KPIT Technologies Ltd Q2 FY23 Earnings Conference Call Insights

Key highlights from KPIT Technologies Ltd (KPITTECH) Q2 FY23 Earnings Concall

Management Update:

• [00:05:31] KPITTECH said it saw a downward trend in attrition and expects it to be less than 20% going forward.

Q&A Highlights:

• [00:11:59]Chandramouli Muthiah of Goldman Sachs asked about employee utilization levels after the hiring pickup and utilization target. Kishor Patil MD answered that KPIT cannot go into too many details, but KPIT increased its headcount by 11% in 1Q23 and by 8% in 2Q23.  The utilization will be going up in the next two quarters.

• [00:13:27] Chandramouli Muthiah of Goldman Sachs enquired about drivers of organic revenue growth upgrade. Sachin Tikekar Joint MD answered that the confidence comes as the pipeline has increased to about 142 million and also due to the demand that’s generated and the ability to scale going up due to lower attrition.

• [00:18:22] Pratap Maliwal with Mount Intra enquired about the reason for architecture and middleware consulting vertical declining slightly in 2Q after strong growth in 1Q. Sachin Tikekar Joint MD said these are all long term programs and it should be looked on YonY, which was in excess of 32%. KPITTECH believes that the growth on a YonY basis will continue to be strong going forward.

• [00:22:30] Sandeep Shah from Equirus Securities asked about Technica CY22 run rate, if it would have a 15-20% growth rate, once it’s consolidated. Sachin Tikekar Joint MD answered that on its own, it will be a 15% plus growth rate. And with synergies, KPITECH is looking at a better growth rate than that.

• [00:25:27] Sandeep Shah from Equirus Securities enquired if any OEM client from Europe has shown caution due to gas shortage. Sachin Tikekar Joint MD clarified that engagements with European T25 clients are strong. There are macro challenges but no slowdown in immediate future.

• [00:30:50]  Nitin Padmanabhan with Investec enquired by when the company expects to see some traction of large deals in the US. Sachin Tikekar Joint MD said that US has growth substantially. Over a period of time it’s 40% of KPIT business. KPIT remains bullish on its growth prospects in US riding on passenger car, commercial vehicles, and the new and existing OEMs.

• [00:39:13] Andrey Purushottam of Cogito Advisors asked that if salary hike, fresher intake and lower utilization impacted lower profit figures in 2Q23. Sachin Tikekar Joint MD said the gross impact of salary hike was about 300 bp and net impact on EBITDA was about 90 bps. So majorly EBITDA was impacted by salary hikes.

• [00:40:54] Andrey Purushottam of Cogito Advisors also enquired if the structural margin trends would improve in future and its contributors. Sachin Tikekar Joint MD answered KPIT has given a range of 18.5-19%, which is an improved outlook for FY23. In future, there are some levers like leverage over fixed expense, offshoring and improvement of realization that would drive margin.

• [00:45:57] Hiren Ved from Alchemy Capital asked about KPIT’s thoughts on the environment on the supply side easing out in terms of hiring. Sachin Tikekar Joint MD replied that overall KPIT is seeing more easing of supply chain over last few months due to decline in attrition and leveraging of freshers with experienced people.

• [00:50:12] Chirag Kacharia from Ashika Institutional asked about KPIT’s plans on domestic Indian market going forward and outlook on US and Europe. Sachin Tikekar Joint MD said that in US and Europe the business is strong and has a strong pipeline. In India, KPIT have been involved in certain policymaking, supporting different government bodies and leveraging that experience for Indian market.

• [00:52:57] Nitin Sharma asked about work from home/office plans and its potential impact and timelines. Sachin Tikekar Joint MD said the plan is to move from work from home to hybrid. In future, KPIT will bring more focus and guardrail around hybrid model in India, where 80% of its employees are. In other geographies, the decision will be taken depending on the convenience of clients and employees.

• [00:55:25] Rithvik Sheth of One-up Financial asked about the Technica acquisition and associated depreciation if it will be significant. Kishor Patil MD said that the exact quantum will be known after the consolidation. It will not have any material impact this year and when the numbers are crystallized the numbers will be released to everyone.