Ladies and gentlemen, good day, and welcome to the KPIT Technologies Q3 FY24 earnings conference call, hosted by Dolat Capital. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the call, please signal an operator by pressing star, then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you, and over to you, sir.
Thank you, Ray. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies Limited for giving us the opportunity to host this earnings call. Now at this point, I would like to hand the conference over to Mr. Sunil Phansalkar, who is Head of IR at KPIT, to do the management introductions. Over to you, Sunil.
Thank you, Rahul. Good evening, and a very warm welcome to all on the Q3 FY24 earnings conference call of KPIT Technologies Limited. On the call today, we have Kishor Patil, Co-founder, CEO, and MD; Sachin Tikekar, President and Joint MD; Anup Sable, CTO and Board Member; Priya Hardikar, CFO; and Sunil from IR. As we always do, we will have the opening comments by Mr. Kishor Patil on the performance of the quarter and where we look forward, and then we'll have it open for questions. So thank you once again for joining the call, and I will now hand this over to Mr. Patil.
Good evening, and welcome to fourteenth quarterly earnings call for KPIT. As you all know, that KPIT is very sharply focused on automotive and mobility industry, and we remain as the software-independent software integrator to the mobility industry. We do work into the cutting-edge technology in terms of autonomous, connected, electrification, operating systems, and also about the monetization of aftermarket services which OEMs want to do, so the change of their business model. So we are deeply engaged with the OEMs and our key customers in doing that. And these trends are sacrosanct, and people continue to make investments specific, specifically into software-defined vehicle, but also now going forward, more to make it a reality.
It's a lot of work go beyond pure development of SDV platform, and KPIT is deeply engaged with its clients to do that. Very recently, we had a significant presence at CES, Consumer Electronics Show, Las Vegas. And we had more than 100 clients visiting us. And we typically demonstrate the latest and most relevant technology we believe for clients both for realizing SDV, but going beyond now, like making SDV more a reality, more successful, more dependable, and also, as we talked about, changing their business models going forward. So we got a very good response from the clients and a really great appreciation in terms of clearly the thought leadership of KPIT.
In many cases, bringing new thoughts, new technology, new expertise to OEMs, which would help them in their transformation. So basically on the growing trends of technology, KPIT continue to perform well. So during this quarter, I think our revenues grew from $145.2 million to $149.1 million in terms of quarter-on-quarter. On year-on-year basis, it is 31.5% in terms of constant currency, 35% on year-on-year basis. Our profits grew from INR 100 crores to INR 155 crores year-on-year, which is 54.6%. On a quarter-on-quarter basis, from INR 140 to INR 155, which is 10.3%.
Our EBITDA grew from 20% to 20.6%, driven more by operational efficiency. We also got a certain benefit of currency. As we know, the KPIT has more than 60% revenue, which are non-dollar revenues. And currency changes did help us to a certain extent in terms of other income as well as improving our realization. EBITDA, EBIT went up from 16% to 16.6%. We have a healthy pipeline, but during this quarter, we closed $189 million new closures in terms of new wins. The cash balance is very healthy, moved from INR 512 crores from last quarter to INR 829 crores.
DSO is from 47 to 46, though I would say, it is also a little bit more better because of the last quarter, we always see more collections. Headcount, net headcount has gone up by 756, include during the quarter, and that demonstrate our strong hiring and continued strong hiring. Our attrition is one of the lowest for us, historically one of the lowest in last many years, and for sure in the industry. We are very happy with the you know, the overall engagement we have with the people. We continue to invest into new technology, which is really the most important and relevant part for KPIT.
As you would remember, we have been created a new entity called Curix, and we continue to build on that, and it is making good progress. During the quarter, we also invested into N-Dream, which is a casual gaming to improve the experience of cabin for the future. And we saw tremendous response, again, for both this in during the CES and otherwise. And already for N-Dream, also, many OEMs have shown interest. We do believe this will allow us to add many value-added services to the OEM in that aspect. Last but not the least, we also continue to do innovation which will be relevant.
We see, apart from the global, India is a strong market. We also believe that we need to, we are very deeply committed to sustainability. During the quarter, we also unveiled the technology for sodium battery, which hopefully will prove, you know, in due course, maybe a great alternative to the current battery chemistries, and more sustainable. In terms of accounts, I think our strategic accounts contributed to 85% of the revenue, and most of them in wins, and opportunities are also in the similar way, if not growing more in future. We also have few other three, four clients where we have started engaging, and which we believe will convert into larger engagements in our T25.
In terms of dividend, we have given them the interim dividend of INR 1.45 per share. From INR 1.45 per share last year to INR 2.1 per share, which is, you know, in line with the profit growth of the company. So overall, we are very confident about the guidance we have given. So we are confident that we will increase our revenues by 37%+, as we have said. We will naturally exceed our revenue beyond 37%. And the profit percentage based on increased EBIT, EBITDA. You know, we also believe that we will for sure exceed the numbers in the guidance we have given.
