Mahindra CIE Automotive Ltd Q4 CY22 Earnings Conference Call Insights

Key highlights from Mahindra CIE Automotive Ltd (MAHINDCIE) Q4 CY22 Earnings Concall

Management Update:

• [00:06:26] MAHINDCIE said its margins improved as some of the increases in energy and inflation got passed through and the energy prices are starting to stabilize.

Q&A Highlights:

• [00:15:34] Jinesh Gandhi with Motilal Oswal enquired about the constant currency growth in the European business. Vikas Sinha SVP replied that for the year, in volume terms, growth is about 11% and for 4Q22 it was 40%.

• [00:18:58] Jinesh Gandhi of Motilal Oswal asked about the order wins and the customer response in aluminum forging. Oroitz Lafuente Business Controller said MAHINDCIE is actively quoting several projects in the aluminum forgings field and have already got its third business. MAHINDCIE is confident that it will obtain additional projects soon. The transition is expected to be smooth within the next year.

• [00:20:46] Siddhant from Goodwill asked about the guidance on dividend policy. K. Jayaprakash CFO said MAHINDCIE has a dividend policy of 25% of PAT. Since MAHINDCIE had a negative PAT this year, it is continuing with the last year’s dividend. Going forward, the policy will remain the same.

• [00:21:59] Pratik Kothari at Unique Portfolio queried about the drivers of India business growth. Vikas Sinha SVP replied that the weighted average growth rate for the year is 14%, but the company has done 29%. The growth was due to more orders from anchor customers, increased presence in areas of less presence, and exports from AEL. MAHINDCIE will be adding capacity in all their verticals while balancing investments and profitability.

• [00:24:26] Pratik Kothari at Unique Portfolio asked about the outlook for Europe next year. Vikas Sinha SVP replied that the overall volume growth in the light-vehicle market was 6.6% in Q4, and the forecast for this year is expected to be around 16.1-16.2 million units, or a 6-8% growth. From market perspective, MAHINDCIE is moderately optimistic for the next couple of years.

• [00:30:52] Pratik Kothari from Unique Portfolio asked about the drivers of other operating income doubling in last 2 years. K. Jayaprakash CFO answered that it’s largely scrap but doubling is due to a reclassification of energy compensation that was previously credited to the power and fuel expense in the other expenses line.

• [00:32:15] Nemish Shah with Emkay Investment enquired if the company is expecting to return to 17.2% EBITDA margins in the next financial year on the Europe business. Oroitz Lafuente said that for CY23, RM are expected to continue increasing and margins will not recover fully due to this. However, electricity, water, and gas prices are going down and stabilizing, so some margin recovery is expected due to that.

• [00:36:00]  Sunil Kothari of Unique PMS asked if the opportunity for Mahindra CIE to provide ICE engine parts is already here and what is the potential for growth in exports. Oroitz Lafuente said MAHINDCIE don’t see any production being moved from Europe to India in the short-term. Instead, MAHINDCIE plans to consolidate the remaining market in Europe, while also developing additional products with technology like aluminum forgings.

• [00:42:14] Sunil Kothari of Unique PMS also enquired about the challenge to sell the German operations. Oroitz Lafuente replied that since the Dec. Board decision to form CIE, MAHINDCIE have received interest from several companies. MAHINDCIE is currently exchanging information and developing the process. There is no additional information to share at this time.

• [00:43:32] Rahil Shah at Crown Capital asked that from hereon, for CY23, if MAHINDCIE will be able to maintain revenue and EBITDA margins. Vikas Sinha SVP said that the company will continue to focus on both growth and profitability, and there are opportunities for growth in Europe beyond just market growth. Therefore, it is likely that the company will be able to maintain its growth trend.

• [00:47:24] Aman Agrawal from Carnelian Capital asked about the India business, which segments MAHINDCIE is focused on. Vikas Sinha SVP replied that the 4-wheeler market is doing very well and has seen record growth this year. M&M, Maruti, Tata, Hyundai, and Kia have all been doing well in the 4-wheeler market. In the 2-wheeler market, Bajaj is MAHINDCIE anchor customer and exports are somewhat muted due to currency crisis. Tractor market has been doing well despite a 2% drop this year, and trucks have seen a 10% growth this year on a low base. MAHINDCIE believes that the growth trajectory will continue and is confident that it will benefit from growth in the market.