KPITTECHNSEAugust 01, 2023

KPIT Technologies Limited

8,270words
103turns
13analyst exchanges
5executives
Management on call
Kishor Patil
CO-FOUNDER, CHIEF EXECUTIVE
Sachin Tikekar
PRESIDENT AND JOINT
Priya Hardikar
CHIEF FINANCIAL OFFICER – KPIT TECHNOLOGIES LIMITED
Sunil Phansalkar
HEAD INVESTOR RELATIONS
Rahul
DOLAT CAPITAL MARKETS LIMITED
Key numbers — 36 extracted
51.7%
ults. We started the year on a very positive note in the quarter 1. The revenue growth has been 51.7% in constant currency year-on-year. On the constant currency quarterly growth is 7.1% and a 8.2% i
7.1%
th has been 51.7% in constant currency year-on-year. On the constant currency quarterly growth is 7.1% and a 8.2% in reported USD terms.In case of profit, the profit grew 56.9% year-on-year. The net p
8.2%
51.7% in constant currency year-on-year. On the constant currency quarterly growth is 7.1% and a 8.2% in reported USD terms.In case of profit, the profit grew 56.9% year-on-year. The net profit for t
56.9%
ency quarterly growth is 7.1% and a 8.2% in reported USD terms.In case of profit, the profit grew 56.9% year-on-year. The net profit for the quarter grew by 20.1%, but it has something onetime. If yo
20.1%
s.In case of profit, the profit grew 56.9% year-on-year. The net profit for the quarter grew by 20.1%, but it has something onetime. If you take out the onetime adjustment, then the net profit grew q
8%
onetime. If you take out the onetime adjustment, then the net profit grew quarter-on- quarter by 8%. EBITDA is at 20%, for the first time it has exceeded 20%. EBITDA has grown 65.2% year-on-year an
20%
take out the onetime adjustment, then the net profit grew quarter-on- quarter by 8%. EBITDA is at 20%, for the first time it has exceeded 20%. EBITDA has grown 65.2% year-on-year and 13.3% quarter-on
65.2%
er-on- quarter by 8%. EBITDA is at 20%, for the first time it has exceeded 20%. EBITDA has grown 65.2% year-on-year and 13.3% quarter-on-quarter. So overall the performance has been a little ahead of
13.3%
EBITDA is at 20%, for the first time it has exceeded 20%. EBITDA has grown 65.2% year-on-year and 13.3% quarter-on-quarter. So overall the performance has been a little ahead of our expectations. The
190 million
performance has been a little ahead of our expectations. The pipeline during the year, we had USD 190 million wins. Generally, it is again across the geographies. DSO is at 50 days. So last 12 consecutive qu
rs,
s. Generally, it is again across the geographies. DSO is at 50 days. So last 12 consecutive quarters, we continue to grow both in revenues as well as in operating profits. On the people side, we have
27%
hese areas. In terms of next year, we continue with our guidance of constant currency growth of 27% to 30%, EBITDA in the range of 19% to 20%. As you know, we give the guidance, which very few comp
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Guidance — 20 items
Kishor Patil
opening
“While we do not give exact numbers, the campus recruitment is going full- fledged and will be one of the higher numbers in the recent years.”
Kishor Patil
opening
“They are across the organization, and they will be effective as always from the 1st of July.”
Kishor Patil
opening
“In terms of next year, we continue with our guidance of constant currency growth of 27% to 30%, EBITDA in the range of 19% to 20%.”
Kishor Patil
opening
“As you know, we give the guidance, which very few companies give for the year.”
Kishor Patil
opening
“So, it is our policy that once we give at the beginning of the year, we make any changes to the guidance at all at the end of quarter 3.”
Kishor Patil
opening
“Then the overall in case of next quarter, as I mentioned, there will be increments.”
Kishor Patil
qa
“There will be, of course, some part because we have external consultants for about a year, which we are doing that.”
Kishor Patil
qa
“And as a company, that's a market which we are very bullish about – in the future, whether it is India, whether it is China, it is Asia, all these markets, we believe will be good markets for us in years to come.”
Karan Uppal
qa
“So with a very strong start, the guidance now requires a very soft path rate for the next 3 quarters.”
Kishor Patil
qa
“I think I mentioned in my earlier comments, is we don't give quarterly guidance.”
