Mahindra & Mahindra 144A

Good afternoon, everyone. Good afternoon, good evening or good morning from wherever you are joining me. Welcome to M&M's quarter 2 to FY22 earnings call.

We are indeed glad to have you all on this call today. Just before beginning a safe offer statement, certain statements on this conference call with regard to our future growth prospects are forward-looking statements which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. Now, I would like to welcome our senior management. We have with us today Dr. Anish Shah, Managing Director and CEO, Mr. Rajesh Jidurikar, Executive Director, Auto and Farm Sector, Mr. Manoj Bhatt, Group CFO, and also other senior management from both auto and farm team, and also the investor relationship. With this, now I hand over the conference to Dr. Anish Shah for his opening remarks, and then follow up with presentations by Ajay and Manoj. Over to you, Dr. Shah. Greetings everyone. It's a pleasure to be back with you today. We're going to talk about some very strong results despite some challenges that we will outline. I'm going to outline or start with a framework that you've seen before. But we're starting to really look at our businesses as core, growth camps, and digital platforms. And we will talk about the progress on each of those. So the key messages for today. are that our core businesses have really seen a resilient operating and financial performance, despite some very significant headwinds for both commodities and supply chain. Our new product launches have been very well received by the market, and we'll talk about that, the XPV700 in particular, but it's not just that, it's the set of products that has been leading up to that as well. And we've seen a very strong recovery from our group companies, Mind the Finance in particular, but also some of our other group entities. And we've got all our group companies really starting to position themselves very well and deliver results. On growth skills, we've seen a higher level of profitability from both the listed and unlisted entities. And we've seen tangible examples of value creation at a digital platform that we talked about earlier. So for today, I'm going to give an overview Up to which Rajesh and Manoj will take me through the details. Let's start with the numbers first. On a standalone basis, Pat before EI is up 29% at 1687 crores. Pat after EI is up almost 9x at 1432 crores. If you were to look at consolidated. Here we see Pat before EI at 1,975 pros, up 43% after we restate Sanjong as a discontinued operation. But what we announced last year when we gave our results was 906 pros, which included Sanjong at that point in time. So if you look at it versus 906, it's effectively a 2x return. And similarly on Pat after EI, It's going up from 6.15 to 19.29, which Zangang has discontinued. But based on what we reported last year, it's really going from 1.36 to 19.29. And that also shows the result of the hard calls we've taken with regard to capital allocation. I referred to the headwinds. They're essentially in three categories. Significant increases in commodity prices, which I'm sure you're seeing across the board. the semiconductor shortage issue and freight costs. We have taken significant actions around that, increasing selling price, aggressive cost-free engineering, looking at rejigging of production, commonizing some components within auto, though that does take some time, looking at route optimization for freight and so on. So those have helped us, but this has had an impact. And as we look at the next page, What you see is on the farm business, revenue is up 4%, but PBIT is down 14% despite almost a 2%-ish point gain in market share. And that really is driven by the commodity price inflation. What I'm also very happy to say is our international subsidiaries, where we've seen significant concerns in the past, have turned around. The actions people from category A, B, and C have really worked out well. So, the category A and B companies that we continued with have demonstrated a PBIT of 105 crores for this quarter, a second consecutive quarter greater than 100 crores, and a fifth consecutive quarter of being positive. We are starting to see a real turnaround on that front, and that really leads us to the conclusion of a focused and robust operating performance in the face of some very significant events. Again a similar story, much stronger growth in revenue here at 23% and PBIT is impacted not only by commodity inflation but in this case by shortages on semiconductors as well that resulted in a volume loss of 32,000 units that obviously impacted operating leverage and thereby PBIT is lower. But what we are really excited about here is my earlier comment on HPV700 The bookings are reflective of the quality of the product and the four consecutive blockbuster launches from the XTG300, Bolero Neo, TAR and 700. We've seen some very strong response on the market. The best was in the 700 obviously and what we are looking forward to now is the launch