Ladies and gentlemen, good day, welcome to the KPIT Technologies Q1 FY 2022 Earnings Conference Call, hosted by Dolat Capital. As a reminder, all participants 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 touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain. Thank you, over to you, sir.
Thank you, Bilal. 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. Sunil Phansalkar, who is AVP and head IR at KPIT, to do the management introductions. Over to you, Sunil.
Thank you, Rahul. Good afternoon, and a warm welcome to the FY 2022 earnings call of KPIT Technologies Limited. I sincerely hope all of you have completed your due vaccinations. If not, we would urge you to get it done as soon as possible. On the call today, we have Mr. Kishor Patil, CEO and MD, Mr. Sachin Tikekar, President and Executive Director, Priya Hardikar, CFO, and yours truly from Investor Relations. As we always do, we will have the call with initial comments about the quarter performance and the way we look the year ahead by Mr. Kishor Patil, and then we will have it open for your questions. Once again, a very warm welcome to all of you, and I will hand this over to Mr. Kishor Patil.
Good afternoon. I am very happy to welcome you to the results of the first quarter for this current financial year. After the demerger and having $130 million around revenue, we achieved a special milestone during this quarter of achieving a billion-dollar market cap in two and a half years. It is a special milestone we achieved during this quarter. It is also a very good start for the new year, and I am sure we will build a business momentum based on this good quarter. During the quarter, our revenues year-over-year increased from $60.25 million to $77.2 million. It is a yearly growth of 18.3%, and on a quarter-over-quarter basis, the growth is 4.3%. Generally, the growth has come across geographies. More specifically, the wins I am talking about. The new wins during this period have been more in the area of autonomous and diagnostics.
There are two age new OEMs we added in China, which is also important and interesting as we had mentioned in the past that while we focus on T25 strategies, we look at disruptors who are coming in the market. In terms of EBITDA, we have increased the EBITDA a bit, shared more than the last quarter to 17.3%. Year-on-year, as you know, a year back, our EBITDA was 13.5%. I think we have achieved a good number in EBITDA. Profit from the INR 60 crores this quarter. We are at INR 60 crores from INR 47 crores from the last quarter, which is a 30% quarter-on-quarter growth. Year-on-year, that looks a very significant number. Last year, we were very soft in that quarter. 30% over quarter-on-quarter is a good growth for all the operational profits which we have achieved.
The difference why the profit has gone up while the EBITDA is relatively constant has been mainly because of two, three reasons. One is, of course, the growth. The second is the depreciation has reduced. Third is due to good cash accruals, overall the higher interest income. We were also supported by the currency other income during this quarter. Overall, if you look at last 10 quarters, we have shown consistently a very high cash generation and cash conversion from profit. During this quarter also, we have a 98% conversion. Our DSO is probably the best in the industry at 50 days. I think in line with the profit growth and the, of course, revenue growth, the cash generation has been very good. In terms of people, if you look at the attrition, as we have mentioned, the attrition will be higher in H1.
It is about 20%. We are pretty confident that in the H2, it will come to normalized level. There are a few things which we are doing. Of course, there is a consistent focus on the growth of people, both in terms of their technical skills as well as leadership skills. Our motto is best place to grow. Last few years, we have really intensified this effort. As we know that we are probably the largest employer in the new age skills, we have a tremendous focus on building these skills. We continue to invest in that and looking at growth of people internally to manage the growth. Our increments are due in this quarter, so in Q2. Basically, the increments, I think our team has done very well in the last year. In spite of our difficulties, they really worked hard.
We are giving one of the leading most increment in the industry. Apart from that, we are also giving medium-term incentives for the key team members, more key team members, we already have that scheme. This will have certain impact on the EBITDA, about 3.75%. That is the overall impact on the EBITDA. We will make it up by other factors, both quality of revenues, growth, and the other parts I talked about. Overall, we believe that the impact, even after such a high increments, will be less than 1%. That will be the impact in the Q2 part. We continue to focus on the zero defect delivery, which is very important, in line with our strategy of T25 and focusing few clients. If I would say, in critical projects. During this quarter, we won the NASSCOM Award for Service Delivery Excellence.
I may say that we only nominated two projects, both projects won the award. In terms of future outlook, I would like to talk about first is the client discussions. The overall growth environment is pretty strong. As we have been maintaining, the client discussions are about long-term investments, increasing investments into electrification, followed by autonomous, and we know that it will get another connected part, and technologies will also get more impetus in the next year or so. For enabling all this, the key discussion is about new architecture, changes in the new designs. Those are basically the critical program for 2024 and 2025. This is where we have been focusing on, and this is where we have been talking about large deals being staged. We are in active discussions with most of our clients on these kind of opportunities.
