KPIT Technologies Ltd (KPITTECH) Q2 FY23 Earnings Concall Transcript

KPIT Technologies Ltd (NSE: KPITTECH) Q2 FY23 Earnings Concall dated Oct. 19, 2022

Corporate Participants:

Rahul Jain — Vice President

Sunil Phansalkar — Head of Investor Relations

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Anup Sable — Whole Time Director and Chief Technology Officer

Sachin Tikekar — President and Joint Managing Director

Priya Hardikar — Chief Financial Officer

Analysts:

Chandramouli Muthiah — Goldman Sachs — Analyst

Pratap Maliwal — Mount Intra Finance Private Limited — Analyst

Sandeep Shah — Equirus Securities — Analyst

Nitin Padmanabhan — Investec — Analyst

Karan Uppal — PhillipCapital India Private Limited — Analyst

Andrey Purushottam — Cogito Advisors — Analyst

Ankit Agrawal — Yellowstone Equity — Analyst

Hiren Ved — Alchemy Capital — Analyst

Unidentified Participant — — Analyst

Chirag Kacharia — Ashika Institutional Equities — Analyst

Nitin Sharma — Mcpro Research — Analyst

Rithvik Sheth — Oneup Financial — Analyst

Hasmukh Vishariya — SUD Life — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the KPIT Technologies Limited Q2 FY ’23 Earnings Conference Call hosted by Dolat Capital Market Private Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Rahul Jain from Dolat Capital Market Private Limited. Thank you, and over to you, sir.

Rahul Jain — Vice President

Yes, hi. Thank you, Lizan. Good evening, everyone on behalf of Dolat Capital. I would like to thank KPIT Technologies Limited for giving us the opportunity to host this earnings call.

And now I would like to hand the conference over to Mr. Sunil Phansalkar, who is Head-IR at KPIT to do the management introductions. Over to you, Sunil.

Sunil Phansalkar — Head of Investor Relations

Thank you, Rahul. Good evening, and a very warm welcome to all on the Q2 FY ’23 earnings call of KPIT Technologies Limited. I would take this opportunity to wish you and your loved ones a very happy Diwali, a healthy and prosperous Diwali. On the call today, we have Mr. Kishor Patil, CEO; and MD; Sachin Tikekar, President and Joint MD; Anup Sable, Whole Time Director and CTO; and Chinmay Pandit, Whole Time Director and Head Americas; Priya Hardikar, CFO and a U.S. colleague. [Phonetic]

As we always do, we’ll have the opening remarks on the performance for the quarter and the outlook that we see today by Mr. Kishor Patil. And then we would have it open for questions. I would just request that we would have a hard stop at 6:30, so after that time even if you have any more questions, please feel free to write to me and we would answer those questions and publish them on the website, as well as on the exchanges.

So once again a very warm welcome to all, and I hand this over to Mr. Kishor Patil.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Good evening, everyone. I’m very happy to take you through Q2 results for KPIT. First, I will go through certain financial numbers, then I will talk about employee side, then we’ll give you some business outlook, we’ll talk about also Technica acquisition.

So to begin with, I think the quarter as you all know by this time, we have 27% constant currency growth year-on-year and 8.3% quarter-on-quarter and the reported growth has been 17.2% and 4.8% quarter-on-quarter for the period. EBITDA has gone up by 33% year-on-year, and net profit is 28% year-on-year. Now while doing this from EBITDA to net profit, during this period the other income has gone down by INR58 million on account of translation losses of the currency, and that has basically impacted to certain extent net profits. Also there is an increase in the depreciation of INR1.70 crores, on account of two things, one is amortization of licenses, which is INR1.2 crores and INR0.50 crores or INR50 lakhs basically purchase price for PathPartner allocation for goodwill. So after this the net profit has gone to 28% year-on-year.

There is, overall, if you really look at the TCV is INR142 million, which we have won during the quarter, and the pipeline looks pretty strong, one of the best we had with certain mega deals in the pipeline. So we feel very confident about the overall pipeline, which we have and that allows us to look at business very positive.

During this quarter there has been increased increments which we had, and the increments have been one of the best in the industry. We had a double-digit increment including our global employees, which has been again one of the highest we had over last many years and after absorbing that, we have been in a position to which has a more than 3% impact on profit and loss account, which we have been in a position to compensate due to strong growth as well as other profitability improvement.

With the — on account of opportunities we are giving to our employees because of the strong growth and exciting technologies to work on, as well as the increments we have given, we see a downward trend in the attrition, while for the last quarter it was early 20s, but as we have a 90 days period, we see that what will be our attrition for the next quarter and it will be less than 20% going forward in next few quarters.

So we are — we look at it as a very positive sign specifically when we are growing strongly. On the — overall is a — during this quarter, we also acquired a company called Technica for INR80 million, as we had announced a month back and this has been now consolidated from 1 October. The overall, the revenues for this entity will be about INR42 million on a yearly basis with a 20% plus EBITDA. The stand-alone growth rate will be 16% plus for the entity and we expect synergy to drive more growth with this entity. This — while this will be the consolidation will be done that deal expenses in Q2 will be about EUR1.4 million, EUR1.5 million which we have already considered, while giving the EBITDA numbers for the year. So we are very positive about Technica and we have been — we have received very positive rights from the clients on this acquisition.