Risks & concerns — 6 flagged
And it would have an gross impact of 2.5%.
— Kishor Patil
So I guess -- I mean, overall putting all together what it allows clients to do is substantially reduce their risk or at least get an idea about risk in that program upfront.
— Kishor Patil
And what kind of the constraint they are facing because the overall demand remained very strong, whether the talent sourcing is the big challenge for them, and that's why they prefer to work with multiple partners or capability- wise, they are finding differences and that's why there are multiple partner kind of strategy?
— Dipesh Mehta
So, it is difficult to look at and say about the guidance for the book-to-bill ratio.
— Sunil Phansalkar
See, now, I mean, we have already said that we are completely integrated now, and it is really difficult even for us to know what is the Technica growth, what is KPIT growth.
— Sunil Phansalkar
So it's difficult to segregate that out.
— Sunil Phansalkar
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Q&A — 13 exchanges
Q
I think 2 things post naturally, our growth has been a little ahead of our estimate. That is one point, which allowed us to really leverage for it. The second thing is we could deliver a bit better utilization. So that is the second part in terms of overall utilization has gone up. So that is the second part. And the third part, if I may say, there are certain platforms and accelerators kind of a deal, we have products. So I think a little bit of a change in the mix of that. So with all these 3 things, we have been in a position to improve our margin. The cost of integrations have largely been
Kishor Patil
Very positive. I think when we started, I think our experience is naturally, we have matured into that. The second important part is we have now created an integrated offering, not only what KPIT has but also what Technica has and what other entities have. So, we have integrated that well. Of course, in addition to that, I think we have created certain upfront offerings, I mean, front-end offerings in architecture validations and before that, blueprinting and consulting. So I guess -- I mean, overall putting all together what it allows clients to do is substantially reduce their risk or at lea
Q
Thanks for the opportunity and congrats on a very strong set of numbers. The first question is on the guidance. So with a very strong start, the guidance now requires a very soft path rate for the next 3 quarters. So are you looking at moderation in growth going ahead? Or are you baking in some conservative in looking at the macro environment?
Kishor Patil
I think I mentioned in my earlier comments, is we don't give quarterly guidance. We don't revise the guidance quarterly. We gave it at the beginning of the year. And if at all, it really demands if there is a bigger acquisition or then only we revise. Otherwise, we relook it at it only at the quarter 3. So that's what we have been following for last many years, and we feel very comfortable with this. Okay. But from a demand perspective, nothing to worry at this point of time, all your deal wins and the pipeline looks strong, right? The demand part continues to be robust for us. And all our cli
Q
Hi, good evening, and congrats on the solid numbers. Just wanted your thoughts on how should one think about the flow-through revenue that comes through once you sell middleware. So you mentioned an OEM is looking to source products. So how does that typically flow through in terms of incremental opportunity on the services side? And the second is, typically, when we think of these products, what is the kind of margins that typically accrue for these? Just 2 things overall?
Sachin Tikekar
Hi, Nitin, this is Sachin Tikekar. Just a clarification. The middle-ware product is going to be part of QORIX, just so you know and KPIT will continue to be the software integrator. Just off the hat, clarification. Secondly, the way it works is when we get involved in middleware which is somewhat of a heart of the new architecture, it gives us larger visibility into the left side of the V as well as the right side of the V. That is, we can actually work on the core architecture we can work on the blueprint prior to the requirement side, it gives us a better handle on that. And on the other sid
Q
Yes. Sir, first of all, super quarter, so not much to ask where everything is like perfect revenue margin. My question I had was more from a medium-term standpoint, any assessment that you can share on your wallet share in key accounts, meaning strategic 40? And at what stage do you think you may need to expand on the client base to sustain your growth rate on the time base? That was my...
