In conversation with Priya Hardikar, Senior Vice President and Head Corporate Finance and Governance, KPIT Technologies Ltd
Despite the current supply challenges, KPIT Technologies has been consistently investing in newer technologies and exploring new frontiers. In this interview, Priya Hardikar, Senior Vice President and Head Corporate Finance and Governance, elaborates about the growth strategy of the company
How has the global automotive software technology space evolved in the post-pandemic world?
We are witnessing the most transformative time in the automotive industry currently. Over the last two to three decades, this industry has been going through high-voltage transformative times. Connected Automotive Shared Electrification (CASE) is the driver of this change. Since the pandemic, we are witnessing this phenomenon called software-defined vehicle as a very fast track means for our clients to move forward. Software continues to transform the mobility industry through CASE and that necessitates them to shift to new vehicle architecture i.e. from a distributed architecture to a central architecture. Presently, they are moving into a centralised architecture and then they will want to own that software unlike the previous situation.
So, over the pandemic years, we have seen acceleration from our clients to move towards software-defined vehicles. It’s like a computer inside the car or the car around the computer. It’s like an intelligent vehicle in a very simplistic language. All OEMs are now dedicated to software houses and their teams are also dedicated to software. Software-defined vehicle will be the key market leader in the near future. Therefore, industry leaders like Stellantis, Mercedes and Volkswagen are committed to large investments on this front. The next 5-7 years will be transformative years for OEMs and the industry will continue to invest in newer technologies that are led by software.
KPIT Technologies has delivered seven sequential quarters of healthy growth and steady margin expansion. Can you throw some light on the key drivers that have helped you consistently outperform?
First of all, let me point out that our net cash has been consistently increasing over the last 12 quarters. We have gone from Rs 90 crore to Rs 12,000 crore during a period of 12 quarters, which is significantly higher cash generation and strengthening of our balance-sheet. After we demerged into this automotive business which was a strategic action on our part, we believe that this industry is also helpful. Its size is also growing for us to reap the benefits and there is no issue on the part of demand. We are also seeing a shift towards newer vehicle architecture as talked about the same earlier.
Despite the current supply challenges, we are continuing to invest in newer technologies. The way we work with our clients, partnering them with our product and platforms and thereby technological areas like virtualisations, middleware and cloud connectivity, accelerates our service delivery to our clients, which helps us to improve our margins beyond the operational efficiencies otherwise. Also, in the last 7-8 quarters we were able to shift some of our work to offshore sites and so there is additional volume growth there. This volume growth also helps us to reap the margin benefits.
In FY22, KPIT Technologies’ revenue from commercial vehicles grew by 33 per cent as against revenue from passenger cars which grew by only 15 per cent. Do you expect this trend to continue going forward?
Currently, revenue from commercial vehicle as a percentage of total revenue is around 25 per cent, whereas passenger vehicle is around 75 per cent. Since the commercial vehicle base is smaller you will see that the growth is faster as compared to passenger vehicles. Having said that, yes, we expect the commercial vehicle segment to do well in the coming years. We are seeing that traction since the CASE technologies are quickly being adopted. We expect growth to be all-round and broad-based.
What measures are being implemented to cope with challenges posed by high attrition rates?
High attrition is an industry-wide phenomenon and is expected to continue. We have been learning that we will keep delivering our growth despite this situation. We did that last year and we will continue the same in the current year. The guidance that we have given is considering this situation and we have done our planning accordingly. We are looking at multiple ways to arrest the challenges posed by high attrition rates. We are looking at means to start global centres near shores along with looking at local centres i.e., geographically diversified in India. We are also looking at hiring fresh graduates – around 2,000 – in FY23 and training them rapidly.
This will help to engage them a bit faster ahead of time. We are also working on diversified staff governance to account for lifestyle changes in the different life stages of our employees. We are also tapping our alumni network. Alumni network is something that is going to strengthen our workforce. We are also finding ways to strengthen our referral programmes and a lot of work is being done on this. We are continuing to focus on automation and better process management which will keep the retention faster and in a better way. We believe that this new paradigm shift that is happening on the supply side is going to continue and we are working our way forward to succeed in this shift as well.
Do you have any acquisition plans for FY23?
We will do technology-led acquisition, like the ones we have done in the past. We have a capital allocation strategy and based on that strategy we will go forward for making technology-led niche acquisitions. Though, we do not feel the need to make acquisitions for growth purposes as we feel there is ample demand prevailing in the market and we will be looking out for appropriate assets or strengths that can move us faster with technological synergies. We are quite careful on our acquisition path. We will look forward to acquiring only such assets with niche technology which will be useful for clients for future technologies. Typically, they would be high-quality companies. If and when such opportunities come up, we will evaluate judiciously to ensure that the synergies match and then we will invest.
Can you share your earnings’ outlook for FY23?
For FY23 we predict constant currency revenue growth to be around 18-21 per cent. It would be broad-based growth across all our practices and strategic clients. We are again focusing on volume growth in the range of around 25 per cent, mainly driven by offshore. EBITDA margins will be in the range of 18-19 per cent due to the revenue mix which is favourable towards offshore. We will continue to focus on productivity improvement. Because we want to remain on top of our positioning with our clients, we will invest in technology-led research and development and that would be between 2-3 per cent of our revenue. We have been doing that in the past and the same would continue. The attrition would continue to be on the higher side but we will work our way through. The focus for the current year would mainly be to acquire talent, develop talent and retain talent. Incremental promotions will be similar to what we did last year and so they will be on the higher side whereas our revenue and EBITDA plan include the same.