In some of them, we have started with, I would say, initial engagement. This is where we believe the growth part will fructify in quarters to come. We believe in six to nine months, some of these will fructify some of these large deals. Based on these parameters, we have increased our profitability guidance lower one. First, we talked about 16%-17%, now we are talking about 16.5%-17%, and mid-teen growth. As you can appreciate, as some of these deals come through, we will have a better visibility beyond that. We have a good cash on balance sheet, and we intend to utilize it specifically for two reasons. One is accelerate our growth and also key resources which are required for some of these large complex deals, which needs experts. For that purpose, as it is required, we will do that.
Also, we want to expand some part of our offerings, which we believe will have higher potential going forward. We do look forward to inorganic growth. We will be very, I would say, conscious about the size of the deal, the type of companies, and how quickly we can scale those acquisitions. As you know that we had a good track record of doing that. Needless to add, none of this will be any dilutive on the margins or on return on capital employed. Thank you.
We can now have it open for questions.
Sure. Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may please press star and two. Participants are requested to use handsets while asking a question. To ask a question, you may please press star and one. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have a first question from the line of Vimal from Union AMC. Please go ahead.
Yes, sir. Thank you for the opportunity, and congratulations on a very strong quarter. Sir, my first question was on the revenue growth and the guidance. Talking about 2.3% revenue growth, and let's assume that you're talking of a 15% sort of a growth in FY 2022. That implies a CQGR of about 1.5% over the next three quarters, which seems to be slightly conservative given the demand environment that we are talking about.
Are we building in some delays in execution of deal wins that we've had in the past? Or is there any conservatism that has been built into our guidance, is my question. Just wanted to clarify this, when you say mid-teens, this is pure organic growth, right? It does not include PathPartner which we have acquired. That is question number one. Sir, the second question is, the growth in this particular quarter, if you see geography growth, this has been driven largely by the APAC segment.
If you see, even in this particular quarter, the powertrain segment declined on a quarter-on-quarter basis. I do understand that the deal wins that we have had over the last few quarters have been pretty broad-based. In line with that, should we expect our revenue growth to be much more broad-based going forward, so that we can assume that it will be more sustainable in nature? Lastly, it is very heartening to see your growth outside strategic clients coming in. Should we expect this trend to accentuate going forward? Because you're talking of adding new clients as well over there. If you could just comment on that as well. These are my three questions. Thank you.
Thank you for the question. The first thing is, what we have done is in terms of now our whole focus is on some of these large opportunities, because most of these decisions will happen in next 12 months to 18 months. The whole focus, the whole articulation, and it is on these areas. Initial engagements can be small, can be big, depending upon how it happens in some of these areas. Right now we have gone based on our visibility now. Naturally, as I said, if the deal wins, as actually the conversion happens, we have a very strong pipeline that will naturally give a better outlook. I may just leave it here for this time.
The second thing I would say that, the growth is across the geographies, and powertrain, even though during this period has been, if I to say, one of the exceptional quarter when it has gone down. Our pipeline is one of the strongest on the electrification. Not only that, some of these, our large programs we are talking about, they are also on electrification, so we are not worried about it. If you remember, some quarter back, people had some concern whether autonomous growth is going down, and we had mentioned that it is not so. Now you see it coming back. We are not worried, and it will be more broad-based. The third thing you talked about, I think I have to remember all the questions so it becomes difficult to-.
Yeah. It was growth in outside your strategic 25 clients.
Yeah.
Over there, the growth has been very strong. It's very heartening to see that. I mean, your focus obviously remains on that 25 clients. Should we really expect this trend of growth outside these 25 clients will also sort of increase because you are seeing good opportunities there as well?
The point we have is, as we have said that in order to have T25 accounts, we work with some clients which are potential T25 going forward. Also some new generation companies who could be disruptors. We continue to work with them. These are in commercial vehicles, in new, some of these disruptors and this. They are a part of our overall clients, and it is a part of our strategy, but our focus, the basic strategy of having more than 85% revenue from T25 remains.
This is Sachin Tikekar. I'll just add to what Patil just said. We have to look at both. We believe that by having a sharp focus on T25, we are able to create tremendous value for them and we are able to build a long-term relationship. That part remains important to us as well as to our clients. As Patil said, more than 85% of the business comes from there.
Having said that, there are disruptors, we always have to keep, given the changes that happen in the environment, there are mergers, acquisitions, and so forth. We have to keep our ears to the ground. There are disruptors that are coming into play. We really need to understand their strategy and how we can create value for them. At any point in time, there are always three or four that we are looking at to add to our list of clients. It's a balance that we want to maintain going forward.
Sir, would it be fair to say that these 25 strategic clients that you're talking about, over the period of last maybe two, three years, you have gained significant amount of wallet share of their spending, and that you are looking to increase that wallet share significantly going forward? What would be the potential? Have you already reached that potential, or is there some more scope of increasing your wallet share in the strategic 25 accounts?
I think you make a good point. If you take a last three or four-year view, most of our growth has come from these T25, bulk of the growth. Over a period of time, across different practices, our wallet share has actually increased. As Mr. Patil said, in some of the areas, there are new programs that keep coming up, whether it's autonomous driving or electrification or e-cockpit. As the programs come, we have an opportunity to increase our business and also the wallet share. We don't see the ceiling in most of these T25 clients in the foreseeable future. That's why we are saying that more than 85% of the business will continue to come from T25.