of the new Scorpio and we hope to make it a fifth consecutive blockbuster launch. which positions us really well to regain leadership in the 4SE space. Let me talk about my reference, because this is one that did concern us last quarter. And what we had at that point indicated was, based on history, it was a temporary phenomena that would get reversed in the following three quarters. And what we have seen is that reversal is well on track. P&T is up from negative 1,500 to positive 1,000. In this case, we are not looking at year-over-year. We're looking at the previous quarter because we do want to show a story from the previous quarter as to what happened. So, you effectively have a 2,504th swing on the profit side. That is driven by G&TA, down 2.8 points, though we do expect it to go down further as we go along in the next two quarters. And that has resulted in a very significant swing with regard to provisions. and we had taken a provisional rate of 2500 crores last quarter, 7663 of that has come back and based on what the microfinance team has outlined for the census, the rest will come back, or 80-90% will come back in the next two quarters. So a little more of a deep dive on GNPA, just to give a little more flavor of the numbers behind microfinance. Stage 3 contracts have come down from 294,000 at the start of the quarter to 216,000 at the end of the quarter. As a reference, in March, they were 194,000. So we're getting fairly close to the March numbers, which is what we wanted to get back towards. A lot of Stage 3 rolls into Stage 2 first, and therefore Stage 2 hasn't seen much movement, or has seen no movement in fact. It's gone from 402 to 404, and that is also almost the same number that we had in March 2021. So what we need to do is work on phase two next and start moving that down to phase one or current. And those are the efforts that the team is focused on over the next couple of hours. TechEmp has great momentum. Profits are up 26% driven by large deals, by 5G, by DCV being doubled in its target on rate, free tax flow, and 15,000 associates higher the last quarter. So, a very strong momentum for Tech-M and that's something that we've seen going with the tailors in the industry as well as the performance by the company. Let's look at the listed growth gems. Logistics has seen some strong progress this quarter, even as we see the profit number down 37%, that's driven by some one-time items. But revenue is up 22%, multiple business wins, And it's positioned very well in the industry that has a lot of payments. Hospitality, we're seeing a significant growth in profits. Occupancy getting back to pre-COVID levels. Resorts in Finland are operational. And a fairly bold approach to driving growth in hospitality. Similarly, in real estate, and we're seeing that bold approach starting to pay results. Profits again showing a significant uptick. Focused executions. and proud to report that he has the only real estate sector to publish a sustainability report. So that is one that's a huge plus among some various actions on the ESG front. So overall, our listed growth teams have seen some very strong traction and profitability. We're not going to go through the unlisted ones today, but we'll do that in future conversations as we start highlighting some of them. But let me talk about our digital platform. We mentioned this before. And we mentioned the fact that first try was at a $1.7 billion valuation. And it was a result of merger with Bob and me and first try. And it's along this exponential curve that we've shown. But beyond first try, we've got first price views, which is the regression that started by really coming up strong. A fundraiser is underway right now. And we do expect to see some good numbers there in terms of market valuations. What I really want to talk about today is Porter. Porter is a business in infrastructure logistics. The latest round values the company at 3,750 crores. This company was set up with a merger with SmartShift. SmartShift was a startup that was set up in M&A with an investment of all of 23 crores. And SmartShift became the second largest in the industry, merged with Porter. At that point, we put in an additional 70% to the company. Overall, we put in so far about 100 to 120 crores or so, somewhere in that range. And the valuation today is 3,700 crores, where our share would be somewhere in the 25 to 30% range. The significant valuation, you start seeing the impact of the exponential curve catching up here, valuations up 4x in the last 24 months. M&M still is the largest shareholder, but this company is positioned very well in interest Beyond this, we're going to look at, just moving back to the previous slide for a minute here. We are looking at the digital spring code that we have put in place now. A good team is already driving action in that space. We're looking at AgriTech and Receivable as two more digital platforms. And there will be a couple of other ideas that we're going to put on the table. But we're starting to see real value