Ladies and gentlemen, good day, welcome to the Q4 FY 2021 Earnings Conference Call of KPIT Technologies hosted by Dolat Capital. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. If you need assistance during the conference call, please signal an Operator by pressing star then zero on your touchscreen phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you. Over to you, sir.
Thank you, Rituja. Good evening, everyone. On behalf of Dolat Capital, trust all of you are keeping safe. I would like to thank KPIT Technologies Limited for giving us the opportunity to host this call. Now I would like to hand the conference over to Mr. Sunil Phansalkar, who's AVP and Head IR at KPIT, to do the management introductions. Over to you, Sunil.
Thank you, Rahul. Good afternoon, a very warm welcome to everybody on the Q4 FY 2021 earnings call of KPIT Technologies Limited. I sincerely hope all of you are staying safe and taking good care of yourself and your near ones. On the call today, we have Mr. Ravi Pandit, Co-founder and Chairman. We have Kishor Patil, Co-founder, CEO, and MD. We have Priyamvada Hardikar, Senior Vice President and Head of Finance, and myself. As we do always, we will have the opening remarks by Mr. Pandit on the performance of the company and as well as how we see it in the near future. We can have the floor open for your questions. Thank you for attending this call, and once again, a very warm welcome to you, and I will hand this over to Mr. Pandit now.
Good evening all of you, and welcome to the KPIT Technologies investor call. As Sunil mentioned in his opening remarks, what I would like to do is to offer some opening comments before we throw the session open for questions from all of you. I would like to divide my comments into broadly three parts. A, how has this last quarter been and this last year been? B, we will talk about the industry because there have been a lot of questions about how do we look into the future. C, I would like to talk about the next year or maybe a year from, talk about something there. I trust you have got our investor update, and what we have been trying to do every quarter is to increase the depth and coverage of the information that we provide.
I may not need to go much detail into the last quarter or the last year, but let me just share some highlights with you. On the back of a very good Q3, we also had a good Q4. In our USD terms, the revenues went up by 6.8% quarter-on-quarter. The net profits went up by almost 12%. EBITDA percentage jumped from 15.7%- 17.2%, a very healthy jump indeed. The DSOs came down to 54 days, and as a result of the profitability and good collection, the cash balance that we had on our books went up from INR 630 crores- INR 822 crores. Remember, we don't have any debt anymore. The balance sheet is very healthy. Almost 70% of our assets are in cash.
That is how the last quarter was, and very creditable I think indeed. If you were to look at the year, as you would remember, the first two quarters were bad for the industry and bad for us. On an overall year basis, our revenues came down by about 5%, our EBITDA by about 5%, and PAT by about 4%. If one were to compare last year's Q4 and this year's Q4, which as we say, are both kind of normal quarters, we can see a very good change. Our revenues, although in financial terms there was a small drop of 3%, the volume was the same, which clearly showed that now the customers are certainly preferring offshore work to on-site work. Our revenues, although they have dropped, the volume has remained the same. Our EBITDA has gone up by 24% and PAT by 26%.
Our EBITDA margin has gone up from 13.5%- 17.2%. Cash, you would recollect a couple of years ago, we hardly had any cash with us, and our cash has been going up. In this last four quarters, the cash balance has gone from INR 327 crores- INR 822 crores, almost INR 500 crores of accretion during this period, driven by the profit as well as good collection. This has been the year as a whole, and I hope we will be happy with the year. Our own team is also quite happy with the year.
The question, however, I'm sure is in your mind, whether this is indicative of the years to come, whether our performance will continue in the years to come, and how do we look at our company in the context of the industry that we are serving. As you all recollect, some few years ago, we announced that we will not be a general purpose IT company, that we will be a company focused only on the mobility industry, which means we will focus essentially on the automotive, both cars and CVs. In a sense, our future is now tied to the future of the automotive industry. There have been questions because in the last 12 months, the industry took something because of COVID globally. There have also been announcements for the impact of the chip shortage on the automotive industry.
There are naturally some questions in the minds of some people as to how things are likely to pan out. Although as you know, the auto industry took some hit four quarters ago. In the last quarter or so in the recent months, things are coming back, the pent-up demand has started coming back. It seems that it will gain its normalcy shortly. What is important is not just the number of cars that are being sold, but also the nature of the cars. That is something that I want to spend a little bit time on. Over the period, the role of electronics and the role of software inside a car is becoming increasingly critical and very crucial. Some people have called a car as a computer on wheels. High-end cars have anywhere between 110- 113 ECUs or computers on them.
In all of them, there are literally millions of lines of codes. More lines of code in a car now than in an airplane. This is the current status, but going forward, it is very clear that the role of electronics and of software is increasing even more. This is driven by four factors, which we call as CASE: connected, autonomous, shared, and electrical. Let me spend a few seconds on each one of them. Connectivity is becoming increasingly important. A car is not an island by itself. It is connected with other cars, it is connected with the ground, and it is connected with the owner or the driver who is driving it. That connectivity is extremely critical going forward, especially as the people are now looking at self-driving or autonomous cars.
