Ladies and gentlemen, good day, and welcome to the KPIT Technologies Limited Q2 FY23 earnings conference call hosted by Dolat Capital Market Private Limited. 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 Conference Call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital Market Private Limited. Thank you, and over to you, sir.
Yeah, hi. Thank you, Lizanne. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies Limited for giving us the opportunity to hold this earnings call. Now I would like to hand the conference over to Mr. Sunil Phansalkar, who's 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 Q2 FY2023 earnings call of KPIT Technologies Limited. I would take this opportunity to wish you and your loved ones a very happy Diwali, a healthy and prosperous Diwali. On the call today we have Mr. Kishor Patil, CEO and MD, Sachin Tikekar, President and Joint MD, Anup Sable, full-time Director and CPO, Shashishekhar Pandit, full-time Director and Head Americas, Priya Hardikar, CFO, and yours truly. As we always do, we'll have the opening remarks on the performance for the quarter and the outlook that we see today by Mr. Kishor Patil, and then we would have it open for questions. I would just request that we would have a hard stop at 6:30 P.M.
If after that time, even if you have any more questions, please, feel free to write to me and we would answer those questions and publish them on the website as well as on the exchanges. Once again, a very warm welcome to all, and I hand this over to Mr. Kishor Patil.
Good evening, everyone. I'm very happy to take you through Q2 results for KPIT. First I will go through certain financial numbers, then I will talk about employee side. Then we'll give you some business outlook. We'll talk about also Technica acquisition. To begin with, I think the quarter as you all know by the time we have 27% constant currency growth year-on-year and 8.3% quarter-on-quarter. The reported growth has been 17.2% and 4.8% quarter-on-quarter for the period. EBITDA has gone up by 33% and net profit is 28% year-on-year.
Now, while doing this, from EBITDA to net profit, during this period, the other income has gone down by INR 68 million on account of translation losses of the currency. That has basically impacted to certain extent net profits. Also, there is an increase in the depreciation of INR 1.70 crore on account of two things. One is amortization of licenses, which is INR 1.2 crore and 0.50 crore or 50 lakh, basically purchase price allocation for PathPartner for goodwill. After this, the net profit has grown 28% year-on-year.
Overall, if you really look at the TCV, it is $142 million, which we have won during the quarter. The pipeline looks pretty strong, one of the best we had, with certain mega deals in the pipeline. We feel very confident about the overall pipeline which we have and that allows us to look at, you know, business very positively. During this quarter, there has been an increase in increments, which we had, and the increments have been one of the best in the industry. We had a double-digit increment, including our global employees, which has been again one of the highest we had over last many years.
After absorbing that, which has a more than 3% impact on profit and loss account, we have been in a position to compensate due to strong growth as well as other profitability improvement. On account of opportunities we are giving to our employees, because of the strong growth and exciting technologies to work on, as well as the increments we have given, we see a downward trend in the attrition. While for the last quarter it was early 20s, but as we have a nine month period, we see that what will be our attrition for the next quarter and it will be less than 20% going forward in next few quarters.
We look at it as a very positive sign, specifically when we are growing strongly. On the overall, during this quarter, we also acquired a company called Technica Engineering for EUR 18 million as we had announced some time back. This has been now consolidated from October 1. The
Overall, the revenues for this entity will be about $32 million on a yearly basis with a 20%+ EBITDA. The standalone growth rate will be 15%+ for the entity, and we expect synergy to drive more growth with this entity. While the consolidation will be done, the deal expenses in Q2 will be about EUR 1.4-EUR 1.5 million, which we have already considered while giving the EBITDA numbers for the year. We are very positive about Technica, and we have received very positive vibes from the clients on this acquisition.
Overall, while the economy is a bit uncertain, we see that in our clients, which we have defined as T-25, and in those clients, specifically the area on which we are focusing on, which is software-defined vehicle, we see that the clients are going ahead with their programs. These are the very essential for them for their having a market share in the future, in the future models. This is where we do not see any changes in their spend pattern. While the overall economy is a bit uncertain, we see these commitment to these programs, and KPIT is very strongly positioned in this area. We are about 70% of the programs which are going on worldwide, we are a part of that.
Some of these even new wins we expect will be in these areas. Based on the confidence, based on the positioning, and based on the areas in which we are focusing on, we believe that we are in a better position to really increase our outlook for the year. The yearly outlook will be 31%-32% growth year-on-year, including Technica. Excluding Technica, our organic growth will be 23%, which is up from 18%-21% outlook we had given earlier. EBITDA will be 18.5%-19%, more than—I mean, earlier we had given 18%-19%. Based on these areas, we feel very positive about the business environment and the future prospects for the company.
