Ladies and gentlemen, good day, and welcome to Q3 FY 2022 Earnings Conference Call of KPIT Technologies Limited, hosted by Dolat Capital. As a reminder, all participants' lines will be in a 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 over the conference to Mr. Rahul Jain. Over to you, sir. Thank you.
Hi, thank you, Hemant. Good evening, everyone, on behalf of Dolat Capital. Trust all of you are keeping safe. I would like to thank KPIT Technologies for giving us the opportunity to host this earnings call. Now I would like to hand the conference over to Mr. Priyamvada Hardikar, who is the CFO and Head of Finance at KPIT, to do the management introductions. Over to you, Priyamvada.
Hello, is the management able to hear us? Hello? Your line is on talk. Are we able to hear? Are you able to hear us?
We can hear you. There is just noise, background noise. If you can mute everyone on your side.
Yes. Yes. This is good.
Okay.
Good afternoon. Thank you everyone for attending this call. I'm very happy to take you through the quarter three of this year. I would also like to give you a little more color and insights into the numbers, so it gives you a little better understanding of the performance. We had a decent growth of 21.2% year-on-year and 5.6% quarter-on-quarter. This was largely driven by key practices by BMW, Electrification, AUTOSAR, middleware. Also, you know, we believe that as most of our accounts are global, there we would not put too much importance to the geographical numbers. As you can see, Europe and Asia did grow during this quarter more.
USA on prima facie doesn't appear to have grown. I just want to say that USA is a very strong geography for us. As you can see from the wins we've had during the quarter, most of them have come from USA. There is nothing much to read into this. Actually, we expect USA to grow pretty strongly in coming quarters. The second part, if I have to say, is T21 in the growth. We can see that the revenue from T21 have marginally come down by 1% or so.
That again is something where we see that we are very confident about the growth of the T-21 accounts. There is a significant pipeline as well as some closures, very strong closures during the month last quarter, as well as early this year. We expect T-21 to catch up the growth momentum again going forward. This quarter also has PathPartner being integrated with KPIT. PathPartner, one of the main reasons for us to acquire PathPartner was, you know, for two reasons. One is the availability of talent specifically focused on semiconductor companies, which we wanted to really serve our end client, that is OEM, well.
As well as certain lower-level skills which are also important for the middleware practice. In line with that, we started our integration pretty early, and we have a lot of common clients between both KPIT and PathPartner. That's why it is very difficult to give specific numbers in terms of what is the growth through PathPartner. But it is fully integrated during this quarter. Now, important thing to understand is this growth of 5.6% quarter-on-quarter, or mainly the growth of 21.2% year-on-year, there is a different color to this. Because there is at least a 10% difference in terms of percentage between onsite and offshore from the one year before.
What it means is our offshore percentage has gone up by 10% during this year, and hence our volume growth is significantly higher as compared to the reported numbers. Even on quarter-on-quarter, the shift is significant. Even in this Q 2 to Q 3, the shift between onsite and offshore is more than 3%. Naturally, this has helped us in more than one way. One of the main thing it has helped us is a higher profitability, and that is more than what we expected. As you know, year-on-year, the net profit after tax went up by 67.6%. Quarter-on-quarter, it has gone up by 7.5%. This is both substantial increment and incentives we have given during the year.
Just to give you some ideas, I think, our overall compensation increments during the year has been more than double of what we had given the earlier years. In spite of our past solving this, we have been in a position to improve the profitability mainly on account of three reasons. One of the main thing is the movement to offshore. The second is movement towards different business model, which is more managed services, so that we can take the full advantage of productivity and automation. And third is better realization. When we three years back, when we really started focusing only on automotive and mobility, we had given an outlook that in three years we would like to have EBITDA of 18%+.
I'm very happy that we could achieve it a little earlier than what we planned. The and we are at a for the quarter, we are at 18% plus. For the year, we believe we will be around 18%. This is pretty good, and it has helped again in more than one way to take care of additional costs, et cetera. Now, coming back to certain challenges while we are going through this, naturally the attrition remains, and people management remains a challenge for the whole industry as a whole. We were one of the lowest attrition in the industry just before the pandemic, and during the pandemic, of course.
During the last few quarters, our attrition has been in mid-20s%, which is still very significantly higher than what we used to have. While we think that this is something which we need to absolutely take under control, we have taken a two-pronged approach for this. First, while we are making every effort to specifically contain attrition and for which we are reasonably successful in keeping the attrition low on key talent and top block attrition. We believe that we would like to take another approach where we would expect this phenomenon to continue for two years, and we hope it doesn't, it is not true. If we are in a position to do that, we would like to create an ability to generate the talent and expertise.
As you know, we being a player which is very focused on export, we will have to plan this in advance. As you can see during this quarter, we have added 9% headcount organically and the team which had joined us from PathPartner. This will be helpful to manage the impact of attrition on client servicing and delivery of the projects. While we have done a decent job and our clients' CSAT scores have actually improved. We believe that this approach will help us to be better prepared, and I think we can maximize revenues, you know, in due course if we are well prepared beforehand and with additional bit of, if I may say, headcount.