There is a lot of work happening in the area of connectivity, and our company is quite deeply engaged in that. The second major trend is the area of autonomous. As more and more vehicles are becoming shared, the desire to cut the driver cost. In the Western world, this desire is very high, which means that more and more companies are going in for self-driving vehicles. I wouldn't say it is really immediately around the corner, but the direction towards that is unmistakable. Autonomous driving, of course, involves a huge amount of software, because typically what you have is multiple sensors and cameras, which collect the pictures around the car. There has to be a software which interprets those pictures and converts them into recognizable objects.
There is a lot of AI involved in this, and then you use that to connect with the behavior of the car. Again, a huge potential where millions of miles of data is being connected so that the AI models become more and more dependent. The third one is shared mobility, and I spoke about it briefly earlier. Even shared mobility is all driven by software. Whereas people are now saying that in the Western world, the personal ownership of the car is going down and shared ownership is going up. What it really means that an earlier car, which was being driven by maybe 15,000, 20,000 kilometers a year, will now be replaced by shared cars, which will be driven a few 100,000 kilometers every year because they will run continuously.
You will have more and more cars, models coming in a shorter and shorter time frame. Which means that every new car model which will replace the old car will have to be richer in its features, which again means higher electronics in them. The last one is, of course, electric. You would have probably read, GM has made a commitment to go fully electric by the end of the decade. Most of the other car companies have made such similar commitments. Mercedes, Volkswagen, Daimler, BMW, most of their new entry in the market will be electrical. This means, again, a lot of use of electronics and software. Because the batteries have to be managed properly, the engine ECU has to be managed properly, the DC-DC converters have to be managed properly, and all of that is driven, as I said, by software.
The way we see that there will be growing use of software inside a car. A company like McKinsey, for example, has said that over the next decade, the growth of software inside the cars is going to be almost 10%, 12% every year. This is the sphere in which we are playing. We work, as I said earlier, not as a general IT company. We are a pure technology company focused on the mobility industry. Our engineering, almost 90%, is focused towards electronics. We are in the thick of these major changes that are happening. Our own vision of ourselves is that we want to be reimagining mobility along with our customers.
We want to be at the guiding or the leading area of this, and we want to operate as software integrators of choice for our partners. We believe in the light of this, there should be enough work for us to do in a very exciting area. Keeping this in mind, we have actually taken four missions, or you could call them four initiatives. I want to spend a minute each to tell you what we are doing so that you can appreciate the nature of the work that we are in. We believe that the work that we do is extremely critical from our customer's perspective, because the software we write goes inside a car. A car which is sold by our customer to his end customers, and with which he is giving warranties and guarantees, and he's expecting his customer satisfaction to be very high.
He is looking at high quality software, sturdy, dependable, highly efficient software. What we want to do is to make our customers successful. With that in mind, we are looking at actually four major missions for us to carry out. First is to come up with leading-edge platforms and practices. We want to become the best in the area in which we are. With this in mind, we have now focused on a few practices such as connected vehicles, autonomous vehicles, powertrain, AUTOSAR, which is like connectivity software, autonomous driving, and such other areas we are working on. In each of these areas, what we are trying to do is to build a lot of tools, platforms, accelerators, which can help us deliver better software, faster, cheaper to our customers so that they can succeed in their marketplace.
In this area, we make significant investments. These are the areas where we believe we should get some edge over our competition. The second initiative that we have, or mission that we have, is zero defect delivery. As I mentioned, the software that we deliver is mission-critical, and we want to ensure that our customers should be able to sleep easy at night once they use our software. A lot of efforts have been going on inside the company on zero defect delivery. On that we have done, I would think, fairly well. There is still a way to go, but I think we have progressed quite well in this area. The third mission we have is the best place to grow. See, the work in which we are engaged is something that is driven by passion.
It's driven by passion for a cleaner, smarter, safer mobility. We want to attract people who are passionate about this area. We want to attract people who are technology savvy and who want to make mobility much better. Our focus has been to attract the best, to retain them, to train them, and to grow them professionally and personally along with the company that we expect to see growing. We do many initiatives in this area. Some of you would be probably aware of the work that we do in KPIT Sparkle, which is where we attract innovative minds across the country. Last year, we had over 21,000 students from like 600 colleges across the country from almost 24 states who participated in this, and they were the candidates who are looking forward to working in an exciting environment.
We propose, and we work towards providing that environment. That's a very major initiative, which is personally guided by our CEO. We hope that we will attract and retain the best of the talent, so that our customers gain and regain. The last of the four missions is, of course, what we call a T25. The top 25 customers, clients that we are looking at. We don't want to be providing services to each and every client that can be around. We want to stay focused on a few clients, we want to deliver them the highest value. We believe that there are a lot of benefits of long-term association. We believe that we would end up not being vendors to our clients, but being long-term partners. We can discuss with our clients their long-term plans and their growth plans.
