Ladies and gentlemen, good day. Welcome to the KPIT Technologies Q3 FY 2021 Earnings Conference Call hosted by Dolat Capital. As a reminder, all participant lines will be in a listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you. Over to you, sir.
Thank you, Melissa. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies Limited for giving us the opportunity to hold this call. Now I would like to hand the conference over to Mr. Sunil Phansalkar, who's AVP and Head of IR at KPIT, to do the management introductions. Over to you, Sunil.
Thank you, Rahul. A very warm welcome to everybody on the Q3 FY 2021 Earnings Call of KPIT. While we are still in January, I would take this opportunity to wish all of you a very happy, healthy, and prosperous 2021 and beyond. I hope you have been able to go through the investor release that we have uploaded. On the call today, we have Mr. Kishor Patil, Co-founder, CEO, and MD. We have Sachin Tikekar, President and Board Member, Priya Hardikar, Senior Vice President and Head of Finance, and myself from Investor Relations. As a usual practice, we will have the initial comments on the quarter and the way we look ahead from Mr. Kishor Patil, then we will have it open for questions. Once again, a very warm welcome to all of you, I will hand this over to Mr. Kishor Patil.
Good afternoon. I am very happy to take you through a satisfying quarter three for KPIT. Our revenue growth has been 6.7% quarter-on-quarter. Our profits have increased. PAT has increased 50% quarter-on-quarter. Even if you look at year-on-year growth, our EBITDA for this quarter has been higher than 10% over last year. The growth has been driven mainly by T25, which has been our strategy. 85% of the revenue still comes from T25. That is exactly what it will also happen in future. EPT, that is electric powertrain , has contributed highest to the growth. In terms of geographies, Europe grew by 14%, USA by 5%. In case of verticals, the growth has been across verticals, mainly passenger cars, commercial, as well as new mobility.
The impressive performance on the profitability has come on account of better quality of revenue, increase in the productivity and operational efficiency, consolidation of offices, which has given us benefit in terms of cost. As we can see, our revenue per employee has gone up during the quarter reasonably. If you really look at last eight quarters, we have consistently been increasing the cash for the company, net cash for the company. Cash conversion has been very strong. It happened during this quarter, also very difficult quarter in that sense because of the holidays, but we continued to have a very strong cash conversion, and the net cash goes beyond INR 629 million. Sorry, yeah, INR 629 million. Sorry. The balance sheet remains very strong. In case of deal wins, typically the broadest OEMs have driven basically the wins which we had during this quarter.
We had one special win, which is a Triumph two-wheeler. We are proud about this win, basically because this is a different business model, and in case of a two-wheeler, this is the first real in-production, you can say, connectivity platform. Many have tried this but have not yet succeeded, specifically in view of new generation two-wheelers, which are coming in case of electric bikes . We believe this could have a reasonable potential, but we are also very happy about being the first in bringing such a technology. If you look at the Q4, I would say that we are very optimistic and confident about further normal growth in terms of revenue. Also, we are looking to increase our EBITDA further. I think we started this year on a very difficult note, specifically being only focused on the mobility sector, which was one of the most impacted sectors.
By the end of the, if you look at, I think we are very confident that by Q4, we will have a better performance as compared to the last quarter, Q4, in case of EBITDA, PAT, net cash. We have also made a lot of strategic moves during the year, which we have announced, and these are in new technology areas. We have also done a lot of work in terms of development of team, leadership development, and competency development, which really would go well for us as we enter into the new year. We have made this year competent in spite of a very difficult year. Looking forward, I feel that there will be. As you might have seen some announcements, like GM has announced more than $10 billion investment into electrification. Similarly, Volkswagen has made such announcements.
There are very high investments which will happen in these technology areas. I believe, for multiple reasons, both in terms of compliance as well as for competitive reasons, next four to five years, there will be a significant investment into new technology. KPIT being arguably one of the largest and the most well-placed players in this space, we would have our fair share of business from this space. I may also say that the unique positioning KPIT has put itself in, which is independent key software integrator, becomes a very important positioning and need for these OEMs as they are adopting new technologies. We see a very positively looking into the next year and beyond. Thank you.
Sir, would you like to begin with the Q&A session?
Yes, please.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may enter star and one on their touchtone telephone. If your questions have been answered and you wish to withdraw yourself from the queue, you may enter 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. We have the first question from the line of Mohit Jain from Anand Rathi.
Hello, sir. One is on the top line. While you shared our outlook for next quarter, and we don't share TCV data unlike some of our peers. What kind of visibility, growth, et cetera, in terms of your pipeline, and any color on FY 2022, how things are looking at your end, given that offshoring is likely to stabilize at current levels?