We believe that this will really help us to really maximize the opportunities and increase our share of client revenues in next couple of quarters and later. That is why we have taken these steps, and we are moving in that direction. I would also like to talk about certain technology areas in which we are focusing. As you all know, we are a very domain-specific company. We have a deep domain knowledge on automotive and mobility. On top of it, I think we are creating a very strong expertise and differentiation in three areas, which is integration, middleware and new architecture, and cloud.
In order to really create a full-fledged offering, we have announced certain partnerships and alliances during this quarter with the industry leaders. One is in dSPACE, one is dSPACE and Microsoft, and one we talked about ZF earlier. With dSPACE, we talked about into charging and BMS. With Microsoft, we talked about the dSPACE and Microsoft into virtualization and ZF with middleware and the new architecture. While we are focusing on T-25 strategy, and we will be now in due course in this quarter, we will refresh our list of T-21 and hopefully add few more clients to the list.
We have another strategy which we have initiated, and I spoke about it last quarter as well, is on creating a special focus on disruptors. While we think that the conventional OEMs which we are focusing have a very strong presence in the market, in the niche markets, in certain segments of the market or certain geographies. We would like to ensure that we are addressing also some of the disruptors. While we are doing so, we would like to really bring a focus on this area in this area as well. This is something we have started taking certain steps. Over the period, you will hear more from us on this area as well. In terms of cash, we continue to do the work consistently over last few years.
When we started demerger, it was about INR 70 crore balance with us, which has moved to more than 1,000. Our DSOs continue to be 48 days, which is one of the best we had. We declare the dividend, interim dividend of 1.25 per share. As you may remember, we announced a dividend distribution as well as a capital allocation policy. In line with that, over the period, we'll go to 35% of the payout, and we are moving in that direction. In that direction, we have given this, the interim dividend. Naturally, we have sitting on certain cash, and we would look at certain areas of acquisition to do two things.
One is specifically create a stronger positioning as well as strength in the areas as I talked about integration middleware and cloud. The second is, of course, also to create appropriate strategy for disruptors. This is what we are looking for. We are very excited with the prospects we have in the industry. We are very happy where we are and the kind of visibility we see with our clients and with our offering. T hank you for joining us today and look forward to any of your questions.
Thank you. Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question comes from the line of Vimal Gohil with Union Mutual Fund. Please go ahead. Thank you.
Yeah. Thank you for the opportunity, sir, and congratulations on strong margin performance. Sir, my question was on your onsite-offshore ratio. As you said that over the last one year, onsite-offshore ratio is up, or the offshore ratio is up by almost 10 percentage points. How much of that was led by the pandemic-related changes in delivery model? And how much of that was actually led by the clients being okay with, you know, more offshore delivery because of the inherent cost advantages that they have? If at all it was dictated by your client itself, then can we expect a further improvement in our offshore ratios going forward?
Let me just give a little bit background. If you remember, as we are very focused player and specifically on certain domain, we hired a lot of people outside India initially to increase our domain experience. We had been consistently saying that there will be an opportunity for us to move a lot of work offshore. I may say it's a combination of both the reasons, because of the pandemic and because then the openness of the client. Actually, that helps us to make that transition happen, and that helps us to really move this shift into onsite-offshore. I may say that we are comfortable now where we are, but may... I mean, there will be some percentage we can do more over the period, but nothing significant. This was a significant move, and that's why we brought it out.
Right, sir. It was interesting you spoke about focusing on integration middleware architecture and cloud. Just wanted to get some sense as to how much each area has been contributing to your numbers. I mean, any broad sense would help. Which one is currently contributing a higher proportion? Is the mix expected to change going forward? If you could shed some light please.
Yeah, certainly. Integration is the largest part of our business, currently, and little bit of in middleware we call it UDS too. In some way it was also sold. Middleware is, of course, plus many things. Integration is, I would say, the large part of our business for now. We created this special focus on software-defined vehicle, middleware, new architecture. That is currently there, but there is a lot of room to increase this offering over the next few years. The cloud is something which is very new. We have just started certain offerings along with our practices.
That will grow as even the OEMs are getting ready for certain specific services. We are not going into general cloud, right? We are going into the cloud, which is very specific to the services which will be provided. From that perspective, most of the OEMs have just started some of these units. This is something for next, you know, couple of years, later. That is where we would like to start focusing.
Correct, sir. Lastly, I mean, assuming that, you know, offshore will continue to rise, as you said, this does have implication on margin. Would you just take it on the P&L or maybe reinvest it back to the business? I think as of no w,
As we have mentioned, I think, we are comfortable with 18%+ EBITDA. We have said that over the period, we may go towards 18%-20% over next three years also. Right now, I think, 18% is a good milestone for us. Looking at the current situation, both on demand and supply, maybe that seems a reasonable margin for near term.
Right. Any gains from offshore will be reinvested back within-
Yeah.
From the most of them.
Yes, certainly. I mean.
Got it, sir. Thank you so much. I'll come back in the queue. Thanks a lot.
Thank you.
