricity — electricity, the previous we were at around EUR300 per MW last year in the third and at the beginning of the fourth quarter, and then now we are at 120 — between EUR100 and EUR120 per MW, that is the reality in electricity, okay?

And regarding the gas, the gas in the worst moment of the peak we were at EUR180 per MW. That was also the third quarter in last year, and right now we are about EUR50 per MW, and in the last month is quite stable. So, and the futures of the gas are also indicating that next year will be around EUR50 per MW. So that’s the the evolution of both electricity and gas.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay, okay. So if current spot prices prevail then there would not be any material benefit coming to our margins in coming quarters?

Ander Arenaza Alvarez — Chief Executive Officer

No. I think now if the the electricity and gas remains stable, we will remain also in the same level and stable and not impact, no negative, no positive impact in our accounts individual.

Jinesh Gandhi — Motilal Oswal — Analyst

Got it. And third clarification was on MSE sales process. So you indicated we expect it to complete in next one or two quarters. Is that correct?

Ander Arenaza Alvarez — Chief Executive Officer

Yes, yes, we continue the process. The process is quite active and let’s say that the — the market has shown big interest on the company. So we will continue working hard and our interest is to do it as soon as possible, okay? So we expected that one or two quarters — in one or two quarters we will be able to to give some feedback to the to the market. And of course, as per the year, our target is to close the operation before the end of the year.

Jinesh Gandhi — Motilal Oswal — Analyst

Got it,. And on the EV exposure for our European operation, in the past you talked about 20% to 25% of revenues coming from IC engine. Now with MFE exit, would that number still be same or it could be on the higher side?

Ander Arenaza Alvarez — Chief Executive Officer

I didn’t catch. Vikas, can you take the question, I didn’t understood.

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Yes, Jinesh, it will be higher because when we used to talk about dependence in Europe on IC engine parts, obviously, a large part of our truck forgings business was not in engines. It was largely in CIE Forgings. Germany was not in — not on the engine side. So, obviously now the proportion of engine parts in our current portfolio in Europe is higher.

Jinesh Gandhi — Motilal Oswal — Analyst

And that would be approximately about 40% to 50%?

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

We’ll have to do the calculations to see what is our crankshaft dependence. But yes, it will be 25%.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay, got it. And in terms of the EV components which we are getting in the European operations, you indicated that the battery pack is for the series is on steel forging, is that understanding correct?

Ander Arenaza Alvarez — Chief Executive Officer

Yes, yes.

Jinesh Gandhi — Motilal Oswal — Analyst

Okay. So typically both steel forging and aluminum forging is finding acceptance on the EV component side and not just aluminum forging?

Ander Arenaza Alvarez — Chief Executive Officer

So in this case it is — development done with the final customer with the OEM and the best solution due to certain mechanical requirements of the components were the iron, sorry, steel forging component, okay, for the truck market. In this case, we are talking about big batteries for Class 8 trucks.

Jinesh Gandhi — Motilal Oswal — Analyst

Right, right, got it. And lastly. The first question on the consolidated interest cost, we have seen a substantial increase on Q-o-Q basis. Is it largely due to mark-to-market of European operations in terms of balance sheet or there is something else in that?

K. Jayaprakash — Chief Financial Officer

No, Jinesh, it is actual interest cost increase in Europe. Until December we had certain tie-ups, but from January the rates have hit 3% plus on the working capital.

Jinesh Gandhi — Motilal Oswal — Analyst

And this number is what it should sustain given where interest rates are?

K. Jayaprakash — Chief Financial Officer

Yeah.

Jinesh Gandhi — Motilal Oswal — Analyst

Got it, thanks. And I’ll fall back in queue.

K. Jayaprakash — Chief Financial Officer

Yes, thanks, Jinesh.

Operator

Thank you. The next question is from the line of Priya Ranjan from HDFC Asset Management. Please go ahead.

Priya Ranjan — HDFC Asset Management — Analyst

Yeah. Thanks. Two question. One is on the European side. So now the gas cost has normalized, so you have got the pass-through of, although gases for the higher-cost. Do we also have to pass-through for the reduction in gas cost because now it’s normalized? So, is — we have to certain, I mean reduce our pricing for the gas component.

