Key highlights from KPIT Technologies Ltd (KPITTECH) Q3 FY22 Earnings Concall
Management Update:
- KPIT commented that its key geography, USA, is expected to grow strongly in the coming quarters.
- During 3Q, the company added 9% headcount organically.
Q&A Highlights:
- Vimal Gohil from Union Mutual Fund asked about company’s onsite offshore ratio, with offshore ratio being up 10 percentage points over last one year. Kishor Patil Co-Founder said that since KPIT is a domain specific company, it hired lot of people outside India initially to increase domain experience. It’s a combination of pandemic and the openness of client that helped to transition into onsite offshore. KPIT added, there will some percentage that will be done more but nothing significant.
- Vimal Gohil from Union Mutual Fund also enquired about focus on integration, middleware architecture and cloud, how much each area is contributing to numbers. Kishor Patil Co-Founder answered that integration is the largest part of the company’s business for now. Middleware architecture has a lot of room to increase the offering over the next few years. And cloud is new, and is very specific to the services provided.
- Karan Uppal of PhillipCapital asked about the special focus on the disruptors and if the disruptors are contributing any revenue to the P&L. Kishor Patil Co-Founder answered that it does contribute but is small in number. KPIT added that it does have some good clients but the company would like to build on it going forward.
- Nitin Padmanabhan from Investec asked about any update on the software architecture deals. Kishor Patil Co-Founder replied that the company is working with about four such deals currently. And expects that by the end of 1Q23, KPIT will start working on something.
- Nitin Padmanabhan from Investec also asked about the strategic 21 accounts, and the clarification on weakness of 1% drop. Kishor Patil Co-Founder answered that looking at the strategic engagements KPIT has signed up and the programs the company is working on, are all driven by the T21 clients. Therefore, going forward KPIT believes, the rate of growth with T21 will be solid.
- Chandramouli Muthiah of Goldman Sachs asked about the operating system architecture deal size. Kishor Patil Co-Founder said that potentially these are three year deals and will be of a reasonable size, at least medium to large size deals.
- Chandramouli Muthiah of Goldman Sachs also enquired about the order pipeline. Kishor Patil Co-Founder commented that the wins given during the quarter, most are from US.
- Chandramouli Muthiah of Goldman Sachs asked about the per employee realization and it has risen about 3% annually and the reasons for it. Kishor Patil Co-Founder said KPIT would like to look at it more in a range as it changes in a particular quarter and time, the reason being onsite offshore during the quarter and the fresher additions. Therefore, one can look at the range continuing with certain 5% here and there.
- Sandeep Shah with Equirus Securities queried about any strategy to diversify beyond T21 and going into sectors outside automotive. Kishor Patil Co-Founder said that the thinking about the T25 strategy is that there is 21 that are part of T25 and the company will add some more from one or two passenger cars or commercial cars that will add to T25. Over a period of time some of the disruptors will also become part of T25. KPIT’s focus is on helping its automotive clients move from being commercial vehicle players to mobility players in the future.
- Mohit Jain of Anand Rathi asked about the capex; nine month capex had increased and what’s the outlook on capex for full year. Priya Hardikar, SVP said that the general capex has gone up, the operational assets increased. Looking at the property plant and other tangible assets as at December end, QonQ there is no much movement. During the 9 months all have been operational. Going forward the regular capex will continue.
- Dave with Invest Yadnya enquired about the level of complexity with integration, middleware and cloud. Kishor Patil Co-Founder said that middleware is more complex, close to hardware and operating system. Cloud is different which includes more integration work. Therefore every part has different complexity.
- Karan Danthi with Jetha Global asked that in the next 2-3 years is a $100 million deal doable by the company given the skillsets the company has internally or seeking to build. Kishor Patil Co-Founder answered that the company feels it is doable. From a skillset perspective, the company can strengthen certain competencies, but there is nothing significantly missing.
- Ankit Agrawal with Yellowstones asked about some sense on how much time the company will take to double its revenue. Kishor Patil Co-Founder replied that the company is seeing robust demand in the next 3-5 years and favorable market conditions, but cannot give a specific timeframe.