Great, sir. Thank you so much, and all the very best for the rest of the year.
Thank you.
Thank you very much.
Thank you very much. A reminder to the participants to ask a question, you may please press star and one. The next question is from the line of Karan Uppal from PhillipCapital. Please go ahead.
Yeah. Thanks for the opportunity and congratulations on a good set of numbers.
Thank you.
Yeah. First question is on autonomous driving. It had a good quarter in Q1, but it has been volatile in the past. If I compare it with other practices, all the other practices are at or above their pre-COVID levels. When can we expect autonomous to reach that level? Second question is on the large deals. One of our competitors recently announced two large deals in the EV space amounting to around $25 million from OEMs and Tier 1s. You spoke about the pipeline being very good in the EV space. Are you seeing similar size of deals or maybe higher than that? Any qualitative color would be very helpful. Thanks a lot.
Yeah. The first thing is on our autonomous, and if you remember, I had explained this in quarter before, that the first couple of assignments which are large deals we got in autonomous were on-site, basically because of the way they were getting delivered, the software methodology it had. Also, the client was very keen to do that being a very critical part. That's why it was like that. Over the period, we have moved most of the work to offshore, and that's why in terms of volume, it is much higher than the pre-COVID level. That's why you see some of the areas like profitability going up, et cetera. From that perspective. Naturally now, you know that overall as a company, we are higher than the pre-COVID levels. In terms of volume, we are much higher than the pre-COVID level. That is what gets reflected into the financial performance.
The second question, I believe, was about some long-term engagements. From KPIT perspective, again, our effort is to work on long-term programs, and that's what we've been working on. As our clients were getting a grip on their business post-COVID, we are in constant discussions with them about their future programs in couple of areas. One, Mr. Patil talked about basic changes in the software architecture itself, that the conventional players have to change over a period of time in order to remain relevant. Secondly, specific domains. Domains like autonomous, electrification or e-cockpit and diagnostics and vehicle engineering and so forth.
Any color on size or if you want?
Given all of these, the conversations are ongoing, and most of these engagements are long-term. The architecture-related engagements would be that of four years or so. Most of the other production programs are at least two-four years. Given all of that, we believe that the size of such engagements is increasing for KPIT at a level that we have not seen before. They will also be stretched over a period of time. From our company perspective as well as from our client perspective, that's a good thing. I think we have a longer-term visibility. There is consistency and so forth. I think we feel more comfortable with that model.
Just to size, I think you have seen that last year we announced.
$50 million
$50+ million three deals.
Yeah.
I think you can say for the new architecture program, depending upon the number of years as Mr. Tikekar mentioned, I think the size will be much higher. Yeah.
Okay. Thanks a lot, sir. Really appreciate the color. Just lastly, one clarification on the guidance. The mid-teen growth guidance, it's the organic part, right? You are not including the PathPartner or Tech into this, right?
Yes. Mid-teen does not include acquisition.
Okay. Thanks a lot, sir. All the best for FY 2022.
Thank you very much.
Thank you.
Thank you very much. The next question is from the line of Shyam Sundar Sriram from Sundaram Mutual Fund. Please go ahead.
Yeah. Hi, sir. Good evening. This is Shyam from Sundaram. Thanks for this opportunity, sir. Many congratulations on the good operational performance per se.
Thank you.
Thank you, sir. Sir, my question is broadly related to the prior question. If I see the commercial vehicle segment vis-a-vis the car segment, commercial vehicle seems to be doing much better sequentially than the car segment. Is there any cause linked with that, with the slowdown in the powertrain division? That is the first question. Any customer-specific issues on the car side that is pulling down some amount of the growth there? That is point number one. Secondly, sir, Asia as a geography has been doing much better per se, whereas your U.S. and Europe have grown slightly below the company average. You also spoke about, even in the last quarter also, you highlighted some of the deals in Asia geography. What is happening in Asia, India? If you can give some perspective on what's happening there, that is the other question, sir.
Yeah. Let me take one question at a time. The first question was the c ommercial vehicles and passenger cars. As you know, more than 70% of our business is from passenger cars, and comparatively, commercial vehicle business is smaller. We don't see any issues with passenger cars, especially in electrification. What happens with electrification is many programs got over for the launch of FY 2022 models. Multiple models got launched, and the programs got over.
Now we are actually engaging with our T25 clients to talk about programs that are meant for 2025. Growth will come back in e-powertrain. We don't see any slowdown in the passenger car business. Having said that, given the base, which is smaller for commercial vehicles, we are seeing very good traction coming. Number one, all of our existing clients, they are a few years behind in terms of technology as compared to the passenger cars. They are also embracing autonomous driving and alternate powertrains.