So, with that, I would leave it to you to answer questions.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask questions may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead.
Hi, good evening, and thank you for taking my questions. My first question is on the Asian carmaker contract that you've announced as part of your $189 million TCV engagements this quarter. So congratulations on that. Just want to understand, is this an existing client? Is it a new client? Is there any additional color you're able to provide here, just around whether it's middleware-related work, SDV-related work? Any additional color on this business, then that'll be very helpful.
Sure. Chandru, this is Sachin from KPIT. It's an existing client, and it's a broad-based engagement covering multiple practices, starting with vehicle engineering to autonomous driving, and so forth. So it's the additional incremental growth that we are seeing. If that answers your question.
Got it. Got it. That's helpful. My second question is, just on the recent comments that we've seen, from automakers globally. So firstly, I think Tesla has mentioned that, it expects a slightly slower growth year for its own EVs. But in China, I think EV growth continues at, very good pace. In Europe, the luxury car space, EV growth seems to be relatively strong, and, and R&D budgets in the EV space also seem to be continuing, if we were to judge from commentary from a lot of your peers on the visibility that they have on, on, you know, their contracts.
Just trying to understand, what is the disconnect between maybe the U.S. EV players and the rest of the world, and also, you know, EV spending budgets on the R&D side versus what the volume growth outlook seems to be over the near term?
So, you know, I think, we, let me take it first as a KPIT view, and then I will go beyond. I think, in all our programs on electrification, we haven't seen any changes into the spend. So the first thing I always mention many times, that, increasing the production or lowering of the production does not impact us, because we work on future programs. So we haven't seen any changes, into, and as most of our programs are long term, or neither have seen any changes in that, area. I think in terms of, what you mentioned about Europe or China and all that, I think, there are multiple, multiple things. Of course, you know, the China is, leading in, electrification, and, not necessarily pure electric.
I guess many of them is also hybrid vehicles. But now they are also entering into Europe. So naturally, the OEM in Europe are very focused on creating more efficient, more cost-effective electric powertrains. So and of course they continue to focus on that area. In terms of U.S., I do think that some of them had made, in my view, that's how I read it, but as I said, we have not seen any change. But the way I see it, initially they had given a very high estimate in terms of what will be the change into electrification, and I guess they wanted... They saw that it will take them little more time to really reach those numbers, and that's how they mentioned.
I don't think it had any other implication, at least in my view. But maybe, Sachin, you have anything to add?
Just to add to what Kishor said, if you look at it, there is a slowdown in terms of growth in EVs, and that's why I think all the-- they want to just get rid of the inventory, and the production of actual vehicles will go down a little bit. Having said that, the number of production programs remains the same. More and more EV vehicles will hit the US market, and, you know, from our perspective, we are working on some of the programs that are in 2027, 2028. So, you know, along with LTV, these vehicles will also get launched in 2026, 2027.
Also, if I may add, we are seeing also little more proactiveness from the commercial vehicle manufacturers on electrification or alternate energy programs. And, as compared to last year, for sure, this year, more opportunity there.
Got it. That's very helpful. And my last question is just around the headcount increase this quarter. It appears to be north of 6% QOQ headcount increase. Seems to be relatively strong versus, you know, the past three years, three to four years, what your QOQ headcount increases have been. So just trying to understand what's giving you that visibility. Is there any particular contract that's ramping up relatively fast that requires resourcing? Or is this just in general course of the visibility that you have going forward?
I'd say there are two points. One, of course, we have our planning cycle of every two quarters, so six monthly planning cycle, so we do hire accordingly. Other part is also the freshers hiring cycle, as you know, it takes some time for us to train people and get them ready. So with the both combination, it is there. I mean, in 756, we have fair number of freshers as well.
Got it. That's very helpful. Thank you very much, and all the best.
Thank you.
Thank you.
Thank you. The next question is from the line of Rahul Jain from Dolat Capital. Please go ahead.
Yeah, hi. Hope I'm audible.
Yes, Rahul.
Yeah. I just have two questions. Firstly, to understand from an FMS business perspective, what's the contribution for, for the quarter and how we expect this part of the business to do over near future?
Yes, Rahul. It's been couple of years with FMS, and the business is fully merged. So there is no way for us to track revenue or contribution separately. What we can say is, overall, the accounts and the practices where the FMS business got merged, we have seen improvement, just like in other parts of our business. But it's hard for us to differentiate FMS business separately now.
To put it the other way, we integrated the business ahead of time, yeah, because they met the targets. So in some sense, we met the targets ahead of time.