creation for our shareholders without having to invest significant money into it because we are looking at external investors coming in to many of these companies where over time we will take a minority stake. So with that, let me hand it over to Rajesh to go through details on auto and farm. Rajesh, over to you. Hi everybody, good to be with you this evening for us and like Sriram said, morning or evening for you all. I'm going to break my presentation into two parts. Talk briefly about the quarter that's gone by. and then focus more on the path forward, which is the growth and return journey. So, on the quarter that's gone by, as you can see here, the standalone revenue grew by 15% and the consolidated revenue by 13%. And for the first half, the 46% and 41% respectively. This clearly is an indication of the fact that H1 was slow because of the COVID lockdown, and we saw some of that effect this year in the way quarter 2 got depressed as quarter 2 last year had got a carryover of the quarter 1 of S21 into the numbers. Next slide a minute. When we look at our PBIT, you will see that standalone PBIT has come down by 29%. But again, I'm just reinforcing that quarter 2 last year was an exceptionally high rate. So, this here, the quarter crew in FES, even though you see this degrowth here, is actually our second highest ever quarter crew PPIT. And it is our second highest ever quarter crew domestic volume and second highest ever domestic volume. So, it has by itself been a very strong quarter. You just have to keep in mind that what we are comparing is on an exceptionally high base on volume and on margin. Next slide. When you look at the photo, you can see that the standalone PBIT has gone up 37 and the consolidated PBIT has gone up by 73%. Next slide. Anish spoke about the turnaround in the international sub of FEI. That has been a major task in front of us. performance. See from here it is 5 qualitative quarters now of profit and 2 qualitative quarters of profit more than 100 crores. Clearly setting us up for enable very strong launch of UoTech on the farm side feature-packed product well priced exports I spoke about and what we believe is a strong margin performance in the context of the environment 18.7 is a very healthy margin the capital has been used to margins in the region of 18-19 percent last year was an aberration as I said with exceptionally high margins driven by volume that you know based up into quarter 2 and of course, the operating leverage 15 and commodity inflation have not yet kicked off. A strong price increases have been taken 88 percent overall and material cost is not yet fully passed on. However, you have managed margins by keeping fixed cost under control. Next, on the auto side a very very strong launch of 70000. booking. And as you all would have read, 50,000 of them happened in three hours, 25,000 in the first hour on day one, 25,000 in the second two hours on day two. And that takes the total cumulative open booking across all our products including 700 to 160,000. Strong export performance. And we have been talking about the fact that three-wheeler electric It is at an inflection point and you can see that play out now. Very strong growth of 318%, but more interestingly, a 68% share of market. Establishing the first mover advantage that we had and now beginning to leverage that as we set that business up for a strong growth project. The auto margins have been under pressure. Clearly, commodity price inflation has hurt us. We've lost about 32,000 vehicles due to the issue shortage in the quarter. And we've taken aggressive price increases, not enough to cover the material cost increase, but a 7% increase over the last year. I'm now moving on to the second phase of my presentation, which is how do we drive growth as we think about the future. We've built a strong base. It's time for us to now focus on growth, but growth with financial support. By the year 2025, we will look at a candor of 15 to 20%. Tractor market share would grow to 40% plus levels. I'm going to spend some time talking about farmer's share because we have been talking about that as a growth engine and we are talking about a 10x growth and we will talk about why we think this works. We would like to be number one in the 4 SUV sector. I'm going to take a minute to talk about what we mean by core SUVs. As we've been talking about the fact that UV is a very broad category in the way IAM is defining it, and that has its relevance. We've defined core SUVs in a way that it doesn't make it too restrictive and too niche. So the definition that we're using includes 70% of the UV industry. Our definition is based on bringing alive the SUV character. So a high ground clearance and a high seat position reflect an SUV character. And we've defined that by distance of seat point to the ground. And if that's greater than 660 mm, we believe that is something we can call a 4 SUV. The other is the capability to go anywhere. Capability to go anywhere is defined by the tire outer diameter. which