Two, three things. I think I gave you outlook for the next, in the sense how the environment will be for the next year and beyond. That was my main purpose of talking about the investments and the announcements by many OEMs, including some large happening like PSA and merger with few large OEMs. From our side, I would say the pipeline is strong. I think during this quarter, we have increased our pipeline substantially. We believe that we are in a well-placed position in terms of pipeline. We always talk about some reasonable wins, which we have been announcing. From that perspective, we look at it very positively going forward into the next year. We are very well-positioned getting into the next year. From the offshoring perspective, I think we still on the offshoring. Also the different business model, as I mentioned.
I think that would happen. It really depends upon which customers, because it also depends upon the maturity of a customer as well as the type of technology. We believe that after we have delivered multiple production programs over last few years, we are well-placed to make more offshoring happen next year.
Okay. Sir, second one. At the time of listing, we were talking about this 18%-20% EBITDA margin in three years. Where are we, given that offshoring has gone up, what is the floating target now, and by when do you think full benefits of cost optimization will come into play?
We had mentioned about 16%-18%. We are happy that we are closer to the range. I'm sure we will do our best.
By 2023, you will be within that band comfortably, right? Is that a fair call?
We will give year by year, but I think right now, I would stick with what we are showing. We, of course, will improve our profitability from here, but I would not give any number right now.
Okay. No planned investments into M&A or something which can eat into our current quarter margin?
No, there is nothing significantly which will impact the margin.
Okay. Sir, lastly, on headcount, there was this reduction of almost 500 people while demand environment continues to be strong. Company was talking about hiring. What is the current, and when do you think headcount stabilization will be done there?
What we did from our perspective is we have done basically every year we take 4% of our bottom mark. I think we went ahead and did that little early this time, ahead of our appraisal. Also, about 1 % or so, little more than 1 % we had non-aligned headcount. That I think those actions we took which have resulted into the reduction into headcount. At the same time, up to September, from April to September, we will have 600 people on board from the colleges. Of course, we will take a view as the year progresses.
Okay. Thank you, sir. That's all from my end.
Thank you.
Thank you. We have the next question from the line of Vimal Gohil from Union Asset Management. Please go ahead.
For the opportunity and congrats on the strong quarter. The question was regarding your revenue growth this quarter, a large portion of it has been driven by the powertrain business. I want to know what is your outlook on the rest of the practices, which is autonomous, ADAS, and electric. Just one suggestion, if you could just give some broad breakup as to what will we do in the other line item, that'd be great. My second question was on the margins. If you could just break the EBIT margin improvement on a quarter-on-quarter basis as to how much has come from consolidation of facilities, how much has come from reduction of headcounts, and how much has come from improvement in utilization. Sure. Thank you.
This is Sachin Tikekar . I'll answer the first part and Sunil will pick up the second part of the question. First part, when it comes to I think better we take a yearly view rather than a quarterly view, because there are always programs coming up and programs getting over. In general, the trend seems like there is electrification is going to lead the way. That's the trend and KPIT is in a great place to really create value in this space. Having said that we believe that what I mean is when it comes to three geographies, we'll see a balanced growth coming from all three. Similarly, across our key three offerings, there will be growth. Again, during the course of year, some will grow more than the others.
We believe that in Q4 and getting into the early part of the new year, we'll see more balanced growth coming our way. That is the answer to your first question. The second part was, you wanted to know a little bit more about the EBIT part.
Just one. The other segment, what do we do there?
If you look at the practices breakup, the other segment currently involves diagnostics. It involves innovation network, involves a little bit of OEM engine practice as well. Those are the major components. It's vehicle engineering and design.
Okay. Yeah, if you could just comment on the second part of the margin.
We haven't given any specific numbers. At a broad level, let me put it, the maximum impact has been both on the basis of quality of revenue, which I would put into more into offshoring, productive improvement and license revenue. Productivity, and the second is operational efficiency. That would be really the contributing revenue. Consolidation of offices would be margin.
Sir, how much was license revenues in this quarter?
I don't think we give this detail ongoing business.
Thank you, sir, and all the very best.
Thank you.
Thank you. We have the next question from the line of Nitin Padmanabhan from Investec. Please go ahead.
Hi. Good afternoon, everyone. Congratulations on a great quarter.
Sorry to interrupt, sir. There's a slight background disturbance. Could you please switch to the handset?
I am on the handset. Is it better?
Yeah, yeah. Nitin, we can hear you.
You can hear me now? Okay.
Yes, we can.
Yeah. Sir, I think the first question was upon the strategic T21 clients. How do you see the growth profile across those 21 clients? Are you seeing consistent growth across them, or do you think that there are areas where there is some cost rationalization to be done ?
Overall, Nitin, if you look at the top 21, I think all of them dealt with what they had to do during the pandemic, especially in the first six months. Now that they have taken some of the costs out that were not a priority, they are actually reprioritizing their spend. Fortunately for KPIT, the spend mostly is going to be in electrification, autonomous driving, and connected vehicles led by digital cockpit . When it comes to these three areas, almost all of our T21, T25 clients have made a commitment to make these investments. From that perspective, overall perspective, different clients are taking a different view. From KPIT side, I think there is a common part which is prioritizing investments in these three areas. That's what we see at an aggregated level when it comes to our T-25 clients.
