Mahindra & Mahindra 144A

Good day, everyone, and a warm welcome to our second quarter earnings call for Mahindra and Mahindra. First of all, very warm wishes to all of you on this festive season, as well as your families. We are so glad you can be here in person and also want to thank everybody who's online. For the main presentation today, we have our Managing Director and CEO, Dr. Anish Shah, ED and CEO of our auto and farm business, Mr. Rajesh Jejurikar, and our group CFO, Manoj Bhatt. We will take questions towards the end of the session. And for those who are attending online, you can post your questions on the web chat. As a reminder, this meeting is being recorded. And just for the purpose of completeness, I do want to read out our safe harbor statement. Certain statements in this meeting 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. With this, I'd now like to hand over to Dr. Shah for his opening remarks.

Thanks, Amar. Let me start by wishing everyone a very happy Diwali. And thanks for making the time on Danteras. Hopefully we won't go too late into the evening, so Everyone can get home well in time. We've got an exciting set of results. This time, strong operating performance across our businesses, except for TechM, and we've seen the TechM details in their analyst call, but we can go through some details here as well. Rapid growth in auto, profit up 2x, but beyond profit, it's also the continued demand for our models, the path to electric, a number of things that are not reflected in the profit numbers that are very positive in terms of how the auto business is really going forward. Farm has been resilient despite a tough market, and you've seen the market being sort of flat, a little declining in this quarter, but we expect it to be flat for the year. And the business has gained 150 basis points of market share Not easy to do when you're 40% plus. But that, again, has been a very strong operating performance for the business. Mahindra Finance has done extremely well on its objective of asset quality, which was the number one objective that we had outlined. And we'll talk more about that. We will also talk about the implications that it has had on profits for this year because the sharp improvement in asset quality last year in the same quarter was resulted in a lot of provision releases, which obviously are not replicable in future as you go on. And those provision releases last year led to higher profits last year, which has resulted in year-over-year variance that's negative. And that is really due to those right backs, or largely due to the right backs. There are some other factors that we'll talk about. Growth gems are on track. a two and a half time increase in profit. But here again, the profit number while it's there is not something we really focused on for GrowGems. What we're looking at is the path to growing 5X in the next five to seven years. And many of our businesses are solidly on that path. There are some that are finalizing, developing their plans and starting implementation along that path. So that's really the number that is more important. So while two and a half looks very good, I'm just going to sort of put that aside and not focus as much on profit. Similar to what we had done for Mahindra Finance a year and a half ago, and that's something we'll allow Moit to come on board and really talk about that. from an ROE standpoint as well as an EPS growth standpoint. So ROE is at 20%. EPS growth is at 18% for the first half of the year. And I will again reiterate that our ROE target continues to be at 18% only. We are not increasing that. But we will likely have some quarters where we are higher. Maybe some when we are slightly lower, but it should be really 18% as our target as we go forward. So from a standalone result standpoint, revenue up 17% for the quarter, 20% year-to-date. Profits, as we talked about, up 67% for the quarter, 79% year-to-date. Consolidated respective numbers of 15% and 17% on revenue. And you see the impact of SEL or Swaraj Engines Limited. We had bought shares from Kirloskar last year in this quarter, and that share purchase triggered an accounting change and a 564 crore gain as a result of not an accounting change, but the accounting laws essentially had us take a gain here because we had to fair value that investment. And that 564 crore gain last year is really not operational, and that's something, as we exclude, gives us a 6% growth for the quarter and 33% year-to-date. So we had shared our approach in terms of our businesses, which is auto and farm, capitalized on market leadership. TechM and Mahindra Finance unlocked full potential and growth gems with a 5x challenge. Auto and farm continue to do very well to capitalize on market leadership. And you see that in the numbers, but as I've said earlier, more than numbers in market share and margin expansion and cash generation and things that are happening for the future as well and Rajesh will go through a lot of details on that front. TechM and Mahindra Finance, we are not quite unlocking full potential as yet. Mahindra Finance, I would say we are well on the path to doing that. A year and a half into the recovery and we feel good about where the business is today. TechM, we are initiating that path and that's something that we should be able to deliver results on that in the next three years is what I would say at this point in time. And Growth Gems, I'll talk about specific examples. on three wheelers on real estate on susten which really are on very strong track right now and a few others that are getting on that track so with regard to auto and farm again the headlines here are SUV revenues up 28% LCV market share is up 280 basis points which again is a remarkable number when we are at 45% plus market