Thank you. The next question is from Karan Uppal, with PhillipCapital. Please go ahead.
Thanks for the opportunity. A couple of questions from my side. First is on the partnership with dSPACE and Microsoft in the homologation of autonomous vehicles. Sir, can you please elaborate a bit on this partnership, the kind of work that KPIT will do, and how do you see this opportunity going ahead? How are the deals structured here and any deal wins you have in this space? Second question was on basically FY 2023. We see that FY 2022 will end at an impressive growth rate of about 20%, or almost 20%. That was also supported by a favorable base last year. Do you believe that the current growth rate can continue for next year as well? Any sense would be helpful. Not asking for any particular number. Thanks.
To go back to your first question, I think, the idea what we have is we are going to provide a solution to the client problem or, a certain specific, offering. We would like to go to an end-to-end offering. We see the offering with our solution, and integrating some of the solutions which other people have. We try to align, have alliance with the best in the industry. That's why we put that. This basically talks about, over the period as, autonomous, you know, homologation rules are coming up. I think, the first one has come in, Europe, and it will now get into some other places as well.
Being early to really set this up, it's a new area. It will take some time to set this up. From that area we have started doing that. Some of the other practices along with autonomous and will allow us to really put this too all together. Certainly, we have started engagements with the client on a smaller scale. We expect it to mature as people start coming with the autonomous vehicles and the regulations come in place across. The second question you had was on
FY 2022, any sense?
10.63% growth. I think the basic answer for that is we see a strong demand, and I see a strong demand in our world, which is T25 and some of the disruptors we talk about. We see a very favorable environment for our growth. I talked about certain challenges on the talent side, and I told you what we are trying to do to address that. We feel positive, but we will give more better color to this next week, in the month of April.
Sure, sir. Sure, sir, just last question. You had mentioned that you are creating a special focus on the disruptors. Are these disruptors contributing any revenue right now to your P&L?
Yes, it does. It's small in number, but it in some way happened because of not with a very clear strategy, but it happened little bit accidentally or transactionally, when we can. Now we want to put together a very clear strategy, separate unit, separate focus, to further this. Right now the revenues are there, not very significant. We do have some good clients. I think with this we would like to build on this, going forward.
Sure, sir. Thanks a lot and all the best for FY 2023.
Thank you.
The next question is from Nitin Padmanabhan from Investec. Please go ahead.
Hello?
Nitin, we are not able to hear you.
Hello?
Yes. Nitin, your line is open now.
Am I audible now?
Yes, you are. Thank you.
Apologies. Good evening, everyone, and thank you for the opportunity. Had a couple of questions. The first one is, if you see this particular year that we are close to ending, I think we have seen very strong growth and also very reasonable offshore shift. That's also given very strong margin performance. When we think about next year, how do you think we should sort of characterize it? Do you think that the offshore shift has sort of stabilized and what you sort of mentioned, maybe there's some scope? Do we sort of look at it as a year of, potentially, you know, less drag from an offshore shift in terms of growth and maybe stable margins? High growth, stable margins.
Is that the way we should think about the profile as we get into next year? That was the first question.
Yeah. The way I would put it is, as I mentioned, that there may be some shift in offshore, but not as significant as it happened in the last year. I would probably take in the medium term, these margins, 18% plus as a stable margin, for the company. Of course, the growth environment is strong, and we'll give more color to this in the month of April, as I mentioned.
Sure. The second question was, you had earlier mentioned about software architecture deals that are large in size, and there could be a couple of those opportunities over time. Do you see any of those? Any update on those or any thoughts in terms of how those deals in the pipeline are progressing? Do you think we'll have a few wins as we get into next year through the year?
We are working with about four such deals right now. We are hopeful that at least by the end of quarter one, we would have started working on something.
That's very helpful. Lastly, probably within this T21 account, the weakness that we are seeing in this particular quarter, which is a 1% drop, if I've understood it right, it's primarily because of a 3% offshore shift that we are seeing a decline and maybe some furloughs. In reality, it's not really a drop in volumes. It's actually a growth in volumes, but it's maybe lower revenue and higher margin. Is that a fair way to put it?
Yes, it's a combination, Nitin. As we said, that if you look at some of the strategic engagements that we have signed up and some of the programs that we are working on, most of them are driven by our T-20 clients. Looking forward, we believe that the rate of growth with our T-21 will be solid.
Super. That's very helpful and thank you so much and all the best.
Okay, thank you. The next question comes from Chandramouli Muthiah with Goldman Sachs. Please go ahead.
Hi, good evening, and thank you for taking my questions. My first question is on the broader industry trend of potentially more work coming in from the operating system architecture side. Just trying to understand, are these deals sort of longer term? Are they larger in size than the historical deal sizes that you've been working on? Cause from what I understand, a large deal for KPIT has typically been sort of $50 million-$60 million in contract size. Would the operating system architecture shift related work that you're in talks around, would those be larger deal size opportunities going forward?