I think their spend is going up as far as our existing clients are concerned. We have also started working with three or four new clients. The growth is higher on that side based on these two factors. One is the growth that we are seeing in our existing clients, which is higher than normal due to new technologies that they're trying to embrace. Secondly, our client base was smaller in commercial vehicles and now the word is going around and more and more clients want to work with us. I hope that answers the first part of your question. Second part was about growth. Yes, I hope it answers the question.
Yes, sir.
Okay. Thank you. The second was about the distribution of revenues, Asia, and how it compares. I think it's very tricky to look at growth in any particular quarter. What we think is going to happen this year is we're going to have a very balanced growth across the three geographies. Asia may have slightly higher growth because again, it's the smallest in terms of base. We'll see a robust growth coming from Europe as well as from the Americas. As we sort of get into the year, you'll see growth coming from U.S. in coming quarters. We believe that in H2, Europe will contribute to a higher degree. If you take a yearly view, I think it's going to be fairly balanced, which is a good thing for the company as well as for our clients.
Speaking of some of the clients that we signed up in Asia, the growth has come from Japan. Mr. Patil talked about signing up a couple of new clients, especially from the new age clients in China. There is some growth that is coming from China. As far as India is concerned, we work with some of the tech centers for their global programs. I think it is spread across. There was one particular OEM from Southeast Asia where we've seen a tremendous amount of growth. In a nutshell, as we get into this year, you'll see a growth that is fairly balanced across the three geographies.
Understood, sir. Sir, just one other question. If you look at the deal pipeline now, Kishor spoke about a very strong pipeline looking. Compared to three months ago, would you say the pipeline is much better now and therefore, the second quarter also the translation from the prior wins maybe in the third and the fourth quarter last year should lead to a much stronger growth in the second quarter onwards? Was there any supply challenges during that quarter, sir? Any constraints because of the COVID related supply challenges?
Yeah. I spoke about the pipeline, and I can only say that our pipeline has increased. As I mentioned, our focus is on large deals, so pipeline increase is there. As I said in the past, that the large deals also take a little bit of time to fructify, and that's why we have given guidance based on how we see it today. The pipeline is very strong, and it has increased significantly from last time, last quarter when we spoke. That is the first point. The second point.
Second point was about the supply chain and the disruption. Obviously, it's not just the automotive and mobility industry that is impacted in the supply chain. I think the whole world is struggling with getting their supply chain right. In automotive and commercial vehicles area, it's the chipset that has caused some havoc. Most of our clients are making adjustments and reprioritizing where the chips go. They're obviously putting the chips more in more profitable vehicles and so forth. They're learning to roll with the punches and make sure that they're able to meet their revenue and profitability targets. As far as the impact of all of that, obviously, it's impacting our clients, but that impact is not getting passed on to KPIT. Our programs are long-term programs in software, and this is something that is essential for them to stay abreast of the competition in technology.
We ourselves have not seen any negative impact on us, and we are not likely to see that. On the other hand, we believe that there could be specific opportunities where, as our clients learn to roll with the punches and make some changes in the production program, maybe we'll participate in some of the programs that we have not participated in before. That's what we have to say when it comes to the disruption in the supply chain.
Sure, sir. I was more asking some of COVID related or employee related, any constraints that put on or were there any constraints from KPIT employee side, which sort of constrained our growth in this quarter? Some other peers did call out some challenges due to the COVID impacting some of their employees. I was just trying to get that flavor from you, sir.
It was obviously one of the most challenging quarters ever from people perspective, right? No two ways about it. All of us spent many sleepless nights making sure that all our employees and their families are healthy. We did all of that. There were a lot of illnesses in the families, and we were very concerned. I have to give it to our employees for going way beyond their call of duty, A, to help out their colleagues and B, to uphold the commitments to our clients. I would say the impact, if any, was bare minimal, in spite of the onslaught of the second wave of COVID. Now that many of us are vaccinated and we know the disease slightly better, hopefully the worst is behind us. We are not done with the pandemic, but I think our ability to deal with it is much better.
Globally we have around 75%, 80% people vaccinated. By September end to October, we will get most of the people vaccinated. Probably we'll start having a more presence in the office post that. By the end of the calendar year, we will work out our strategy for the long term.
Understood, sir. Thank you very much and best wishes.
Thank you.
Thank you very much. Anyone who wishes to ask any questions, maybe press star and one. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah. Hi, good evening, everyone, and congratulations on the quarter.
Thank you, Nitin.
Sir, a couple of questions. The first is, I think you said two things. One is the new architecture-based deals are typically larger in size than the $50+ million kind of deals that we saw in the past year. Did I get that correct?
That's correct.
Tenures could be slightly longer, but that said, the overall size will be larger for us.
Yes.
Right. Just wanted your thoughts on, we have a very strong pipeline at this point, and going forward, maybe in six to nine months, these sort of deals start getting converted. Just wanted your thoughts on, in the interim, do you think the existing flow of business from existing clients itself is likely to be strong, and whatever happens with those large deals should actually accelerate growth from thereon as we move further. Is that the longer-term trend that one should expect?
