KPIT Technologies Ltd (KPITTECH) Q3 FY23 Earnings Concall Transcript

KPIT Technologies Ltd (NSE:KPITTECH) Q3 FY23 Earnings Concall dated Feb. 01, 2023.

Corporate Participants:

Sunil Phansalkar — Head, Investor Relations

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

Sachin Tikekar — President and Joint Managing Director

Anup Sable — Chief Technology Officer and Board Member

Priya Hardikar — Member of Executive Board and Chief Financial Officer

Analysts:

Rahul Jain — Dolat Capital — Analyst

Chandramouli Muthiah — Goldman Sachs — Analyst

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Karan Uppal — PhillipCapital India — Analyst

Mohit Jain — Anand Rathi — Analyst

Akshay Ramnani — Axis Capital — Analyst

Nitin Padmanabhan — Investec — Analyst

Dipesh Mehta — Emkay Global — Analyst

Sandeep Shah — Equirus Securities — Analyst

Saurabh Sadhwani — Sahasrar Capital — Analyst

Unidentified Participant — — Analyst

Deval Shah — RBSA Investment Managers — Analyst

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Abhimanyu Kasliwal — Choice India Limited — Analyst

Dhanshree Jadhav — Anvil Share & Stock Broking — Analyst

Presentation:

Operator

Ladies and gentlemen, good day and welcome to the KPIT Technologies Limited Q3 FY’23 Earnings Conference Call hosted by Dolat Capital Markets 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. Thank you, and over to you, sir.

Rahul Jain — Dolat Capital — Analyst

Thank you, Robin. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies for giving us the opportunity to host this earning call. Now I would like to hand the conference over to Sunil Phansalkar, the Head of IR at KPIT to do the management introductions. Over to you, Sunil.

Sunil Phansalkar — Head, Investor Relations

Thank you, Rahul, very warm welcome to everybody on the Q3 FY’23 earnings conference call of KPIT. Today on the call, we have Mr. Kishor Patil, CEO and MD; Mr. Sachin Tikekar, President and Joint MD; Mr. Anup Sable, Whole-time Director and CTO; Mrs. Priya Hardikar, CFO. So as we do always, we’ll have the opening comments on the performance of the quarter and the way we look ahead by Mr. Kishor Patil. And then we can have the floor open for questions. So, once again, a very warm welcome to all of you, and I will hand it over to Mr. Patil.

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

So good evening, everyone. I’m very happy to take you through Q3 results. This year, we started as you know, a little cautiously and we get — gave an outlook a bit conservatively between 18% and 21% growth, which was based on that visibility we had, but do as the year progress, I think we got a better engagement, deeper engagement, and many wins with our key clients. During the year, we also acquired Somit Solution and Technica. And specifically on Technica, I think basically this really also accelerated our engagement with our clients. In the CES recently, that is Consumer Electronic Show, where we had given the full story of KPIT plus Technica, it was very highly appreciated by the client. And I think so from where we started and during the year, we have seen a stronger engagement with the client, stronger proposition from the KPIT side. And that has really started resulting into engagements with our clients.

So coming back to the Q3 results, on the Q3 FY’23, we had a year on year constant currency growth of 44.7% and 19.3% quarter-on-quarter. Organically that is excluding Technica, it is 24.2% Y-on-Y and 4.9% quarter-on-quarter. In terms of profits, it’s a 43.5% year-on-year and 20.4% quarter-on-quarter. So our profits first time, crossed INR100 crore mark for the quarter, and our EBITDA remained at 18.5%. Now during the — this part, overall there is will volatility in the currency. During the quarter, the other income increased by INR9 crore, basically because of the rates euro as well as pound being stronger. The tax rate is 25% during the quarter, but on annual basis, we will remain at 23%. And during the quarter, we have deal expenses roughly about INR14 crore from Technica, which has been expanded.

So looking at the quality of the growth, so first thing I also mentioned the — would like to mention is a cross currency as also an impact in terms of reported versus constant currency growth numbers. And we hope that the picture hopefully will change as the currency will stabilize henceforth. During the quarter specifically, there has been a big change in the currency, euro-rupee rate, and that has impacted really more in terms of the difference between the rupee and the — dollar and rupee growth. We have — in order to — and we have a very consistent policy of how we do this, but because the variations are higher, we have put on the website of KPIT, what is our policy or the accounting policy for checking into cross currency. I mean, it’s constant currency calculation. I think that we have load it for people to know better.

In terms of growth, the future development and integration revenues grew 20.6% year-on-year and 10% quarter-on-quarter. Architecture and middleware practice grew by 73% year-on-year and 50% quarter-on-quarter. Also quarter-on-quarter number include Technica numbers as well. And cloud-based connected services grew 49% year-on-year and 20% quarter-on-quarter. If you look at the geography, and I would like to again mention that these are not the numbers we look at it, but this is how — are get reported. But because most of our clients are global, but however, USA has grown 16.3% year-on-year and 1.7% quarter-on-quarter, Europe has grown 62% year-on-year and 38.6% quarter-on-quarter, Asia has been flat. However, and the — if you pick the year as a period, and you will see it going forward, you will see a growth across all the three geographies. And all our pipeline is strong across all the three geo profits.

Looking at the people side, there is a significant drop in the attrition, which has — which we have experienced for last two quarters consistently, the drop while we do not publish the number, I may say that drop is about 3% quarter-on-quarter, and we expect that to at least con have that kind of attrition — lower attrition to continue over next quarter. It’s not dropped further. We have added during the quarter the numbers, we have 291 people from Technica, hiring is pretty strong. Our focus is really, take the benefit of the current environment and really improve the quality of hiring and get the best talent possible. That’s what we are focusing on.

Strategic, if you look at the strategic engagements with our client, during the quarter, we close $272 million worth engagements with our client out of which one is $100 million with RENO. The RENO engagement is bigger, but some part of it was reported last quarter, which we had close last quarter. So the remaining we are accounting for here. The pipeline is pretty strong, it includes one large engagement as well as we — I mentioned last time. I would like to mention that our growth is not really necessarily depending upon only the large deals as we call our engagements, basically because our focus is on all OEMs and these are very significant client engagement and wherever there is not — even though not a single — one single engagement, we are going quarter-on-quarter very strongly in all the accounts, in most of the accounts.