Sachin Tikekar
Okay. Understood. So let's take one question. The first question was a medium-term view. So our medium-term view continues to be fairly robust. Our conversations with existing clients are getting richer and more engaging as we get involved deeper into their core architecture towards SDV. So we really think that based on that, we really think that there is quite a bit of headroom to cover within the existing clients in the short to midterm. Having said that, it's a very interesting question that you ask is when do we need to go beyond our T25 OEM. It's a continuous process for us because it's a
Q
Thanks for the opportunity. Just continuing on the prior question answer. I just want to understand how global auto majors are choosing their partner. And what kind of the constraint they are facing because the overall demand remained very strong, whether the talent sourcing is the big challenge for them, and that's why they prefer to work with multiple partners or capability- wise, they are finding differences and that's why there are multiple partner kind of strategy? And do you think, let's say, two years, three years down the line, there would be some consolidation may happen? So if you ca
Kishor Patil
Can we do one by one I think it just makes it simple -- so in this case, this is what actually I answered to a large extent. But just to tell you, right now, for the next seven years, eight years, as we see, OEM is in an area, where they are trying to do what they don't know necessarily. They are trying to catch up with some of the other technology areas, but in some areas, they are very advanced in some areas, they are not, and they have to catch up with multiple things. There are a lot of unknowns for them and for everyone else in the industry. That's where they are trying to engage with som
Q
Yes. Hello, thank you for taking the questions. My first question is on QORIX. It seems like a high potential like our product company, which tend to have large on investments and long gestation periods. So I just want to a sense of like what kind of investments would be required and before the company entered revenues and what kind of gestation, we are going to be looking here?
Sunil Phansalkar
So as we have said earlier, when we announced QORIX, this is a company which will work on the product side for the middleware platform. From the KPIT point of view, we will invest about EUR 5 million upfront and then in another EUR 5 million over -- after about 18 months. That's what the investment from KPIT side would be. And of course, the other partners ZF would also invest into the joint venture post receiving all the regulatory approvals from merger control processes. That's what it is. So just to remind you, KPIT has invested has moved a lot of IPs it had built in this area. So that is v
Q
Yes. And thanks for the opportunity and congrats on being a great set of numbers. Most of the questions being answered. Just looking at FY '23 being a solid year in terms of closure of large deals as well as megadeals. And that clearly shows that our win ratios are going up, and we are becoming a preferred vendor in eyes of the OEM. So is it fair to say, these opportunities increasing our offering gap is also reducing a book-to-bill ratio between 1.5x to 2x can be maintainable beyond FY '23 in which year we have shown a book- to-bill of 2.4x as a whole.
Sachin Tikekar
Sandeep, we are not sure whether we are able to hear, we didn't hear you properly. Can you break -- can you repeat your question maybe in smaller pieces? Yes. What I'm trying to say is FY '23 being a great year in terms of closure of mega deals and the large deals and which has resulted in a book-to-bill of 2.4x. It clearly indicates that our wallet share is increasing. We are becoming a preferred vendor in the space. So looking at the opportunity and the offerings which we have versus peers, is it fair to believe that, 1.5x to 2x book- to-bill is quite maintainable? So, it is difficult to loo
Q
Hey, thanks for taking my questions and congratulations on a great quarter. So I have a few questions and go one by one. First one is on the -- your comment on OEM revenues becoming $100 million or $150 million plus. So does that in any way affect your or limit your ability to scale up another OEM to a similar size since you're already working with their competitors. So just trying to understand that does this type of scale with a particular OEM means that your business remains structurally remains a high concentration of business and client selection, thereby becomes very key?
Sachin Tikekar
Actually, that's a fair question. And for us, I think as we go deep and wide, I think these will -- some of them will move into that 100 million, 150 million to 200 million category. However, one has to understand that OEMs used to work with Tier 1 that used to serve their competitors. So they are used to working with key partners that work with their direct or indirect competitors across the globe. And to that has been the case with KPIT -- that will continue to be the case in case of KPIT as we become the software integrator to many of them. We don't see that as a hurdle for us to continue t
Q
Good evening, Sir. Sir, my first question is in the last quarter, what was there a value share of Technica? Are we seeing the same growing say 20% in Technica going ahead?
Sunil Phansalkar
I'm sorry, we don't hear you clearly. Could you just repeat the question, please? Okay. Sir, my question is in the last quarter, what was the revenue share of Technica? Are we seeing the same growth, say, 20% in Technica going ahead? See, now, I mean, we have already said that we are completely integrated now, and it is really difficult even for us to know what is the Technica growth, what is KPIT growth. It is all integrated together and it is KPIT plus Technica together growth. So it's difficult to segregate that out. Okay. Sir, my next question is, how Honda recently done an agreement with
Q
Yes. Thanks for the follow up. Just one slightly long-term question. In terms of the overall SDV development where the entire software architecture is changing. So where are OEMs in that journey, when can they derive the meaningful revenue from after-sales services, which are the areas which are looking promising in terms of monetization? Happy to hear your thoughts are.