Yeah, I mean, this, of course, depends upon every client, because every client has taken a different view. As you know, this is very core to many clients, so they would like to, some of them would like to do largely manage it also by themselves. They would do some of their work. They would have some of their team, some of the products which are in the market and, some of the players like us putting it together. Potentially this will be a three-year deal at least for this would be of a reasonable size. To your point, this will be at least medium to large deals.
Got it. Makes sense. That's helpful. Second question is on your order pipeline. You mentioned earlier in the call that you are in advanced discussions with some of your U.S. customers on large deal opportunities. Just trying to understand, would you be able to give us some color on your total contract values or order books outstanding with your T21 clients? That'll be very helpful detail.
See, there are two things I would like to mention. I think what I've mentioned is actually the wins which we have given during the quarter, most of those are from U.S., is what I mentioned. If you look at some of the deals, deal wins we mentioned in the new engagements, most of those are from U.S. Priya Hardikar mentioned that also. That is one point. What was your second question on that? Sorry.
Yeah. Just around the commentary that you've given around sort of strong demand environment. Historically, you haven't necessarily given too much detail on, you know, book-to-bill ratios.
Yes.
Or, or-
What we will do is, I understand that there is this demand. I think from first April we'll find out a better consistent way of giving this to you. I think we'll find a right way so that we can give consistent data to you.
Sure. No, I think because I think yours is an industry where sort of 4-5 years visibility you seem to have on demand, so any sort of order book values or total contract values would be really helpful trying to understand, you know, the growth opportunity in the company. I think that's the spirit of the question that we had.
Understood.
Got it. Last question is on the per employee realization. Just trying to do some math. Since FY 2019, your $ realization per employee has risen approximately 3% annually. Just want to understand what are some of the factors that have helped this, and how should we think about this number going forward? You've sort of increased your employee count, if I were to include PathPartner, almost 1,000 new employees, quarter-on-quarter. Just trying to understand, is this sort of 3%-4% annualized improvement, revenue per employee, is that something that you think is sustainable going forward? What are some of the factors that might drive any rates of this nature?
I mean, I would like to look at this more in a range because it really changes in a particular quarter, in a particular time also for two, three reasons. One is onsite offshore during that quarter. Second is the fresher additions we do, because freshers do take a little bit of a time, specifically for us to get them to work, and they have to go through extensive training and hands-on training and volume. So, all that adds up. I would say you can look at this range continuing roughly with certain 5% here and there.
Got it. That's helpful. Thank you very much and all the best.
Thank you.
Thank you. The next question comes from Sandeep Shah with Equirus Securities. Please go ahead.
Yeah, thanks for the opportunity and congrats on a good quarter. Just wanted to understand strategy going behind disruptors, because it looks like most of the automotive engineering R&D spend has been concentrated with the top 10 OEMs or max to an extent to top 20 or top 30 OEMs. How will we de-risk our model if we go behind disruptors because their overall pool of engineering R&D spend may not be that big, and if anything happens where they do not get the funding, then it could be a risky strategy for KPIT as a whole. How will we select? What would be the selection criteria, and how will you de-risk from that kind of a potential risk?
I think as Mr. Patil mentioned earlier on, our focus right now remains on our T21 clients, and we believe that in the mid to long term we'll have solid growth coming from them. That's our bread and butter today, and we will not take our eyes off of them. Having said that, we also have to keep our ears to the ground and see what kind of changes happening in the marketplace. Clearly, there are some disruptors, you know, who have created a lot of splash in the market and are leading the way, and then there are bunch of followers. So this is something that we need to pay very close attention to. As Mr. Patil said, fortunately for us, there are some of them with whom we are already engaged.
This is the year where we have to create a separate bandwidth and a strategy to chart out the plan for the next 3-5 years. What really are, you know, value creation for the disruptors? You know, for our T21 from the existing OEMs, our value proposition is very clear to them. We want to make sure that, you know, it's as strong for the disruptors over a period of time. This is something we'll look at very seriously this year. The real shift will start to happen in the next 3-5 years. This is, like I said, this will not be at the expense of our T21, right? That's our bread and butter will continue.
We'll create a separate bandwidth, and then we'll grow it from there over a period of time. Does that answer your question?
Yeah. Thanks. Just a related question. Any strategy to diversify beyond T21 going into sectors outside automotive and how fast that diversification could be?
The thinking behind we call it T25 strategy. We have 21 who are part of it. Obviously, we'll add some more, especially from, you know, one or two passenger cars, maybe one or two commercial vehicles, that will add to our T25. Over a period of time, some of the disruptors will also become part of this over a period of time. That's really the strategy. Our focus is on helping our automotive clients move from being automotive, you know, passenger cars, commercial vehicle players to mobility players in the future. That's really our calling, and that's what we'll continue to focus on going forward, because we see tremendous headroom in this area in future.
I completely agree. I think automotive will have a long-term visibility in terms of growth. Here in terms of, if we have an opportunity, similar opportunity in semiconductor, telecom, or maybe aerospace, are we open to look into these kind of sectors as well?