So we have this some — if I — as I mentioned last time, the negatives, but otherwise also our growth is depend — is really irrespective of such engagement, which will be very far and few, basically because this is not how the planned engages. And as you know, many times, they’re not used to announce — announcing such kind of our engagement. Overall, we see that the sandbox, which we have of our strategic clients has a very large spin and opportunity in front of us. And we would like to bring a sharper focus on the clients, which we have. And we believe the opportunity is much higher for us to grow going forward without making any change and actually having the sharper focus on our client. We can certainly grow at least double in most of our clients from where we are. So we continue to focus on the execution of good quality deliverables with our client.

So Technica has been a major development during the quarter. Now the integration has started. During the quarter, we have about $14 million revenue from Technica with 20% plus profitability. This is the best quarter for them. They have a bit of a seasonability, where the last quarter there is a higher growth and quarter one is a weaker one, where it comes down by about 20% from this year. But overall, Technica will deliver 15% to 20% growth in the year just to make it clearer. In FY’22-’23 overall, as a year when we started, we had given I mean, in spite of uncertain environment microeconomic condition, we started with 18% to 20% growth. We increased it to 31% to 32% last quarter and with the organic growth of 23% from there. And we believe as we have — we will bid this and our overall growth will be certainly in excess of 33% and more than 24% on a organic level. EBITDA will be between 18.5% to 19% and will remain in that range.

The Q4 just some specific things I would like to bring out. The Technica revenue will drop, as I mentioned, and hence the margins. However, our organic growth will remain strong and profitability, which will more than make up for that to have our normal growth and profitability. And that will be after also taking into consideration certain intangible customer intangibles, which we may start spending, writing off. Overall, we are very happy with the quarter and overall we are very happy with where we are. Specifically the positioning, which we have, the specifically the competence the client we have in our client engagements in spite of the economic environment. And we believe that the next year also, while we will give outlook, etc., at the end of the Q4, we see a very — we see that this trend continuing into next year, and we feel very confident about growth continuing into next year.

Thank you.

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 for taking my questions. First question is on one of the comments on the outlook in your presentation, you’ve called out that there’s some degree of confidence that you can beat your organic revenue growth guidance. Now you — I think, have upgraded that to 24% plus in constant currency terms. So could you clarify, what is the nine-M organic constant currency growth so far? And any drivers that give us comfort around why we see upside to these targets?

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

While we come back to the numbers overall, I think this closures, which I mentioned to you about the deal closures which I mentioned to you during the quarter, as well as our engagements, I think that gives us the confidence. Sunil, you can give —

Sunil Phansalkar — Head, Investor Relations

Yeah. The YTD growth in CC terms is 24%, nine months — over the nine months of last year.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. Got it. That’s helpful. Second question is around the integration cost for Technica. I think you called out about INR14 crores this quarter and you’ve also mentioned that this is a 20% plus margin business long-term. So while we see that across KPITs accounts this quarter, we just as a percentage of revenue have declined meaningfully Q-o-Q, we don’t actually see the margin benefits of the acquisition yet because of the integration costs involved. So could you quantify sort of what the other costs are? I think INR14 crore you’ve quantified as deal cost, but even over and above of that, there seems to be a pretty big spike in other expenses quarter-on-quarter. So just trying to understand what should be an appropriate run rate for other expenses going forward, because I think you’ve mentioned that in the next couple of quarters you might have some amount of integration costs, so just any color here would be very helpful?

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

So if you look sequentially, the other expenses also this quarter include the costs in Technica. So apart from the deal expenses, I think the consolidation of Technica is the reason. There is no other specific cost that has gone up disproportionately or that is a one-time element that has a one-time element in the other expenses.

Sachin Tikekar — President and Joint Managing Director

And the expenses, which may to some extent will be there in cooperating. And I think two significant as compared to this quarter. But some expenses will be mainly, we are — we are taking some services from a consulting organization to ensure that the integration plan as well as the review of our integration plan is proper because this is very critical for us.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. No, I think, just as a follow-up, I’m just trying to understand, I think the previous quarter we had about INR110 crores of other expenses, and if I add maybe INR14 crores to that for the deals — deal expenses, that takes us to maybe INR124 crore. But beside this quarter, I think we’ve been at close to INR166 crores. So just trying to understand what that delta is and any color there would be very helpful?

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

What I said is that delta, if we have consolidated Technica during the quarter, and if Technica margins are at around 20%, the delta between that goes to other expenses as well as the personal expenses. So that — change in other expenses only because of the expenses of Technica, which are — which I have also got added because we are consolidated to it. So when you’re looking at an absolute increase, the absolute increase will have the increase because of Technica, it’ll have the increase because of the growth that we had during the quarter and the increase because of the deal expenses that we had in the quarter.

Chandramouli Muthiah — Goldman Sachs — Analyst

Got it. That’s very clear. Thanks for that. And just lastly, we’ve been talking about the 10 large middleware mega deals that are under discussion globally and how KPIT, as of last quarter was active in seven of them. You had guided to one more potential $100 million plus deal opportunity in the first half of this calendar. So any updates on the broader middleware deal pipeline and how we should think about timing for the second opportunity?

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

No, I think I would like to clarify it. I think maybe there is some miscommunication in this area. What we said is, this is our engagement with the client, it doesn’t mean that there will be seven mega deals. What we said is these are the programs in which we are engaged, and again explain just now is, our basic business model is to grow with the client and engage with them and grow quarter-on-quarter. And they have very strong growth where we do not have one single large big deal with the client. But what I had mentioned last time is there are two deals, which I had mentioned about one of which we announced of RENO and will be one more, which we will come in sometime. That is what I had mentioned in the last quarter.

Sachin, do you want to add anything?

Sachin Tikekar — President and Joint Managing Director

No. There is nothing more to add. That’s exactly what we said last time, and the first half of the year, we still have five months. So hopefully, we’ll have the announcement of the second one in times to come. Nothing additional.

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

So is that — does this answer your question?

Chandramouli Muthiah — Goldman Sachs — Analyst

Yeah. Yeah, that’s very helpful. Thank you very much and all the best.

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

Thank you.

Operator

Thank you. The next question is from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go ahead.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Yes, sir. Thank you very much for the opportunity. So my question is, firstly, on the calculation that you gave about, you said that $14 million is, what you’ve recorded this quarter from Technica. Now if I were to sort of adjust that with the current revenue you have come to around $96 million, $96.5 million, which is about 2.5%, closer, 2.5% kind of organic reported USD growth. Now that and if you’re going to surpass the 24% of growth for the full year, that implies a very sharp improvement in the next quarter, even after 20% sort of reduction from Technica. So just wanted to get a sense on, I mean, what — where is this conference sort of coming from? I mean, I understand the deal wins have been very strong but the growth rate is materially higher than what we’ve delivered in the very, very recent past. So that’s point —

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

Correction, just the comparison of 2.5% reported growth and the 24% growth is not correct, because if you look at the organic CC growth this quarter that is being 4.9%. So I think that is what needs to be compared because 24% plus is also the CC organic growth.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Okay, understood. And sir, just wanted to understand the seasonality difference in Technica. Typically, companies based out of Europe or U.S. typically have a weakish kind of a quarter in December, whereas Technica is completely opposite. So what drives this unusual seasonality?