share in that space And with this 280, we go to 49.6. Margins are up 200 basis points, again, driven by operating leverage here. Farm resilient, despite the industry decline we've seen. The launch of both Oja and Nayaswaraj is a big milestone. Oja, there's a whole range of tractors. Typically, you don't see so many launches in one point in time. And that's something the team has been able to achieve. And this really sets up for success. In fact, not just in the near future but over the next couple of decades because this is a tractor that competes directly with one of our key competitors from Japan. This has been based on the Mitsubishi platform from Japan as well and has been received very well in the market and really will be a mainstay for certain segments of the market. International markets do remain muted. One aspect of that is the runaway inflation in Turkey where the business actually is still doing very well But we have to apply accounting standards for inflation. And that does cause profit impact in the short term. In the longer term, we still see a very strong positivity around this business. Market shares of farm machinery revenues of 35%. So this is an area, again, I've talked about as a huge growth potential. And to be very honest, I think 35 should be higher. So I'm not standing here and saying it's a great number at 35%. It's one that we actually have to see grow even faster as we go forward. And farm profits are down, which I will highlight at 7% because of the lower volumes and the operating leverage with it. Auto profit is greater than a thousand crore for the quarter up to X and on a good track. Let me spend some time on Mahindra Finance. And I start with the four commitments that have been made for Mahindra Finance. Asset quality, digital transformation, diversification and partnerships. Asset quality as you can see here has improved dramatically. Here we put GS2 and GS3 because both of them have a direct impact on provisions and losses. So the combined GS2, GS3 was 21.9% not too long ago. It is 10% today. that translates to a GS3 number of 4.3%, which is in a sense the lowest ever and a very, very strong number for the business to be at. What we have highlighted here is as we saw improvement through last year, that improvement resulted in provisioned write-backs, which increased profits. So you see a number of 19.8 in the first quarter last year going to 16.4 in the second quarter. And that 3.4 percentage points, the 340 basis points, resulted in a 345 crore provisioned right back last year. As the curve is flatter now, those right backs will not repeat. And this year we had a provision of 276 crore. Part of it driven by seasonality as well. The first half always tends to be a little more than the second half. And as a result, PAT is lower by 200 crores plus, 213 crores to be exact. So that's one big driver of the change in profits. There is another factor which is a smaller impact here, which is NIMS have been lower than what we expected. 30 basis points lower than what we had expected, a little more versus last year. And a combination of both of those two have impacted this quarter's earnings significantly. or more important to the variance between last year and this quarter's earnings. Coming back to the rest of the points, strong progress in digital transformation. There are some milestones that have been reached already. Share of non-cash collections, for example, is 70% now. Number of initiatives around increased customer experience, digital for the customer in terms of lending. So all of those things have put the business on a good track. Diversification is working well. The SME portfolio is growing nicely. We are again careful about growing it the right way, making sure that it's the right credit risk that we are taking and not just growing rapidly because that sometimes can cause problems from a credit standpoint. Leasing has grown quite significantly as well, which is an important driver from a minor finance standpoint because in many cases there you would also have problems non-interest income, which can be a bit positive for the company. The vehicle prime segment has grown nicely and the partnerships have been put in place and we see a lot of potential from co-lending with these partnerships. So that gives us a lot of confidence around where Mahindra Finance is today. I will go a little deeper on credit costs because we have seen a structural improvement in asset quality. And all of that does not flow into this quarter's numbers. In fact, it will not. It will take a little more time to flow into this quarter's numbers. You see GS2 plus GS3 again coming down significantly. Provisions had gone down to a level where it was actually right back. So this is annual, not by quarter. So last year as a whole, we had 1.4% of the book being written back from a provision standpoint. That obviously is not sustainable because you will have sort of flat to a certain level of provisions once the credit or once the GS2 and GS3 lines are flat. End losses have been going down as well. the dotted line here is what is the expectation for the third and fourth quarter we are not putting specific numbers around that but Mahindra Finance has put a number around an expectation of a credit cost of 1.5 to 1.7 percent to close the year as compared to 2.3 percent today and 2.3 is also a function of first half versus second half which the business has seen over the years and that's the reason why we feel good about where asset quality is and the structural change, which will result in lower credit costs as we go forward and more stability as well as we go forward. Tech Mahindra, I would highlight its strengths again. Very deep client relationships, I would say, among the best in the industry from a customer-centricity