Overall, while the overall economy is a bit uncertain, we see that in our clients, which we have defined as T25 and in those clients, specifically, the area on which we are focusing on which is software-defined vehicle. We see that the clients are going ahead with their programs and these are the very essential for them for their having a market share in the future models. So this is where we do not see any changes in their spend pattern and while the overall economy is a bit uncertain we see these commitment to these programs and KPIT is very strongly positioned in this area.

We are about 70% of the programs which are going on worldwide, we are a part of that and some of these even new wins we expect will be in these areas. So based on the confidence, based on the positioning, and based on the areas in which we are focusing on we believe that we are in a better position to really increase our outlook for the year. So the yearly outlook will be 31% to 32% growth on year-on-year, including Technica. Excluding Technica, our organic growth will be 23% which is up from 18% to 21% outlook we had given earlier. EBITDA will be 18.5% to 19% more than — I mean earlier we had given 18% to 19%. So based on these areas, we feel very positive about the business environment and future prospects for the company. Thank you.

Operator

Sir, should we open up for questions?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Yes, please.

Questions and Answers:

Operator

Thank you. [Operator Instructions] The first question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.

Chandramouli Muthiah — Goldman Sachs — Analyst

Hi, good evening, and thank you taking my questions. My first question is related to the Technica acquisition that you’ve announced, congratulations on closing the deal. Just wanted to pick up on couple of comments you made on synergies on the transaction. If you could just help us understand what are the sources of synergies for this transaction both from, maybe a client mining, as well as an operational standpoint?

Anup Sable — Whole Time Director and Chief Technology Officer

Hi, this is Anup here. I think most of us know, and if you can imagine if V, which is used in software development cycle, right. So our KPIT traditional scope starts from software requirements at the left side of the V, goes down up to software development, software integration and then at the right hand side, on the top, it goes to requirements validation. Now, if we can increase the height of this V a little bit more, now it starts with system requirements, architecture and requirements and on the right hand side it increases the system validation part. This is what the increase of the height of the V is what the Technica acquisition adds to us.

What it means from our customer perspective, is that the customer, we get to engage with the customer much early in the lifecycle of the development of the software development vehicle, at the system architecture stages and in our software integration business, our ability to integrate at the system level becomes a significant differentiator, which means our stickiness to the customer would increase, and the system validation part of it also is the sticky business for multiple years. So that also engages us more with the customer. So in total, we get also early advantage as well as stickiness throughout the lifecycle of the program.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

And just to add a few things specifically in the SDV area where the complex with the architecture, this has more relevance and meaning and that is the reason we had — we thought these are very important competences for us.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. That’s helpful. My second question is on employee utilization levels. So I think we’ve had significant pickup in hiring activity over the past 12 months. So just trying to understand, where we are in terms of employee utilization at this point, after the hiring pickup? And what the utilization target would be in an ideal world for us?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

So right now, we do not go into the details, too many on the utilization and this because of it becomes very complex based on the business model. But to your point, we do have increased our hiring over last few quarters and then in the first quarter, we increased our headcount by 11%, second quarter by 8% and so during this process because specifically in the areas in which we are working, I think the time to take to make people productivity is a little bit more than a normal programs. Specifically if you also hire certain freshers from the college and you will see this utilization going up in next two quarters, this — we have a opportunity to increase our utilization by — certainly by a few percentages.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. That’s helpful. And my last question is around the organic revenue growth upgrades. So I think the midpoint of the previous constant currency revenue growth guidance was about 19.5%, and now we’ve said it will be 23% plus. So it seems to be 350 basis points at least in terms of organic revenue growth guidance upgrade. So just trying to understand what you’re seeing in your deal pipelines? And what’s giving you the confidence of taking the organic revenue growth guidance higher?

Sachin Tikekar — President and Joint Managing Director

Chandra, this is Sachin Tikekar. And if you look at what we have actually said, there are five large engagements that we signed up with five different OEM’s, three of them in North America, one in Asia and one in Europe, in the last quarter. And then there are two additional large what will actually call mega sort of engagements that are in the pipeline. The pipeline actually has increased to about INR142 million and that also gives us the confidence. So essentially just looking at the kind of demand that we have generated, and on the other hand, our ability to also scale has gone up, the attrition is going down a little bit, our ability to attract talent is going up. So the combination of the two gives us the confidence that it’s time to sort of upgrade to writings, it’s in line with me.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

And just clarify one thing, INR142 million is — we have to be one that is during the quarter, and the pipeline is the strongest, we don’t give that TCV value.

Sachin Tikekar — President and Joint Managing Director

Yes, thank you. Kishor.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. That’s helpful. Thanks for taking my questions, and all the best.

Sachin Tikekar — President and Joint Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Pratap Maliwal from Mount Intra Finance Private Limited. Please go ahead.

Pratap Maliwal — Mount Intra Finance Private Limited — Analyst

Hello, am I audible, please?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Yes.

Pratap Maliwal — Mount Intra Finance Private Limited — Analyst

Yes. Thank you, and thank you for taking my question. Sir, I was just looking at the geographic numbers. So we see that in the last three of the four quarters that U.S. geography have been about INR32.5 million to INR34.9 million range. Asia we have the revenue has been declining with the past two quarters. Now with the macro headwinds coming in the top of inflation and recession in Europe particularly Germany, which is a key geography for us, it might be more vulnerable to due to energy dependence on Russia. So what factors can actually protect our growth and revenue base in case some of the macro headwinds do actually materialize in terms of recession going at what can protect our growth base?