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

It is — I mean, frankly, I think it is more to do with a lot of European clients also have a lot of spin, and they have certain products and infrastructure, which they actually they provide to the clients. And I think that that is what some mostly has resulted into this growth, additional revenues during the last quarter. Anup, you have anything to add?

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Yeah. No, I got — I was waiting for — anyways. Sir, just another point was on attrition. You mentioned that attrition has dropped off by almost 3 percentage points in that backdrop. Would it be fair to say that this year you’ll probably be ending at about 10,700, 10,800 employees adding about 2,500 odd employees? Will the hiring intensity continue to remain the same, or do you think that in the backdrop of reducing attrition, you might not require as strong a hiring addition as you did in the last two years?

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

I mean, we are planning for a strong hiring. But naturally, we have a clear what you can say, a process by which every two quarters — running two quarters, we plan based on the revenue visibility, attrition, because you get to know about attrition three months in advance roughly. And this, we make those numbers, but in spite of that, we believe that we will like to hire — continue a strong hiring for the next year.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Understood, sir. I’ll join back in the queue, but thank you very much for taking my questions. All the best.

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

Thank you.

Operator

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

Karan Uppal — PhillipCapital India — Analyst

Yeah, thanks for the opportunity and congratulations on a very strong set of numbers yet again. So first question is on the deal wins, which we have announced, so the TCV front continues to be very strong for last three quarters, so just want to understand, what are the major components of it based in terms of ADAS or connected or SDV opportunity? And also, if you can quantify, what is our share in the overall SDV related deals?

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

So the question is the TCV has been stronger in the last three quarters, so any sense that we can give on the type of work engagement practice, right? And then we ask, what is SDV the role that we play?

Sachin Tikekar — President and Joint Managing Director

I think, in terms of — there are three parts that we typically report. One is the feature development of an integration part then the architecture in middleware and the cloud base. We are seeing growth, which is fairly balanced across the three. And with more and more middleware engagement that we start at the beginning, it also sort of creates opportunities for the other two practices to grow. So something takes a lead and then it follows, it also benefits the other two practices. That’s the trend that we have seen over the last three or four quarter, and we believe that’s the trend that will continue in the immediate future, which is the early part of next year. We’ve had a fairly balanced growth across, if you take the year-on-year, quarter-on-quarter, things may change, but the growth looks fairly balanced going forward.

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

Was there anything else that you wanted me to address, or you just wanted me to specifically talk about whether it was balance growth or not?

Karan Uppal — PhillipCapital India — Analyst

Yeah, sir. Just wanted to ask on the software defined vehicles related opportunity, can you quantify in terms of the overall deal wins which you have won, how much was it related to that, and what is the pipeline within it?

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

So there are — as we mentioned last time, there are six engagements. We are already engaged in six of them. And those are as you would imagine everybody’s trying to do these kinds of engagements for the first time. So we have hands with full the software defined vehicles kind of programs. They’re very critical to the clients. So the focus is to now make sure that we are on track and we are — we are able to deliver them successfully. That will be the number one focus. And as we create more bandwidth, we’ll look at more SDV kind of engagements. Some of our other clients would also want us to engage, for instance, commercial vehicles, they may take up some of these in a year or two. So it’s good for all of us that we sort of stagger them out over a period of time rather than trying to do too many all at the same time. And the earlier point when we talk about SDV kind of engagements, it touch all three buckets that we talked about. Initially it starts with consulting, then it leads to bulk of the work that is getting started on the middleware, and then it leads to feature development and also going into the cloud piece, right? So that cycle will continue in the foreseeable future.

Karan Uppal — PhillipCapital India — Analyst

And I mean, just to add to that, I think most of our new win large part of it, I would say, I don’t have exact number, but maybe around 60% to 70% are related to SDV program.

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

Yes. Yes, the six engagements that we already started.

Karan Uppal — PhillipCapital India — Analyst

Okay. Okay. That’s really great. Thanks. Thanks for that clarity. The next question was on margins. So how should we think about the margin trajectory from here, given that Technica operates at a higher margin but also has a seasonality to it, and organically also, we are going very well, so there will be some support from the organic growth. So from here on for next four quarters, how should we think about the margin trajectory for KPIT?

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

So I think the way I would put it is, they have given a very — I mean, probably we have given a guidance or outlook, which has been pretty consistent. We initially we gave 18% to 19%, then we have given 18.5% to 19%, and we’ll be in that range. We will give our outlook for the next year, at the end of the next quarter. Overall, our strategy has been to really have EBITDA margin within this range and invest into any future growth. However, if we see that there is an additional opportunity to improve it, we will let when we give outlook for the next year.

Karan Uppal — PhillipCapital India — Analyst

Thanks. Thanks for that answer and all the best for FY’24.

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

Thank you.

Operator

Thank you. We have the next question from Mohit Jain from Anand Rathi. Please go ahead.

Mohit Jain — Anand Rathi — Analyst

Sir, first was you spoke in the opening remark about intangible write-off that you’re anticipating, I could not get this context of that. But is there any such thing which you’re planning for 4Q or for FY’24?

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

No. So the context there is the Technica acquisition. When we do the acquisition, we actually have a period of one year to recognize any — to recognize the intangible assets that we can have, which will reduce the goodwill on the books. So that exercise we are currently doing, and there is a possibility that we might be able to account for those assets for Technica that we have acquired and then start the amortization of those assets. But we are not, I mean, it could happen in Q4 or it could start from Q1, but that is something that will happen when we do the purchase price allocation of Technica. So that’s what we were talking about.

Mohit Jain — Anand Rathi — Analyst

Understood. Second if you could comment a little bit on the deal pipeline, like, because we have very strong booking this quarter, has it moved up? How much has it moved up? Anything that will help us understand next 12 months view will be great?