standpoint. Strong end-to-end offerings across multiple domains, leadership in telecoms, deep expertise in manufacturing as well. At the same time, we've got some challenges from a revenue mix, both geography as well as verticals. Margins have been lower than its peers, and that's something that many of you have pointed out over time as well. Acquisitions have not gone very well. Again, something that you have pointed out and you're right about. We have not been able to get all the synergy that we needed from those acquisitions, and some of that cleanup is now underway. Okay. So there are a number of actions we've listed here, some which have started already, some that will need to take place. But this will really get translated into a very detailed transformation plan that Mohit will present. It is not right for me to present that. So it is something that Mohit is going to have to commit. And as he presents that, we will then follow up and make sure that we can deliver on that plan. Growth gems, I give a quick preview, but if I go into numbers, Susten has plans to go from 1.5 gigawatt to 7 gigawatt in a four-year time frame. Our growth gem target is 5x. This is not 5x, but it's 5x over five to seven years. So in a four-year time period, if we can go from 1.5 to 7, we are on track for the 5x in five to seven years. The good news here is that Susten has won bids recently. totaling to 1 gigawatt already in the first half of this year and is therefore on a very good track not only to meet but even hopefully exceed some of the commitments that we made in terms of our 7 gigawatt target that we've outlined there. Electric three-wheelers will reach 74,000 units this year in terms of volume. That's up from 5,000 three years ago. And again, an aggressive growth plan for auto. We have not been giving forward-looking numbers, so we haven't put a number on that. But it's, again, something that we do expect the business to continue to grow. Obviously, not at this pace. So while we've grown 14x in the last three years, it's from a small base. So I wouldn't expect multiples of growth in that sense. It's now getting to market leadership. We're at 61% market share and a very strong player in that electric space. Real estate has seen a very good turnaround. And here we've gone 3x in terms of residential sales over the last three years. And then the business has publicly committed to a target of going up to 8,000 crores of residential sales in F28, which is again up almost 4x from here if you take two and ignore the plus. So on a very strong track in terms of what a growth gem should be delivering. There are three others that are, I would say, a little behind the first three because they are now just finalizing the plans or have finalized the plans and are focusing on execution of those plans. They are hospitality, logistics, and classic legends. But for all three, the plans really are to grow 5x in the next five to seven years. So again, very stiff targets. These are not easy targets to achieve. But we feel good about where the businesses are today and how they're proceeding to be on that path. So I'll end my section with my favorite page, which is again ROE and EPS growth. We continue to keep that consistent delivery. We were at 19.9 for last year. So we've got that 0.1 to get to 20% for EPS or rather for ROE. But as I said, again, I'll repeat, which is target for us, there is not 20, it's 18. So we'll stay with that. And from an EPS growth standpoint, the first half gives us an 18% EPS growth. With that, I'll request Rajesh to take us through the auto and farm deep dive. Thanks, Anish.

Hi, good afternoon, all of you, and happy festival season. I believe some of you are at home for Dhanteras and others are heading on to a call at 5.30. Amma has kind of warned us that we need to get done by 5.30. I don't know if you saw that, Anish, so. So I will try to go fast on these slides so that we have enough time for Q&A. The auto total volumes were up 18% at 212,000, and the revenue market share was at 19.9%. We were number two in the quarter, and we can talk a little about that. We see ourselves getting back in quarter three as our volumes have ramped up, and very strong growth in the LCV market share. The volume numbers on SUV, as you see on this slide, have moved up from 49,000 in a quarter now to 115,000 in the quarter. And as we've spoken about earlier, our volumes now are at a production is at a rate of over 42,000. We had said we'll be at 49,000 by the end of the year. So we are already now at in that range of 40,000 plus and well on track to get to 49,000 by the end of the year. The bookings continues to be strong, open bookings at 286,000, led mainly by the Scorpio family, the Thar family, if I may call it that, and the XUV700. We've also said in the past that, you know, the less than 10 lakh market is under some kind of strain, and you see some of that in the 300 and the Bolero numbers. But anything that is priced more than 12, 13 lakhs, we continue to see very strong demand. There have been questions in the past on, you know, how much of the billing numbers are translating into deliveries and offtake and so on. So just putting some data out, and if there are more questions, we can talk about it in the Q&A. In quarter two, our average dealer stock has been 30 days, which is in line. That's the average, not the month end, in line with the norm that we would expect given the variant portfolio. As I mentioned last time, we are keeping the priority of customer sequence intact. That means if we are billing something unexpectedly at the end of the month, the customer may need some time to, you know, either choose their date or arrange finance or whatever. We would give the customer that time and not say if you don't have the money tomorrow.