Right. Right. And from an SG&A in this quarter perspective, is there one thing? Is this addition to the headcount? Is there any one-time element in this, or is this kind of a run rate now?
There is no special, one-time element, but of course, I mean, the additions that happen, you don't have the cost for the full quarter. Next quarter, it will be for a full quarter, so that delta might happen.
Yeah, so whatever run rate we did this quarter, on a normalized basis, ideally, we should see some growth, whatever growth it could be. There's no one time which will be absent?
I may not exactly say that, but in the sense, the Q3 may have few, you know, provisions or something which may come one time, those kind of things may be there. But I mean, for your calculation, you can take it, the same rate, run rate, but yeah.
Understood. That's it for now. I may join you. Thank you.
Thank you, Rahul.
Thank you. The next question is from Karan Uppal, from Phillip Capital India. Please go ahead.
... Yeah, thanks for the opportunity, and congrats on a strong set of numbers. First question is in terms of the T25 clients. So in the past, you had mentioned that, there are, you know, two clients which have crossed $100 million revenue threshold. So any update on that number? Have you seen that number increase, and, and what's the potential in terms of T25 hitting the $100 million revenue?
Karan, what we can say is, bulk of our growth, like the last two years, has been driven by our diamond and platinum accounts. The trend will continue, even though we have added, as Mr. Patil mentioned earlier, a couple of new clients, and we'll probably add another client or two as we get into the next year. We don't provide details related to client, but there are a couple of them that are in the $100 million, who have crossed that threshold, and we are seeing healthy growth in both of them. So that's what we can share with you.
Okay. Okay, thanks for that. Secondly, in terms of commercial vehicles, you partly answered. So in the past, it has been a bit volatile, if you look at last 3-4 quarters' performance. So now you are expecting the volatility to reduce, and from here on, the performance should be strong?
Karan, as we discussed in the previous call, we have started to double down on commercial vehicles business, both on the truck side as well as on the off-highway side. The existing business is there on the truck side, which is more than 20% of our overall business. We believe that that business will grow in the next year, and we have started to understand the business problems on the off-highway side so that we can solve them through the technologies that we have. That work is underway, and we believe that the work that we are doing will yield greater results for us over the next several quarters. It does take time.
You know, we would like to be in the same position that we are in with the passenger cars, where we deeply understand their business problems, and we can solve them through technology that, to that extent, others cannot solve, right? That has been our play, and that would be our effort when it comes to off-highway as well. So it may take a little bit longer for us to go to market, but once we go there, we'll make sure that we go there in a more meaningful manner that will create value for the client.
Okay, thanks. Thank you, Abhijit, for the detailed explanation. Last bit is on the interest expenses. So interest expenses have almost doubled from what it was in last quarter, Q3 of 2023. So how should we think about it going ahead?
So yeah. So during the quarter, some bit of interest expense has increased because it has element of index calculations of certain leases that we have acquired newly, which is a finance cost. This is a notional finance cost. And there has been a certain element of additional interest on little bit of working capital that we used for a month, which is fully repaid as of December end. But majority is because of the notional costs incurred on account of index methodology of accounting.
Okay. Thanks a lot, and all the best.
Thank you.
Thank you. Next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah, hi, good evening. Congrats on the quarter. A couple of questions. The first is, looking at the environment, broadly, you're not seeing any risk at this point of time, is my understanding. Is that a fair assumption? And basically, existing programs and everything, despite whatever noise we're hearing, are on track, and there's nothing to, really, call out on.
This is Anup here. Yes, there is no current impact because if you understand what we do is we essentially work on the programs that are supposed to be for future. So normally, the current environment usually doesn't play out into what you know very, very transformational projects that are going on in terms of product development for the future. So we see no impact on any current activities as they are.
Perfect. Very helpful. Second is, you mentioned three or four customers where you could probably end up with larger engagements. Could you give some color on, you know, which geographies these are from, or anything specific in terms of the breadth of the engagements? Do you think we can see something? Are these very large deals, like what we saw last year? Or these could be gradual, you know, may not be a large deal, but over a course of period will be large, as they keep coming up into revenue. Just some broad thoughts on those three, four clients you alluded to.
Sure, Nitin. Nitin, what we do is, during the course of the year, twice a year, we actually scan all the OEMs across the globe that are relevant to us, and we see the ones that we are not working with, whether there is a way we can create value for them, and we keep looking for those entry points. We've been working with three of them, and as luck would have it, there is one each from each geography. There is one from the U.S., there is one in Europe, and one in-
... Asia to start with, but the list that we are scanning is about 5 or 6. But there is meaningful engagement where we have done some assessment, we have done bunch of workshops for them, and that is related to 3 of them. And the way it works is, it takes several workshops for us to exactly understand their problems, and then we have to go back with innovative solutions. So, you know, for them to understand our solution, it sometimes impacts their structure and priority, so we have to overcome some of those things as well. So it does take some time for us to create long-term engagement. But when that happens, you know, they really take off at some point in time.