Kishor Patil
I think most of the programs are late by about a year in the first year. So -- and we believe that many of them have compromised in some way for multiple reasons in the best possible architecture. Of course, they will also learn from this experience So really in new sense, I guess they will be ready by about 2030 in some, let's say 2032 by something which is very solid. But on the services side, I guess, in some specific area, the monetization will start and will start maybe in the next couple of years, and it will keep on increasing. But the real opportunity is when the SDV structure is fully
Q
Thanks for the opportunity. In the Microsoft call earlier in the day, they mentioned that Mercedes is bringing ChatGPT via as we are to more than 9 lakh vehicles in the United States. So making for this car voice assistant more intuitive. So are we going to see that as a good incremental opportunity or this is just a small extension would not be much significant?
Sachin Tikekar
This is in line with what Mr. Patil just said. Some of these things now you can call it ChatGPT or Generative AI. Essentially, these are some of the services that are getting extended through the vehicle. And that's their way of creating the service model. So it's an interesting one that they have announced, and we'll see variations of it going forward. Right, right. And also with many this global OEM planning, increased production exposure in India, does that make your proposition any better or do not make much difference as these may be orderly deeply engaged already with us? Yes. I mean the
Q
Yes. First of all, congratulations for an excellent result. In the last conference call, you said that Q3 and Q4, the second half is not going to be as good as the first half, but still you believe it will be like that only?
Kishor Patil
Yes, I think we have said that the acceleration will happen in H1 better than H2. , Q3 traditionally a softer quarter. And we wanted to accelerate in H1 looking at it to be safer, we wanted to accelerate in the first part of the year. And that's what we are trying to do on the existing programs and projects we have. In that context, we have said, market and the opportunities look right. Otherwise, the environment looks good. So if at all, they have to revisit, we'll regain quickly. Right. And the second thing is you said that there will be 250 bps of gross margin impact due to wage hike, but y
Q
So thank you, everyone, for being a part of this call. And if you have any further questions, please write to me. My e-mail address is mentioned in our investor update. Thank you so much, and have a great evening.
Kishor Patil
Thank you, everyone. Thanks.
Speaking time
Kishor Patil
22
Moderator
15
Sachin Tikekar
14
Sunil Phansalkar
7
Karan Uppal
6
Sunil Phansalkar
4
Mohit Jain
4
Ankit Agrawal
4
Akshay Ramnani
4
Anika Mittal
4
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Opening remarks
Rahul
Thank you, Silvan. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technology Limited for giving us the opportunity to host this call. And now I would like to hand the conference over to Sunil Phansalkar, with Head IR at KPIT to do the management introductions. Thank you. Over to you.
Sunil Phansalkar
Thank you, Rahul. A warm welcome to everybody for the Q1 FY '24 Post Earnings Conference Call of KPIT Technologies Limited. On the call today, we have Mr. Kishor Patil, Co-Founder, CEO and MD; Mr. Sachin Tikekar, President and Joint MD; Ms. Priya Hardikar, CFO; and Sunil from Investor Relations. As we always do, we'll start the call with opening remarks by Mr. Patil on the performance and the way forward, and then we'll have it open for your questions. So once again, a very warm welcome to all of you, and I hand this over to Mr. Patil.
Kishor Patil
Good afternoon, and I'm very happy to take you through our quarterly results. We started the year on a very positive note in the quarter 1. The revenue growth has been 51.7% in constant currency year-on-year. On the constant currency quarterly growth is 7.1% and a 8.2% in reported USD terms.In case of profit, the profit grew 56.9% year-on-year. The net profit for the quarter grew by 20.1%, but it has something onetime. If you take out the onetime adjustment, then the net profit grew quarter-on- quarter by 8%. EBITDA is at 20%, for the first time it has exceeded 20%. EBITDA has grown 65.2% year-on-year and 13.3% quarter-on-quarter. So overall the performance has been a little ahead of our expectations. The pipeline during the year, we had USD 190 million wins. Generally, it is again across the geographies. DSO is at 50 days. So last 12 consecutive quarters, we continue to grow both in revenues as well as in operating profits. On the people side, we have 550+ people net addition during t
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