And secondly, you have also talked about there are some subsidy etc. we have got from the, I mean, the German government for the gas pricing, etc. So is there any impact of that in the numbers?

Ander Arenaza Alvarez — Chief Executive Officer

Okay. Yes, regarding the energy pass-throughs, of course, the gas goes up, we have an agreement to apply those increases with the customers. If the prices go down, of course, we reduce the prices to our customers. So it’s a pass-through system. So it is working in both directions, okay? So that’s the first comment.

Second comment on the German activity. In Germany last year there was a big, big increase on energy prices and the government took certain subsidy or decided to apply certain subsidies to the — to the company’s, and these subsidies came with certain delay and after big paperwork and certain bureaucracy, and we have this impact, it’s approximately EUR1 million in Germany in the first quarter ’23, okay? So this is a one-shot that it will not be repeated. I mean, there is no further impact in subsidies expected yet, okay? Everything will depend on energy evolution, and of course, government decision on subsidizing or not the industries.

Priya Ranjan — HDFC Asset Management — Analyst

Understood. So, the current year — the current quarter pricing was based on a $50 pricing, I mean the $50 per MW or EUR50 per MW pricing?

Ander Arenaza Alvarez — Chief Executive Officer

Yes.

Priya Ranjan — HDFC Asset Management — Analyst

Okay And coming back to India, so Just on the — if the Two-wheeler industry doesn’t recover and remains at where it is, like say INR15 million, INR16 million industry. So how soon or how easy we can repurpose our capacities to drive for, say, to newer segments like, say, passenger car or truck market or LCVs? Is it easy to do that or we have to do substantial capex for that?

Ander Arenaza Alvarez — Chief Executive Officer

We are quite active on new projects and we are launching all the new projects that we were — we had last year. So let’s say that there are a lot of projects in the pipeline in this moment, okay? Rather than taking or getting new businesses that, you know that the lead time of this new projects will take at least one and a half years, even two years depending on the product. So If we have to, let’s say, look for the short-term, I think that the — our expectations are more in the projects so that we have already launched in the pipeline and we are waiting for the ramp-ups of our customers. So I think that will be the the appropriate approach to increase our sales.

And regarding the existing lines that are with lower load, mainly because of the Two-wheeler market evolution, we are waiting until this market recovers, okay?. So we are not planning to refurbish the lines and eliminate this capacity because we strongly believe that this market will come back again, okay? Perhaps in three months or perhaps in six months, but where we — we are now patiently waiting for this market to recover because we don’t think that these low volumes will continue for long, okay?

Priya Ranjan — HDFC Asset Management — Analyst

Understood. And in terms of the capex — organic capex, say in Europe if we get some aluminum forging business, so are we ready to invest in capex in Europe as well or we are more inclined towards capex in India?

Ander Arenaza Alvarez — Chief Executive Officer

No, for aluminum we will we will invest capex in Europe also, okay? Yes for this strategic EV components, aluminum forgings, we will invest and we will prepare the state-of-the art the lines in order to compete in the market properly, okay? Those are probably the only projects — investment projects that we will have in Europe and the rest of the investment, let’s say that 80% of the capex in our company will be in India for the different verticals where we expect to continue to grow in the next years.

Priya Ranjan — HDFC Asset Management — Analyst

Understood. Okay. Thank you. That’s all from my side.

Ander Arenaza Alvarez — Chief Executive Officer

Thank you.

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Thanks, Priya Ranjan.

Operator

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

Nishit Jalan — Axis Capital — Analyst

Yeah, hi. Congratulations on good set of numbers. I have two questions. One more of a clarification. So in Europe what you mentioned is there is a one-off benefit of subsidy which was about EUR1 million which came in Q1, which may not come going ahead. Are there any other one-off benefits that you got, let’s say price hike from any of the customers pertaining to previous quarters which may not sustain going ahead? Just wanted to understand if there are any one-off benefits beyond the EUR1 billion subsidy from German government.