There is no way to sort of say when, but I would say that at least two out of the three, we have made a reasonable amount of progress, and we'll see some growth coming from them during the course of next year. And I'm, you know, our hope is again to build a long... We are making all these investments in them so that we can build a long-term partnership just like our other diamond and platinum accounts. So our hope and effort will be to make sure that they get into that trajectory, you know, over the next several quarters.
And so all of these clients are global then, they are all-
Yes, they are all global. So that's really the process, Nitin. Hope that answers your question.
Yes, sir. Sure, absolutely. And the last one was your thoughts on monetization of the sodium battery chemistries. How should we think about that? How does that work? How are you looking at it? And second is on Curix. You were looking at adding another partner. So just some thoughts on how that is doing and where are we on our journey on board those fronts. Thank you. That's all from my end.
Yeah. So, I think the sodium battery is, as I said, it shows our commitment to innovate and specifically for the local market, India, and also it is something which will be useful for the global market, too. It will take time, and the monetization models are uncertain. But at the same time, it gives us a tremendous positioning and opportunity to work with the, you know, different OEMs and the models. It's a very key area. How and when we will do it, I would not factor anything in terms of revenues now.
On the Curix side, I think we are making very good progress, both in terms of development of product, second is in terms of client tractions, very and also in terms of adding a new partner. Right now, actually our own process of is a bit delayed, and that's why it may take a little bit more time to add the third partner, but our own process of having a joint venture fully established in itself due to some legal formalities is delayed. We hope it will be done in a month or so. And then, of course, we will have the third partner coming in next 2-3 months.
Perfect, sir. Thank you so much, and all the very best.
Thank you.
Thank you. Bye. The next question is from Mohit Jain, from Anand Rathi. Please go ahead.
Hi, sir. Congrats. First is on third quarter numbers. So when I look at sequential growth, is there any impact of furlough in the third quarter? And therefore, should we expect some bounce back in 4Q? That's the first one.
Yeah, I think, it's, yes and no. I mean, it is always there. We have a lot of fixed price contracts, now FPPs, so relatively it is a lesser impact, as compared to if it was a full DPNM. So, yes, there will be some impact, there, but, I mean, I would now say that, the way KPIT is working, I would not put it as an additional problem, you know, additional factor for the next quarter or so. But, that, that's how I would put it.
Right. Sir, second was on margins. Now, there we are consistently doing better than the guidance as well, and you have hired a lot of people in this quarter. So should we expect, like, next quarter margins? And what is your view, say, over medium term, will we continue on this upward trajectory, or do you think now margins will be more or less stable, and the focus will be on the revenue?
I think, we have mentioned it many times that, if we had to maximize just the margins, we have a big headroom. However, we continue to invest into growth, we continue to invest into technologies, continue to invest into markets. And, so even though, I mean, we have hired, it doesn't mean that, of course, that the margins will go down or something like that. But at the same time, you should go with the guidance, or, outlook we give for the year. I would say that is more fair because we, we choose to, whatever we have given a, you know, annual, annual outlook, we choose to invest, the, additional money into, growth areas for the future.
Sir, little longer term, like directionally,
Directionally, there is a headroom to improve.
... Okay. One housekeeping, your payouts, which are pending in Q4, and if possible, for FY 25?
So, there is one payout that will happen in Q4, which is for our partner. It should be somewhere in the range of about 60-65 crores. That's the range that will happen. Then, as we have said, when the Technica, there are a couple of payouts that will happen. Total is about EUR 30 million over 2 years, 2.5 years from now. So it might, one of the payouts might happen in Q4 or Q1, and the other one similar, Q4 or Q1 of the next calendar year. So that is how it will happen for Technica. For Somit, there is one payout remaining, which is about GBP 2-2.25 million.
That also should happen sometime, end of 2024 or beginning of 2025. So these are the payouts that are remaining at this point of time.
Okay. And the last, if there is any update on the large deals, we used to have this number, few quarters back. So in terms of pipeline, qualitatively, if you can tell us there's something in the, in the pipe, should we expect something in the next few quarters? How is that, coming up?
You can see that there is growth in the overall pipeline from the last quarter, and we are happy. Second thing is, given most of it is from our diamond and platinum accounts, our win ratio is also higher, so that helps us. As we put it in our investor update, all the large core engagements that we announced, they're from our existing clients. We believe that the three clients that we talked about, the somewhat newcomer, we believe that over the next few quarters we'll see some growth. At some point, our hope is that at least one or two of them will get converted into long-term engagement. That...