Yeah. The current growth will be in the normal course of business. That will continue. That is not going to get impacted. Hopefully these large deals will help us to accelerate our growth further.
Sure. Obviously, in terms of our headcount additions, that also one should expect that to increase as we move through the year?
Absolutely. I think what we have done is dual strategy. One is, of course, we go to campus. We have created much better pipeline for hiring every quarter, different ways of doing it. Already all our campus recruits have been absorbed for this year.
We will continue to hire as it goes. I think we are getting ready for any such deals. We had to work it out on two ways. One is the overall number, which is hands and legs you can take. The second is the experts you need for some of these deals. These are the two different ways in which we are building the pipe.
Sure. Sir, lastly, if I look at our space in terms of our ability to get potential price increases over time, considering the supply-constrained environment, would you characterize it in a way that our ability to garner price increases should be better than a typical IT services firm?
Certainly, I think, when we work with the critical programs, I think that won't be the issue. When we get some of these deals we are talking about, which are more into new architecture and complex program, I think we will be in a position to get higher rates.
Sure. Sir, one last question from my end. The two clients that you said you have added in China-
Just wanted to add, of course, our cost will be also a little higher than what it is.
Okay.
They're going to be complex projects. Our investments and costs will also be high.
Yeah. One should expect an initial sort of drop in margins as you execute those-
No. No drop in margin. No, we don't expect drop in margin.
Okay. The last one was on the two China-based clients that you said you have sort of been able to capture. Do you think that's a part of the T25 that you had aspired for or?
As I mentioned, there are T25, and then we always keep our ears to the ground to see who are the potential disruptors. In China, it's very clear that there are four players who are likely to disrupt the NIO and potentially the Lucid and the Tesla of the world. We wanted to engage with at least two of them in a meaningful manner, and that's something that we have done. It will be a while before they actually become T25. We are just testing the water with them at this point in time.
Sure, sir. That's helpful. Thank you so much. I'll get back in the queue.
Thank you.
Thank you very much. The next question is from the line of Mohit Jain from Anand Rathi. Please go ahead.
Hello, sir. Good evening. First is on this onsite-offshore you spoke about shift of work to offshore during your opening remarks. Where are we in that journey, and can that be a lever for FY 2023, so to say?
Mohit, I think we mentioned that we don't like to report like that because of multiple reasons. The stages that it goes through, any new programs where I spoke about, you will require first experts that will be there. They will move. Again, at the integration systems level, they will be on-site. We don't report that from that perspective. I just mentioned that specifically for autonomous, specifically the whole projects were on-site. 100% of the people were committed to be on-site for the initial few years. That moved offshore, and that's why there was a significant change in the revenue for that practice. That's why only I mentioned. Otherwise, as you know, we don't report on them.
Right. In terms of runway, do you think there is still scope or do you think some of this will reverse as the year progresses from a company level onsite-offshore perspective?
I think we are at a good level. I think we can maintain here and maybe improve little bit more.
Okay. Sir, second was on the U.S. outlook and large deals. If I understand it correctly, what you're saying is that in the next, I mean, the new large deals, the new set of large deals that KPIT would sign would probably happen in six to nine months from now. In the interim, we will focus on mining the existing customers. Is that what you're telling us? Is my interpretation correct there?
One slight correction. We didn't talk just about the software architecture deals that we are talking about are not just limited to the U.S. There are conversations with the OEMs in Europe and some conversations in Asia as well. Rest of the thing, I think you got it right.
No. All these deals are for T25?
Yes. They are all for T25.
Okay. Sir, third one was on this carve-out of hydrogen fuel related product. If you could help us understand what kind of investment or what kind of royalty will KPIT get, and how much involvement will it have from your side?
It will have zero involvement. Actually, we have stopped being involved a few years back actually.
Right.
There is no investment from KPIT side. We just made it in the interest of just giving a clarity. There is no involvement of any employee or executive directors in any of the activity. The reason we did it, because our investors also wanted us to do it. If you remember that no hardware activities, no product activities. We wanted to focus on software integration partner. We want to be the best and largest software integration partner. That's why the hardware business and the product business we had divested, closed, and taken on.
From a promoter bandwidth perspective, you are saying it will not involve you guys.
Now zero involvement. I won't even say partial or 1%. Zero.
Okay. Sir, last one is on inorganic. PathPartner, of course, is one which will get integrated during the year. Should we expect more M&A on similar lines, or are you looking for slightly bigger? Any timeline or guideline in terms of size that you can offer?
No, I think we will look for good acquisitions. We believe that the market size is high. I have always said that we want to really focus on a good quality business with good quality clients. The scale for engagement could be very high. From that perspective, both from regional presence, the number of experts it can bring, and of course, some of the access they can give to the new offerings. We will look for acquisitions. We'll be very careful. We are not going to do anything what we cannot digest or which is not in line with our strategy. We will give you the full disclosure whenever it is. Maybe at some point of time, we may also share acquisition strategy when we are ready for it.