We'll continue to look at mobility. That's really our calling, and mobility will go beyond what we look at as passenger cars and commercial vehicles over a period of time, and we'll move in that direction. That's number one. When you talk about semicon and telecom from the lens of automotive, we'll obviously partner with them. We'll work with them to create value for our clients in the mobility sector. We are taking a very close look at that. Mr. Patil talked about you know, our alliances and you know, through PathPartner Technology some capabilities that we have acquired in the semicon. But semicon companies and telecom companies are our means to create higher value for our mobility clients.
Just two bookkeeping questions. Based on guidance, it looks like the implied growth which we forecast for the fourth quarter could be as big as 5.7% on a Q-o-Q basis, and that looks likely to be 100% organic. What will drive this? Because will it be a 2Q deal win which may ramp up in the 4Q, or even there are deal wins which are enough in 3Q, which will help us to post a solid execution on the 4Q numbers as a whole?
I think what we just wanted to say that we revised our guidance and on the revised guidance we will not be at the lower end, but on a higher end. We are not giving any specific numbers. I also mentioned about the mix of the revenues and et cetera. It really depends upon that. The growth drivers are not going to be any different. I think we look at it as a strong quarter, but it is not going to be any different than what we have shared earlier. Basically the same T21 clients, same practices, same thing. I think that will continue to drive our growth.
Just, sir, in terms of PathPartner Technology, at the time of acquisition, the revenue size which we have discussed, if we arrive at that for a full quarter consolidation at this time, then looks like PathPartner Technology would have contributed 3.5% quarter-on-quarter growth in this quarter as a whole. In your opening remarks you also mentioned about some common clients. What could be the exact contribution of PathPartner Technology in terms of this quarter's growth contribution?
It is very hard. That's why we have not given the number. Otherwise, we give the numbers most of the time in the past, as you know. See the point here to say is there are certain type of business which is not in line with KPIT strategy. We have actually some of which we have divested, some of which we have shut down. We have aligned the focus with KPIT clients. We have common clients, we have common pool. I think that's why it is very difficult to give you the number. I mean, it's not the most significant number.
Okay. Okay. Is it fair to say, do we work as a subcontractor for PathPartner Technology before acquisition, and that's why the intercompany revenue gets nullified, and that's why the growth contribution cannot be that big?
I mean, I don't know whether you mean subcontractor or this, but yes, we are working commonly on projects, some common projects and common clients. Yeah.
Last thing, if I can squeeze on the taxation. If I observe on a quarter-on-quarter, the current tax and the deferred tax as a percentage to PBT has a huge volatility on a Q-on-Q basis. What drives this as a whole?
I don't think there is a major drive. If you look at our effective tax rate, it is in the same range of 20%. In fact, in this quarter it is some basis point lower than 20% versus it was a little higher in last quarter. We've said that during the year as a whole, it will range between 20%-20.5%, and that's how our quarters have been.
I understand that. I'm just saying current tax and the deferred tax. Because current tax sometimes goes above 30%-35%, and sometimes it comes to 20%-22%. There are material changes related to that towards deferred tax as well.
Deferred tax positions are mainly dependent on how the SEZ units' taxability or there are multiple factors there, or even how the gratuity payable amount there. There are multiple factors of how deferred tax is calculated. We will not be able to comment on the volatility of deferred tax because there are multiple factors affecting it.
Okay. Thanks and all this.
Thank you. The next question comes from Mohit Jain with Anand Rathi. Please go ahead.
Hi, sir. Three questions. One was related to your segmental data. This ADAS and connected-
I did not get it. Can you repeat?
Segmental break.
Segmental breakup.
Segmental data. ADAS and connected.
Mm-hmm.
These two segments have been slow moving for like 4-6 quarters, and it appears that they should have been relatively on a faster growth pace. What should we expect going ahead, and what is keeping them in this slow lane, so to say?
Actually, one of the practice where we had the largest change from on-site to offshore, and if you remember some of my calls earlier, I had said that to service some of our clients, we actually hired a very significant number of people outside India because some of that domain knowledge did not exist with us. As I mentioned a little bit earlier, that we took this opportunity to allow us to move that work offshore. One of the major shifts, much disproportionate to the overall number has come in ADAS during this time. Connected vehicle, yes, basically it is, I believe we will start seeing some more traction during this quarter onward, next quarter onward. We'll start seeing some traction.
There has been, if I to say, certain. See, basically the traditional infotainment, traditional cluster, these programs merge into what we call an e-cockpit. That changeover is very complicated by the fact that there are different players which has come in, et cetera. It is settling down. I think you will see that growth slowly coming in the next quarters.
Another part is, you'll see that our growth in other is significant. In some of the others, we have actually spun off a practice which was part of one of these practices before. That's why you see higher growth in other, point number one. Point number two, some of the other long-term directional views that we talked about related to software-defined vehicles and middleware, they are also forming part of that, and they will also lead to better growth in all these three areas in future.
When you spoke about offshore shift, like is there a volume or number or something for ADAS wherein we can assume that this practice is also growing at a pace similar to the company?
Individual numbers is hard to give, but I can tell you that is the largest in that number. The shift is largest.
Shift is largest. Okay. Second was related, it's a bookkeeping question, but related to CapEx. Like, it looks like nine months CapEx has sort of gone up, and what is the number there for nine months, and what is the outlook on CapEx for full year?