Yeah, I just want to add something. I will ask, Anup to add this. So I may say that over the period, what we are giving to the clients, and that's what is really helping us, is not individual offering, but the impact of connecting them, having multiple offerings and increasing the impact multi-core because of the overall offerings we offer to the client. So actually, that leads to additional revenues from the clients and whether there is one deal or one announcement, you, you may, you don't have to look at it like that. But I think the opportunity landscape grows significantly. Anup, you want to add something?
Yeah. So, some of the complexity that is arising because of, you know, significant changes in the architecture, we believe, we are demonstrating now a combination of multiple independent offerings integrated together to create a much larger, and very credible way of solving the customer problems. So, the, you know, these kind of things we believe will create more opportunities for us with all the key customers. And, you know, we got a validation of this concept during this year with multiple customers.
Right. So what I understood is basically, we should look at the total and large deals may happen, may not happen over the next two, three quarters.
Uh, absolutely.
Thank you, sir. That's all from my side. All the best.
Thank you. Thank you.
Thank you. The next question is from Girish Pai, from Nirmal Bang Equities. Please go ahead.
Uh...
Girish, we can't hear you. If you're on a hands-free, request to use the handset.
Uh.
Hello. Yes, Girish. Can you speak up?
Yeah.
You're breaking up, Girish. We're not able to hear you.
I'm sorry, Girish. If you can hear us, we request you to call us back from an area which has a good network. We can't really hear you. We move to the next question. The next question is from Abhishek Pathak, from HSBC. Please go ahead.
Yeah, hi. Thank you for the opportunity and congrats on the great quarter. So I had a couple of questions. Firstly, you know, on the Americas revenues, they've been kind of flat over the past almost three odd quarters. So just some color on, you know, what's happening there, and should we expect, you know, Europe and RoW to continue to be lifting? Or do you see North America return to growth in the short to medium term? That's one. And the second question was, you know, just trying to understand slightly more around the nature of the deal velocity rather, you know, I mean, so FY 2023 was, of course, a phenomenal year. We had $1 billion in deal wins.
And so far, Y to D, we've been slightly slow. And you know, of course, large deals, as you said, are lumpy and may or may not happen. But if I'm not asking for a guidance here, but if I were to think about growth in 2025 and 2026, you know, sustaining this pace of growth or coming in the ballpark of extreme high growth trajectory, how dependent is that on maybe increasing our deal wins to maybe you know slightly higher than the current run rate? And if no, how fast do the scope expansions happen so that you know that growth keeps sustaining? Thank you.
... So let me cover the Americas part first. If you look at the year-on-year growth, which is, we believe is the right indicator to look at growth, it's pretty healthy. It's quite balanced across the three geographies. And in America, if you look at last year, what we think is, it's seasonal, and I think the growth will come back. All the T25 clients there, we are having meaningful conversations with them. And then there are two or three that will add to the kitty during the course of next few quarters. So overall, we believe that, America will be an area of growth, the geography of growth for us, along with the other two.
There is nothing fundamentally that we see that is off as far as our engagements are concerned with these clients.
On the other part, I would say for you to wait for a quarter when we talk about next year. But overall, we see a good environment, as I said, and we see good long-term trends from our clients. We see continued spending. Naturally, last year was an exceptional year, so that it may not be the benchmark, but we will still grow at a very healthy rate in years to come, which we have been seeing it. And we see that environment, and we'll give a more concrete outlook for the next year at the year-end. Thank you, sir. All the best. Thank you.
Thank you. The next question is from the line of Abhishek Kumar from JMFL. Please go ahead.
Yeah, hi, good evening, and thanks for taking my question. I have a question around fixed price contracts. You know, it seems maybe counterintuitive that for us, when we do a lot of development work, you know, our fixed price contract has been going up. I just wanted to understand, you know, the kind of contracts that we are getting into, does it involve an outcome-based pricing, and therefore imply certain risks that we might be taking up in these contracts? How should we? How do we explain higher FPP, you know, when we are doing a lot of development work?
Abhishek, this is Sachin. As we go up the value chain and as we solve meaningful problems of our clients, at some point it makes sense for them as well as for us to do it fixed price. It, we get better control, and the client can also depend upon us to solve a meaningful problem. Within that also, we bring what we call our platform tools and accelerators that can accelerate the time to market, save costs for our clients, and we can also have more profitable kind of engagement. That's something that we have done over the years, and that part has been increasing quarter on quarter. And if you, from the risk perspective, we monitor our deliveries very, very tightly.
Actually, all the performance parameters on delivery, they've been getting better over the last couple years. So, yeah, inherently, there are certain risks that one takes, but with the platform tools and accelerators that we have at our disposal, we believe that some of these fixed price contracts do create a win-win, you know, for us as well as for our clients.