And second question is on India business. If you can highlight any new order wins or any new breakthroughs with existing customers or new customers that you have done in the last six months, either on the passenger vehicle, Two-wheeler or the commercial vehicle side, that would be very helpful? Thank you so much.

Ander Arenaza Alvarez — Chief Executive Officer

No, lets say that the — the subsidy that we got in Germany it was one-off. In the current, the rest of the of the accounts, we don’t expect to have additional one-offs in the future. So we — if the energy prices remains stable, we will see this the same level of margins in the future. So we expect stability there, okay? There is no additional impact expected right now.

And regarding the businesses — the new businesses. I mean, we are very active in the new project location and we have been awarded for several businesses presently. Yeah, we have got new businesses. I mean, yesterday was important that we got that one full rail business from a customer. I mean, I cannot disclose the customer, but this is a very important customer here in India that has already awarded us new business. So let’s say that — we continue developing all the verticals in the standard way and the amount of new projects that we are getting are in line with our budget. So let’s say that we are optimistic in this — in this sense. I cannot disclose the detail because you know that certain customers they don’t like to use their names or the product names in these kind of calls because they prefer to keep certain, let’s say, low level on this. But the evolution of our company is solid. The new order allocation is also very interesting in this first-quarter and we continue with the same — at the same path that we had last year. So that’s the evolution that we are having in this moment.

Nishit Jalan — Axis Capital — Analyst

Okay, okay. Just one follow-up here. I know you may not — you cannot mention the name of the product and customer. But is there anything like an order book or let’s say you have one orders with ex revenue potential annually that is still not translating into revenues and will come in the future. So basically what I’m trying to gather is, how much faster can you grow compared to the industry production? So just wanted to — whatever numbers you can share that would be helpful.

And then additional part here is, there are couple of domestic passenger vehicle OEMs also which are launching EV models and they are your customers for different products. So are you getting any — or have you got any orders for EV components in India also from your — from some of your existing customers who are planning to launch EV SUV in the next couple of years?

Ander Arenaza Alvarez — Chief Executive Officer

Yes, we have got several components for the EVs even for, especially from Mahindra and from Tata, okay? Both of them we have been very active and we have been awarded with pivotal projects for electric vehicles. So yes, we are active on that. So that process is going on, Okay? As somewhere in last year — last calendar year we were EUR10 million per year of. Additional orders in, let’s say in the complete year, okay? So, and this year we expect to get additional — the same figure or just in that range. So we will continue adding more projects. Of course, while — from the moment that we are nominated till the start of production and going to the, let’s say, at the peak volumes, it takes usually two to three years. So that is the collection where there is a delay in the launch of this product.

But as we have been — we have been getting new businesses during all these years, we will continue our growth path. Of course, providing our customers are successful with all these products, okay? Also, and this is important to say that we are starting now also certain electric vehicle components production in India to deliver to Europe and this will be in the next couple of months. So this will also give us an additional jump on sales and also our percentage in electric vehicles will continue growing. So, yes, there is an evolution. I think probably all the companies in our market are perceiving this change in the portfolios and slowly, slowly the electrification is entering into our order books and probably we will see the transition happening in the next year, okay? What is not clear yet is the speed of this transition, okay? Because probably in certain regions the speed — the transition will be much faster than all the regions like India where we can expect a lower transition, but the transition will be there for sure.

Nishit Jalan — Axis Capital — Analyst

Okay. Thank you very much for the detailed answer.

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Just to add to what Anders said. We have discussed in the past also that in India we are dealing with Two-wheeler OEMs — Two-wheeler EV OEM, five or six. Ander has talked about the main Four-wheeler EV OEMs and we are also very active in the Three-wheeler EV space. Where again, Mahindra is a very big customer of ours in the Three-wheeler EV market. So we have a comprehensive outreach to EV OEMs. Every year we keep accruing orders in the EV space.

And to your question on the overall order book. Of course, we don’t talk about an order book number because that is based on the kind of volume that will come in the future. What we normally tell you is that 25% of our sales in in a year we target getting from new orders, which we have got in the previous years. And the other thing that we have spoken about in the past is we want to beat overall market performance. If you look at the weighted-average market performance, we want to beat that by 5% to 10% on a regular basis. So that’s how we look at the scenario from — on the sales perspective, okay?