We have seen a lot of depth emerging out of our strategy of T25. We are also beginning to find that the top customers that we are working with are truly global in nature. Typically the same companies operate across Asia, Americas, and Europe. Our work with them in one area, in one region, helps us in another area, in another region. These are the four missions that we are following very closely, and we trust that all of them together will result in profitable growth for us. We believe that at least in the last couple of years, we are beginning to see sprouts of this initiative. Looking at what we are planning to do as a strategy, which you can call as inch wide and mile deep, we believe that we will become an integral part of the automotive ecosystem.
We believe that we will enjoy the fruits of the growth of this industry in their engineering area, which as I mentioned, is really expected to be very good. Therefore, we believe that it is possible to have some kind of a secular growth in times to come. We are banking on this, and I should say we are preparing for this. We want to continue to focus on the mobility industry, but what it means is that we will work also in the cognate or related industry, which constitutes, so to say, the entire ecosystem of the automotive industry. We are seeing ourselves now engaged with the semicon company insofar as they are working with the auto company.
We also see with the onslaught of 5G, there could be a lot of connect between telecoms and automotive industry, and we see that we will probably play a role in both these areas. Currently, we are focused largely on the passenger car business, but we are also seeing a significant growth potential in the commercial vehicle business. Some of the technologies that I mentioned to you about from sales perspective, they are extremely relevant from the CV business perspective. Typically, a CV owner is focused on his profitability, so he appreciates everything that can add value to his bottom line, and we are striving to become that partner who will do that. These are my broad comments about the growth in the years to come.
I would like to say that we are very sanguine, we are very hopeful about how things can pan out over the years. I would like to take a moment to talk about a very momentous decision that we took three years ago. You would recollect at that time, we were a software company. We were about half a billion dollars, then we decided that we want to let go of our general software business and really focus on a single vertical. At that point in time, some of us thought whether this would be too risky, or whether hitching our wagon to a single industry could be dangerous. I believe that things have panned out well. Looking at it from our investors' perspective, and this is something that has been dwelt at length in our investor update.
Our shareholders, now that they own a share each of KPIT as well as Wipro stock, they have gained about 54% CAGR since the day on which we announced the merger and demerger scheme. Since the day in which it was implemented, that is three years ago, their CAGR of total value has been about 40%. I believe that from the perspective of our investors, it has been a good decision. From our own perspective, we believe that our focus is more clear, our depth is greater, and the value to our customers is also higher. We believe that this has come out quite well. The last issue that I want to talk about is next year.
As our investor update says that we expect decent growth in the next year. I would put it in mid-teens, barring unforeseen or exceptional circumstances. We expect the EBITDA also to be in the same range where we are. It's currently 16%, 17%. We believe that our cash acquisition will continue, and our focus will be to maintain a strong balance sheet. I think these are my opening remarks. We shall be happy to take any questions that you may have for all of us. Thank you again for attending this call.
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 the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Karan Uppal from PhillipCapital. Please go ahead.
Yeah, thanks for the opportunity. Congratulations on a very good set of numbers. The first question is on the deal wins. Can you please talk about how the deal wins were in Q4, how is the pipeline looking overall, for next couple of quarters? I appreciate if you will talk about in terms of the practices, whether you are seeing demand in autonomous, connected, electric. That would be my first question. Secondly, on the powertrain business, this quarter it was flat. Any specific reasons for that? Thanks.
Two things I would like to say. On the pipelines, we do not give a specific number, but let me tell you, the pipeline increase during this year has been one of the highest in the last few quarters. The pipeline gives us confidence about what we talk about the next year. I think there is enough pipeline sufficiency to move on to the next year. That is point number one, and it is across the region, and it is across the practices. We see actually some of the practices in the past where a couple of them were, I would say, were not growing. We had mentioned to you at that point of time that this will come back. We are very happy that this growth is across the region and across the practices.
On the U.K. point of view, I think there is no point in looking at every quarter. If you look at U.K. has driven our growth the last few quarters, the large deal wins were there. Then it happens every quarter here and there. I think nothing specific, actually. As we have always said, that will be a major area of growth for us. Specifically, apart from Europe, which has a tremendous focus on electrification now, U.S. companies and overall U.S. as a region has also got a very high focus on electrification. Actually, that's a high-growth area for us over the medium term.
Okay. Sir, on powertrains, please?
That's what we-
Electric Powertrain is what I explained to you. Naturally, the conventional powertrain business will get more and more. It is not something which will grow to the extent like Electric Powertrain. Our practice also in Electric Powertrain is higher. Actually, all the growth is coming largely into Electric Powertrain, and we have been in a position to sustain and grow marginally also in the powertrain.
Okay. Thanks a lot, sir.
Thank you.
Thank you.
The next question is from the line of Vimal Gohil from Union Mutual Fund. Please go ahead.
Yes, sir. Thank you for the opportunity. I think my question on revenue growth has been answered regarding the guidance. My question now is on margin and offshoring. What I believe is that there has been some increase in offshoring, which has led to some increase in the gross margins. Just wanted to understand what has been the extent of increase in offshoring, and is it sustainable going forward? Will we see an increasing trend of offshoring going forward? If yes, then is there an upside risk to your 17% EBITDA margin guide?