Sir, is it fair to assume, given that we already have strategic T25 clients and then you have other clients also which are sort of growing, that the acquisition will not be from a client access perspective given that industry is also fairly concentrated and so it will be more tech driven than anything else?
Largely, KPIT, we believe, we are confident that any new client we want to acquire, if we focus six months to nine months, we will be in a position to get access to the client. At the same time, if you find any new technology area and that gives you a better access to client where we are not at that level, that helps. To your point, it will not be for client access. It will be for certain expertise and all.
Understood. Sir, any hiring target for FY 2022? Any quantification to that which you can share?
Hiring?
Hiring target for FY 2022.
There's no target because I think we have a very strong and robust system for two quarters ongoing planning and visibility. Right now we will be around 1,000 ± . That is how we have done right now, but we will keep on adding every quarter. Right now, the offers and the current visibility is 1,000 +. We will keep on adding.
Net basis 1,000 i s the addition that you're broadly looking at for the year?
Yes.
Okay. That is all from my side, sir. Thank you and all the best.
Thank you.
Thank you.
Thank you very much. The next question is from the line of Arvind Kothari from Niveshaay. Please go ahead.
Yeah, sir. Congratulations on great set of numbers. If you could please help me understand, is there a part of software business which is dependent on volumes of what the end client makes?
No, I think that is not related with any sale of software or sale of cars. It is not dependent on that. Not only that, while there is a possibility we keep away from that to a large extent. If at all, we keep a very small portion which is dependent on that. Our business model is not to link with that, for sure.
Okay. Is adding more clients in a way on a platform, does it make it for the clients cheaper in the sense to get connected with our services? From the scale perspective, if we get more scale, is it making us more competitive and hence, going forward the number of client wins we can make increases with the number of ways increasing?
See, our philosophy is basically with T25, they have a huge spend. As long as we even get to that spend, I think we could easily double or triple the size of the company. That's why we are more focused.
Okay. Last one was on two-wheeler side. Is there anything on the connected vehicle or maybe an offering like Ola is increasing its, you can say, capacity substantially in India also. Is there an offering over there which you find is getting more traction and that is growing at a very high rate or something which might be a small portion of our revenue right now?
As you know, we looked into connected two-wheelers, connected vehicles. We had a product. We decided to let go of that product because we wanted to be out of the product business. However, there is a platform that we have available with us, and it's in a production program with one large OEM, and we believe that there could be some other takers for that. However, our primary focus, given what's happening in the market, the disruption that is happening in passenger cars and commercial vehicles, our primary focus remains on passenger cars and commercial vehicles.
Got it. Thank you so much.
Thank you.
Thank you very much. The next question is from the line of Nilesh Jethani from Envision Capital. Please go ahead.
Hi, sir. Thanks for the opportunity. Sir, two clarification. One was on the employee expenses. We are assuming 3.4% decline in the EBITDA margin owing to the hike in the employee expenses. Are we also incorporating this 1,000 incremental employees you're planning to add for FY 2022?
Wait. I think if we look at what we said is, the wage hikes will be effective in the next quarter. The gross impact of the wage hikes would be about 375 basis points, but the net impact would be just under about 100 basis points. that is what we said. this impact is for Q2. That will happen because the wage hikes will be effective in the second quarter. If you look at the additions that we talked about and the wage hikes overall, I think for the whole year, we have said that our EBITDA margins would be between 16.5%-17%. that is the range that we are currently looking at for the annual EBITDA margins.
Understood. Second clarification I wanted on the other segment. What we have seen other segment is growing at a pretty higher pace now. Wanted to understand what is this other segment comprised of when we talk about practice-wise revenue breakup.
We also do a good amount of work in vehicle engineering and design, and also on the body side. Given the changes that are happening in the vehicles due to electrification and autonomous vehicles, we are seeing growth coming from vehicle engineering design and body, both these practices. They are largely impacted, in a positive way, because of the changes in the vehicles due to electrification and autonomous driving.
Understood. sir, my last question was a little bit on your thoughts on the powertrain segment. KPIT as a firm works with most of the top 10, top 15 OEMs across the world. Largely, these OEMs would be having at least one or two launches in the electric vehicle segment. when we think about powertrain as a segment, so largely the R&D spends would be behind us as far as the powertrain is concerned. It could be more to do with autonomous or connectivity going forward. how should we look at a powertrain segment? Revenues, of course, are T21 clients for us. Will there be some muted growth as far as powertrain segment is concerned from the T21 clients or how to look at the segment going forward?
No, actually, on the other hand, we see the largest growth area potential in powertrain. It is not a one-time kind of a thing. Actually, it is all evolving. Everything is changing. People are coming with new designs, both for the actual e-powertrain, also outside infrastructure or structures like charging, et cetera. Many things are changing. Also it is becoming more intelligent, more connected, even the powertrain, I am saying. I think there are a lot of things which are happening there, and the new architecture which will happen will also drive many changes in that. Actually, I feel that in next three years, the largest spend on our engineering will go into this segment.