Nishit Jalan — Axis Capital — Analyst

Sure. Thanks — thanks, Vikas. Maybe I’ll come back to you separately for more details, but thank you for the response, both Ander and Vikas on the question. Thank you so much.

Ander Arenaza Alvarez — Chief Executive Officer

Thank you to you.

Operator

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

Nikhil Kale — Invesco — Analyst

Yeah. Thank you for taking my question. Congrats on very good set of numbers. Just on the subsidy part that you mentioned that’s in Germany, so I would presume that it is in part of the discontinued operations, right? So the our reported euros EBITDA is completely clean with no subsidies and retrospective kind of cost or compensation to customers. Is that understanding correct?

Ander Arenaza Alvarez — Chief Executive Officer

Yes, it is correct, yes. It is the discontinued operation. It is in the profit and not in the EBITDA.

Nikhil Kale — Invesco — Analyst

Got it, got it. Thank you. And the second question was related to, I mean we’re hearing a lot about employee cost inflation in Europe in this year, and probably OEMs would be reluctant to kind of compensate you for that. So how are you looking at that? If you could just throw some color on that.

Ander Arenaza Alvarez — Chief Executive Officer

Yes, okay. You know that usually the inflation in Europe in the last. 18 years was very-very low. Even in certain years we have been with very close to zero. Unfortunately in the last two years we have had a huge inflation. In 2021 in Spain we had an inflation of 6.4%. In 2022, we had an inflation of 5.4%, that is the impact. So yes, the salary increases, the salary that we have negotiated with our unions are of course, considering this increases, okay?

So, we are negotiating with the customers to pass through the inflation at least partially with them. Of course, the discussions are there and t is becoming hard to to get this this pass throughs, especially regarding the inflation. Not with the energy. The energy they already assume that need to be pass-through and this has affected — also raw materials are affected, but the inflation is more difficult.

So we are approaching in two ways. One is this partial customer and certain, at least partial offset with internal efficiency improvements, okay? That’s the approach. What we had set as a target is that no any loss, any sense of margin loss due to this, okay? We need to be able either with the compensation plus the internal efficiency to compensate 100% of the inflation impact in our P&L.

Nikhil Kale — Invesco — Analyst

Okay, got it. Thank you. That’s it.

Ander Arenaza Alvarez — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Nikhil Rungta from Nippon India Mutual Fund. Please go ahead.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Yeah, hi sir. Thanks for the — for giving mainly follow-up chance. Sir, you indicated that you will continue to look for inorganic opportunities as well. So just wanted to check, what would be the cutoff ROCE which we would be looking that in our incremental acquisitions?

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Nikhil. Its very difficult. You know that our M&A activity is focused on India. In India we have the valuations are what they are. What we normally look for is in three to five years’ time the marginal return from any acquisition should go back to 15%. So that’s the simple way of looking at it if you — if you look at it. Whatever price we buy today, in three to five years time that should be adding — that business should be at a marginal ROE of 15%. That’s all.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Okay, okay. And sir, just one more clarification. Like, the stake which is left with MNM. I mean, I said that last year CIE already reached to a cut off range of 5% till September itself. So incrementally if If MNA comes out with their remaining stake, CIE definitely might participate in the same, right?

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

As MCIE, we are not, like we cannot answer that question. But CIE has increased stake in MCIE in the past. So they will constructively look at the scenarios, but that is not something that is on the table as of now.

Nikhil Rungta — Nippon India Mutual Fund — Analyst

Got it, got it, sir. Sure, that’s all from my side. Thank you so much and all the best for the future.

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Thank you.

Ander Arenaza Alvarez — Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Sunil Kothari from Unique Portfolio.

Sunil Kothari — Unique Portfolio — Analyst

Thanks for opportunity and very hearty congratulations to Team. Vikas, my question is to you regarding this Indian growth which we achieved roughly 13%. So, normally your objective is to grow 5% to 10% or maybe nearer to 10% than the industry growth. So if you can little bit give detail about how industry separately has grown, which segment, like 6 ton or less 6 ton or M&HCV, tractor, Two-wheeler? And where we are in this objective?