Let me say two things specifically. I think we have given a guidance between 16% and 17%, while our Q4 is 17.2%, for two reasons. One is, naturally, this year we see increments which will come up, and we have to really spend there. The second part is also, we are looking at the market and the attrition we have to provide for some of this on a higher side. The third part specifically is in terms of labor code which may get into effect sometime during the year. We also see that at least in the H2, we actually hope that there will be partial operations which will restart, which will also increase the operating expenses. Last but not the least, Mr. Pandit talked about T25 and our deeper engagement.
We would like to invest in that area, and we are taking some more concrete strategic steps in order to improve our engagement. These are the areas of spend. At the same time, we are going to increase offshoring during this year. Certainly, that area is there, and we are looking at improving margin across the practices and the region. The second area which we see is on the productivity side. As you see that trend for the last three quarters and going forward, our fixed price engagements have gone up. With the significant productivity improvement initiatives we have, we hope that is going to help us to improve the contribution. Because of these two reasons, I think we have guided between 16% and 17% for the next year. I would leave it at this point.
Right. The second question was with reference to your media comment that you made in the morning, saying that the automotive spend on ER&D is expected to grow between 10%-12%. Safe to say, sir, that KPIT, with its engagements with the top five clients will probably gain more share within their spend and will grow at a higher pace than that?
Yeah. Certainly, we will be beneficiary of that. As we have said that we are looking at, barring any unforeseen circumstances, mid-teen kind of a growth for the next year. If you look at our current run rate, we are around 10%. We believe that, as I said, looking at the external factors, we should be in a position to really get to this kind of a growth rate of mid-teen.
Fair enough.
To your point, we will be the beneficiary of the spend into our key strategic clients.
Absolutely, sir. Point taken. Thank you so much, sir, and all the very best.
Thank you.
Thank you. The next question is on the line of Rajesh Kothari from AlfAccurate Advisors. Please go ahead.
Good afternoon, sir. I have two questions. One is industry specific. Is it possible for you to give little bit more insights in terms of the competitiveness of KPIT, kind of players with whom we compete? Is it a more like the captive houses of these auto companies, or are there global companies, including maybe some South Asian nations? That is first question, and then I will take the second question.
Actually, if you look at the competitive landscape, it really varies for every area. Every practice, every area it changes. I think we always have said that I would not look at it as a competition with the captives, but let me put it like this. We share the engineering spends with captive more, and we collaborate with the clients, and we look at their strategy, what they want to do on their own, and where we are in a position to add value. From that perspective, we see that there are clear areas where KPIT plays a very significant role, specifically into productionization of the software.
When the software goes into production, it's a pretty, I would say, it's a complex process and also something you have to do for a longer point of time. I think that is one area. The second area, I would say, if you look at the external competition, naturally there are multi-facet and again, across the practices. In some cases, there are specialist companies in a few specific domains like I see, I'm just naming a few, like Luxoft kind of a company which is more into.
Which company?
Luxoft. A kind of a company which is more into domain of infotainment or e-cockpit area. There are companies like that. If you really look at some companies. What the OEMs are trying to do is when they are going into the next level of architecture and production, they are also trying to own more software. Sometimes they are trying to own the software which till now was being supplied by Tier 1. I think that is where we have won couple of business in the past.
That's one area where we are trying to own the software and work with OEM and take the responsibility of software from Tier 1. The third is we are working with the Tier 1 to really transform them as OEMs are changing, and they are expecting more from the Tier 1s, including the software. We are working with Tier 1, again, from integration perspective and building up their software capabilities.
My second question is, if I look at your numbers, well, of course, the Q2 numbers are definitely good, but I'm looking on the full year basis, and as well as on fourth quarter on year-over-year basis. Where the most segments basically, we have seen the very big growth. Just trying to understand how one should look because, of course, you have one segment which is growing and one segment which is degrowing. Net-net, if I look at the thing FY 2021 over FY 2020, whether U.S. or Europe or Asia, across verticals, across geographies, there is a degrowth, including new mobility as well. Of course, it is a very small base. Just trying to understand that how one should look at this.
I think we have mentioned that if you really look at the Q4 part, Ravi Pandit also mentioned about it. I think the EBITDA, if you have seen, it has moved from INR 75 crore- INR 93 crore. I think there has been a big shift into on-site to offshore in many areas. Specifically, I will take one example and which we have mentioned in the past. One significant assignment in autonomous last year we had taken, which was 100% we were doing for 18 months from on-site, has moved significantly, like 70% offshore. Some of these things have happened.
Many of these programs, which were one of its kind, we had to be very, if I have to say, cautious about it in the beginning. That transformation has happened during the year. That is the reason it will get reflected into also EBITDA increase. As I mentioned to you, going forward, as Mr. Pandit mentioned, over next four, five years, we see a significant opportunity across the practices for our T25 clients.
Basically, you are saying even if just for such on-site to offshore, either way, then it would have been a much bigger number in terms of the top line?
Yeah, it would have been a higher number for sure. It won't be a degrowth number.
Last question on my side. For tracking this kind of a company where you have multiple clients, multiple segments, and I don't think you disclose TCV. From the visibility perspective, how one should track the company?