Sure. My next question is on the deal tenure. You know, our understanding, at least my understanding, is that the programs in ER&D tend to be smaller or of smaller, you know, duration. So for us, you know, how do we understand the TCV to kind of TCV and ACV growth? Is there a significant divergence or, you know, given these are maybe smaller tenure deals, TCV growth is also in line with ACV growth is also in line with TCV. Any color around the duration? Thank you.
Yeah, it depends upon the client, but most of the, if I have to say, the programs which we are working on, it typically from three to seven years duration. So that's how it is. I mean, typically how the clients do. There are few clients who are very comfortable even. I mean, we have announced also in the past, you know, very long-term contracts. But I guess many of them would be about three years to seven. Three years would be more common, but maybe go up to seven.
Okay, sure. So that's all from my side. Thank you, and all the best.
Thank you.
Thank you. The next question is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks. Thanks for the opportunity, and congrats on a consistent execution quarter after quarter. This question is slightly strategic long term and may sound basic. So I think, if I'm not wrong, we addressed almost mobility IT services and that too, on a digital side. So my question is: Are we addressing 100% of the spend? If not, and where are we in terms of the spend curve of our addressable market? Is it still in a high growth phase, or in a stable growth phase, or it's in a matured growth phase? So do you believe if it's in a high growth phase, this may continue over maybe another 4-5 years in the long?
Yeah. So I think, we are basically, I, I could not say call digital IT or executive, it's very confusing. We are into, engineering and development, basically spend, ER&D spend, for the client. That's what, we define a large part of our business. We are in a phase where, as you know, there are many, many reports which have come in, in the market. Even the revised report after, if I to say, little softer environment, talks about 8%-9% growth every year in this spend. So that's a pretty significant growth for going forward.
As a company, as we go forward, we see many areas beyond the actual spend, which we can address for the client, which maybe because taking higher share from the client of what they do, taking higher share from what the work they do with Tier 1, doing higher share in terms of creating a solution, which is more on the revenue side. So there are multiple areas we are seeing as we go. So overall, we believe we are in a very positive environment of spend.
Okay. Okay. So in terms of gap in the offerings, any number you can put in terms of percentage, that this much percentage of the target market still not addressed by us, where we have, gap in terms of service offerings and which may add going forward, on a quarterly basis?
I mean, I wish I could answer that question, but let me tell you, we get surprised every time. So every 3, 4 months, we find out a few areas where we could do something more and add value. Naturally, it may take a different time zone to mature those offerings. But I feel there is headroom for us to build on.
Yeah, and if you want to just go back a couple of years, the number of offerings that we have added to our kitty in terms of providing more broader solutions and, you know, going forward, I think that would be our effort. That's the continuous investment that Mr. Patil talked about earlier on. That's one area where we'll continue to make significant investments going forward.
No, fair enough. Fair enough. And last question, in terms of bookkeeping, there were two letters of comfort issued for the overseas subsidiary. So is it fair to assume this is to optimize working capital in the overseas subsidiary and factoring needs or bill discounting, where we can optimize the collection faster than what we anticipate with a lower rate of interest?
That is correct. These letters of comfort are not issued for any guarantees or loans or any promoter-related matters. These are specifically for subsidiaries and our operations in those geographies.
Okay. Thanks for all the help.
Thank you.
Thank you. The next question is from the line of Hiren Ved, from Alchemy Capital Management. Please go ahead.
Yeah, hi. Congratulations to team KPIT on another set of very strong results. My question is that, you know, as we see the Chinese to compete very aggressively by exports and the price point, which is sort of bringing deflation to the, electric vehicle industry, how do you see, your customers in Europe or the OEMs in Europe and U.S., how are they behaving or how do they plan to counter that? And related to that is that, does that open up opportunities for us to help these OEMs to compete better with the Chinese?
Yes. You're spot on in terms of your observation. If you just break it up into two. First, we'll talk about Europe and then Americas, because the impact is separate. Europe, obviously, everybody's feeling the heat. Many Chinese vehicles have hit the market and are gaining market share. And if you look at what we are trying to do with our clients in Europe is precisely to engage with them in a more meaningful manner and make them competitive. That's the point, and that's what Anup actually talked about earlier on. How do we take a holistic view, you know, starting with the, we look at their architecture and then provide, you know, put new vehicles on the ground that will be very competitive.
So that's the ongoing effort. That's something that we've been doing for the last few years, and we believe, given the added competition, it becomes even more urgent to solve, sort of, help them to solve some of these problems. So you are absolutely right when it comes to Europe, everybody's feeling the pinch now. The case with the U.S. is slightly different. None of the Chinese OEMs that we have talked to have plans to be in the U.S. I think the geopolitical issues, the fact that there is a 20% tariff. So they don't look at U.S. as a market. But when it comes to Asia, you see that their footprint has increased in most of the-
... larger markets in Asia. And the story, what is true for Europe is also true for the OEMs in Europe or in Asia who are serving the Asian market. There is a continuous effort to help them be more competitive, and that creates more opportunities for us. So that's really, you know, our take, Hiren, on... And it's we are watching that market very carefully, too. And the whole thing, we are looking at from China perspective, since we are on the topic, there are two things. One is, what is it that we can learn from the Chinese OEM, and help our global OEMs, making them more competitive?