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Of course., tis this quarter if you look at — the less than 6 ton grew by about 9.5% on a year-to-year basis. Two-wheelers, which is our next biggest de-grew, it reduced by minus 3%. Trucks reduced by 8.8% and tractors showed a healthy growth of roughly about plus almost over 30% on a year-on year business because Q1 last was quite low in the tractor business. So weighted-average would be somewhere in the range of 8% to 9%. So you have, and we were at 13%. A little bit of hat was due to Bajaj, because Bajaj and Maruti, both of them were much lower than the market growth. So I think Bajaj de-grew by much larger than the 6%. I think Maruti was also lesser — much lesser than the 9.5% growth.

Because of these two, because they have almost 25% weightage in our India business, I think you are seeing a bit of a skew as far as the outperformance is concerned. So that that is — that is the reason that if you know — it could have been better if you ask us that way.

Sunil Kothari — Unique Portfolio — Analyst

And, Vikas, recently the –after the Bajaj Auto returns and call, they are giving some indication of bottoming out process of domestic demand and maybe [Indecipherable] also. Do you feel or would you like to comment on Two-wheeler demand scenario locally or maybe exports?

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Boss has already commented. He said that three to six months, we do expect the Two-wheeler market to be better and that is correct. If you look at the retail data, which FADA puts out, you are seeing an — you are seeing an increase on month-on month and also you see the inventory data that they give out, that data is also coming down. So both these factors we think that at least there is momentum on the retail side. Of course, whether it will recover to previous high is a different question. That may not happen. But last three months retail data is quite, like, optimistic. So January-February March, all three have shown growth. So we think as Ander pointed out, we do think that the Two-wheeler market will be better for sure going forward.

Sunil Kothari — Unique Portfolio — Analyst

Great, Vikas. Basically CIE is now bench parking every biz performer are in best performance in terms of profitability and growth. So that’s why I think our expectation is little bit more than what you may be or you are doing, but I’m sure you will doing better and better, business if s for that. Thank you very much.

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Sunil. Just to add that. As, you know, we have been pointing out we will keep on focusing on improving our operations, bringing it as much in line with CIE global performance requirements. Market will go up and down, but our focus remains on becoming more and more competitive. So in one quarter or the other as we keep on saying, you will see depending on the customer portfolio. Just like in India we pointed out that our customer portfolio did not help us as much in Q1, but the reverse is happening in Europe, as Ander pointed out. Our customer portfolio is actually helping us gain sales growth in Europe in Q1.

So because of the diversification it s helping us. So in India the portfolios did not do as well, but in Europe it did better. So that will always be there. But the fact is we will keep focusing on becoming more competitive, becoming more and more aligned with CIE performance requirements globally. And as we as we keep repeating, if that happens, growth will follow.

Sunil Kothari — Unique Portfolio — Analyst

No doubt about it. Thank you. Thanks a lot.

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Yeah. Thanks, Sunil.

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, Ander and the team, congratulation. Vikas, you and JP also. My question for one. First is on the India business. Now as you said that these Two-wheeler is expected to really do [Indecipherable] means full year ’23, ’24, than the ’22, ’23. That is one.

Second sector is expected to be some kind of a slowdown. So in that background as well as for the export from India is expected to start or improve for EV products. So how do we see India business growth for current year as well as next couple of year? And what kind of a capex that we are planning?

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

No, Bharat, as we — as Ander pointed out, 80% of our organic growth capex is aimed at India. And we have pointed out in earlier calls and in earlier meetings also is that this capex is across verticals in India. It’s not as if it is concentrated in one or two verticals, it is across the board. So all verticals are growing growing in India.