I think the way we look at it is, I think it is about our focus, right? I think if you look at it over the period also, our model is very close to our T25 clients. Our 85% of the business is a repeat business with our clients. As I mentioned, the spend is increasing. We are getting a higher share of that business. If you have seen over the period, our deal sizes have increased, and we can announce few, we cannot announce few. In some cases, we are lucky when the client allow us to announce some of these deals.
Based on the repeat case of customer, they are increasing the share and our solution, on that basis we are giving our estimate for the next year. As I mentioned, even if you look at this quarter's run rate, it about comes to about 10%, closer to 10%.
Basically, you are saying that the T25 clients, which are most important clients for you, their spend is going to be, say, eight, 10% higher on annualized basis.
10%-12% higher.
Thank you. Okay. Your share, whatever your share might be, that also you would likely to increase further.
Yes.
Okay, great. Thank you, sir. I'll come back in queue. Thanks.
Thank you.
Thank you. The next question is from the line of Mohit Jain from Anand Rathi. Please go ahead.
Sir, one is on your geographical split. This time, I think U.S. shot up quite sharply. Europe had just become our largest region, I think last quarter or last to last quarter. Is there a change in the spend that you're looking at between these two regions?
No, if you really look at our Asia has shown the highest growth in terms of percentage. I think we would be one of the very few companies which has such a balanced portfolio. U.S. and Europe, both are big markets, right? Things can change quarter to quarter, but overall, as I said, our estimate for the next year, our profitability for the next year and growth across the packages on all the three parameters we are seeing the growth. There is nothing which probably is specific to a particular region.
No specific win ramp-up or anything that you would have seen in the U.S.?
It will vary to some extent, right? Here and there. There is no secular trend.
The other comment that I made, Mohit, earlier, was that, I think it's not proper to call a win in a particular geography because an Asian client may be operating in Europe and U.S., and we get some business from Asia to be executed, say, in Europe. The whole geographical division is so fungible. I wouldn't draw a lot from that.
Absolutely. That's a great point.
Okay. The second was on the M&A, like you mentioned in the presentation, you guys are now looking for tuck- in. Any size that you can specify or areas where you see gaps, could it be regional or more tech-driven or what kind of areas?
Absolutely we are not looking anything large, very large. I guess more around INR 20 million, plus minus. More driven by technology or some of the gaps in the strategy to accelerate that largely instead of building what we can accelerate. Some of the areas which we have said in the past, like the semiconductor, as Mr. Pandit mentioned, or some of those areas, and there are a few other areas which we are looking at.
Semicon, meaning semicon chip design kind of area?
No. Software. Basically, the big changes which is happening in software. We are already engaged with the semiconductor company. Semiconductor companies are playing a very significant part of the new architecture program, which Mr. Pandit mentioned about ECUs and controllers and et cetera. They are also taking a higher responsibility. As we see our role as a software integration partner, the understanding of chip design and integration first helps them with certain kind of a software, which we call middleware, as well as integration. For both these cases, the relationship with semiconductor will be very useful. We are not looking at semiconductor companies more as a client, but more as a go-to-market partner to the OEM and basically understand their use the expertise of semiconductor and the solution to service our OEM side.
The INR 20 million is the revenue size or is it the enterprise value that you're looking at?
Typically, INR 20 million is the revenue size, what I mentioned.
Okay. Thank you, sir. That's all from my end.
Thank you.
Thank you. The next question is from the line of Kawaljeet Saluja from Kotak Securities, please go ahead.
Thank you for taking my question. I have two questions. One is that from a medium-term perspective, could you give some color to the amount of opportunity that you see in CV and the two-wheeler space? That was my first question. The second question is that, you have two large deals in the recent past, on the EUR 50 million-EUR 60 million kind of variety, which is a departure from the past from where the deal size has been fairly smaller. How do you see the strength coming out? Do you see a continuance of this strength? I know that you cannot predict this on a quarter-by-quarter basis. From the sense that you get on the ground, do you see the possibility of such multi-million dollar or euro deals increase in the future?
Yeah. I will take the second question first. I think we see this trend for certainly larger engagement because as their challenges are significant in front of them, I think it is important they are looking more for as a partner rather than vendor. In that case, they want a higher ownership of their partners in a specific area. It is across the domains and as the architecture will become more significant, more complex, it will be across the domain and over many years. From that perspective, deal sizes are going up. Sometimes people don't sign specifically the deals, but it is very hard once you are in a production program which runs over three years - four years. That is how we see. That trend is absolutely there. Did I answer your question, the second question?
Yeah. Yes. Is this also related to the fact that you mentioned earlier that the OEMs are going towards a tendency of wanting to own their software and therefore that also increasing the size of the deal?
Yes, absolutely. Because as I mentioned, for example, one of the three deals which we won, was basically taking the ownership of the software on behalf of Tier 1 completely by KPIT for OEM, so that OEM has a better control over that. I think those kind of deals which were, of course, the ownership and overall responsibility is high, and that's the reason the deal sizes are high.