Sunil Phansalkar — Head, Investor Relations

Overall, if you look at the trend for the last seven, eight quarters now, it’s grown substantially quarter-on-quarter. And this quarter was not, the last quarter wasn’t an exception. It improved substantially from the previous quarter to that almost 70%, 80% growth in that. And we do see strong demand coming our way, and we believe that as we enter the next year, we should start the next year on a strong pipeline. And again, as Mr. Patil mentioned earlier on, more bulk of it is actually coming from our existing strategic accounts. And it — they — it’s not going to be something that is going to be separately called out or called as a large engagement. It’s just that because the way in which we engage with them there is just so much more that we can do with the client.

Mohit Jain — Anand Rathi — Analyst

But that will pass through your TCV number that you report, right, irrespective of the size?

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

That is correct.

Sachin Tikekar — President and Joint Managing Director

That is correct.

Mohit Jain — Anand Rathi — Analyst

Okay. And a follow-up for us, you said 70%, 80% 3Q ’23, three versus 3Q ’22. Is that the right number?

Sachin Tikekar — President and Joint Managing Director

Yes. Over the last [Speech Overlap]

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

Yes.

Mohit Jain — Anand Rathi — Analyst

Okay. And coming to margins we had this INR14 crore integration cost, which practically takes margins above 20% for third quarter itself. Assuming there are cross current tailwinds for next quarter and supply side is moving up should we — shouldn’t we expect that margins should eventually head towards or in that direction for ’24?

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

I think I explain that. Basically right now, the way we are focusing on, I think one biggest focus for the company — the biggest focus for our company is best execution for our clients. And we — that’s why they are given us certain range, and we will remain range-bound. Every quarter is different, and something else come like — for during this quarter, we got other income, which we may have not get next quarter. It really depends. But as a company, what we are doing is keeping it into that range. And the rest we try to meaningfully, if we can allocate for better execution or growth we do that. And so I mean, naturally that allows us to continue with the strong growth and better execution with the client, which is very critical to our success. For the next year as a whole, how it’ll pan out. We will give you — we’ll give you some indication end of the Q4.

Mohit Jain — Anand Rathi — Analyst

Correct, sir. That’s all from my side. Thank you very much.

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

Thank you. Thank you.

Operator

Thank you. The next question is from the line of Akshay Ramnani from Axis Capital. Please go ahead.

Akshay Ramnani — Axis Capital — Analyst

Hi congrats on good set of numbers. So first question was on client metrics, so when I look at the client metrics, active clients are flat Q-o-Q while client concentration has reduced despite so after acquiring Technica. So is it fair to assume that we were already working with all of the Technica clients? And also does Technica integration change our thought on the strategic T25 customers’ bucket which we have?

Sachin Tikekar — President and Joint Managing Director

So let me address the first part. The strategic intent doesn’t change. In fact, Technica fits in really well with what we are trying to do with our T25 clients, and there was a really good validation as Mr. Patil mentioned during CES that many such clients were excited about having Technica being part of KPIT. The Technica allows us to go deeper and wider within the existing clients, and that’s something that we will continue going forward as well. Now onto your second question, yeah, of course, the point is not here to add clients quarter-on-quarter. We are very selective about adding clients, and that’s something that we decide at the beginning of the year. So when we plan for next year, we’ll have clarity in terms of which clients will really focus on adding for the next year.

But your question about the — with the concentration, I think there are certain revenues in Technica that are not related to our T25 clients that came in and that had a — so organically, we have had growth, which has been very sound with Technica coming in, there is some — there are certain client data [Technical Issues] aligned with our T25 as of now, that’s why you see a little bit of a —

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

But you’ll see that over the next few quarters. It’ll come back to the same every quarter. [Technical Issues] we are also — there is some noise in the call, somebody can you mute please? Hello? Can you mute please? So we are also disengaging with certain clients, which are not in line with our focus. So I mean, in all it works — worked out the same number, but it is, may not be the exactly the same.

Akshay Ramnani — Axis Capital — Analyst

Got that. And another question was to understand the cost structure of Technica better. So we added about 290 employees from Technica, about $14 million of revenue which translates to a fairly high revenue per employee. Is it fair to assume that Technica would also have high subcontracting cost in their cost structure, which might be sitting in the other expenses? And if that is the case, how do we plan to — do we expect to continue with the similar cost structure or is there a change, we think about that?

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

So if you remember when we announce the deal, there is an entity in Tunisia which works exclusively for Technica, so that those employees are not a part of KPIT today. We will acquire that entity going forward. But right now, those employees are not a part of the total employees of Technica, but they provide services for Technica, and hence you will see that it is appearing to be a little bit higher right now. It is essentially the subcontracting costs. Yes.

Akshay Ramnani — Axis Capital — Analyst

Okay. Thank you.

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

Thank you.

Operator

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

Nitin Padmanabhan — Investec — Analyst

Yeah. Hi, good evening. Congrats on the strong quarter. My question was on margin. So this quarter, excluding the integration cost, obviously, margins would’ve been higher by maybe one 140 bps or 150. Now what has sort of driven this delta on margins during the quarter? Is it anything related to realizations? Or is it the positive personality? Or what of Technica — or do you think this is, these margins are in some way — the gains that were made in these margins are somewhere defensible? So I just wanted to understand the drivers of this margin improvement for the quarter. So that’s the first one. And the second one, if I have missed during the call, was about, I think in the last quarter you spoke about two mega deals, and I think one has come through. And just wanted your thoughts on the second? And also if there are any more in the pipeline of this size and structure? And lastly just wanted to understand these deals are basically for model launches in 2025, 2026, and I’d presume companies, OEMs who are looking to launch these models would be in a hurry to sort of for the deals to really come out. So should we sort of — are you — is it right way to think that a lot of these deals will be up-fronted in terms of the way they accrue you? Or do you think the deal structures for the other clients are a little more broken down and not as integrated? So these are the three questions.

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

So let me address the second question first. Yes, we did talk about two very long-term large engagement, one, which we announced during the last quarter. And second one, as I mentioned earlier on, we said in the first half of this calendar year. So we still have four or five months to go, and our hope is that we’ll conclude that in the next few months to come. That’s the first part of your question. The second part is about, you’re right, some of these engagements that we have signed up for some in nature of what you’ll call mega sort of engagement, there are just projects and programs being carved out and coming our way, but all heading toward the ’25, ’26 model year. That will continue. There will be — but as we mentioned, there will be one — we hope that there is one more that will announce in the near future. And then maybe one or two going forward, but they’re not going to be — not all of them are going to come in that kind of form. To your point, many of them will also come as part of an extension of the work that we are doing, or just programs coming our way, but not quite structured in a mega engagement kind of — so it’s going to be a mixed bag across.

Nitin Padmanabhan — Investec — Analyst

Sure, understood.

