KPIT Technologies Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from KPIT Technologies Ltd (KPITTECH) Q4 FY23 Earnings Concall

Q&A Highlights:

• [00:13:37] Chandramouli Muthiah of Goldman Sachs asked about long-term drivers of electric mobility in the European Union and how long it could take to develop an affordable mass-market EV.  Ravi Pandit Chairman said the EU, US, and Japan have implemented proper regulations for electric vehicles. The commercial vehicle market is in early stages of electrification and will continue to invest in fuel-cell, hydrogen, and battery technologies. The electrification cycle will last at least a decade, with evolving technologies.

• [00:16:20] Chandramouli Muthiah of Goldman Sachs enquired about the cyclicality of R&D spending at OEMs. R&D mainly focuses on engineering for production programs, introducing new tech, and integrating domains. Ravi Pandit Chairman replied that OEMs need new architectures to maintain market share, so R&D spending is a committed expenditure. OEMs aim to gain early-mover advantage by introducing products early.

• [00:18:37] Pratap Maliwal from Mount Intra queried about margin guidance of 20% and what margin levels are expected going forward. Ravi Pandit Chairman said KPITTECH aims to exceed a 20% margin goal in the next few years, with additional investments going towards growth areas. The company also spends on R&D and makes margin and investment decisions based on multiple factors.

• [00:21:02] Pratap Maliwal with Mount Intra asked if FY24 growth will be front-ended and what would be driving this growth. Ravi Pandit Chairman answered that Technica has exceeded expectations and maintained consistent seasonal performance. H1 will be particularly strong due to large engagements and the company’s rapid ramp-up. However, there will still be growth in H2.

• [00:22:55]  Vimal Gohil at Alchemy enquired about the contribution from FMS in 4Q23 and how it has performed since being acquired. Ravi Pandit Chairman replied that FMS revenues have not been included in 4Q numbers, but it will be added in Q1. FMS ownership has not changed in 4Q23, and its performance has met expectations since the initial acquisition.

• [00:24:40]  Nitin Padmanabhan of Investec asked about the company’s $500 million target over the next few years and how the company’s capabilities compare to competitors. Ravi Pandit Chairman replied KPITTECH believes it is unique due to its strong focus on Automotive and Mobility, integration, software integration, and breadth of domains. KPIT plans to invest further to differentiate themselves from the competition and are creating an independent company for productizing, which will create opportunities for KPIT in terms of integration and standardization in the industry.

• [00:25:12] Nitin Padmanabhan at Investec enquired about the next leg of KPITTECH’s journey and what capabilities will need to be added. Ravi Pandit Chairman answered that markets are evolving quickly, and KPIT must stay updated. The company must focus on upcoming technologies for the next three years and invest in areas like cloud and AI analytics that require significant internal investment and will need scaling in the future.

• [00:32:29]  Mohit Jain of Anand Rathi asked about any update or outlook on the US OEM side. Ravi Pandit Chairman said the company saw reasonable US growth last year and anticipates strong growth from current clients this year, while noting US OEMs’ electrification and autonomy goals. KPIT is working with new OEMs on the West Coast and anticipate balanced growth across three regions.

• [00:42:02] Nitin Sharma from MC Pro asked about employee addition needed to reach 27-30% guidance in FY24 and how will utilization levels be affected. Ravi Pandit Chairman replied the company prioritizes managing revenues and margins over reporting on certain parameters. It has historically grown by about 35% in terms of employees, and addresses the need for talent by hiring freshers and improving quality. Attrition has decreased significantly and is expected to continue.

• [00:46:23]Deval Shah from RBSE Investment asked about the competition in the vehicle OS industry and the possibility of OEMs developing in-house capabilities or a single vehicle OS product emerging for standardization. Ravi Pandit Chairman replied the KPIT’s focus on working closely with OEMs and helping them define their roadmap. The company added that while it’s important for OEMs to have core software capabilities, they may rely on key partners for other aspects. The possibility of a single vehicle OS product emerging for standardization is mentioned as a potential trend.

• [00:54:19] Saurabh Sadhwani of Sahasrar Capital enquired about the significant increase in revenue per development employee for the quarter and what factors may have affected this number. Ravi Pandit Chairman said KPITTECH attributes the movement in revenue per employee to a shift from onsite to offshore for larger engagements and also strong hiring in the first two-three quarters of the last year. The increase in per person revenue is attributed to several factors including rates, utilization ratios, and the amount of used assets in delivery.

• [00:56:54] Saurabh Sadhwani of Sahasrar Capital queried about the current situation with middleware standardization and how are OEMs handling it. Ravi Pandit Chairman replied that that there was no middleware concept in the past due to the distributed architecture and OEMs sourcing electronics and software from tier-1 suppliers. However, in the future, OEMs will develop their own application software for an integrated user experience inside the vehicle, which will make it easier to integrate different features and create a better user experience.