Okay.
On the second, two-wheeler and three-wheeler, we do have some solutions, but our basic focus on those is on T25 is our strategy for growth. We see the spend from T25 pretty significant. The opportunity is very high. We would like to focus on these clients. Wherever there are certain platforms or products where we find maybe applicable for this, and we do have one or two, there we will find partners who can take to this two-wheeler or three-wheeler.
CV also.
CV is absolutely the focus for us. T25 basically talks about passenger car and commercial car. In last two years, we have increased our focus on commercial vehicle, which was earlier there, but we did not have a specific organization to really bring revenues from that. I think over the last year or so, you will see that our commercial division, I mean, business from our commercial vehicle manufacturers is going up.
Can you give some color as to what are the areas in which your business is growing in commercial vehicles? You also talked about the fact that the commercial vehicles is concerned about the total cost of operations. Perhaps your software may address those issues or some other issues. What are the needs of commercial vehicles that you are trying to serve, and which are the needs that are emerging that you are going to cater to?
Certainly. It is exactly the same areas, but may I say that the technology adoption may be little differently done. It is same electrification. People are going for electrification now. In some cases it may be hybrid, in some cases it may be fuel cell. There are multiple options, and commercial vehicles manufacturers may choose different options over passenger cars. Overall, at area level, it is the same as electrification. On autonomous, that is where if you really look at any shared services or if you really look at many of these areas where transportation of goods, if you can look at it, that's where also those, especially in the cities, last miles and et cetera, there are applications for autonomous more significant.
In other areas also, if you look at e-cockpit, which also includes some areas of autonomous. There are certain regulations also which are coming, where you need better connectivity as well as better features in the driver's cabin. I think those are the areas which are driving this.
Thank you. Thank you very much. That completely answers my question.
Thank you.
Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah, hello sir. Good evening, everyone. Just a couple of questions. First is, over the last, I think three to six months, a lot of OEMs have put deadlines in terms of by when they want a complete EV portfolio. Is there any change in the urgency to close deals or anything that you see from these customers? How do you see the intensity of deal-making over the next maybe 12 odd months with reference to these clients versus the others who still haven't put in deadlines?
Certainly there is urgency as we talked about the adoption of electrification happening across the region. Earlier it was more in Europe, now moving to U.S. Autonomous also for some time it has been slowed down, but now it is ADAS. If you look at until level three automation, it is again there. I think on all these areas, actually, there is urgency because people have lost almost a year before. If you look at what they're competing with, they're competing with Tesla, and they're competing with new generation tech companies which have come with a full force. There is, of course, an urgency, and I think most of the key decisions of many of these programs, along with the new architecture, will happen in these 24 months.
Sure. On the T25 clients, we currently have 21. Just your thoughts on by when you think those strategic clients that you have always looked to capture should be within our base. The second question was, interestingly, and it's nice to see that the revenue from strategic clients are now at pre-COVID levels. What we're also seeing is that a lot of mobile phone OEMs have started launching electric vehicles. In that context, how would you think about these T25 clients that you have earlier looked at, and would these clients be potential areas where you look at the numbers?
Certainly. The way I would answer is we have currently 21 designated as a client. When we say designated as a strategic client, it means there is a certain state of organization and investment we make to engage the level at which we do, et cetera. Of course, we have a list of potential clients who will move into the strategic client. There are another set of clients, which at the right time, when we think our relationship at a right level and we get a visibility, we move into the strategic client. Now, in these areas, there are what we call it as a new technology company, disruptors, as you may say, or those. As you said, there are few companies coming.
We are very conscious about working with some of these and making sure that they are in the right position to really, if I could say, be successful, both in terms of their strategy and overall thing. We track them, we engage with them, and some of them we have seen reasonable success, both from Chinese and other clients as well, Asian clients as well. Also some from the California and Silicon Valley clients also. What we expect is some of these will move into T25. We look at the T25 client list every six months, and we basically look at it, and if there are any changes, we incorporate it.
Sir, two more quick questions from my side. One is, there seems to be a lot of electric vehicle launches out of China. Is it easy to work with these customers, and do you see any of these customers even coming within your strategic 25 or being meaningful for you? How easy is it to penetrate those accounts? The second one was like a bookkeeping question. I think when we relisted as KPIT Tech, we had spoken about how 60% of the powertrain revenue was EV. How has that number changed when you look at it now? Thank you.
Yeah. I will answer the first question. As I mentioned to you, we are engaged with these clients, and we have seen good engagement with some of them. It is possible that some of them will. As they become more successful and there is a clear reason when we bring a person into T25. One is we are well engaged, and I think in China, our presence has been there for quite some time, I think almost 10 years kind of a thing. We did not go anywhere here and there, but we were focused on going to OEMs and specific clients. See, as you know, there are more than 100 OEMs in China, and we probably would have visited 60%-70% of them at some point of time.