Sachin Tikekar — President and Joint Managing Director

And yeah, and on the margin part, so if you look at it, the major contribution obviously is the revenue growth. And when we have revenue growth also the pressure that we had added earlier, they have got absorbed onto projects. So that process is continuing and there is a net realization improvement that which we focus every quarter, which is a combination of rate increases plus productivity improvement that we focus on. So I think all of these things have played their part in the margins that we have sold after the deal expenses.

Nitin Padmanabhan — Investec — Analyst

So these margins are defensible. It’s just the choice that you would make on a going forward basis as to how much you would want to retail and what you want to reinvest forgo?

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

Yeah. Yeah, absolutely. Absolutely. And it’s a consistent basis is that the margins and this is — this has been the case for last more than a year.

Nitin Padmanabhan — Investec — Analyst

Correct. Just one thing, is that, I think what we have demonstrated over the past few years is that margins have been on a consistent upward trajectory, and it’s never — we have never maximized on margins in any particular year. You always use some of that for growth. So when we think out as investors, is it fair to assume that directionally, it would but because of the kind of structure you are in, there will always be room to improve margins, at the same time, it’ll be very calibrated over longer periods of time. So is that a fair?

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

That is true. That is true.

Nitin Padmanabhan — Investec — Analyst

Perfect. Perfect. Thank you so much. All the very best.

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

Thank you.

Operator

Thank you. The next question is from the line of the Dipesh Mehta from Emkay Global. Please go ahead.

Dipesh Mehta — Emkay Global — Analyst

Yeah, thanks for the opportunity. Couple of questions, entering into next year, what do you find more challenging in terms of demand side situation or supply side, because we are growing at fairly repeat growth trajectory? So do you think which one would be more challenging for one, look at calendar ’23? Second question is about the deal TCV number what we report? Can you help us understand it include only new portion or it include new plus renewal? What happened during the quarter?

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

Sorry, I’ll just answer that question. The TCV number includes both renewals as well as new. Sorry.

Dipesh Mehta — Emkay Global — Analyst

Understood. Thanks.

Anup Sable — Chief Technology Officer and Board Member

Hi, this is Anup here. So going forward I think definitely it’s an issue of supply side. And if you look at the SDV programs, which Mr. Patil talked about in terms of being the largest contributor to current as well as the future work there are certain elements in the SDV where, which requires a reasonably good understanding of what competencies are required. So there is a shift in the competency. So from a supply perspective getting the right people, making sure that they have the right competencies, and of course, then delivering and focusing on the execution of that is the biggest challenge.

Sachin Tikekar — President and Joint Managing Director

[Technical Issues] hire number of people. I think the quality is something which we’re looking to improve.

Anup Sable — Chief Technology Officer and Board Member

If I may just add for this nuance to what Mr. [Indecipherable] and Mr. Patil said is more than this — in our opinion, the supply side will also get, in terms of quantity, it’ll get easier. It is already getting easier, it’s going to be quality. But more importantly, I think this execution of very complex programs, that is going to be the number one challenge, right? The programs that nobody else has done before, right? So that will be our number one challenge.

Dipesh Mehta — Emkay Global — Analyst

Understand. And if I can ask two more questions. First about the commercial vehicle, if I look, it is showing some kind of moderation for last three, four quarter. See if you can provide some outlook on the demand trend, what we are seeing? And last is about the Telefonica. You indicated some kind of subcontracting arrangement with some company and we may potentially acquire, if you can give some detail. What is that — what we are looking at here? Thanks.

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

So let me address the commercial vehicle part. Commercial vehicle, I think, looking at anything, it just one quarter is not a fair way of looking at it. It’s like looking at our growth across geographies, where we believe that the growth will be balanced across geographies. It may change from quarter-to-quarter from one to the other. It’s the same thing with commercial vehicles. Our business over the last two years has grown consistently in commercial vehicles, and we believe that it’ll continue to grow. In the next one. It’s just that passenger car business, the growth has been significant driven by software defined vehicles. But we are still quite bullish on commercial vehicles when it comes to immediate to bit sort of.

Sachin Tikekar — President and Joint Managing Director

Yeah. And if you look at the numbers, I think Y-o-Y growth is about 15% in CV and if — even if we look at last quarter, the technician growth was very strong at 6%. So the growth has been stronger. It’s just this quarter that it is flattish. But I mean, if you look at the Y-o-Y trend or even a YTD trend, you’ll see that growth is there.

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

So on the last set — let me explain that you not been confusion. Once we acquired Technica, they have multiple centers, and one of the centers is Tunisia, which is their own company, but little differently structured and we decided to acquire it after fulfilling some changes in their structure, etc. We don’t have to pay anything additional for it. It is just our choice to get few things done before we acquire it. And that’s why it is appearing as the subcontracting, there is no — otherwise, there is no different. Did I answer your question?

Dipesh Mehta — Emkay Global — Analyst

Understand. Thank you.

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

Thank you.

Operator

Thank you. We have the next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Yeah. Thanks for the opportunity and congrats for a very strong execution. Is this the first question after Technica coming into your bag or umbrella? Is it fair to say now we have addressed all the gaps to be addressed in terms of — in the software defined vehicle or is this trend, or do we still have gaps? And if not, then in that scenario getting position in terms of a larger size deals would be much stronger going forward versus what it used to be around one quarterback?

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

So we have addressed some of the gaps especially on the upper left hand side of the software development. We end the upper right hand side of the software development. So system networking, system proof-of-concept and system validation part and it’s a very strong fit in terms of what we have. The pursuit of what the customer wants and what are the white spaces that are available is an ongoing thing. And as we speak we are continuously finding out new whitespaces in the SDV space as the customer is also finding out some of the new whitespaces in the SDV space. We’ll keep on discovering them and focusing on them. So far, so good, but I think going forward you’ll see many more whitespaces is coming up, which will capture.

Sachin Tikekar — President and Joint Managing Director

And if you look at last two years, some of these gaps have been bridged. We use the strategy of build, buy, and partner. Some of these we have actually built internally through acquisition of Technica and past partners, we have actually acquired, it would be round bridge the gaps to acquisition. And not in the entire ecosystem, one company cannot do it all. So we also have to partner with some other key players to provide a more comprehensive solution to the clients.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. Helpful. And just looking at the macro scenario in the Europe, is there any instances despite the projects which we work, are critical for the models to be launched in the future. Clients are slightly behaving conservative in terms of their decision making or in terms of avoiding deals or after avoiding start of the projects or after start ramping up the projects? Any instances are you with?