General CapEx has gone up. The operational assets increased. If you look at the property, plant, and other tangible assets as at December end, quarter-over-quarter, there is not much movement. During the nine months, yes, but those have all been operational.
Now going forward, the CapEx should fall sharply, or what is the expectation?
The regular CapEx will continue more or less.
Measuring it as percentage of revenue, which used to be around 2% or sub 2%, now it is I think trending at 3% or above or higher maybe. Should we expect that 2023 will see a decline in total CapEx outlay, or do you think there's some-
You should look at the class-wise assets. I'm not sure whether the percentage to revenue will apply to all the classes put together.
I mean, to put it another way, our infrastructure expense is minimal, and we will have some smaller offices in some parts that we are having some satellite offices, et cetera, but it's very low. Largely, the expenditure is to support and add for the work from home. I think that's the-
Yes. That's it. Yes.
Only expenditure which is seen.
That should be relatively, I mean, we should see a peak in 2021, 2022, and then it should sort of fall off. Is that a prediction which we should expect or?
It depends. I think this quarter, for example, if we have a significant number of people adding, so it-
It will proportionately increase.
Proportionately increase. Understood. Sir, last was, you have discussed this during the call, but these new areas or segments that you plan to enter through inorganic initiatives or something. Is there some kind of an outlook that we can have that apart from auto, this is the vertical. Last time you spoke about aerospace. Is there any specific vertical that is in your mind that you would like to enter into?
No, I think I just don't know what you're referring to. I think we were very clear when we said that we'll stick to mobility and that's really gonna be our focus. Correct? Everything that we are doing, our current business and future business, all the investments are for our passenger car, commercial vehicle, and what we call disruptive. That will remain our areas of focus.
At least next three years we are going to say that we will not add anything else even a sub-vertical.
No, no, understood. I got confused because I heard aerospace is part of mobility, and that's why you call it mobility. That's why I was clarifying whether that includes aerospace or just-
I'm glad you asked that question.
Okay. Thank you, sir.
It would have created other thing other way.
Right. Thank you very much, sir. That's all.
Thank you.
Thank you. The next question is from Dipesh Mehta with Emkay Global. Please go ahead.
Yeah, thanks for the opportunity. A related question to the previous participant. Now you've gave some clarity about Others segment. Can you provide some detail about what we include in others and what shift we are witnessing there?
Yes. I think some of the things, if you look at the middleware and the architecture that you talk about, I think body electronics play a significant role in that. That's one area where we've seen tremendous growth, and we'll continue to see that growth going forward. The architecture itself and all the projects that are related to the middleware, including AUTOSAR.
Okay. AUTOSAR is part of others for us?
Right now. We will define it, going forward, but I think right now it is.
I think in Q1 FY 2020, we provided some sense about the breakup of others, and that time we indicated AUTOSAR is around 5%-6%. Mechatronics is around 7%-8%, and vehicle is around 10%. Can you provide similar kind of update, let's say, what will be the breakup currently? Whatever couple of headings which you can identify and give some sense.
See, generally I can tell you that, AUTOSAR has been our high growth practice, and the middleware, as I talked about, it is going to be a major practice. You can consider a significant part of that portion going to these practices.
Understand.
The body.
The body electronics. Okay. Okay. The last question is about, I think, do we share what will be the contribution of PathPartner in this quarter?
I think I answered this question a few times. That it is why we cannot give an exact number, but I also mentioned that it is not as significant.
Okay. The decline in what we are seeing, let's say revenue per employee, is largely because of the acquisition related impact or is largely more towards offshore type of thing?
It's basically because of the fresher addition.
Okay. Do we share that number, how much we might have added?
We have given the details. Overall, we have given 9% people during the quarter organically, plus 500-plus people through PathPartner headcount.
No, it doesn't give freshers. I'm asking specifically freshers, whether we are sharing that number.
Well, I think maybe 70%-80% of the addition would be freshers.
Understood. Thanks.
Thank you. The next question comes from Devang with Invest Yadna. Please go ahead.
Hello, sir. Good afternoon. Thank you for providing the opportunity. Sir, you have mentioned three domain specifics, right? Integration, middleware, and cloud. In terms of level of complexity, which is the most complex? Can you give the margins with respect to these areas?
I think I talked about these, new technologies or new areas of spend which are coming up on top of what we do. Integration is the current one, what we do. From the complexity perspective, they are different complexities. Middleware is a different complexity. It's quite complex from that perspective. It's pretty close to hardware and operating system. It's a pretty complex. Cloud is a different. It includes more integration work. It is different. I think every part has a different complexity. It's too early to give any. I mean, only if we do the segmentation, we would do that right now. I just included it as a part to give you an idea about the future course of our technology.
Okay. Thank you. Thank you, sir. That was all.
Thank you. The next question is from Karan Danthi with Jetha Global. Please go ahead.