After that, we have shortlisted clients with whom we can work with, and we have been focused on it over the period consistently without any, if I have to say, losing that focus. We believe at some point of time, when the time is right, and we see some early signs in engagement, we are engaging with them, and we have reasonable presence for us to leverage that. I think from that perspective, I feel comfortable with that. The second thing, you may know that when the China sales went up significantly of the automotive, most of that was European companies who have a presence in China. Their brand sales or foreign brands, even some of course, U.S. also some, but largely German, went up. Naturally, we are engaged with them in China also.
To your question, we are working with the new generation companies in China, Asia, and otherwise. Some of them may enter into T25. On the second side, I think that ratio, I won't have it exactly quickly, but I can tell you that it would have increased reasonably because our EPT growth has been higher and conventional powertrain growth would be marginally higher. I think the ratio would have changed. I don't have exact number, but it would be more like 70/30. Correct.
Great. That's very helpful. Thank you so much, and have a good day.
Thank you.
Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead.
Yeah. Thanks for the opportunity. I have a couple of questions. First is about, can you say now what would be your onsite offshore mix? I think earlier, maybe a year and a half back, we used to have 55/45 kind of mix. Now how it has evolved? Second thing is on supply side related challenges. Can you help us understand what is our hiring plan, fresher versus laterals, and how we intend to manage our talent pool, considering we are looking somewhere around mid-teen kind of growth rate?
Third thing is about autonomous program. I think partly you alluded in earlier question, but if you can briefly touch upon autonomous program, any acceleration or deceleration, because earlier we have seen some softness in L4, L5. Whether that L4, L5 related spend also returning or it is L2, L3 which is giving good traction and likely to nullify softness in L4 kind of program? Thanks.
First is, you know that we always say it's very hard for us to give onsite offshore ratio, and we will not give for two reasons. One is many of them are a fixed price engagement, and if you see even in the last year, there is a significant change in the contribution. This is because of onsite offshore. It's very hard to track it, so we don't give it. The second is in some cases, not many, but in some cases our pricing mechanism is also based on output. That is another reason why we do not give it. Overall, I can tell you that from this side, there will be at least 5%, if not more, shift in favor of offshore in the last year, and we hope that continues.
That is point number one. The point number two was on autonomous. If you really look at, I have answered that question. I think we don't see any softness. We see a more adoption of level three vehicles, I have said it, in India also, you will see more of some of those vehicles, the level three coming in next few years.
Supply side, sir.
The supply side. The supply side, I think last year, we had a low attrition. A year before also, we had one of the lowest attritions in the industry. We will have a higher attrition in first H1, and it will stabilize by H2. That's what we think. From your question, specifically, we have given offers to about 600 plus people from campus. We are also now moving towards quarterly hiring model parallelly, along with the campus model, which will allow us more flexibility as well as, I would say, just-in-time mechanism also for supply chain. Either way, it becomes difficult, so that we can also adjust the ratio between lateral and fresher. Looking at the environment, we can adjust to that ratio. That's where we are. We feel reasonably confident about H1 where we have tied up our ends.
Just last related question is about pyramid, whether you think employee pyramid can be good margin lever, or you think considering required skill, employee pyramid is limited kind of scope to leverage from margin perspective?
It is not as leverageable as it is in a normal pure IT maintenance kind of a program. It is not exactly like that. Certainly, what we are trying to do is our focus on creating assets, training, as well as tools is high. By which it is certainly a lever, as I think in the next year, we will see some benefit out of this, because last year we did not have freshers. Certainly, it's a lever for sure.
Understood. Thank you.
Thank you.
Thank you. The next question is from the line of Rajesh Kothari from AlfAccurate Advisors. Please go ahead.
Thanks for giving an opportunity. Sir, basically, these new programs in which we are dealing with our top 20 customers. These are basically for their model launch primarily, for Indian or Asian market, or it is for the global?
Global market, of course. They are all global. Naturally, Asian manufacturers would have Asian, but European, American, and these are all global launches for most of the OEMs as we talked about in the past.
Okay. Why I ask this question is because if I look at, say, European market, their EV sales are already buzzing, one of the highest sales probably is happening in EV compared to U.S. market. There it means so many programs are already done and so much spend is already done, correct? I'm just trying to understand that somebody's already worked on it, so whether we have done a good part of that work in terms of the opportunity. These programs, let's assume it is for two years, three years, five years. In that case, the revenue growth cannot be 15%, 17%, because this is the best of the times.
In that case, the revenue growth needs to be much more higher, correct? Maybe after that it may plateau out to maybe 10%, 11%, 12%, or maybe 8%, 9% in the long term. In the short to medium term, it needs to be significantly higher because these programs are very big programs.
Absolutely. If you look at our engagement with BMW where we have made some announcement, it has been very high. Naturally, different clients are at different stages, and our engagement cycles with them are at different levels. Certainly, the engagement can be very pretty significant, and as I mentioned over the years.
So do you see [crosstalk]
The question you wanted to ask was whether at the end of the major EV programs, that pipeline will die off. Actually, it doesn't happen like that. Although they may have an EV program which comes to an end this year, next year, there are further improvements required in the EV program. Maybe a different battery chemistry will come up, maybe different battery management system will come up. Maybe their voltage will change. All these things means continuous upgrades and changes. If you were to look at the internal combustion engine, which has been around now for about 100 years, we continue to do extensive work in internal combustion engine.
