Interview with Jigar Mehta, Managing Director, Onward Technologies

The integration of generative AI into our digital services portfolio adds significant value to our clients and contributes to our overall competitiveness in the market, states Jigar Mehta, Managing Director, Onward Technologies.

What is the investment rationale behind the strategic expansion in the US, and European markets?
The Onward Tech team is strategically aligned to deliver digital and engineering services to Automotive, Rail, Industrial Equipment, Heavy Machinery, and Healthcare Original Equipment Manufacturers (OEMs) from North America and Europe. These are business-critical software services in digital, embedded, and mechanical engineering that help OEMs accelerate their shift to smart products, enhance their competitiveness in respective industries, and optimize their R&D spending.

Our global model supports client-site, offshore or blended (client-site + offshore) delivery. Of Onward Tech’s 13 offices in 6 countries, two are in North America, in Troy, Michigan, and Rosemont, Illinois. We plan to open a new office in Toronto, Canada in the next few months. In Europe, we currently have offices in London, UK and Frankfurt, Germany. We plan to open a new office in Munich, Germany over the next few months to be closer to our new OEM customer.

As a fast-growing business that made Rs 353.9 crore at 11 per cent EBITDA at the close of 9M-FY 2024, Onward Tech’s main strategy is to win 3 OEM customers in each location where we have our own office. For each of these customers, we provide offshore managed services, set up Offshore Development Centres (ODC) and/or augment their large global ER&D projects.

We see good visibility, deal momentum and excellent growth opportunities in our 3 focused verticals from both the North American and European markets.

Financial Highlights 9MFY24

How does Onward Technologies plan to further expand its services portfolio and client base?
Nine of the global top-10 automotive OEMs by market cap work with Onward Tech. Likewise, 5 of the 10 largest off-highway, mining, construction, and agricultural equipment manufacturers are our clients. These OEMs have a massive appetite for innovation, coupled with annual R&D outsourcing budgets to the tune of millions of dollars. For a team like Onward Tech, focused on delivery excellence, I see an incredibly long runway to grow. We only work directly with the OEMs (there are no intermediaries involved) and continue to build on these relationships, growing our wallet share with each subsequent project.

Over the last couple of years, we’ve onboarded subject matter experts across domains, and industry veterans with decades of cumulative experience. They’re tasked with offering relevant solutions to our clients’ pain points—value-based outcomes that must be delivered on time, above and beyond client expectations.

Additionally, we are ready to rapidly set up agile project offices, complete with local professional services like client account management, accelerated solutions, and project management, in effect being present where our clients create value while delivering efficiently through a managed-services or ODC model.

Thanks to the all-pervasive changes brought about by digitalisation, OEMs must assess their legacy landscape and embrace the tech transformation led by their customers.

Software is at the centre of this shift in how our clients design, manufacture, and sell their products. It has irreversibly altered their technology roadmap. There is now an unprecedented focus on driving efficiencies, both on product development and manufacturing as well as the sourcing and supply-chain fronts.

Clients are more receptive to making their products smarter. With our ability to recognise these shifts, we help clients digitalise, and automate workflows across the product lifecycle and enterprise functions. Drive adoption of common platform approaches that maximise returns on R&D investments. And develop reusable assets, tools, and accelerators that speed up innovation.

Onward Tech’s capabilities include the entire gamut of digital engineering services and simulation, 3D visualisation, and analytics. Or the use of connected systems that make the most of intelligent automation in smart factories. Digital twins for remote industrial asset management. Data science, AI/ML, application modernization, and DevOps, all with cloud leverage for scalability, efficiency, and speed.

Are there any potential challenges or risks associated with your business model, client acquisition strategy, or expansion plans?
Onward Technologies recognises that while our business model presents significant opportunities for growth and innovation, it also entails certain challenges and risks that we actively manage and mitigate. One of the key challenges we face is market volatility, driven by the dynamic nature of the market, evolving customer preferences, and technological disruptions. To address this, we continuously monitor market trends, competitive dynamics, and customer feedback to adapt our strategies and remain agile in response to market changes.

Technology obsolescence is a significant risk factor. Rapid technological advancements and obsolescence can impact the relevance and competitiveness of our solutions. To counter this, we invest in continuous learning, upskilling our workforce, and staying ahead of technology trends to ensure that our offerings remain innovative, scalable, and future-proof.

Ensuring regulatory compliance is critical in our business. Compliance with regulatory requirements, data privacy laws, and industry standards is essential to maintain trust and mitigate legal risks. We maintain robust governance frameworks, adhere to ethical practices, and stay informed about regulatory changes to uphold compliance and mitigate legal risks effectively.

Talent acquisition and retention are vital for our success. Attracting top talent, retaining skilled professionals, and nurturing a high-performing workforce are ongoing priorities. We offer competitive compensation, provide global career paths and foster a supportive work culture to attract, engage, and retain talent.

By proactively addressing these challenges and risks through strategic planning, robust risk management practices, and continuous improvement initiatives, we aim to navigate market uncertainties effectively and drive sustainable growth and value creation for all stakeholders.

Can you explain the impact of generative AI on your business landscape?
Generative AI, while not directly impacting our core business model, plays a significant role in enhancing the services we offer, particularly in our digital engineering and ER&D (Engineering, Research, and development) services.

We leverage generative AI technologies to augment our digital offerings to OEMs (Original Equipment Manufacturers) and clients in the manufacturing sector. These technologies enable us to provide advanced solutions that optimise product design, streamline production processes, and drive innovation in our clients' operations.

For example, in collaboration with our clients, we utilise generative AI algorithms to generate design variations based on specific parameters and constraints. This approach not only accelerates the design iteration process but also leads to the development of optimised designs that enhance product performance, reduce manufacturing costs, and meet industry standards more effectively.

Furthermore, generative AI plays a crucial role in predictive maintenance, where we leverage machine learning algorithms to analyse equipment data and predict potential failures before they occur. This proactive approach to maintenance not only minimises downtime but also extends the lifespan of critical assets, leading to cost savings and operational efficiency for our clients.

In essence, the integration of generative AI into our digital services portfolio adds significant value to our clients and contributes to our overall competitiveness in the market.

Can you elaborate on your transition from single-digit margins to double-digit profitability and how this transformation impacts your future growth?
Our transition from single-digit margins to double-digit profitability is a significant milestone in our journey towards financial sustainability and growth. This transformation is a result of strategic initiatives focused on transitioning entire revenue growth from exports, in USA and Europe and operational efficiency.

Moving forward, this enhanced profitability enables us to reinvest in our business, expand our service offerings, and pursue growth opportunities more aggressively. It also strengthens our financial position, enhances investor confidence, and creates value for all stakeholders.

What message would you like to share with your readers and stakeholders about the exciting phase that Onward Technologies is entering?
We are entering an incredibly exciting phase at Onward Technologies, with Rs 353.9 crore in 9M FY24 revenue, a 2,604-strong team, commitment to operational and delivery excellence, and client success. Our recent achievements, including being a debt-free company since November 2019, the transition to double-digit profitability (EBITDA at 11 per cent) and consolidation of key client relationships, set the stage for unprecedented success in the coming years. New offices in focused geographies that support growth and client engagements within focused verticals will meaningfully integrate our teams within our clients' R&D value chain.

Disclaimer: The opinions expressed above are personal and may not reflect the views of Dalal Street Investment Journal.