Hi. Thank you for that. I just wanna benchmark your performance against your peer, they just reported a few days prior, and they're showing 14% Q-over-Q growth, albeit on a smaller base, but still result in a higher absolute rupee, you know, growth Q-over-Q. Is this a function still, you know, the offshoring piece we mentioned? Or is it a function of mix, where you're winning more ADAS and connected vehicle deals? How does one interpret such a large discrepancy?
Excuse me. I think, sorry to interrupt you. We are not able to hear you very clearly, and the question also seem very long. So if you can be a little clearer and louder, that'll help.
Your peer, which is your listed peer in India, reported 14% Q-over-Q growth in their auto segment or transportation segment. There's a rather large discrepancy between that number and, you know, your 5% growth. Any way to help us understand the reason for such a large discrepancy?
I think I would not like to comment on any other company. I can talk about the performance of this company and consistency and the way we have set up the expectations. If you go into the details of. There are two, three things. One is, instead of quarter-on-quarter, take cumulatively for the nine months, first it gives you a little better numbers than if you take it over a period. The second, if you can look at some inter-group revenues, that will give you some color. Basically some of these entities had really suffered quite a bit in the last year. We had also suffered that loss of revenue. Some of those issues are there.
I would not like to analyze it like that. I would like to focus on our business, how we see the outlook and what we are doing against what we promised.
Yeah. Thank you for that. Just a follow-up there then. Who do you regard in your competitive set across your major business lines? In integration and then-
In middleware and cloud, you know, I guess who is in this competitive set today, really in the competitive set?
There are multiple different companies in different spaces because as you know, we are one of the very few companies who just focus on automotive and mobility. There are companies who focus on more than one vertical, but I would say in the integration as well as this area, Luxoft was a good competition, I would say comparable competition from Asia, from Europe. That was a strong competition from the integration as well as the domain perspective. Most of the domains they have been there. There are certain companies I would say from India, but they compete in a certain part of the practices. In Europe, there are also boutique companies who are doing that.
There are generic companies or if you look at it, you know, some French companies who are there, who have been there, some German companies who are now part of this European company. Most of them work in one or two domains. Our real competition is also happening with a company like Bosch. Actually, if you ask me in the middleware area or some of these areas, the companies we really would compete with are some of these companies. The difference there we have is we are an independent company. We are not a part of any Tier One. We can create a solution which is more independent.
you know, it's a choice of the OEM, or it also sometimes goes down to, if I have to say, at what stage, if it's delayed or, you know, it depends upon the situation of the customer. That seems to be a more competition for us from the Bosch software side.
Understood. Thank you. Just the last one. You had commented a little bit on deal sizes, especially for the newer type of deals coming in. Just a framework for us over the next 2-3 years or the medium term. Is a $100 million deal something that is doable, given the skill sets that you have today internally or the skill sets that you are seeking to build? Can KPIT, being a domain-focused player, win a $100 million deal with one individual customer?
The short answer is yes.
Okay. Are there any skill sets missing, or do you have all the skill sets you think necessary at the moment? It's just a question of building capacity and winning the deal.
The point, it really goes back to how the OEMs want to operate. There are certain OEMs who are comfortable, as you know, they are matured in working with a player and taking the, you know. I think that those are the guys who can do it. Some other companies have a different way of doing it. Actually from our skill set perspective, if you ask me, of course, we can strengthen certain, and always there is a scope to strengthen certain competencies, but there is nothing significantly missing to do that.
As you know, looking at the complexity of some of the programs that we are working on, it's also an ecosystem play. You know, not one company is gonna do it all. We have to partner. Mr. Patil talked about some of the partnerships that we have. Together with our partner ecosystem, we believe that it really complements the areas and creates a larger value for our clients.
That was one of the reasons for also doing the alliances and partnerships.
Got it. Thank you.
Thank you.
Thank you.
Thank you. The next question comes from Ankit Agrawal with Yellowstone Equity. Please go ahead.
Hello. Thank you for taking my question. First of all, congratulations for a different set of numbers, especially on the margin side.
Yeah.
Yeah, first question is, you know, based on your industry experience and the demand environment that you're seeing, what is your best guess in terms of how much time will it take to double our revenues? Will it be three years, five years, seven years? I'm not looking for a specific guidance, but just some sense.
You know, at this point, what we can say is, you know, I'm just gonna reiterate what we said earlier on. We really see solid robust demand for the next 3-5 years. You know, I think there is, you know, a really solid opportunity for us to help our clients in this area, and we see favorable market conditions.
Okay. Let's say, I mean, if you want, if you have to, for you know to serve double the revenues that we are doing currently, in terms of employee strength and infrastructure, what kind of addition do we need? Can we do double towards the revenues on the current resources itself?
I think, yeah, that it's simple math is that, but it doesn't quite work that way. As you know, as a company, we've been investing in our tools and accelerators.
We also try and figure out ways to create greater value to our clients so that we can shorten their time to market. Our focus continues to be on the automation side along with our tools and activators. T hat's why the revenue growth and the growth in the headcount is not necessarily linear.
The last question is more on the accounting side. I noticed there's a significant volatility in the standalone numbers this quarter. Just trying to get a sense like what kind of revenues do we book in the standalone entity and what goes into subsidiaries?