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

So I think that there are two answers. So overall, given the macro scenario, all clients are going to be very cautious. Some clients are they’ve taken some proactive steps to cut costs. Fortunately for us, they’re cutting costs in other areas and they’re prioritizing things like software defined vehicles and so forth. So overall, yes, clients are becoming more and more cautious about the spend, but as far as KPIT and our pipeline and our programs are concerned, we have not seen anything that is likely to impact us in the immediate future.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. And this last few bookkeeping questions. So I think this quarter in the P&L we had a cost of goods sold related to material consumption and the finished goods inventory. So is it largely related to Technica, and will it continue in future quarters or it is more specific to third quarter being seasonally a strong quarter as a whole?

Sachin Tikekar — President and Joint Managing Director

It’s completely related to Technica and it’ll be more or less — it’ll go up and down, but it’ll be there going forward also.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. And in the initial remarks, we said the effective tax rate on a going forward basis would be 23%, right?

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

On an annual basis, it will be 23%.

Priya Hardikar — Member of Executive Board and Chief Financial Officer

Yes. So on an annual basis, we will be around 23% plus.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. Okay. And with amortization of intangibles for the Technia, do you believe the depreciation amortization as a percentage to revenue may go up or may actually come down with some of the other assets which are organic, becoming older and their depreciation may come down?

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

I think you’ll have to really decide on the quantum that we will arrive at for doing this. And of, obviously, when we do it initially, it’ll have some marginal impact. But of course, as the revenue grows that percentage will come down. But obviously, we have not yet decided what is that quantum, we’ll have to work on it and then come up with a number, which we will share with you once it has been done.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. And in the presentation, you said M&A related cost is still pending. So will it come largely in Q4 or it may come still 1Q of next financial year, and what could be the quantum?

Sachin Tikekar — President and Joint Managing Director

No, no. It is what as Mr. Patil said in the initial remarks that some costs that we will do for integration will come in the next two quarters.

Sandeep Shah — Equirus Securities — Analyst

No. No, but INR14 crores have happened —

Sachin Tikekar — President and Joint Managing Director

Yeah. Yeah, it has happened. Yeah. It’s.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. So the quantum may decline in the Q4 and Q1 related to some of the consultant cost?

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

Yes.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. And in terms of factors —

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

You asked many questions, I think.

Sandeep Shah — Equirus Securities — Analyst

Okay. No issue. I will come in a follow-up.

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

Thank you, Sandeep.

Operator

Thank you. The next question is from the line of Saurabh Sadhwani from Sahasrar Capital. Please go ahead.

Saurabh Sadhwani — Sahasrar Capital — Analyst

Hi. Thanks for the opportunity. So in this quarter, our employee expenses have not grown as much as our revenue and they have also decreased as percentage of our revenue. So how did this happen and is it sustainable?

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

I think if you look at it as we have said with growth and with improved productivity we intend to have that number to be in this range or slightly lower as we move ahead. So that’s what this number is. It is also factor of fraction of the pressures that we have recruited over the last three, four quarters. And that has improved the overall cost structure.

Saurabh Sadhwani — Sahasrar Capital — Analyst

Okay. So we have better utilization now? Yes?

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

Yes. We will have it as we move forward.

Saurabh Sadhwani — Sahasrar Capital — Analyst

Okay. Okay. And also we have — we commented that that we could grow double from our current position with most of our clients. So is it an aspiration? Or are you aiming for that and how long — what would be the timeline for that?

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

I think it’s a great question. When we say that we’ll focus on handful of clients that we will have no choice but we could [Technical Issues] Jokes apart. What we realized is as we engage with them deeper we are also getting the broader insights into the areas in which they need help. And as Anup, as Mr. Sable pointed out earlier, we are also responding to their needs and creating offerings that are relevant to them. And this goes back to becoming a truly trusted partner to them. And given that model, we think that over the next three to four years, we’ll be able to double our growth within the same clients.

Saurabh Sadhwani — Sahasrar Capital — Analyst

Okay. Okay. Thank you. Thank you. That answered my questions.

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

Thank you.

Operator

Thank you. We have the next question from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go ahead.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Yes, sir. Thank you for the opportunity again. My questions on the some of the hardware costs have been answered. This one if you can help us revise, you had done this acquisition sometime back for — of FMS, in which was into ADAS, etc. If your current quarterly numbers on the share of associates is anything to go by, there has been some slowdown there. If you could just highlight, what is an — what is update there? How is the company performing? Is it in line with our estimate or is it in line with our expectations or not? What is the current revenue run rate that it is clocking?

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

I think it is in line with what we discussed. I think the company is doing well but we are still a minority company in that I think the trigger for acquisitions will come in next quarter or so. So we will give the details once we conclude that. Right now, it may not be appropriate to share the details, but the company is doing well and there is a — on the profitable front, they’re in line with the company profitability.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

All right. So sir, the decline in the — while the number is not significant as of now, but this share of associates decline sharp, sharp decline is not related to FMS, or do we have any other entity there or how is it?

Priya Hardikar — Member of Executive Board and Chief Financial Officer

No, there is no correlation there.

Vimal Gohil — Alchemy Capital Management Private Limited — Analyst

Okay. So the share of associates, ma’am, is regarding which entity right now?

Sunil Phansalkar — Head, Investor Relations

It is for FMS. No. So the answer is that it is just a quarterly phenomenon, and we don’t see that as a — we should not take that as a trend in FMS. But we are seeing, if we take the year as a whole, they are on track to do the targets that we had in mind in terms of revenue and profits. So though part of it has gone down, we’ll see that going up. And there is no issue as such in terms of the targeted revenues or the targeted profits that we had in mind.

Saurabh Sadhwani — Sahasrar Capital — Analyst

Understood, sir. Understood. Thank you so much, sir. Thank you. Thank you once again.

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

Thank you. Thank you.

Operator

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

Unidentified Participant — — Analyst

Yeah. Hi management team. Can you, can you hear me?

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

Hi.

Unidentified Participant — — Analyst

Yes.

Okay, great. So I had a few questions. The first, just being on whether there’s any integration risk with this Technica acquisition. I mean, I know it’s different country and not really kind of combining workforces in any way. So is it fair to say there’s a limited integration risk?

Priya Hardikar — Member of Executive Board and Chief Financial Officer

Integration risk?

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

Yeah. So every company that is acquired carries some kind of a risk. So we have done a very detailed risk assessment and we have a regular meeting, fortnightly meeting to mitigate and plan in terms of what needs to be done. So far so good, we don’t see any major risks right now.