Thank you.
Should we open now for questions?
Yes, please.
Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please Press Star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use hand raise while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is on 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 related to the Technica acquisition that you've announced. Congratulations on closing the deal. Just wanted to pick up on a couple of comments you made on synergies on the transaction. If you could just help us understand what are the sources of synergies for this transaction, both from maybe a client mining as well as an operational standpoint.
Hi. This is Anup here. I think most of us know if you can imagine a V, which is used in software development cycle, right? Our KPIT traditional scope starts from software requirements at the left side of the V, goes down up to software development, software integration, and then at the right-hand side on the top, it goes to requirements validation. If you can increase the height of this V a little bit more, it starts with system requirements, architecture and requirements, and on the right-hand side, it increases the system validation part. This is what the increase of the height of the V is what the Technica acquisition adds to us.
What it means from a customer perspective is that the customer, we get to engage with the customer much earlier in the lifecycle of the development of the software development cycle at the system architecture stages. In our software integration business, our ability to integrate at the system level becomes a significant differentiator, which means our stickiness to the customer will increase. The system validation part of it also is a stickiness for multiple years. That also engages us more with the customer. In total, we get also an early advantage as well as stickiness throughout the lifecycle of the program.
Just to add a few things, specifically in the ADAS area where with the complex architecture, this has more relevance and meaning, and that is the reason we thought these are very important for business for us.
Got it. That's helpful. My second question is on employee utilization levels. I think we've had a significant pickup in hiring activity over the past 12 months. Just trying to understand where we are in terms of employee utilization at this point after the hiring pick up, and then what the utilization target would be in an ideal world for us.
Right now, we do not go into the details too many on the utilization and this because it becomes very complex based on the business model. To your point, we do have increased our hiring over last few quarters. I mean, in the first quarter, we increased our headcount by 11%, second quarter by 8%. During this process, because specifically in the areas in which we are working, I think the time it takes to make people productive is a little bit more than normal programs. Specifically if you also hire certain freshers from the college. You will see this utilization going up in next two quarters.
We have a possibility to increase our utilization by a few, certainly by a few%.
Got it. That's helpful. My last question is around the organic revenue growth upgrades. I think the midpoint of the previous constant currency revenue growth guidance was about 19.5%, and now we've said it'll be 23%+. It seems to be 350 basis points at least in terms of organic revenue growth guidance upgrade. Just trying to understand what you're seeing in your deal pipelines and what's giving you the confidence of taking the organic revenue growth guidance higher.
Chandra, this is Sachin Tikekar. If you look at what we have actually said, there are five large engagements that we signed up with five different OEM, three of them in North America, one in Asia, and one in Europe, in the last quarter. Then there are two additional large what we'll actually call mega quarter engagements that are in the pipeline. The pipeline actually has increased to about $142 million. And that also gives us the confidence. Essentially, just looking at the kind of demand that we have generated, and on the other hand, our ability to also scale has gone up. The attrition is going down a little bit. Our ability to attract talent is going up.
The combination of the two gives us the confidence that it's time to sort of upgrade the guidance in line with me.
Just clarify one thing. The $142 million is the one we have won that is during the quarter, and the pipeline is the strongest. We don't give the TCV value.
Yeah, thank you, Kishor.
Got it. That's helpful. Thanks for taking my questions and all the rest.
Thank you.
Thank you. The next question is from the line of Prakash Maliwal from Motilal Oswal Financial Services Limited. Please go ahead.
Hello, am I audible, please?
Yes.
Yeah. Thank you. Thank you for taking my question. Just looking at the geographic numbers. We see that in the last 3-4 quarters, the U.S. geography has been about $32.5 million-$34.9 million range. Asia, we see, the revenue has been declining over the past two quarters. Now, with the macro headwinds coming and the talk of inflation and recession and all that, particularly Germany, which is a key geography for us, it might be more vulnerable too due to energy dependence on Russia. What factors can actually protect our growth and revenue base in case some of those macro headwinds do actually materialize in terms of recession going on? What can protect our growth base?
If you look at, I think your read on the large macro trends is true. We have to bring it down to what we do and the industry that we serve, which is mobility, and we do software for them and software-defined vehicles. There are clear indications to us that the spend on software-defined vehicles will continue to grow within our T-25 clients. We have deep engagements with them already. That gives us the confidence that in spite of the macro trends that you see, we'll continue to have growth in the immediate future.