See, standalone subsidiary is a transfer pricing module that we operate on, and it depends on the customer contracts and the projects differently. Standalone entity records for the offshore business that we have across all the subsidiaries. That's all I can say. I mean.
Okay.
I would not say anything to analyze.
Standalone. Yeah.
Standalone. Even we don't look at it.
Yeah.
Our internal MIS is also.
Consolidated.
I think.
You should look at consolidated accounts, including profit and loss and balance sheet.
We give you a breakup.
Yes
Across all our practices and we add color to that. That's how we run our business.
Correct.
Okay. Internally there would be some logic, right, for doing that for revenue booking?
No, no.
The booking is, if there is an on-site, then it is recorded.
Yeah. Specifically followed as per the transfer pricing, you know, guidelines that we have. There is no other. Like, you know, Kishore mentioned, our management reporting system is entirely based on practices and geographies, you know, and our T25 clients. That's what you should also look at.
Okay. That's all I had. Thank you.
Thank you.
Thank you.
Thank you. The next question is from Madhav Sharma with Investor. Please go ahead.
Good evening, sir. Thank you for taking my question. I would like to ask you as an investor, I would like to know whether this industry as a whole can ever build any kind of competitive advantages or not just KPIT, but ever in the future on a yes or no, can a company ever build a moat in this industry?
No, no. Can you say that. I'm not sure. It's not clear to me. We are not able to hear you. Can you please repeat your question?
No, sir. My question is, I would like to know as an investor that whether in this industry a company can ever build a competitive advantage or pricing power or any kind of moat?
The way I understood the question is in our industry, a company, can it build a competitive advantage and a pricing model? Is that the question?
Yes, sir. That's the question.
Yes, I think we have done that. I think if you look at our shift in the last three years, you know, we have done that. I'm sure there are others who are also doing it. It's across the industry, whether you know, if you look at an OEM, I think Tesla has done that. If you look at Tier One, some of them are doing it. And then there are companies like us who are also creating a clear differentiator and you know, creating our own niche in this industry.
Okay, sir. I would really like to understand this, that as you just replied about like two questions earlier, you were like, there are many companies in India that focus on this part of your business also, but they are diversified into other sections of industries also. I want to know when a lot of companies are doing what you already are doing right now, how is it that KPIT is going to stand out in the long term? You say that 3-5 years you see a demand volume driving your growth. After that, if you do not happen to have any kind of advantages competitively, how are they going to sustain?
I think this is a very basic question, but you may have to study and maybe talk to our IR team because we have run out of time, but I will give you a very short answer. First is, at least in India, if that is what you're looking at, there is not any other company which is half our size in this area, in the software in automotive space. That is the point number one. First is the focus is always the biggest differentiation, and that's why not many companies prosper versus others because of the focus. The third is of course, we have been investing into lot of assets, what we call the IPs, to differentiate ourselves both in terms of domain, technology and productivity.
I think that's the reason we have stayed ahead in terms of this area. Of course, last but not the least, the strength we have with the global presence with the key clients, which is T25. These are our advantages, and it is not very easy. Automotive. See, our strategy has not come in last two years because there is a spend. We have been working in this area for 17, 18 years. If you look at some acquired entities even before. I think deep domain knowledge and strength, ability to have a production software in the car for running for 15, 20 years is a very significant advantage in automotive.
Secondly, to your point, whether this industry itself will provide enough headroom for the next three to five years, absolutely. You know, this one industry where, you know, the existing OEMs are spending money to remain competitive. There are disruptors who are spending money to be part of this shift from traditional vehicles to mobility. In next three to five years, we see a fairly good headroom for us to grow and continue to deliver value to our clients.
All right. Thank you, Sachin Tikekar. That's all for my questions. Thank you.
Thank you.
Thank you. The next question is from-
Hey, I think we can take a last question, but because we are really 10 minutes, we have passed it.
The last question is from Sandeep Shah with Equirus Securities. Please go ahead.
Yeah. This is a bookkeeping question. In terms of other expenses in this quarter has gone up. So is there any non-recurring charges, which may not repeat in the fourth quarter? How to look at as a percentage of even other expenses as a whole?
Other expenses in this quarter had gone up mainly because of some, you know, recruitment, training, travel. Operating expenses have gone up. You know, there are a few professional fees also, but, I would not call them non-recurring, you know, going forward.
This PathPartner investment banking charges may be also a substantial portion or it's not big to call out?
It's not too big to call out.
Okay. Just last, in terms of disruptors, are we also saying we could be behind OEM like Tesla, who is also to be a disruptor in the EV space? Even that kind of a size of a company we could be behind? Or if I'm not wrong, correct me, if we are already working with a company like Tesla.
No, yeah, there are companies like Tesla. Tesla is a leading disruptor, and there are a few others. All of them will be on our target list. Some of them will be on our target list, not all of them.
Good to hear that. Yeah. Thanks and all the best.
Thank you.
Thank you. With this, we would like to conclude the quarter three earnings call. Thank you from our side, and take care and stay safe, everybody.
Thank you.
Thank you.
On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.