Understood. Sir, the three deals which we have won, $60 million in the last year. Are we seeing the revenue recognition from those in the current quarter?
Yeah. I mean, it's a part of a normal business, so it is happening.
Okay, sir. Yeah, those were my questions. Thank you so much.
Thank you.
Thank you very much. The next question is from the line of Alok, an individual investor. Please go ahead.
Hi. Thanks for taking my questions. I had three and, of course, before that, good quarter, but I had three questions, if I may.
Sure.
I was thinking a little bit more outer to three to four years. From a three to four year perspective, I just want to understand what is the pool of opportunities that exist from within the R&D budget of the OEMs. I mean, clearly the OEMs spend well above INR 100 billion put together, I guess, and not all of that is available to KPIT or that kind of a business. I just wanted to understand what is the pool that we have, and how the conversion rates from the pipeline or the pool have actually been, let's say, over the past couple of years. That was question one, and then I'll follow up with the other two, if that's okay.
At a high level, the software spend in R&D, in the areas in which we're in, is going to grow by 10% is the prediction on the high basis for next many years. That is basically overall industry consensus. That is the one. In the areas in which we work, our pool, if you look at T25 or that, I think our win ratio is very good. I think winning ratio is more than 50%.
Okay.
It's not just the R&D. Some of our business comes from R&D. There is a lot of spend that goes in engineering. That is also our bread and butter, which is ongoing.
Okay. I mean, would something like a INR 5 billion or a INR 10 billion sort of opportunity pool be a sensible number or is that quite large? Just trying to get some broad sense.
No, I think at this point of time we'll not, but we have said that, I mean, people have asked us in the past how big this business can happen. It can happen as big as it can be. I mean, I can only say that, and I said it some time back, that we can become three times of the size by just doing what we do.
Okay. Fair enough. Second question is from a business model perspective. Once we get in on a particular platform on the R&D side, so the engineering and the R&D side, does our role stop once the product is commercialized and it's in serial production? is there some sort of recurring opportunities or work that we do as well and does this change versus, let's say, two, three, five years ago, given the rising software content of that? I was just thinking from that perspective, that if the software content is rising, then somebody has to pick up the upgrades and maintenance and mid-cycle stuff that goes on cars. just wondered a little bit about that.
There are two aspects to it. Once a production program gets over, the program gets over. There is an ongoing maintenance and support that continues. Secondly, once a production program gets over, within the following two or three years, most of the OEMs start to work on the next generation of production program. Usually, the involvement starts four years prior to the launch, four to five years prior to the launch. It's an ongoing thing for most of the car and commercial vehicle OEMs. If that answers your question.
Typically in the IT services business, traditionally, what's typically regarded is once you hit a INR 1 billion sort of a revenue mark, it's almost like you get a seat at the table, in a manner of speaking. Just wanted to understand, is there anything of that sort that happens in our specific domain that we are in? If that is the case, then where do we stand versus the inflection point? I'm just trying to understand, are there any contracts or programs which perhaps would go to, let's say, something like an Accenture or some of the larger companies, just because they're large? That's the only thing that I'm trying to understand.
First thing I would say that we are larger than some of the companies you are talking in the areas in which we operate. We are not talking about the general business. I think here the people are more interested in who understands the architecture of the client vehicles, who has worked on their production program, who understand domain better, and who understand the integration better, and who is connected in the overall ecosystem. I think that is the basically fundamental way.
As you understand, as Mr. Tikekar mentioned, if you understand the architecture, you understand the domain, your ability to win the next program is higher as it is. As he mentioned that typically now when it become more a software-driven vehicle, it is more about bringing new features, bringing new versions of the same platform. It is not maintenance is pure maintenance. It is adding to the features, et cetera. It continues over the life of the vehicle. Typically, in some of the programs we have announced earlier, seven to eight years, we get some of those contracts.
You spoke about getting a seat at the table. Looking at software being the center for most of the OEMs, and this is something that is new for them, and KPIT brings in expertise. We actually, given our size, we punch way above our weight because what we do for them is very critical. In terms of volumes, it may not be billions of dollars, but what we do is important for their future. From that perspective, we do get a seat at the table at the highest level with all the OEMs that we deal with. If that's what you meant by a seat at the table.
That pretty much answers my questions. Thanks a lot. All the best for 2022.
Thank you.
Thank you.
Thank you very much.
Thank you very much. The next question is from the line of Vimal from Union AMC. Please go ahead.
Thank you for the opportunity again, sir. Sir, my question was on your employee pyramid. I do understand you might not want to give out details on this, but how much of room is left in order to sort of improve your employee pyramid at the bottom? Because if you look at the wage hike impact that you're talking of in the next quarter, and if you talk about the net impact, it's quite low. How much of it would be coming in from, let's say, pyramid normalization or pyramid broadening at the bottom? How much of it would be coming from utilization? I'm assuming the growth would also be very good because operating leverage will also play its part. If you could just correct me in my analysis here if I'm going wrong somewhere. Thank you.