As far as the geography question that you brought up, we are happy to see Europe is growing robustly for us in spite of the challenges at the geography level in Europe. That's because again, we have seven, eight of our T-25 clients in Europe and we are engaging with most of them in a very meaningful manner. That's why we have seen that growth. When it comes to the Americas and Asia, you see that it depends. All of our T-25 clients are global in nature, and the revenue actually shifts from one geography to the other, depending on where we are going with them and how we are engaging with them. That's why I wouldn't worry too much about what happens on a quarter-over-quarter basis.
What we can tell you is, going by our annual operations plan, we are actually on target when it comes to Asia and Americas. There are no surprises. Actually, we are slightly higher in Europe, and we have also changed the guidance that we've given there.
That's probably easy to answer your question. Just to add, as Mr. Tikekar mentioned, out of five wins, we have three wins in North America and one in Europe. I think we are probably one of the
Probably a very well-balanced revenue portfolio. Yeah.
Okay. Thank you, sir. My second question would be around our architecture and middleware consulting vertical. If I remember correctly, we had very good growth during Q1, and now in Q2 we've declined slightly after strong growth. Now, this particular vertical, as I understand, is considered to be an essential type of program for the automakers, and most of the future projects, I believe, would be in this area. Can I just maybe get an update on what was the reason for the decline in this segment?
Sure. If you look at the middleware programs, all of them are long-term programs. Most of the engagements that we have signed up are, as Mr. Patil mentioned earlier on, actually part of the 7 large engagements out of the 10 serious middleware programs that are going on. These are large engagements with large milestones. Hence, I would actually hesitate to look at quarter-on-quarter. If you look at the year-on-year number, it's in excess of 32%. Most of our growth, the growth from this, we believe on year-on-year basis will continue to be very strong going forward. What it's also doing, since we are working on the middleware, we are touching all aspects of the data.
It's also helping us to get more engagements in the other area, right? It's also a sort of beachhead. On its own it will have tremendous growth and it will also impact growth of some of the other practices in a positive way.
Okay. Just trying to assess that because a lot of the strategic programs in the auto space will be done with keeping the next many years in mind, maybe four or five years in mind when it comes to programs around the CASE mobility. There's no real change. That's what I'm trying to assess. Is that the correct answer, that there's no reason to look too much into it and that trend is still facing a strong tailwind?
Yeah. We are very. That's really our clear differentiator in the marketplace. Correct. There are very few companies who can do what we are doing. That's why seven out of the 10 OEMs are engaging with us. These are all long-term programs. There are tailwinds, and we are confident about the growth in the immediate future.
Okay, sir. Thank you so much for taking my question, and congrats on a good set of numbers. Thank you, sir.
Thank you very much.
Thank you. The next question is from the line of Karan Uppal from PhillipCapital India Private Limited. Please go ahead. Karan, your line is on the talk mode. Please go ahead. As there's no response from the Karan participant, we'll move on to the next. That is from the line of Sandeep Shah from Equirus Securities. Please go ahead.
Yeah, thanks and, congratulations on a very strong set of numbers and execution. Just wanted to understand the run rate with your-
Sorry to interrupt. Sir, your audio is breaking up, Mr. Shah.
Is it clear now?
A little better. Please proceed.
Yeah. Yeah. Congrats on a good set of numbers and execution.
Thank you.
Yeah. The first question is, in terms of Technica, when we have announced the acquisition, the CY 2021 revenue run rate used to be EUR 47 million-EUR 48 million versus the presentation now talks about EUR 40 million-EUR 42 million. First to understand, this is CY 2021 run rate and is there any intercompany transaction which will knock off once we acquire as a whole and there would be a growth of 15% or 20% on this EUR 40 million-EUR 42 million once we start consolidating for CY 2022?
Yeah. The way to look at the Technica numbers is not add up the four entity numbers together because it is majority intercompany. The $42-$44 million that we have said right now, that's the actual run rate for the year. Because, for example, Technica U.S. and Technica Germany, 90% is intercompany. You should not add up all those numbers and that is not how it will happen. When we do the consolidation, it will be around the $42-$43 million mark that we have currently said.
The question on CY 2022 run rate. This would have a 15%-20% growth rate, right, once we consolidate?