Sachin Tikekar — President and Joint Managing Director

Actually, they’re very excited looking at the opportunity they see in — with our market client. I think I mean, from their point of view, they would have never got that kind of exposure to this client globally, especially.

Anup Sable — Chief Technology Officer and Board Member

We have overall excitement at the moment in terms of the opportunities that we see and what real value-add we could do to the clients together.

Unidentified Participant — — Analyst

Okay, got it. And then I guess one other question relating to how you think about this RENO deal, I’m curious what the offshore kind of onshore ratio for that deal is? And then even if you look at kind of revenue and EBIT per head, is that accretive to the current business? I’m curious [Speech Overlap] — it’s sort of a new deal, so you might have a better view on it.

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

So we do not provide the breakup in terms of onsite and offshore revenues. Our engagements swing basically, depending upon their stage location, where we are engaged. So we keep away. But overall, as I — as we mentioned, that if you look at a year back the onsite had gone up for all our people onsite have gone up a bit. And that is for multiple reasons, but including our engagements, we need to do in some of these that is in the first part. But most of this works will be largely delivered out of offshore — offshore locations, not necessarily India.

Unidentified Participant — — Analyst

Okay. Got it. And then just the last one, I think your TCV based on the last four quarters, I think you only started reporting it four quarters ago, is about $700 million. Maybe the overall TCV is even higher than that. How do we think about conversion and visibility? I mean, does that mean that if you have a three-year average deal life, we’re looking at 40% of your revenues being visible in the next into becoming fiscal? Or what’s the right way to think about that?

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

This — many of these deals are anywhere between three to five-year kind of duration. So it changes — yes, sorry.

Sachin Tikekar — President and Joint Managing Director

Hard to sort of put a formula and tell you depending on, I think there are different flavors to it. And as Mr. Patil said earlier on, we are in a good position at this point in time. We’ve given the guidance, we’ve revised the guidance, and by end of next quarter, we’ll give you the guidance for the next year. But it’s kind of hard to translate that into.

Unidentified Participant — — Analyst

Okay. Correct. Thank you.

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

Thank you.

Sachin Tikekar — President and Joint Managing Director

Thank you.

Operator

The next question is from the line of Dhanshree Jadhav from Anvil Share & Stock Broking. Please go ahead.

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

Hello?

Operator

Dhanshree Jadhav, you may unmute your mic, please and ask your question. Your line has been unmuted from our end. As there is no response from the current participant in the queue, we will move to the next questionnaire. The next question is from the line of Deval Shah from RBSA Investment Managers. Please go ahead.

Deval Shah — RBSA Investment Managers — Analyst

Hello, am I audile?

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

Yes, you are audible, sir, please go ahead.

Deval Shah — RBSA Investment Managers — Analyst

Yeah. So my question is related with the business unit. So I just wanted to understand are three business units, so how are the different in terms of our planned engagement and as well as on the margin profile and what as KPIT we are strategizing? So is it we are going to more focus on the middleware or we are going to focus more on the cloud base? So I’m talking about more on the five to 10 years?

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

I think as we mentioned, these are the three important parts of — for the OEMs and the even in SDV program, all the three parts are relevant. The reason we have made it, because this is how the buying centers at the plans side are. So we have mapped our organization to the plan site. And that’s — the second thing is, earlier we used to give a practice file, but that’s not how the organizations work at the client site. That’s why we change the structure to map with the client organization. So your point our focus is across, but some of the areas like architecture, middleware, and cloud-based connected services, these are in somewhere recent in last couple of years. And size is relatively modest as compared to the one, which where it is electrification autonomous, which we have built over last five, six years. So that’s why they have — they’re going faster. But at the same time as Mr. Tikekar mentioned, I think one leads to another. So it’s kind of a combined story, and that’s why actually with Technica and other acquisitions, we are in a portion to give a blueprint to the execution full story from KPIT.

Deval Shah — RBSA Investment Managers — Analyst

Okay. And just on the margin profile also, so add this three — have a similar kind of margin profile or — and a sum of contract are they varies on those similar —

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

At a gross contribution or this level, there are some changes. I think there are some — are little more profitable than the others, but they have then volume is higher in some cases versus some of the scale is different. So it changes, but I mean it’s the mix is not going to impact significantly anything what we have mentioned.

Deval Shah — RBSA Investment Managers — Analyst

Okay. Got it. And my another question is, on more on the margin. So I understand that we have given the guidance of 18.5% to 19% as of now, but looking at the kind of services we aspire to provide. So what is our long-term aspirational margin even after three to five years? So if we are providing more value-added services and more integrated services to our client, then what would be our aspirational EBITDA margin we are looking at?

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

It is — it is not — basically what we have mentioned always is, we will show a consistent growth in the margins, and we will invest anything over and above if we can meaningfully invest into anything else in the growth or delivery. So we have said that we will cross 20% in next couple of years. That’s what we mentioned. So that’s what we have said. Now, anything about, I mean — as I always said, there is always a margin to grow. It is our choice to invest into growth and new technology investments, which we will continue to do because I think that is important for us and that’s how we are managing the market.

Deval Shah — RBSA Investment Managers — Analyst

Okay. Understood. That’s it from my side. All the best.

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

Thank you.

Sachin Tikekar — President and Joint Managing Director

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Yeah. Congratulations on a good set of number. I have a broadly question with respect to the rest of the world geography. So which are the countries where we are presents other than U.S. and Europe, and what current environment there which support you to us, and what other possibility we look in those geographies other than U.S. and Europe?

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

In Asia, bulk our revenues actually come from Japan. And there are some revenues from Korea and China, and we have one client in Vietnam. And of course, there is some business that is in India, which is, where we service some of our global clients. So those are the one. Bulk of the revenues come from Japan and we think that we’ll continue to grow in Japan, also in Korea. China, we are just — as you know, the situation has been — in China has been very difficult over the last three years now that things are opening up. Finally, we have to see how to sort of put trigger into China over mid to long, Japan will continue to be the key growth driver for Asia in the immediate future.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Okay. And sir just one more clarification I would like, there were a news year back that some shortage of cheap in automobile sector is there do disturbances in China. So does any our clients facing such if you see or the issue itself resolved?

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

Yeah. It has been a huge challenge for the last couple of years for most of the OEMs not just in the automotive industry, but in other industries. The — it’s getting better by the day. It’s still not behind us, but I think the suppliers increase a little bit. And as things have opened up globally things are actually getting better by the day.