if it's greater than 660 mm we consider it as a 4 SUV and an engine capacity equal to greater than 1.5 liter or the engine is turbocharged. So basically combination of the perceived look and the capability but we try to keep the perceived look parameter or the parameters here completely measurable. There are several SUV characters as a part of design language but we intentionally not putting that out there because that's driven by subjective judgment. All of these are very measurable parameters and hence clearly allows us to segment the market in a way which we think is the universe we want to compete in and that's 70% of the UV industry. We are number one in the LCV less than 3.5% segment and we would like to stay that way. Next slide. So, I am taking some illustrations of business segments. where we'll talk about how we're thinking about the future growth strategy. Farm, SUVs, LCVs, last mile mobility, and just a slide on capturing the autoelectric waveform. Next slide. This is the way we define the purpose of the farm. It's about transforming farming and enriching life. Our people are here to enrich the lives of farmers by providing easy access to affordable and innovative technology solutions, enabling them to rise. I'm going to talk about exciting new tractor platforms inside the pipeline. I'm going to talk more about the 10X by 2027 and 15 new products that we see coming along the way for that. This is the product portfolio that we are building on the tractor site. Brand Mahindra and Brand Swaraj. A lot of these are underway and we will start seeing them from next year to 2025-2026. significant part of it is the K2 platform which we have spoken about. That's 4 new platforms, 37 new products. But that's not the only thing because there are multiple new products on the Swaraj site all in work and we expect to hence have a very strong solid portfolio of tractors to keep our edge and to keep increasing our market share. Next slide. Here's the logic behind the farm machinery story. The domestic industry today is 5,000 crores. 18 to 20% stagger will take it to 12,000 crores by 2027. Our market share today is less than 10%. Our tractor market share is more than 40%. We do believe that with everything that we're going to be doing in the next five years, our farm machinery market share should be 30% plus. which is basically 4,000 crores of a 12,000 crores protected disaster. And 1,000 crores of exports from India of farm machines will take us to a 10x growth. This doesn't improve farm machinery revenue to our global subsidies. How are we going to make this happen? A very strong product pipeline, which some of which I've alluded to, leveling our capability out of our global centers of excellence. exploring partnerships, alliances, acquisitions. We're setting up a manufacturing facility in-house at Geetampu, which will be ready next financial year. Expanding our network by three times for the next four years. And most importantly, increasing access. Growth of farm nationality is going to come out of access. Use of finance, the financial packages, leasing model, and rental model. So while this may seem a stretch when we talk about MX, we think it's doable. It's doable because we are a very, very strong rural and farm equipment-driven company. And with the right product portfolios and the right go-to-market strategy, there is no reason why we can't leverage the opportunity. It is what it is around the world. And as we've often said in the past, India is structuralized, not mechanized. And there is a big opportunity ahead for us as leaders to drive that phase of mechanization. Next slide. This is what the 15 products look like. This is an illustration of products which are tractor mounted or tractor trailed and products which are test prepared. These will come out between now and 2025. Next slide. Moving on to SUVs. And really what we are trying to do in the SUV portfolios to build a strong and authentic SUV brand. What does that mean? means creating sophisticated authentic SUVs with an unmistakable presence. Products which are advanced by way of adventure-ready capability. We don't say that authentic means SUV. You have to be a 4x4 to be an authentic SUV or that you have to be only body or frame. What we really mean is how do we create products which are adventure-ready. And our whole portfolio is going to be about that. And which is why we would like to measure ourselves with a relevant size of business, and that's what we're calling a core S&P business. We're planning 30 new launches by 2027. A very important part is our whole brand transformation exercise. You've seen us do that over the last year and a half. First with the launch of the SaaS, now with the launch of the S&P 700. We moved to a new visual identity, the 20-piece logo. for the SUV business. We are revamping our dealership's finances to bring alive this new imagery. And these are our four key focus brands that we'll build on. We may look at creating a new electric brand as well. So here's a strategy about focus, differentiation, transformation. And we believe, based on all the research that we've done, that there are a large number of consumers who are very excited with the proposition of what our brand offers. at the proposition of buying an authentic through core HE. This is what a showroom could look like by 2027. 