Sachin Tikekar — President and Joint Managing Director

See, if you look at, I think your read on the large macro trend is true. We have to bring it down to what we do and the industry that we serve, which is mobility and video software for them in software defined vehicles. There are clear indication to us that the spend on software defined vehicles will continue to grow, within our T25 clients we have deep engagements with them already that gives us the confidence that in spite of the macro trends that you see will continue to have growth in the foreseeable future, in the near immediate future.

As far as the geography question that you brought out, we are happy to see Europe is growing robustly for us in spite of the challenges at the geography level in Europe, and that’s because again, we have seven, eight of our T25 clients are in Europe and all of — we are engaging with most of them in a very meaningful manner and that’s why, we have seen that growth.

When it comes to the Americas and Asia, you see that it depends, all of our T25 clients are global in nature and the revenue actually shifts from one geography to the other depending on where we are growing with them and how we are engaging with them. That’s why, I wouldn’t worry too much about what happens on quarter-on-quarter basis. What we can tell you is going by our annual operations plan, we are actually on target, when it comes to Asia and Americas, there are no surprises and actually, we are slightly higher in Europe. And we have also changed the guidance that we’ve given, right? So that’s probably to be to answer your question.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

And just to add in that is, as Mr. Tikekar mentioned is out of five wins we have three wins in North America and one in Europe and I think — so we are probably one of the — probably we’re very well balanced revenue portfolio, globally.

Pratap Maliwal — Mount Intra Finance Private Limited — Analyst

Okay. Thank you, sir. And my second question would be around our architecture and middleware consulting vertical. So, if I remember correctly, we had very good growth here in Q1 and now in Q2, we’ve declined slightly after strong growth. Now, this particular vertical as I understand is considered to be an existential type of program for the automakers, and most of the future projects I believe would be in this area. So, can I just maybe get an update on what was the reason for the decline in this segment?

Sachin Tikekar — President and Joint Managing Director

Sure. If you look at the middleware programs, all of them are long-term programs. Most of the engaged with that we have signed up and we are as Mr. Patil mentioned earlier on, we are actually part of the seven large engagement out of the 10 serious middleware programs that are going on. These are large engagements with large milestones. Hence, we — I would actually hesitate to look at quarter-on-quarter. If you look at the year-on-year number, it’s in excess of 32% and most of our growth — the growth from this we believe on year-on-year basis will continue to be very strong going forward and what is also doing since we are working on the middleware, we are touching all aspects of the vehicle, it’s also helping us to get more engagements in the other areas, right. So it’s also a sort of a beachhead. So on its own, you’ll have tremendous growth and it will also — get back growth of some of the other practices in a positive way.

Pratap Maliwal — Mount Intra Finance Private Limited — Analyst

Okay. So just trying to assess that, because a lot of the strategic programs in the auto space would be done with keeping the next many years in mind maybe four or five years in mind when it comes to programs around the space mobility, so there’s no real change, that’s what I’m trying to assess. Is that the correct thing, sir, that there is no reason to look too much into it? And that trend is still facing the strong tailwinds?

Sachin Tikekar — President and Joint Managing Director

Yes, we are very — that’s really our clear differentiator in the marketplace, correct. There are very few companies who can do, what we are doing, that’s why seven out of the 10 OEMs are engaging because these are all long-term programs. There are tailwinds, and we are confident about the growth in the immediate future.

Pratap Maliwal — Mount Intra Finance Private Limited — Analyst

Okay, sir. Thank you so much for taking my question, and congrats on the good set of numbers. Thank you, sir.

Sachin Tikekar — President and Joint Managing Director

Thank you very much.

Operator

Thank you. The next question is from the line of Karan Uppal from Phillip Capital India Private Limited. Please go ahead. Karen, your line is in the talk mode. Please go ahead. As there is no response from the current participant, we’ll move onto the next, that is from the line of Sandeep Shah from Equirus Securities, please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Yes, thanks and congratulations on a very strong set of numbers and execution. [Technical Issues]

Operator

Sorry to interrupt. Sir, your audio is breaking up, Mr. Shah.

Sandeep Shah — Equirus Securities — Analyst

Is it clear now?

Operator

A little better. Please proceed.

Sandeep Shah — Equirus Securities — Analyst

Yes. So congrats on a good set of numbers and execution.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Thank you.

Sandeep Shah — Equirus Securities — Analyst

Yes. The first question is, in terms of Technica, when we have announced the acquisition these FY ’21 revenue run rate used to be EUR47 million to EUR48 million versus the presentation now talks about EUR40 million to EUR43 million. So first to understand this is CY ’21 run-rate. And is there any inter-company transaction, which will knock off once we acquire as a whole and there would be a growth of 15% or 20% on this EUR40 million to EUR42 million, once we start consolidating for CY ’22.

Sachin Tikekar — President and Joint Managing Director

Yes, so the way to look at the Technica numbers is not add up before entity numbers together, because it is majority inter-company. So, the EUR40 million to EUR44 million, that we have said right now, that’s the actual run-rate for the year, because for example Technica U.S. and Technica Germany 90% is inter-company. So you should not add up all those numbers and that is not how it will happen. So when you do the consolidation, it will be around the EUR40 million to EUR43 million mark that we have currently said.