Yeah. That's what I think, Mr. Kishor Patil said in opening remarks, that on its own, it will be a 15%+ growth rate. With synergies, we can actually look at a better growth rate than that.
Just wanted to understand because it's a slightly bigger ticket acquisition. Will we be open to taking on debt on the books or would this be largely internally financed?
We've said, in the past also this whole acquisition will be funded with internal approval.
Just a reply to Mr. Anup, sir. It looks like it's a good acquisition and could be in demand going forward. Wanted to understand why then Technica has sold at a relatively good valuation multiple to us.
Yeah. I think, I mean, frankly, after the acquisition, a lot of companies asked us how you have done the acquisition. I think it is basically we have been engaged with them for quite some time. There is a commonality of purpose and excitement. These are technical experts in certain area, and they want to achieve a certain goal. In the area of SDV, they believe they can play a meaningful role in the industry. That's what they wanted to achieve, and that's why they thought that KPIT was a complementary player. From that perspective, they, I mean, they have been working now for some time on talking about it. That's why they felt very comfortable coming together so that they can fulfill their promise.
Okay. The last question, if I just look at the 23% growth rates which we are guiding for our organic business, I do understand the words which we have used is 23+, but if I look at 23% and the ask rate for the next two quarters is 1.8% in constant currency terms, are we factoring a bit of a seasonal slowdown and furloughs or also some conservatism towards European clients because of the gas shortage and the recessionary pressure? Or, is it one should read that what we have said, 23+, is at least 23% growth, it could be higher than that.
There are two points. One is we have said 23%+, that is, point number one. The second thing is, we have factored Q3, which is a seasonally weak quarter to some extent. Then we hope we can do better, but still it is weaker as compared to the other quarters. That's what we have factored a bit.
Any client that some
When we say 23% plus, I think 23% is the bare minimum that we'll do.
Any client from Europe in terms of OEM has shown any kind of caution because shortage of gas may lead to some amount of disruption in plant operations? Are we foreseeing any kind of this risk in the next 2-4 quarters going forward?
As we mentioned earlier on, our engagements with European T-25 clients are stronger than ever before. In fact, you've seen the growth in the last two quarters that we have demonstrated. We have no reason to see that there is likely to be slowdown. Yes, there are macro challenges. However, if you bring it down to mobility and what they have to do in order to remain relevant as an OEM, that's the spend that they have to have. Fortunately for us, we are in that space where they are committed to spending that money. We don't see in the immediate future any kind of slowdown in Europe.
I think what we believe is also the area in which we are working. I think even if they reduce their spend, I think our spend will at least remain same, if not increase. That is what we are seeing at least in some clients. It is our-
Thank you. Okay, thank you and all the best.
Thank you.
Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah. Hi, good evening, everyone, and congrats on a strong quarter. This quarter you mentioned that you have two mega deals that you could close over the next 3-4 months. Historically, I think this is the first time you're characterizing these deals as mega deals. Historically, you've called them large deals, and you've reported $60 million kind of deals. Just wanted a sense in terms of how is a mega deal different from a large deal? Maybe roughly if you could give in terms of size or the scope of work typically. Second question was, I think you have done a few interesting acquisitions over the past year, and those have sort of added reasonable capability. You also have this middleware stack.
All coupled put together, do you believe that the deal sizes for you itself will inherently be much larger than what you used to close in the past? These were the two quick questions. Thanks.
Nitin, I'm glad we noticed something different. Actually, you know, we want to call them mega engagements and not deals because these are long-term partnerships that we are building with our T-25 clients. Yes, they are different. These essentially the differentiation is these are three-digit sort of engagements that spread over 5-6 years. There will be two of them in the next few months. Essentially, we work very closely with the clients on their roadmap for the next two or three production programs. There will be some incremental changes in the technology driven mostly by the changes in the central architecture in the middleware.
We are very excited about these engagements because it also speaks volumes about the quality of the engagements, which, you know, now we are actually becoming trusted partners to some of these OEMs. That's what we really wanted to do. Our hope is that most of our T-25 clients become, you know, we become trusted partners to all of our T-25 clients over a period of time. I think that answers your first question. The second was about, you know, with the acquisitions, we have added capabilities and so forth. What does that mean?
I hope that the new term mega engagement obviously because of the acquisitions, starting with PathPartner and now, Technica, as Anup explained earlier on, it actually increases, you know, we stretch the view on both sides. We continue to differentiate ourselves from everybody else and create larger value for our clients. We'll see. Hopefully, we'll see more and more of such engagements in future.