There also, there was change from towards electronic controls, there was change towards more efficiency, higher requirement of energy efficiency and all that. Similar things will happen in electric vehicles also. The motor manufacturers will continue to have better and better quality motors. The materials of motors will change. Therefore, the motor ECUs, motor controllers will change. It is not going to be the end of improvements in one single go. It's going to be a continuous improvement for I don't know how many more years.
Sure. Yeah, of course, it is a constant process. Sir, is it possible for you, do you have any idea in terms of, say, on average basis, typically, this kind of spend is how much percent of the total, say, for example, for one car, typically, how much, say, with the midsize car, then how much typically such spend is as a percentage?
I didn't quite understand your question. Very broad figures we gave earlier, this overall spend on technology phase will grow by 10%-12% over the next decade, which I think is a fairly good approximation about the size of the market. I think we can go by that number. The composition of that can change. Like for example, there was heavy spend on L4, L5 for autonomous. Now people are really focusing more on L3, getting it right. Those kind of variations will continue to happen. I would think that it is useful to look at the aggregate, and that market is 10%, 12% growth.
Okay. Thank you, sir.
Thank you.
Thank you. The next question is from the line of Jignesh Panchal from Axis Capital. Please go ahead.
Yeah. Thank you, sir, for the opportunity. Sir, what I see is like a huge cash pileup of around INR 22 crores in your balance sheet. Going by the trend from it and the guidance which you have given, I see around INR 100 crores-INR 130 crores pile up of cash being added to your profitability post paying off your debt around 30%. One is like any organic acquisition which you can do, and the other is if that is not done, so what kind of return are you expecting on this cash pileup on an annual basis? Any guidance on this sir?
We are working on our cash cycle as well as the improvement that we can do in our income side year on year basis. We believe we'll be able to improve the return in the current year than the last fiscal. We can't give you the exact numbers, but the income side will definitely improve.
Anywhere around, say, 4%, 5% post-tax?
No, I can't give you the numbers because the type of investments are sometimes different. Those numbers can't be given. The income will certainly improve.
If you look at the cash, we give the breakup as to how much-
Yes
[crosstalk] in India and how much is in overseas accounts.
Yes.
We have subsidiaries, we have delivery centers which are outside India. There are, of course, cash requirements there. The whole cash is not which is in India and which can be invested. I think in our investor update, we give that breakup as to how much cash is in India and how much is outside India. That breakup also needs to be considered. If you look at the income that we are generating, it is increasing every quarter. If you look for the last four quarters, the absolute number is going up and that trend will continue going forward.
What I understand is the large part of this cash utilization is also on account of receivables days which have reduced significantly. Am I right on that?
Yes.
Okay. Thank you so much, sir. That's all commentary.
Thank you.
Thank you. The next question is from the line of Sumit Pokharna from Kotak Securities. Please go ahead.
Thanks for giving me this opportunity. Just wanted to understand, do we carry any risk on the software as we write? If yes, how are we hedging that?
It is similar as you get into any software development. Of course, in some of these programs, we have a higher responsibility. There are multiple ways in which we do. I think one is going into very detail in terms of putting the responsibility, who will own what, kind of a thing. Second, in very rare cases, we typically have a cap on our liabilities in most of our programs. That is there. The third is, we naturally take, if there is any specific contract where the liability is higher, we take a specific contract-related liability insurance. These are the three, four ways in which we do. We take out the carve-outs in our agreements. Our agreements are very tight, and that is also something which we work very closely.
One of the missions that Mr. Pandit and Patil spoke about includes zero defect delivery. Our focus continues to remain delivering the defect-free products to our clients.
Right. The background from which I'm coming is that recently Tesla was trying this autonomous car, and it hit and some accident happened. I'm just trying to understand if-
Those liabilities we don't take. There is no indirect liability.
Okay.
We don't take any indirect liability.
Okay. Currently, you have mentioned, if my understanding is correct, that your pricing is more on a fixed price contract basis. Going forward, is there any possibility that we also try to do a revenue sharing model on the number of cars being sold and the software used on those cars?
No, I don't think that is a great model. While we do have in wherever we have two, three, if I have to say, platforms which we're going to car where we get certain royalty or per car basis revenue. Royalty is a wrong word, maybe. Per car revenue. See, there are two things. One is when you start developing the software, the car comes into production after two and a half years. Secondly, you don't know whether that model will be successful or not. Certainly that is not something which is available and as I said, more OEMs want to really own the software. From that perspective, this model is very limited for usage.
Okay.
Also as you know, more number of cars may go down over the period, and value out of a car will go up. I think in multiple ways, this model is very limited for its purpose.
Okay. Thanks for the clarity. Thank you.
Thank you.
Thank you. Ladies and gentlemen, due to time constraints, that was the last question for today. I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you, everybody. I hope we have been able to answer your questions. If there are still any more questions, please feel free to write to me, and we'll be happy to get back to you. Take care and stay healthy. Bye.
Thank you.
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.