Sandeep Shah — Equirus Securities — Analyst

And the question on CY ’22 run-rate, so this would have a 15% to 20% growth rate, right, once we consolidate it?

Sachin Tikekar — President and Joint Managing Director

Yes, that’s what I think, Mr. Kishor Patil said in the opening remarks that on its own, it will be at 15% plus growth rate and with synergies we can actually look at a better growth rate than that.

Sandeep Shah — Equirus Securities — Analyst

Okay. And just wanted to understand because slightly a bigger ticket acquisition. Will we open to take a debt on the books or this would be largely internally financed?

Priya Hardikar — Chief Financial Officer

We said in the past also, this whole acquisition will be funded with internal accruals.

Sandeep Shah — Equirus Securities — Analyst

Okay. And just reply to Mr. Anup, sir. So it looks like it’s a good acquisition and to be in demand going forward. So wanted to understand, why then Technica have sold at a relatively good valuation multiple to us?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Yes, I think I mean frankly after the acquisition, lot of companies ask us how you have done that acquisition. I think it is, basically we have been engaged with them for quite some time and there is a commonality of purpose and excitement is technical experts in certain area and they want to achieve a certain goal in the area of SDV, they believe they can play a meaningful role in the industry, that’s what they wanted to achieve and that’s why they thought the KPIT was a complementary player. From that perspective, they — I mean they have been working now for some time — talking about it. So that’s why they felt very comfortable coming together. So that they can fulfill their promise.

Sandeep Shah — Equirus Securities — Analyst

Okay. And the last question, if I just look at the 23% growth rates, which we are guiding for organic business, I do understand the words, which we have used this 23% plus. But if I look at 23% and the ask rate for the next two quarters is 1.8% in constant currency terms. So are we factoring a bit of a seasonal slowdown and for loans or also some conservatism towards European clients because of the gas shortage and the recessionary pressure, or is it one should read that what we have said 23% plus is at least 23% growth, it could be higher than that?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

So there are two points, one is, we have said 23% plus that is point number one. The second thing is, we have factored Q3, which is a seasonally weak quarter to some extent. I mean we hope we can do better, but still it is weaker as compared to the other quarters. So that’s what we have factored a bit.

Sandeep Shah — Equirus Securities — Analyst

So any client has come…

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

When we say 23% plus, I think 23% is the bare minimum that we’ll do.

Sandeep Shah — Equirus Securities — Analyst

Okay. And any clients from Europe in terms of OEM has shown any kind of cautioned shortage of gas may lead to some amount of disruption in plant operations. So are we foreseeing any kind of this risk in the next two to four quarters going forward?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

As we mentioned earlier on our engagements with European T25 plans are stronger than ever before. In fact, you’ve seen the growth in the last two quarters that we have demonstrated. We have no reasons to see that there is likely to be slow down. Yes there are macro challenges, however if you bring it down to mobility and what they have to do in order to remain relevant as an OEM, that’s the spend that they have to have.

Unfortunately for us, we are in that space there, where they are committed to spending that money. And we don’t see in the immediate future any kind of slowdown in Europe. I think what we believe is also the area in which we are working, I think even if they reduce their spend, I think our spend will actually remains same if not increase, and that is what we are seeing at least in some clients. This is our [Indecipherable]

Sandeep Shah — Equirus Securities — Analyst

Okay. Thank you, and all the best.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.

Nitin Padmanabhan — Investec — Analyst

Yes, hi, good evening, everyone, and congrats on a strong quarter. This quarter, you mentioned that you have two mega deals that could — you could close over the next three to four months. Historically, I think this is the first time you’re characterizing these deals as mega deals, historically you have call them large deals, and you have reported $60 million kind of deals. So just wanted a sense in terms of how is the mega deal different from a large deal, maybe roughly, if you could give in terms of size or and the scope of work typically?

And second question was, I think we’ve done a few interesting acquisitions over the past year, and those have sort of added reasonable capability, and you also have this middleware stack. So all coupled put together, do you believe that the deal sizes for you itself will inherently be much larger than what we used to close in the past? So these were the two quick questions. Thank you.

Sachin Tikekar — President and Joint Managing Director

Nitin, I’m glad you noticed something different. Actually we want to call them mega engagements and not deal, because these are long-term partnerships that we are building with our T25 clients. And yes, they are different, these essentially, the differentiation is these are three digit sort of engagements that spread over five years to six years. And there will be two of them in the next few months. And essentially we work very closely with the clients on their road map for the next two or three production programs and there will be some incremental changes in the technology driven by the changes in the central architecture in the middleware.

So we are very excited about these engagements, because it also speaks volumes about the quality of the engagements, which now we are actually becoming trusted partner to some of these OEMs, and that’s what we really wanted to do. And our hope is that most of our T25 clients become — we become trusted partners to all of our T25 clients over a period of time. That is the — I think that answers your first question.

And the second was about the acquisitions we have added capabilities and so forth, does what does that mean. I hope that the new term, mega engagement question obviously, because of the acquisitions starting with our PathPartner and now Technica, as Anup explained earlier on, it actually increases the spreads be on both sides and we continue to differentiate ourselves from everybody else and create larger value for our clients. So, we’ll see — hopefully, we’ll see more and more of such engagements in future.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

And if I may add a bit because PathPartner gives us something which is close to hardware kind of capability lower level programming and Technica as we discussed had increases the size of V. We are seeing and it won’t happen in every deals, but a couple of deals we are talking about there — basically, the client is giving us the full engagement and that is what makes it a big difference. And so we do expect — we do hope that we are in a position to capitalize on these competences.