15 new products. A large number of them are going to be electric. A lot of work is happening on electric. I'm sure you'll have questions and I'll talk a little more about it, but more over the next year. The XUV400 here may make you wonder what that is. We may name that XUV400, the electric version of CWO. We believe has an opportunity to be named differently. This is still a code name, but just to differentiate it from the CWO, you see an XUV400 of that. Next slide. The proposition here is around exploring the impossible. That's a bad idea. Four key brands doesn't mean we discontinue the others. One new electric fan, 13 new launches out of which eight will be electric. And we believe we should be prepared for at least 20% of the UV volume being electric by 2027. Let me move on to LCG. In the LCG space, we already are leaders. Planning to strengthen our position with 17 new launches by 2027. Eight of them will be electrics. there will be 12 TNG options available. A lot of these products are underway already. A new pickup range starting from early next year. And some new platforms that we are working on and a very exciting product portfolio in the last mile mobility side. Moving on to the last mile mobility vertical. We are number one in the month of quarter two actually. We had a 68% market share. We believe the penetration in this is going to happen very rapidly and we would expect a 30% plus penetration by 2025 in the electric three-year space. We would like to stay ahead by launching five innovative products and suddenly a partnership that will be rich in sales efforts. Moving on to one slide around the electric, auto electric, Turkish as you may call it. We have been in this segment for 10 years. We have a cumulative 340 million kilometers on growth. Lots of learnings out of that. These learnings are going to be spread in to create in our portfolio of So eight new SUVs, eight new LCVs, and number one in the electric industry. We will talk more about the details of our strategy. I'm sure you have questions on, you know, who are going to be our partners, where are we going to get batteries, but that's not for today. We will talk about that during the course of the next calendar and share with you as openly as we have been for the last two quarters, what our thinking around this is. With growth has to come strong returns and ROC of 18 plus plus is what we started. We are working and we have been very strong in managing our working capital. CapEx, which is focused around segments in which we want to play and win and complexity reduction through platform synergy and platform commonality. As a part of driving returns, management of our OPM is going to be critical. We've hence taken upon ourselves targets to reduce cost to the percentage of revenue by 3% year-on-year. This will happen by way of driving material costs down. A lot of work happening around it, parts from an LFE platform. On the fixed cost side, we look at new age marketing. We've already seen that. We've launched both Thar and SQT 700 with a fraction of the marketing budgets that we have in the past. That's what new age marketing is about and we believe that because the products are so differentiated and unique, it allows us to do that more than . Drive manufacturing conversion cost down, logistics cost down, . So, broadly as we think about the future, we believe that there is a uniquely based very, very strong pillars to build on or to drive growth and deliver very strong .

Thank you, Rajesh. I think most of you would have seen the numbers. I'm going to run through this pretty quickly. I think if you look at the standalone revenue growth of 15% within that auto segment showed a growth, but farm showed a slight decline because last year farm was a very strong year for farm and so there are two mixed trends in here. Coming to the EBITDA, at an absolute level, there was a 19% decline because of some of the reasons which were discussed by Rajesh and Anish in terms of the commodity cost increase. And so the margins have gone down as a percentage and also in absolute terms. Go to the next slide. However, at the PAT level, I think our returns from our group companies are increasing. So Our dividends are increasing and many of our group companies have given dividends this quarter. Most notably TechM, that was a large component of this. That's why over on Pat, before EI grew above 29%. I think Pat after EI was a 9x growth. I think the main reason for this difference between before and after EI was some of our capital allocation decisions last year. which has resulted in certain write downs, which are not there. During the current quarter, we have an EI of about 255 crores, which is embedded into this number.