To answer your question how should you look at growth in India. I think we maintain whatever we have said before that whatever be the weighted-average market growth we will grow higher than that, 5% to 10%, closer to on the higher side rather than on the lower side. So that remains — that remains our objective. The reason why we are saying that is, as again Ander pointed out previously on this call itself, there are lot of capacities that will come on board — when the question was on are we shifting Two-wheeler capacities elsewhere. The answer was that a lot of new projects are expected to come, ramp-up in the coming in the coming few quarters. And that should help — help our growth profile. So there is absolutely from a perspective of India growth there is no change in whatever we have been saying.

Bharat Sheth — Quest Investment Advisors — Analyst

Second question if Ander is there. How do we see export from India? What he stated that it will start from next couple of months for the EV-related products. So what — if you can give some kind of a color, more detail, which kind of a product are we looking to export from India for EV business in Europe and what could be the potential?

Ander Arenaza Alvarez — Chief Executive Officer

Yeah. We are now starting the the export or of certain forks and pre machine steel component, okay, for electric vehicle applications in Europe, and this trend will continue and we will, let’s say, I think we will see important growth in that range. Some years ago we decided to increase our export rate that was up about 12% to 13% in our company and we wanted to increase this export rate to 25% as a target, okay? Unfortunately, during the last two years, especially because of this, let’s say turbulences in the geopolitical area in the world, we saw that the transport cost, all the freights and everything were going up in terms of cost dramatically, also lack of — lack of ships to deliver the materials. So let’s say, everybody, and all the carmakers or the OEMs, they were really-really frightened. So they decided to go to the local-to-local strategies, or at least to protect themselves better than in the past, okay?

So right now when all the logistic issues has been already solved and there is certain stability, okay? We don’t know what will happen, especially with the Ukrainian war situation, but it seems that the situation is more stabilized and the logistic cost has come down again to a normal — normal figure. So it seems that the exports will continue — will continue to growing from India or China or Korea to Europe and the States, okay?

Then there is a second important factor in this that we are already internally debating because we have more and more pressure to calculate the CO2 footprint of our product, okay? And with this CO2 footprint reduction requirement, the long deliveries from overseas probably will be reduced or at least it will be minimized in the future. So now we are trying to adapt to these newt scenario. We will see what are the requirements from our customers. And as a company, we are — as we are located in the different regions, we are proposing to go local for local as a main strategy. So the export will continue growing, but it will not be a main strategy mainly because of the two reasons I gave you, okay? So we see that the export rate will continue growing, but we need to see what’s going on in the market and with the geopolitical scenarios.

Bharat Sheth — Quest Investment Advisors — Analyst

And last question, if I, with your permission. In India business we reported 16.7% and you say that still there is a room. So what is our aspiration for India business margins? If you can do little more color from two-three year perspective.

Ander Arenaza Alvarez — Chief Executive Officer

So, we had this target to align our margins in India to CIE global margins, okay? CIE global margins are around 18% and with a target to continue improving to 19%, okay? So I would say that in the short-term our target would need to be at 18%, that is the the short-term. In the mid-term, we should hit CIE’s too.

Bharat Sheth — Quest Investment Advisors — Analyst

Great. Thank you very much and all the best.

Ander Arenaza Alvarez — Chief Executive Officer

Thank you.

Vikas Sinha — Senior Vice President Strategy and Chief Investor Relations Officer

Thanks, Bharat.

Operator

Thank you. The next question is from the line of Mahesh from LIC Mutual Fund. Please go ahead.

Mahesh — LIC Mutual Fund — Analyst

Hi, sir. My questions have been answered. Thank you so much.

Ander Arenaza Alvarez — Chief Executive Officer

Okay. Thank you.

Operator

Thank you very much. Ladies and gentlemen, we’ll take that as a last question. I will now hand the conference over to the management for closing comments.

Ander Arenaza Alvarez — Chief Executive Officer

As usual, I would like to say thank you to all the participants for their well directed and well prepared questions. We hope that we properly answered and logically answered to all the questions. If anything is needed, you can conduct either Vikas or Swapnil to continue with further details. And as always also, I would like to say thank you to the Mahindra CIE team for their fantastic job and commitment during all this quarter. So I hope to see you in the next quarter with similar results or even better. Thank you very much.

Operator

[Operator Closing Remarks]