Chirag Kachhadiya — Ashika Institutional Equities — Analyst

Okay, sir. Thank you so much. And all the best.

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

Thank you. Thank you.

Operator

Thank you. The next question is from the line of Abhimanyu Kasliwal from Choice India Limited. Please go ahead.

Abhimanyu Kasliwal — Choice India Limited — Analyst

Thank you so much for taking my question. Am I audible?

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

Yes, you are.

Abhimanyu Kasliwal — Choice India Limited — Analyst

Okay. Thank you so much. Firstly, congratulations for a good set of numbers and good organic growth, besides inorganic environment. My point, sir, is that we see the — we are working on a revenue per employee trying to expand as much as we can, and trying to decrease a cost per employee as much as we can. So that yield, I wanted to ask, what is your trajectory? What is your outlook on that in the employee yield so to speak? We are increasing our employees on a slightly lower rate than what could have been expected. So does that mean that now we are on a sustainable improvement in employee yield that we are hoping to have more revenue per employee as opposed to cost per employee? So that’ll lead to a better yield. So what would be your — if we could provide any guidance? It would be very grateful.

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

So see, we have talked about the margins, which is, I mean all of these metrics that you talked about, whether it is employee per — revenue per employee, profit per employee or utilization, all of that will materialize into the operating margins that we have talked about. And that is the increase that we have seen. I don’t think we’ll be able to say that, what will be the trajectory there. If you look at the last four quarters, actually, our hiring has been higher for the future than our revenue growth. And but if you see as a trend in the medium term, obviously the aim is to improve that number as revenue per employee and also the profit per employee to go up, which will result into the steady improvement in operating models.

Abhimanyu Kasliwal — Choice India Limited — Analyst

Are we seeing any trajectory like that in terms of the contracts that now we are seeing perhaps higher value contracts, which are more technical in nature and hence we’re able to you generate more revenue for employee as such? Or is it the same kind of contracts right now? What’s happening, sir?

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

At a high level — at the high level, I can say that our realizations are improving with the new contracts.

Abhimanyu Kasliwal — Choice India Limited — Analyst

Wonderful. Wonderful. Thank you so much, sir. That was very helpful.

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

Thank you.

Operator

Thank you. We have the next question from the line of Sandeep Shah from Equirus Securities. Please go ahead.

Sandeep Shah — Equirus Securities — Analyst

Thanks for the opportunity. Just last two things, in terms of the practice revenues, it looks like the — it has been added across service lines because the incremental revenue across service lines does not —

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

That is true. That is true.

Sandeep Shah — Equirus Securities — Analyst

Okay. Okay. And the 20% Technica margins are at EBITDA or EBIT level?

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

The 20% margins are at EBIT level.

Sandeep Shah — Equirus Securities — Analyst

EBIT level. Okay. Okay. Thanks. And all the best. What —

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

Yeah. For this quarter, yes, EBIT level.

Sandeep Shah — Equirus Securities — Analyst

Okay. Thanks. And all the best and congrats one again.

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

Thank you.

Sachin Tikekar — President and Joint Managing Director

Thank you.

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

I think we’ll have to take a stop now. We are already 15 minutes past the call. So one last question and we should.

Operator

Sure. We have Ms. Dhanshree Jadhav from Anvil Share & Stock Broking with the next question. Please go ahead.

Dhanshree Jadhav — Anvil Share & Stock Broking — Analyst

Am I audible?

Operator

Yes.

Dhanshree Jadhav — Anvil Share & Stock Broking — Analyst

Yeah. Congrats on great state of numbers. My question was on the growth that we have witnessed in architecture and middleware consulting. So growth is quite strong at 50% quarter-on-quarter, and as you said, it includes Technica. So I just want to know, excluding Technica, what would be the growth there? And what is driving this growth and what will drive this growth in near-term and in long-run, is what I want to gauge from the management?

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

It’s — we — I mean, I don’t have a quick number, but roughly I can say that it’ll be about double digit growth quarter-on-quarter for this practice organically. If you look at what middleware is, it is the most critical part of the software defined vehicle. So when software needs to basically define the vehicle, middleware becomes a very important component on that. And it is the first and the earliest change that will happen. And I think when you see all these SDV programs being kicked in, this is the first and foremost development that starts kicking in and that is why there is a growth.

Dhanshree Jadhav — Anvil Share & Stock Broking — Analyst

Okay. So on that if I just want to add on to it like any particular client or deal has led this growth, if you can call out something there. And also in context with Europe, Europe first, KPIT has an witnessing very strong growth last couple of quarters, this quarter, it was obviously including Technica, but somewhere, if you can, in that context or whatever separately, if you can call out in for the growth organic basis is, what I would like to know?

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

It is strong.

Sachin Tikekar — President and Joint Managing Director

Yeah. I’m sorry. Can you repeat the first question? I remember the second part. What was the first part?

Dhanshree Jadhav — Anvil Share & Stock Broking — Analyst

The middleware — the growth in the middleware on organic, I mean, any particular client deal that is driving that organically? And if that can be in context with the kind of growth we are seeing in Europe, because that was quite strong for KPIT and this year obviously it was including Technica. But something, if you can call out in terms of any particular trend you are looking? That would be helpful.

Sachin Tikekar — President and Joint Managing Director

Yeah. Okay. Understood. Thank you for reminding. As we mentioned earlier in the call, there are about six SDV programs that we are working on. And as one would expect bulk of them are in Europe, that’s why the growth is driven by the six SDV programs in the middleware and overall SDV. And some of the key clients have been in Europe that has also driven the growth organically in Europe. And now the Technica acquisition has even made it stronger. Does that answer your question?

Dhanshree Jadhav — Anvil Share & Stock Broking — Analyst

Yeah. That’s helpful. And one last question management had conveyed that we would place on sustainable basis, the growth to be like 20% like annual. So is this — is that maintained or that could be some challenges to it? How do you see, I mean, I’m asking for the long-term?

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

Yeah. I think we have given that overview overall last year when we gave, and we feel is making confident about — you have seen what we have performed this year, and we have — there is nothing which warrants any change in our view.

Dhanshree Jadhav — Anvil Share & Stock Broking — Analyst

Yeah. Great. Thanks. I think those — that’s answer my question. Thank you.

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

Thank you.

Sachin Tikekar — President and Joint Managing Director

Thank You.

Operator

Thank you. Ladies and gentlemen that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir.

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

Thank you very much for your interest and participation. So if you still have any more queries please feel free to write to me and I will be happy to address those. Thank you and have a good evening.

Operator

[Operator Closing Remarks]