If I may add, because PathPartner gives us something which is close to hardware kind of capability, low-level programming and Technica, as we discussed, increases the size of the
We have seen and it won't happen in everything, but the couple of deals we are talking about where basically the client is giving us the full engagement, and that is what makes it a big difference. We do expect, we do hope that we are in a position to capitalize on these opportunities.
Sure. Thank you. Just two more quick ones. So far, most of the large deals that you have won have been European. By when do we start really seeing some traction in the U.S. as well in terms of large deals? Or do you think that U.S. is not a very large deal kind of a deal and just have smaller size, but multiple of those? That is one. Second is, do you think the commercial vehicle space is sort of reaching an inflection point at some point to where we start driving growth? Those were the two things. Thank you.
Nitin, first of all, don't say that U.S. has not grown. It grew substantially over a period of time, it's 30% of our business. You know.
No, I meant large deals. Not significant growth.
I know what you mean. That was on the lighter note. We announced 5 large engagements during the last quarter. It just happened so that the three of them are oriented to the U.S., 1 of them from Europe and 1 of them from Asia. We think that the growth in U.S. will be three pronged. One is the existing passenger car OEMs. I think we continue to increase our footprint in them. Second is U.S. has the highest number of what you will call the new type of OEMs. We have started an initial engagement, but in a meaningful manner with two of them. That part we think that over the next two or three years will also start to fire in a significant way.
The third part is what you talked about, which is, you know, going to your second question on commercial vehicles. We have covered almost all those key OEMs in the U.S. If you look at our growth in commercial vehicles, which is higher than passenger car growth, obviously on a smaller base, it's actually propelled by our engagements in the U.S. We continue to remain bullish on our prospects of growth in America, you know, riding on these three factors: passenger car, commercial vehicles, and the existing OEMs and the newer kind of OEMs. I think that was the first. What was the second part was on the commercial vehicle. No, it's a great question, and that's something that we need to.
We've been so busy and tied up responding to OEMs in the passenger car area, we really need to create a separate bandwidth to do justice to commercial vehicles. Yes, it is reaching inflection point. If you look at our growth, it's growing on the back of a handful of T-25 clients that we have in commercial vehicles, but they are mostly from the U.S. There are some important ones in Europe that are part of our T-25, and there are 2 in Asia as well. We really need to bring in focus and make sure that we do justice to that opportunity as well.
Thank you so much, Sachin.
Long answer to your short question, but I hope it clarifies.
Sure. Absolutely. Thank you so much, Sachin and Kishor. Thank you. All the best.
Thank you.
Thank you. The next question is from the line of Karan Uppal from PhillipCapital India Private Limited. Please go ahead.
Yeah, thanks for the opportunity. Just two questions from my side. One is on depreciation. Given the Technica Engineering acquisition we have closed just now, we are running at around INR 31-32 crores on the depreciation line. How will this change post the close of Technica Engineering acquisition? Secondly, on the FY 2024, FY 2023 we understand that it has been a phenomenal year for you in terms of organic growth rate, but any early indications on how FY 2024 may look like?
I'll answer the depreciation one. The depreciation for Technica will be worked on post the consolidation of the results from Q3. As we speak, it is not part of the results as of thirtieth September, and we will disclose once the working upon the consolidation happens as per Ind AS adoption date. It will have a significant impact on depreciation because of the goodwill that will arise upon.
Okay.
FY 2024. Ma'am. Ma'am, the audio from your line is breaking up.
Yeah. Can people be on mute? Yeah. For the next year, we will give the guidance at the end of the year in January, in the month of April. What we have mentioned, we see that overall outlook for us, I mean. We will give that at the end of the year. What we have mentioned in the past is for next few years, we see a possibility to grow 20% year-over-year. That's what we have mentioned in the past. We will take our view closer to,
Okay. Thanks. Thanks a lot.
Thank you.
Thank you.
Well, I hope you are able to hear the answer clearly.
Karan?
Okay, fine. Thank you.
Thank you. The next question is from the line of Andrey Purushottam from Cogito Advisors. Please go ahead.
Thank you, and congratulations for a consistent record of EBITDA and revenue growth. I have two questions. One was related to Technica and the other to operating expenses. As far as Technica is concerned, you said that Technica allows you to come in earlier in the software development cycle. Now, does that also mean that, you know, the value side of the deal will increase as a result of this? That's question one. The second question is, are there any capabilities that Technica brings that may allow you to get clients outside the T-25 that you may want to attach to this point of time?