And secondly, there are gaps in some of the OEMs from China, especially when they have aspirations to be global. Is there a role for us to play? So those are the two things that we are exploring at this point in time.
So, if I understand on your second answer, do we see an opportunity in the Chinese market as well, and do you think that, you know, working in China would be as remunerative as working in the other geographies?
We are looking at China very, very closely. Now, unfortunately, for the last three years it was difficult to go to China, so we couldn't quite go there. Now that for the last nine months or so there has been an opening, we have been seriously working on our strategy in China. But we do believe, like I said, there are two things that we want to do out of China. One is, what is it that we can do for the OEMs in China? I think there is value that we can create, whether it's on the propulsion side or some of the other things for Chinese OEM in China. And secondly, for Chinese OEM, OEMs who have global aspirations, how can we help them to be global? Because the standards are different, in, in every country when they go out.
The third part, well, it's two sides of the same coin, but the second part is, what is it that we can learn from the Chinese OEMs that may be applicable to our global OEMs? So we are not only looking at China as a market, but also a learning ground in some areas, to help our global OEMs.
Great! Thanks and all the very best.
Thank you, Hiren.
Thank you. The next question is from Ankit Agarwal, from Yellowstone Equity. Please go ahead.
Yeah. Hello. Thank you for taking my questions. My first question is on the sodium ion technology. It seems like we are among the few pioneers globally. So just want to understand, like, how differentiated and efficient is our technology? How much investment have we done so far on this? And what is so special about our research that we were able to crack this technology?
I won't be in a position to give some of the financial things for multiple reasons. But I think if you really look at it, this is a long-term investment we have made over the last seven years, so it is not something we have done today or tomorrow, you know, that. So it's we continue to make investments, so I'm sure there are we are making some investments which technologies may come up to life after three, four years, when we have spent, you know, and ahead of time. So I think the key point is, first is, when we identified sodium as a possible chemistry, it was not very common actually. In last two, three years, we started seeing it even in China now or outside about it.
The second is, there is not really an Indian technology, which is pure Indian technology, which is at that level. The third is we have done it along with the collaboration with research institution in India and built it over the time. So naturally, batteries are more complicated technology, so there are certain parts which needs better understanding of other parts of technology beyond software and some parts of engineering. So that's what we have done. So we believe this opens up a lot of things for us, and we are in multiple discussions because of the China issue. I think there are enough companies who are interested in that, and I think we will get a very big headway, because we understand it in a very core way, the technology.
Now, that's what I said, we have not factored any revenue yet on that, but for sure, there will be opportunities for us in future, when the... When it is adopted, either as a technology or a chemistry by any of the clients, we will be in a much better position. I can only tell you that right now, we have done at a lab plus level, the validation of the technology. And, after that, then the investment cycle is very big, so that's where we have to see what business model come up. As a KPIT, we are not into manufacturing, so we will not make those investments. We will look for a partner.
Okay. Okay, understood. And the second question is on the quarterly numbers. In the architecture and middleware consulting this quarter, I mean, quarter-on-quarter, we have seen a decline in growth. Is this just random quarterly noise or is there something to read into it?
Yeah. As I mentioned earlier on, if you look at the year-on-year growth, if you look at the growth over the last two years, it's been phenomenal. And all I can say is the pipeline for the next year also looks very good. So we are on a sound footing for that practice, and we believe that it will continue to be an area of key growth for us.
Okay. Okay, that helps. Thank you.
Thank you.
Thank you. The next question is on the line of Gagandeep from Invest Analytics Advisory. Please go ahead.
Hi, am I audible?
Yes.
Good evening, sir. Thanks for the opportunity, and congrats for a good set of numbers.
Thank you.
So my question is on the Curix side. So, are there, what are the new developments that are happening on, the company? That is one. And secondly, why the legal hurdles are taking so much time? I think in May 2023, we started off, and now also we are in the regulatory hurdles only. So, is it going to be a risk related to any kind, like, the Curix will face any legal hurdles going forward?
The first thing is there's no legal hurdle from that perspective because we had to take clearance from about 6-7 countries because it's a joint venture. So wherever ZF has a presence and KPIT has a presence, we have to go through all those countries, and it included all weird countries also. I will not name them, but you can just say some countries which some are in war and some are otherwise, so et cetera. So we have come a long way. There are few clearance now we need in India, which we will do in shortly. So there is nothing fundamentally problematic, which has taken undue time to our liking, for sure. And we are equally anxious getting it there.