Nitin Padmanabhan — Investec — Analyst

Sure. Thank you. Just two more quick ones. So one is, so far most of the large deals that you have won have been European, by when do we start while you seeing some traction in the U.S. as well in terms of large deals or do you think that U.S. is not a very large deal kind of Geo and this has smaller size, but multiple of those? So that is one. And second, is do you think the commercial vehicle space is sort of reaching an inflection point at some point so while you start driving growth? So those are the two things. Thank you.

Sachin Tikekar — President and Joint Managing Director

Nitin, first of all don’t say that U.S. has not grown, is grown substantially over a period of time is 40% of our business, and…

Nitin Padmanabhan — Investec — Analyst

No, I meant large deals. I mean large deals, not specific deals.

Sachin Tikekar — President and Joint Managing Director

I know what you mean. But that was on the lighter note. We announced five large engagements during the last quarter. It just happens, so that the three of them are OEMs from the U.S., one of them from Europe, and one of them from Asia. So we think that the growth in U.S. will be three-pronged one is the existing passenger car OEMs, I think we continued to increase our footprint in them.

Second is U.S. has the highest number of what we will call the new type of OEMs. We have started with the engagement in — initial engagement but in a meaningful manner with two of them. So that part, we think that over the next two or three years will also start to fire in a significant way. And the third part is what you talked about, which is going to the second question is on commercial vehicles. We have covered almost all the key OEMs in the U.S. and if you look at our growth in commercial vehicles, which is higher than passenger car growth on — obviously on a smaller base. It’s actually propelled by our engagements in the U.S. So we continue to remain bullish on our prospects of growth in Americas. You know riding on these three factors passenger car commercial vehicles, and the new, the existing OEMs and the U.S. kind of OEMs.

I think that was the first — what was — the second part was on the commercial vehicle, and I say, it’s a great question and that’s something that we’ve been so busy and tied up responding to OEMs in the pass car area, we really need to create a separate bandwidth to do justice to commercial vehicles. Yes it is reaching inflection point, if you look at our growth is growing, it’s growing on the back of handful of T25 clients that, we have in commercial vehicles. But they are mostly from the U.S. There are some important ones in Europe that are part of our right and there are two in Asia as well. We really need to bring in focus and make sure that we do justice to that opportunity as well. Not much to your short question, but I hope it clarifies.

Nitin Padmanabhan — Investec — Analyst

Sure, absolutely. Thank you so much. Sachin and Kishor. Thanks. All the best.

Sachin Tikekar — President and Joint Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Karan Uppal from PhillipCapital India Private Limited. Please go ahead.

Karan Uppal — PhillipCapital India Private Limited — Analyst

Yes, thanks for the opportunity. Two questions from my side. One is on depreciation. So given the Technica acquisition, we have closed just now, we are running at around INR32 crores — INR31 crores, INR32 crores odd on the depreciation line. So how will this change post the close of Technica acquisition? And secondly on the FY ’24, now FY ’23 we understand that it has been a phenomenal year for you in terms of organic growth rate, but any early indications on how FY ’24 may look like?

Priya Hardikar — Chief Financial Officer

Okay. So I’ll answer for the depreciation one. See the depreciation for Technica is — will be worked on post the consolidations of the results from Q3. As we speak it is not part of the results as of 30 September and we will disclose once the working upon the consolidation happens at the weekdays [Technical Issues]. And in H2, it will have a significant impact on depreciation because of the goodwill that will arise upon consumption. [Phonetic]

Karan Uppal — PhillipCapital India Private Limited — Analyst

[Technical Issues]

Operator

Sorry to interrupt. Ma’am, the audio from your line is breaking up.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Yes, can people be on mute. Yes. So for the next year, we will give the guidance at the end of the year and generally in the month of April. But what we have mentioned, we see that overall outlook for us, I mean, but we will give that at the end of the year. But what we have mentioned in the past is for next few years, we see a opportunity to grow 20% year-over-year, that’s what we have mentioned in the past. But we will take our view closer to end of the year [Technical Issues]

Karan Uppal — PhillipCapital India Private Limited — Analyst

Okay, thanks. Thanks a lot.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you.

Sachin Tikekar — President and Joint Managing Director

I hope you’re able to hear the answer clearly?

Operator

Karan?

Karan Uppal — PhillipCapital India Private Limited — Analyst

Okay. Thanks a lot.

Sachin Tikekar — President and Joint Managing Director

Sure. Thank you.

Operator

The next question is from the line of Andrey Purushottam from Cogito Advisors. Please go ahead.

Andrey Purushottam — Cogito Advisors — Analyst

Thank you, and congratulations for a consistent record of EBITDA and revenue growth. I have two questions, one was related to Technica and the other two operating expenses. As far as Technica is concerned, you said that Technica allows you to come in earlier in the software development cycle. Now does that also mean that you the value side of the deal will increase as a result of this? That’s question one. And the second question is, are there any capability that Technica bring that may allow you to get clients outside the T25, that may want to attack at this point of time?