Okay. Let me answer the two questions. As we mentioned earlier on, you know, but I think we were answering Nithin's question earlier on about, yes, it does increase, it does stretch the V on both sides. It's not only we get engaged earlier in the cycle, but we also stay much longer because we are stretching the right side of the V as well.
Yeah.
That actually leads to more meaningful, longer-term engagement. We absolutely see that going forward. The second question was whether the good thing with Technica is their major clients are our major clients, so there is a good amount of overlap. There is lot more that we can do together in our other T-25 clients with Technica. That's something that we are gonna focus on immediately. Having said that, Technica also has one or two clients in the Bay Area that are of interest to us from the new OEM perspective. Those are the two that we'll look at very closely. But I think that's gonna be our go-to-market pretty much with Technica.
Anup, I just want to reiterate the focus from Technica acquisition perspective is leveraging within our existing customers and their existing customers. The theoretical answer of whether we could go out of T-25 is yes, but the choice remains, scaling up with our customers and their customers at the moment.
Okay. As far as the operating expenses are concerned, is it possible for you to give us a broad sense of the variance for both Q-over-Q and year-over-year and, you know, both on the operating expenses and the EBIT margin? Would it be right for me to presume that the salary hikes and the lower utilization because of a higher fresher intake may be largely responsible for the lower profitability?
As we said earlier, the gross impact of the salary hikes was around 300 basis points. If you see at the net impact on the EBITDA line, it's about 90 basis points. That is all of it is because of the salary hikes as compared to the last quarter the reduction in the EBITDA. If you look at the other expenses, I think on a broad level because we are slowly getting back to operations starting from office there are certain expenses that are going up. Obviously, I mean, if you look at the growth in those expenses over a period as compared to the growth in revenues, that has been lower, and that is how we have leveraged and improved our profitability.
I would like you to appreciate that our profitability is not low. I think with the factor where there is a such a base, I think it is in the range, what we have mentioned, I think.
Yeah, you know, I think we should also look at the year-on-year numbers. You know, those are the real reflection of the performance. On all three parameters, whether it's the revenue, the EBITDA and PAT, I think we have demonstrated reasonably solid growth.
Can the structural margin trend improve going forward? Because that's what you are seeming to indicate, right, in terms of your outlook. What would be the contributors to the improvement in the structural margin?
Basically, can the margins go up in the near future? If yes, what would be the contributors to that?
We have given right now 18.5%-19%, I think, which is, you know, we have improved our outlook on the profitability, and that is what it will be for this year. Going forward, we have a certain, you know, levers in our hand. Apart from, first is the growth which is leverage over fixed expenses. We have to invest ahead of time. The second is offshoring. I think many of these deals have started, you know, which are, as I said, large deals and et cetera. After 6-8 months, we have an opportunity to move a lot of work offshore. We believe our realizations will also improve.
These are some of the areas which we would like to say.
Okay, thank you very much.
Thank you.
Thank you. The next question is from the line of Ankit Agrawal from Yellowstone Equity. Please go ahead.
Yeah, hello. Congrats on a decent set of numbers.
Thank you.
My first question is, you know, in the infotainment segment, one of our deal from BMW, given that BMW is a core client for us and infotainment is a segment where we also have service offering. Just trying to understand, did we participate in the deal, and what is the kind of trend in terms of market share we have with BMW?
We would not like to comment on a client specific project of this. I can only tell you that we have a very significant market share in that account. We are probably one of the largest players in that account on the software side.
Okay. In general, just a broader question then on the infotainment segment. Is that still a focus area because you don't mention it in the footnotes in the future development and integration?
No, no. It was the third business unit, which we talked about, the cloud and connected services. That includes connected infotainment and digital cockpit. That is actually growing quite significantly.
That has grown significantly. Okay, understood. Okay, thank you. The second question is, just in general, you know, some of the peers also announced that they are focusing more on system integration services. So, what is the kind of competitive intensity you're seeing specific to integration space?
The way we look at our clients, as I mentioned earlier on, I think our T-25 clients is where we are moving to a space where we are becoming trusted partners. With many of them, we work with them on long-term engagements. As far as competition is concerned, we don't see much competition in those where we are trusted partners in, because in most areas that are relevant to us and common to them, we are the only one. That's what we are gonna do more of going forward. There are a handful of clients where we are in that position today, and we hope that that number will increase substantially over the next few years.