I think it's a mix of everything. It is not only on account of pyramid. There's a small upside, but we will not be in a position to give specific numbers. It is a mixture of everything. Everything brings something to the table.
There is growth, there is operational efficiency, all of that. Plus the use of our platform tools and accelerators, that also increases profitability and so forth. it's a bunch of things.
Sir, do you see more upside on two of our important metrics, which is utilization, and I'm talking of utilization offshore, including trainees and your pyramid. Do you see some more upside of improvement in these two metrics?
We look at it only as operational efficiency. We don't look at a specific area. I think that we'll look at it more from the revenue per person, contribution per person, because it's a mix of multiple things, and we leave it to the business leaders to manage it.
All right, sir. Thank you so much once again. All the best.
Thank you.
From the line of Ankit Agrawal from Yellowstone Equity. Please go ahead.
Hello, sir. First of all, congrats on a strong quarter.
Thank you, Ankit.
My first question is around the PathPartner acquisition. Just wanted to get some insights into what drove this acquisition. It seems it's more technology-focused, but are we getting access to new clients as well? The second question is, it seems like the proportion of fixed price projects have increased. Is there any noteworthy trend here? Is there anything qualitative that is driving this?
Two things. One is the acquisition. Acquisition is mainly, as we have said, to strengthen our positioning as software integrator at a lower level, which is basically semiconductor level. We believe semiconductor companies will play a higher role and are critical in these new programs. In order to get some access to some of these technologies and expertise, that is the main reason for that acquisition. I think that will help us to scale and also improve our expertise in that area. Client access is, as I mentioned, I think it is not a key point, but of course they have better relationships with semiconductor companies, which we will be in a position to leverage for our clients.
Okay. Will this be integrated or will this be operated independently?
No, I think we all work as one business. Everything is integrated as soon as possible.
Okay, got it. This is more around embedded engineering, right?
Yes.
All right. Okay. On the fixed projects.
If you look at fixed price projects, for the last three, four quarters, you'll see that that percentage is going up. We believe that it will marginally move up, but more or less in the same range that we have currently.
Okay, is there anything qualitatively that is driving it like-
Yeah. Qualitatively, the point is we prefer going for a fixed price project. It gives us flexibility. It gives us ability to use the assets which we have. We are much more competitive than the, if I have to say, hand-held companies. That allows us to really be more competitive, but more importantly, add value to the client in terms of delivering ahead of time, et cetera. We prefer that. I think now the clients, they are also getting more comfortable with that model.
Right. Is it fair to say that the more complex the project, it tends to be fixed price?
Yes and no. It really depends upon the maturity of the client and how you want to do it. Largely it is true, if it can be carved out, some parts of it. There has to be a maturity of the OEM as well as the clarity in his mind, then only we will go for it. Otherwise, we prefer going for the W hile we take the ownership, the financial model may be time and material. To answer your question, and otherwise more and more projects, basically in almost every project, we take the full, apart from few, most of the ownership and it is in our favor and even for client's favor to move towards fixed price.
In general, do fixed price projects tend to be more margin accretive in your case?
Yes.
Okay. That's it from my side. Thank you for answering my question.
Thank you.
Thank you.
Thank you very much. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah, hi. Thanks for the follow-up. Just two quick ones. One is, last year, all the large deals that we have done was in Europe. Are there opportunities that we think we'll be able to close in the U.S. geography that will stand out this year? That was the first question. The second one is on, during COVID last year, correct me if I'm wrong, if there were any pricing discounts given to the clients during that period, are those sort of coming back at this point in time, or they've already come back? Those were my two questions. Thank you.
As far as long-term engagements, large engagements are concerned, yes, there were a couple from Europe. In U.S., we have seen growth actually across all of our clients.
Acquisition.
You're asking your large deals, are they-
Oh, yeah.
Yeah. yes. We are actually working on long-term engagements with some of our clients in the U.S., and we are also seeing good amount of growth. That's the same case with Asia. As far as the COVID discounts were concerned, since our clients were in a difficult position, we extended certain discounts or we extended the credit period. All of that has come back to normal.
we have given it a fixed price. A fixed time.
We had given it for a fixed period of time, and I think the time is all over. I think things are back to normal from that perspective.
Sure. Fair enough. It's not that it's coming back next quarter or anything, it's all done?
Yes. I think it's all done.
It's all done. Sure. Fair enough. Thank you so much. All the very best.
Thank you.
Thank you.
Thank you very much. As there are no further questions from the participants, I would now like to hand the conference over to the management for closing comments.
Thank you very much for your participation, and if you have any further questions, I am always available. Stay healthy, and bye-bye.
Thank you.
Thank you very much. Participant on behalf of Dolat Capital, that will conclude this conference call. Thank you for joining us.