Sachin Tikekar — President and Joint Managing Director

Okay. Let me answer the two questions. A, as we mentioned earlier on, I think we were answering Nitin’s question earlier on, about, yes, it does increase — it does stretch the V on both sides. It’s not only we get engage earlier in the cycle, but we also stay there longer, because they are stretching the right side of the V as well and that action leads to more meaningful longer-term engagements. So we absolutely see that going forward.

The second question was whether the good thing with Technica is, their major clients are our major clients. So there is a good amount of overlap. And there is lot more that we can do together in our other T25 clients with Technica. So that’s something that we’re going to focus on immediately. Having said that Technica also has one or two clients in the Bay Area that are of interest to us from the new OEM’s perspective. So those are the two, that we’ll look at very closely. But I think that’s going to be our go-to-market pretty much with Technica. Anup, do you want to add?

Anup Sable — Whole Time Director and Chief Technology Officer

I just want to reiterate the focus on Technica acquisition perspective is leveraging within our customers, existing customers and their existing customers. So the theoretical answer of whether we could go out of 2025 is yes, but the choice remains scaling up with our customers and their customers at the moment.

Andrey Purushottam — Cogito Advisors — Analyst

Okay. And as far as the operating expenses are concerned, is it possible for you to give us a broad sense of the variance for both Q-on-Q and year-on-year and both on the operating expenses and EBIT margin? And would it be right for me to presume that the salary hike and the lower utilization because of a higher fresher intake may be largely responsible for the lower profit figures?

Sachin Tikekar — President and Joint Managing Director

So as we said earlier, the gross impact of the salary hikes was around 300 bps. But if you see at the net impact on the EBITDA line, it’s about 90 bps. So that is majorly because — not majorly, all of it is because of the salary hikes as compared to the last quarter the reduction in the EBITDA. If you look at the other expenses, I think on a broad level, because we are slowly getting back to operations starting from office there are certain expenses that are going up. But obviously, I mean if you look at the growth in those expenses over a period as compared to the growth in revenues, that has been lower and that is how we have leveraged and improved our profitability.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

And I would like to you appreciate that. Our profitability is not low, I think through the quarter, where there is such as this, I think it is in that range what we have mentioned earlier.

Sachin Tikekar — President and Joint Managing Director

And I think we should also look at the year-on-year numbers, those are the real reflection of the performance. And on all three parameters, whether it’s the revenue, EBITDA and PAT, I think we have demonstrated reasonably solid growth.

Andrey Purushottam — Cogito Advisors — Analyst

So can the structural margin trends improve going forward because that’s what you’re seeming to indicate right, in terms of your outlook? And what would be the contributors to the improvement in the structural margins?

Sachin Tikekar — President and Joint Managing Director

Can the margins — basically can the margins go up in the near future, and if yes, what would be the contributors to that.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

So we have given right now 18.5% and 19%. I think, which is we have improved our outlook on the profitability, and that is what it will be for this year. Going forward, we have certain levers in our hand apart from a leveraging — first is the growth which is leverage over fixed expenses. We always invest ahead of time. The second is offshoring. I think many of these deals have started because as I said, large deals and etc. So up to six months to eight months, we have an opportunity to move a lot of work offshore. We believe our realizations will also improve. So these are some of the areas which we would like to say.

Andrey Purushottam — Cogito Advisors — Analyst

Okay. Thank you very much.

Sachin Tikekar — President and Joint Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Ankit Agrawal from Yellowstone Equity. Please go ahead.

Ankit Agrawal — Yellowstone Equity — Analyst

Yes. Hello. Congrats on a decent set of numbers.

Sachin Tikekar — President and Joint Managing Director

Thank you.

Ankit Agrawal — Yellowstone Equity — Analyst

My first question is in the infotainment segment one of our [Technical Issues] deal from BMW, given that BMW is a co-client for us and infotainment is a segment where we also have service offerings. Just trying to understand, did we participated in the deal? And what is the kind of trend in terms of market share we have with BMW?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

And we would not like to comment on a client-specific project, but I can only tell you that we have a very significant market share in that account and we are probably one of the largest player in that account on the software side.

Ankit Agrawal — Yellowstone Equity — Analyst

Okay. And in general, just a broader question then on the infotainment segment. Is that still a focus area because you don’t mandate in the footnotes in the feature, development and integration?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

No, no.

Sachin Tikekar — President and Joint Managing Director

The third business unit, which we talk about the cloud and connected services, that includes connected, infotainment and digital cockpit

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

And that is actually growth quite significantly…

Anup Sable — Whole Time Director and Chief Technology Officer

Grown significantly.

Ankit Agrawal — Yellowstone Equity — Analyst

Okay, understood. Okay, thank you. And then the second question is just in general though saw the peers also announced that they are focusing more on system integration services. So what is the kind of competitive intensity you’re seeing specific to integration space?

Sachin Tikekar — President and Joint Managing Director

The way we look at our clients, as I mentioned earlier on, I think our T25 clients is where we are moving to a space where we’re becoming trusted partners. And with many of them, we work with on long-term engagements. And as far as competition is concerned, we don’t see much competition in those where we are a trusted partner in because in most areas that are relevant to us and common to them we are the only ones. And that’s what we’re going to do more of going forward.