Having said that, in other T-25 clients, we do see competition, but not necessarily across all of our practices, especially in the middleware area. We feel very confident about all of our practices and growth thereof. On the integration side, I think we have some significant advantage in terms of technology and the solutions and the platforms we have put. Anil?
Yes.
I think the system integration word is a very sort of a 25,000-foot kind of a word, and it is used differently in different industries. If you look at industrial automation, system integration means completely different. Manufacturing, it would mean completely different. In our space, in system integration, I think we are definitely the most you know, from a competency perspective with Technica, I think we would be at the top now. We don't see any challenge in this particularly.
Okay. Thank you for answering it very comprehensively. That's all.
Thank you.
Thank you. The next question is from the line of Hiren Ved from Alchemy Capital. Please go ahead.
Yeah. Hi, Kishor and Sachin, and congratulations at the outset for great numbers and superb execution.
Thank you very much, Hiren.
I just had one question. You know, how do you see the environment on the supply side easing out in terms of, you know, hiring talent both at the fresher level as well as at the lateral level, considering that you have a very strong pipeline? Do you see that things have eased or are you finding it, you know, as difficult as it was a couple of quarters back? As a result, are you even thinking of offshore centers outside of India?
I will answer it in couple of ways. Overall we see more easing of the supply chain over last few months. Mainly because of two things. One is we see the attrition going down, which is a very important part for us because that's we can leverage our current employees much better.
That is the first part. The second is of course, with more experience of these people we can leverage the freshers also better. Again, we see campus recruitment coming back and more availability of people in that. Having said that, looking at overall our what we intend to do in next few years, we have taken a program called SCOPE, which will allow us to develop our capacity in next few years.
At least create that kind of a capacity by increasing the centers in India, outside India. Creating a better competency development, automation. Improving the processes internally. How do we build a competency at scale? From that perspective we have taken this program and we have made some significant progress in that area, having one center in India in Kochi, one center in Egypt. Of course with the acquisition we have couple of centers in the Eurozone time zone. We are certainly looking at all the ways to improve our scalability. Okay. Thanks and best of luck for the next few quarters. Thank you.
Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants in this conference, we request you to limit your questions to one per participant only. The next question is on the line of Dev from Investec. Please go ahead.
Hello. Thank you for providing me an opportunity. Am I audible?
Yes.
Okay. You report growth in four geographies in dollar terms, right? Can you report it in CC terms, so that will be easier for comparison?
No, I think what we have been doing as a practice is reporting all the metrics in U.S. dollar reported terms. That is what we have been doing. We'll have a look at it, whether it is feasible and on a consistent basis whether we can do it.
Okay. Thank you, sir.
Okay, thank you.
Thank you. The next question is on the line of Karan from Dhanki Securities. Please go ahead. Karan, your line is on the talk mode. Please go ahead. As there's no response from the Karan participant, we'll move on to the next. Next is on the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead.
Hello, sir. Congratulations on good set of numbers. Sir, I have a few broad strategic questions, like, what's our plan with respect to the domestic Indian market going forward? Also, the domestic PLI, which are being supported by Government of India in many industries. How do we look into those tailwinds which are available for the domestic business?
Also, your outlook with respect to U.S. and Europe, because in Europe certain OEMs have been affected due to this Russia-Ukraine war. Is there any one-off or a one-time business we've received in last two quarters or that also in the same effect in current quarter order book, if you can throw some light on same.
First I will answer on the Europe and US. I think we have shown a consistent growth there and our pipeline is strong. All our conversation has been positive. We talked about the logic why the strength is there. Actually, we are confident about what we have talked about the growth in both these regions. In terms of India, some of these T-25 clients are really having a play in Indian environment. We are going to take that which are there. I think in certain specific new technologies we are seeing what we have whether that can be leveraged for a specific very selective Indian market clients. We are doing that very cautiously.
you know, if we see a good realization and, you know, scale, then we would do that. We are considering it in terms of certain changes which can happen in Indian environment. Now, overall, in India, we have been involved in certain policy making, supporting, different government bodies. We are leveraging our understanding and experience what we have globally, because we are a part of many standards committee in Europe, et cetera. We are leveraging that experience for Indian market and, selecting the specific opportunities which we would have generally through T-25 and some by exception.
Okay, sir. Thank you so much.
Thank you.
Thank you. The next question is on the line of Nitin Sharma from MC Pro Research. Please go ahead.
Yeah, hi. Thanks for taking my question. Congrats on a good set of numbers. I have two questions, if I may. Just want to understand, is work from office fully started at your end? If not, then what kind of potential impact and timeline does it have?