Apart from that, I think there are the lot of positive moment in terms of technology and planning.
Right. From a technology perspective, we have, as we work with more and more customers on the, especially the advanced programs, the ATV programs, we have understanding of more and more challenges that come, and, as a result, the product is taking up a direction which basically addresses this problem, which is of interest to the entire industry. So we are in good discussions right now.
The product is quite differentiated, and the multi-technology angle that we are bringing together, the fact that we are able to integrate it as KPIT, the fact that Curix is itself now a product that has come out of a lot of learning in the industry, and the fact that Technica also brings a lot of understanding of network and platform specialty, I think that is turning out to be beneficial for the product.
Understood, sir. That's good. Sir, we came across a disclosure from Curix itself regarding the collaboration with Qualcomm. Can you provide more details on the collaborations with Qualcomm Technologies for launching software packages for the digital platforms?
When we work on a platform software, sometimes it is called also as a middleware. There is going to be some very tight integrated work with the application processor or the SoC providers. And for that, there needs to be a tie-up, there needs to be a lot of information handshake that needs to happen to be able to make a good vertical integration.
Okay.
Ahead of time, so that, you know, all the juice that the system on chip has is extracted and properly used by the platform, so that the application developers don't really have to worry about many of the technical aspects. So I think that is the reason why we require these partnerships. Qualcomm, being in, you know, whatever position they are in the industry, we believe that it's very critical to have this partnership going and do some advanced integration ahead of time.
What is the market potential for software packages getting to these programs? Do we see?
I think, Curix, some point of time you will hear-
Yeah
once we formalize that.
Sir, is there any update on the prospective client that the company was talking about in earlier con call with regard to Curix?
We have one certain clients, but I guess, give us some time. Then we formalize the announcement once our JV gets done.
Okay, sir. And lastly, looking at nine-month revenue, so it seems that we will comfortably achieve 37% guidance in top line. So, are you looking to revise our guidance for FY 2024 to upside?
We don't give actually quarterly guidance. We typically give a yearly guidance when, if, there is a substantial change, then we change it once in the year. Typically, we do it at the end of the third quarter, but this time there was a very big change, which was evident at the end of the second quarter, so we revised it. We have said 37+, so right then, we have said that, but I think it's something which is not a big variation, you can imagine.
Understood, sir. Okay, that's it from my side, sir. All the best for the future.
Thank you.
Thank you very much.
Thank you. The next question is from the line of Nitin Sharma from MC Pro Research. Please go ahead.
Hi, thank you for taking my question. Just one question. Is there any specific ceiling in terms of the revenue contribution that came from your strategic client?
... Can, can you repeat that question, Nitin? Not sure whether I understood.
Yeah. Is there any specific ceiling? Currently, your strategic clients are contributing around 85% of the revenue. Is there an upper ceiling that in mind, the how much they can contribute to the total revenue?
Yeah. I think as Mr. Patil mentioned earlier on, the more we engage with them, the more areas that we figure out where we can create differentiated offerings and solve some complicated problems for them. So earlier on, you know, a couple of years ago, getting to a $50 million account was a big thing, and now, you know, we've $100 million, I think a couple of clients are already past that. So as we get more and more engaged with them, we see more and more opportunities for growth. So as of now, with some of these clients, we don't see a ceiling in the immediate foreseeable future. And that's really our model.
I mean, we just work with handful of clients so that we can build long-term partnership and continue to grow, create value for them so that they can grow and we can also grow with them. That's been the whole model for us, Nitin, if that answers your question.
Yes, it does. Thank you.
Thank you.
Thank you. Thank you. The next question is from Sunil Raul, who's an individual investor. Please go ahead.
Hi, good evening. Congratulations on the good set up. I just have a few questions. So, what is your current backlog, total backlog, and what is the 12-month backlog? And is there any growth compared to previous quarter in 12-month backlog? And my second question is around the freshers. So how much is the time normally it takes to get them on billable? Thank you.
So on the freshers , we take 3-4 or 5 months depending upon the certain areas. But 3-4 months is more likely, unless they really go through our desired level and productivity, we don't put them onto the production programs. On the first part, we do not give any backlog numbers, and that's why we give the win ratio win numbers every quarter.
Okay. Thank you.
Thank you.
Thank you, Sunil. Thank you very much. Due to time constraint, we'll have to take that as the last question. I would now like to hand the conference back to the management team for closing comments.
Thank you, everyone, for your participation on the call, and if you still have questions, please feel free to write to me, and we'll be happy to get back to you. Have a great evening. Bye.
Thank you, everyone.
Thank you. Thank you very much. On behalf of Dolat Capital, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.