There are a handful of clients where we are in that position today and we hope that number will increase substantially over the next few years. Having said that in other T25 clients, we do see competition but not necessarily across all of our practices, especially in the middleware area and we feel very confident about all of our practices and growth thereof.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

On the integration side, I think we have some significant advantages in terms of technology and the solutions and the platforms we have put. Anup, do you want to…

Anup Sable — Whole Time Director and Chief Technology Officer

I think this system integration word is very sort of 25,000 feet kind of a word and it is used differently in different industries. So if we look at Industrial Automation System integration means completely different, manufacturing it would mean completely different. In our space in system integration, I think we are definitely the most from a competency perspective with Technica, I think we would be at the top now. So we don’t see any challenge in this particular area.

Ankit Agrawal — Yellowstone Equity — Analyst

Okay. Thank you for answering it very comprehensively. Best of luck.

Sachin Tikekar — President and Joint Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Hiren Ved from Alchemy Capital. Please go ahead.

Hiren Ved — Alchemy Capital — Analyst

Yes, hi Kishor, and Sachin, and congratulations at the outset for great numbers and superb execution.

Sachin Tikekar — President and Joint Managing Director

Thank you very much.

Hiren Ved — Alchemy Capital — Analyst

I just had one question, is that how do you see the environment on the supply side easing out in terms of hiring talent both at the fresher level as, at the lateral level considering that you have a very strong pipeline. Do you see that things have eased, or are you finding it as difficult as it was a couple of quarters back? And as a result are you even thinking offshore centers outside of India?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Yes, so I will answer it in couple of ways. Overall, we see a more easing of the supply chain over last few months, mainly because of two things, one is we see the attrition is going down which is a very important part for us because that’s we can leverage our current employees much better. That is the first part.

The second is of course with more experience of these people we can leverage the pressures also better and again we see campus recruitment coming back and more avenues of people in that. Having said that looking at overall our — what we intend to do in the next few years, we have taken a program called Scope, which will allow us to double our capacity in the next few years at least create that kind of a capacity by increasing the centers in India, centers outside India then creating a better competency development, automation, then improving the processes internally.

So how do we build a competence set of scale, from that perspective, we have taken this program and we have made some significant progress in that area having one center in India in Kochi, one center in Egypt and of course with the acquisition we have couple of centers in Euro zone, a time zone. So we have set as looking at in all the way to improve our scalability.

Hiren Ved — Alchemy Capital — Analyst

Okay. Thanks and best of luck for the next few quarters.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Dev from [Indecipherable]. Please go ahead.

Unidentified Participant — — Analyst

Hello. Thank you for providing me opportunity. Am I audible?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Yes.

Unidentified Participant — — Analyst

Okay. Sir, you report growth in — for geographies in dollar terms, right. So can you report it in CC terms? So that will be easier for comparison.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

No, I think what we have been doing as a practice is, reporting all the metrics in U.S. dollar reported terms and that is what we have been doing, but we’ll have a look at it, whether it is feasible and on a consistent basis whether we can do it.

Unidentified Participant — — Analyst

Okay. Thank you, sir.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Okay. Thank you.

Operator

Thank you. The next question is from the line of Karan from Dhanki Securities, please go ahead. Karan, your line is in the talk mode. Please go ahead. As there is no response from the current participant, we’ll move to the next, that is from the line of Chirag Kacharia from Ashika Institutional Equities. Please go ahead.

Chirag Kacharia — Ashika Institutional Equities — Analyst

Hello? Congratulations on good set of numbers. Sir, I have a few broader strategical questions like, what’s our plan with respect to the domestic Indian market going forward? And also the domestic PLI which are being supported by government of India in many industrials. So how do we look into those tailwind, which are available for the domestic business and also your outlook with respect to U.S. and Europe. Because in Europe, certain peers have been affected due to this Russia-Ukraine war. And is there any one-off or a one-time business we’ve received in last two quarters? Also in the same effect in current quarter order book, which you can guide some light on the same.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

So first, I will answer on the Europe and U.S. I think we have shown a consistent growth there and our pipeline is strong. And we have not — all our conversation have been positive. We talked about the logic why the space is there, and at least we are confident about what we have talked about the growth in both these regions.

In terms of India, see, some of these T25 clients are really having — playing in Indian environment and we are working with them, which are there. I think in certain specific new technologies, we are seeing what we have whether that can be leveraged for a specific, very selective Indian market clients. And we are doing that on a very cautiously. But if we see a good realization and skill, then we would do that. And we are considering it in terms of certain changes, which can happen in Indian environment.

Now overall in India, we have been involved in certain policymaking, supporting different government bodies. We are leveraging our understanding and experience what we have on a global, because we are a part of many standards Committee in Europe, etc. So, we’re leveraging that experience for Indian market and selecting specific opportunities which we would have, generally through T25 and some by exception.

Chirag Kacharia — Ashika Institutional Equities — Analyst

Okay, sir. Fine. Thank you so much.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Nitin Sharma from Mcpro Research. [Phonetic] Please go ahead.

Nitin Sharma — Mcpro Research — Analyst

Yes, hi. Thanks for taking my question. Congrats on the good set of numbers. Two questions if I may. Just want to understand, is the work from office is fully started at your end? And if not, then what kind of potential impact in timeline that could help?