What we have decided is, we are moving from work from home to hybrid. That's the part that we have initiated. We're gonna take one step at a time. For instance, those employees who are already here in Pune and Bangalore, where we have the largest presence or Kochi in future, we are encouraging them to come to the office twice a week. Many of them are actually coming on their own.
That's something that we have started. Secondly, we also believe that the training, especially that of freshers, and we need to have more interaction with them. That's another part that we will start. However, we are not in a hurry to go to the other extreme from work from home.
What we will do in you know over a period of time is to bring in clearer focus and some guardrails around the hybrid model. That's something that we will do here in India, where 80% of our employees are. In other geographies, we'll see, depending on the convenience of the clients and the convenience of the employees, we'll figure out what's really right for them, right? That's the approach that we are taking.
Any immediate impact on the operations cost for the hybrid work though? Has to be some cost from the training as well as office related expenses this year possibly.
I think it already baked into our annual operations plan. We had already thought that, you know, that the people will gradually start to come back and that we are baked in, so it's not gonna be a surprise to us.
One impact we had was the engineering school, which worked for two weeks after years. We thought that their training needs to be little longer when they come into corporate world. Our training cycle has to some extent increased. Of course, that's a part of our plan.
Okay. If I can see the bookkeeping question, on the
Sir, may we request that you return to the question queue so the participants will.
Thank you.
Thank you. The next question is from the line of Ritwik Seth from Wanna Financial. Please go ahead.
Yeah, sir, just one clarification on the depreciation question. Actually, the line was not clear. The impact will be significant or it will not be significant?
Which one are you referring to?
The Technica acquisition and the associated depreciation which will come in, you mentioned that, you know, the impact. Sorry.
I said we can't right now mention details because the consolidation has not yet happened.
Yeah.
We will go through the process.
Mm-hmm
disclose to the in the result.
You mentioned something that it would be significant or insignificant, so I missed that part.
No, no. What we have said earlier is, when we talked about, when we signed the deal, what we have said is this deal is going to be EPS accretive. We have considered certain purchase price allocation.
Mm-hmm.
Which will impact our P&L.
Okay
Despite, I mean, after that impact, we will still be EPS accretive on the deal. That is what we have said. Now, the exact quantum of how much it would be and will all happen once we do the consolidation. We have a year to do it. What we're saying is it will not have any material impact this year. When we crystallize the numbers, we will let everybody know what are those numbers.
Sure. Okay. Thank you and all the best, sir, and wishing you a happy Diwali.
Thank you.
Thank you. The next question is from the line of Harsh Khusaria from SUD Life. Please go ahead.
Hi, thanks for the opportunity and congrats on great set of numbers. Two questions. Growth from non-top 25 clients seems to be muted from past three quarters, so any update on the same? And secondly, if I look at the headcount addition YOY, it is nearly 50%, versus growth of, let's say, 27% YOY this quarter, and for the full year as well, nearly 23% sort of growth number. Any reason for the gap, if you can highlight?
No, we have already said that, if you look at the last, at least two, three quarters, our headcount addition has been much higher because we are looking at good growth opportunities in the future. We're also hiring freshers, who take a little bit of more time to come into the mainstream as far as getting absorbed into projects is concerned. I think that is why the headcount addition has been higher in the last two, three quarters.
Coming to your other question on non-T-25, there is a very good reason why the growth is muted, because that's by design. We believe that our T-25 clients, their SDV program and their future technology is very critical and more and more of them are choosing us to be their partners. Our priority is to make sure that we help them be successful in their journey, and we go deep and wide with them. That remains our focus, hence the growth from non-T-25 clients.
Understood. Thanks for the answers.
Sorry to interrupt. I think we'll have to take just one last question. As I said earlier, if there are any more questions, please write them to me and we would answer them and publish them on the website as and when there's changes.
Thank you. Ladies and gentlemen, due to time constraint, that was our last question. I now hand the conference over to the management for the closing comments.
Thank you everybody for your participation on the call. As I said earlier, please feel free to write to me if you have any further questions. We'll end this call, and once again, wish you a very happy Diwali. Stay safe and stay healthy. Thank you.
Thank you everyone.
Thank you.
Thank you. Happy Diwali. Thank you. Ladies and gentlemen, on behalf of Dolat Capital Market Private Limited, that concludes this conference call. We thank you for joining us and you may now disconnect your lines. Thank you.