Sachin Tikekar — President and Joint Managing Director

What we have decided is we are moving from work-from-home to hybrid, that’s the part that we have initiated and we going to take one step at a time. For instance, those employees who are already here in Pune and Bangalore where we have the largest presence or Kochi in future, we are encouraging them to come to the office twice a week and many of them are actually coming on their own. That’s something that we have started.

Secondly, we also believe that the training especially that of freshers and we need to have more interaction with them. So that’s another part that we will start. However, we are not in a hurry to go to the other extreme from work from home. What we will do in over a period of time is to bring in sharper focus and some guardrails around the hybrid model. That’s something that we will do here in India, where 80% of our employees are and in other geographies, we will see depending on the convenience of the clients and the convenience of the employees we’ll figure out what’s really right for them, right. So that’s the approach that we’re taking.

Nitin Sharma — Mcpro Research — Analyst

Any immediate impact on the operations cost for the hybrid. Because there has to be some costs from the training as well as office related expenses this year?

Sachin Tikekar — President and Joint Managing Director

Yes, I think it’s already baked into our operations plan. We had already thought that people will gradually start to come back and that we have baked in. So it’s not going to be a surprise to us.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

One, in fact we had was the engineering schools which worked virtually in past two years, we thought that their training needs to be little longer when they come into corporate world. So our training cycle has to some extent increase, but of course that’s the part of our plan.

Nitin Sharma — Mcpro Research — Analyst

Okay. And if I can squeeze a book keeping question. On the…

Operator

Sorry to interrupt, sir. May we request that you return to the question queue. There are participants waiting for their turn.

Nitin Sharma — Mcpro Research — Analyst

Thank you.

Operator

Thank you. The next question is from the line of Rithvik Sheth from Oneup Financial. Please go ahead.

Rithvik Sheth — Oneup Financial — Analyst

Yes. Sir, just one clarification on the depreciation question. Actually the line was not clear. So the impact will be significant or it will not be significant?

Priya Hardikar — Chief Financial Officer

Which one are you referring to? Are you referring to…

Rithvik Sheth — Oneup Financial — Analyst

Sir, the Technica acquisition and associated depreciation, which will come in, you mentioned that the impact…

Priya Hardikar — Chief Financial Officer

[Speech Overlap]

Rithvik Sheth — Oneup Financial — Analyst

Sorry?

Priya Hardikar — Chief Financial Officer

I said we can’t right now mention details, because the consolidation has not yet happened. We would go through the process and then disclose to the — in the results.

Rithvik Sheth — Oneup Financial — Analyst

Okay. But you mentioned something that, it would be significant or insignificant. So I missed that part.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

No, what we have said earlier, is when we talked about — when we signed the deal, what we have said is this deal is going to be EPS accretive and we had considered certain purchase price allocation which will impact our P&L, but despite I mean after that impact, we will still be EPS accretive on the deal. That is what we have said. Now the exact quantum of how much it would be, and will all happen once we do the consolidation and we have a year to do it. So what we said is, it will not have any material impact this year and when we crystallize the numbers, we will let everybody know what are those numbers.

Rithvik Sheth — Oneup Financial — Analyst

Got it. Okay. Thank you and all the best, sir, and wishing you a Happy Diwali.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Thank you.

Operator

Thank you. The next question is from the line of Hasmukh Vishariya from SUD Life. Please go ahead.

Hasmukh Vishariya — SUD Life — Analyst

Hi, thanks for the opportunity and congrats on great set of numbers. So a — my two questions. So growth from non-T25 clients seems to be muted from past three quarters. So, any update on the sale? And secondly, if I look at headcount addition Y-o-Y it is nearly 50% versus growth of, let’s say 27% Y-o-Y this quarter and for the full year as well, nearly 23% sort of growth number. So any reason for this gap, if you can highlight?

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

No, we have already said that if you look at the last at least two, three quarters, our headcount addition has been much higher, because we are looking at good growth opportunities in the future. We’re also hiring freshers, who take a little bit of more time to come into the mainstream, as far as getting absorbed into projects is concerned. And I think that is why the headcount addition has been higher in the last two, three quarters.

Sachin Tikekar — President and Joint Managing Director

And coming to your other question on non-T25 there is a very good reason why the growth is muted because that’s by design. We believe that our T25 clients the SDV program and their future technology is very critical and they are more and more of them are choosing us to be their partner. Our priority is to make sure that we help them be successful in their journey and we go deep and wide. That remains our focus. Hence the growth from non-T25 muted.

Hasmukh Vishariya — SUD Life — Analyst

Understood. Thanks for the answers.

Sunil Phansalkar — Head of Investor Relations

Sorry to interrupt. I think we’ll have to take just one last question, and as I said earlier, if there are any more questions, please write them to me and we would answer them and publish them on the website as well as on the exchanges.

Operator

Thank you. Ladies and gentlemen, due to time constraint that was our last question. I now hand the conference over to the management for their closing comments.

Sunil Phansalkar — Head of Investor Relations

So, thank you, everybody for your participation on the call, and as I said earlier, please feel free to write to me if you have any further questions and we will end this call and once again a very happy, wish you a very Happy Diwali. Stay safe and stay healthy. Thank you.

Kishor Patil — Co-founder, Chief Executive Officer and Managing Director

Thank you, everyone. Thank you.

Sachin Tikekar — President and Joint Managing Director

Thank you.

Priya Hardikar — Chief Financial Officer

Thank you. Happy Diwali.

Operator

[Operator Closing Remarks]