Good. Do you think the tentative will come spending post pandemic and that is sort of through and from there on things should just improve from a spend profile perspective?
I think that's a fair statement, Nitin. It's a gradual process, right? It's not an on and off switch. Most of our clients get more confidence into the future, and as they have a better handle on their overall expenditures, they are having more and more conversations about their future production programs with us. It's going to be a gradual process, but absolutely trending in the right direction over the last six months.
Sure. I think you answered this partially, but just wanted to dig in a bit more. If you look at the ADAS and connected vehicles, ADAS, I understand there'll be some reprioritization of spend post-pandemic. Do you think that has sort of bottomed out in terms of where we are today, in terms of the numbers? On the connected vehicle side, both clients and whatever incremental that they're seeing, do you think this is also sort of bottomed out?
I don't know what you mean by bottomed out. I think if you look at all of the OEMs, whether they are from the passenger cars or the commercial vehicles side, all of them have announced some of their new production programs. Some of them got shifted by a year or so. They have made some tweaks within. For instance, some of the OEMs said that instead of Level 5 of autonomous, there will be more spend on Level 3, maybe get heading into Level 4. That kind of reprioritization has been done. When it comes to connected, there are two sides to connected. Connectivity within the car, which has to do more with the spend that they have in areas like digital cockpit , and then connectivity beyond, outside of the vehicle.
Outside of the vehicle, given the pandemic, has suddenly become very important, because you want to be in part of the connection. They're reprioritizing that. They're also prioritizing digital cockpit , because that's going to be the way forward. Across all these three areas, we see, not signs of commitment, but I think there are commitments by our clients to get into these programs.
I wanted to add a few things. One is, do you think last few quarters, actually, in autonomous, one of the largest programs we have been moving offshore. This was a new technology area. Earlier, all our people were on site. Right? It took us some time to really move some of these skills and have confidence for customer and as well as ourselves to move it offshore. I think that has been also one significant part in some of these cases. To add what Mr. Tikekar said, I think we have in line, I think we are very equally on these practices.
That's helpful.
What I was referring to in terms of bottomed out was the revenue number in these two practices.
Understood.
I think you elaborated that the ADAS was because of offshoring. In terms of from an absolute work perspective, do you think this is sort of a bottom here with more through the funnel? That's what I was trying to understand.
Yes. As I mentioned earlier on, going forward, we see more balanced growth across the three areas.
Fair enough. That's very helpful. Thank you so much.
Thank you.
Thank you. We have the next question from the line of Ashish Aggarwal from Principal India. Please go ahead. Mr. Ashish Aggarwal from Principal India, please go ahead with your question. Mr. Agarwal, are you still connected with us? As there is no response from this line, we will move to the next question. The next question is from the line of H.R. Gala from Finvest Advisors. Please go ahead.
Yeah. I have a few questions. In your journey to increasing the EBITDA margin, how do you balance out the margins in different geographies? Given the same volume of business which we are doing in U.S., U.K., and the rest of the world, more or less, the margin differentiation is very high. How did you understand that? Do you think it can level to a particular level so that the company as a whole can move to a 16%, 18% type of trajectory? That is my first question.
Yeah.
I think two, three things I would like to mention. I think typically we look at, as you saw, geographical margins. I'll give you some examples. First is, strategically, we decided to invest into certain geography more. These are like development centers. These are not marketing offices. These are leveraged across. The important part is many of the new technology work we have done in some of these geographies, which we have leveraged in the other geographies. It becomes very difficult from that perspective. To your point, certainly over the period we will see that. As you know that there are some of the more advanced clients which are more demanding. The new technology work which we do initially, because lot of that work gets done on site and then moves offshore, which I was explaining just some time back.
Those are some of the impacts. Of course, we are very careful about this and these are the leverages we have in the future, where we will be in a position to improve some of these margins reasonably well.
Okay. That was my first question. The second question is, can you tell something about this Triumph tie-up? You said that you are the first one to do and it has not been worked out anywhere in the world. What exactly we are going to do in that?
What we have is a connectivity platform for two-wheelers, and we did a program with Triumph, where Triumph is one of the first companies in two-wheelers to have a connected platform that is working very efficiently and effectively. Now that we have done this together, the asset actually belongs to KPIT. Triumph is our first partner to get this out. Now, given the pandemic, I think micro-mobility is becoming important. More and more two-wheeler companies, as they get into the electrification and so forth, they also want their two-wheelers to be smart and connected.
Right. Okay.
All the global OEMs in two-wheelers want to have similar platform. Now, some of them have made efforts to build this platform on their own, but there is something that is still lacking. Now that we have a proven use case with Triumph, we are getting more and more inquiries from two-wheeler OEMs, whether we can work with them in a similar fashion.
Okay. When do you think this app will get permission?
No, it's already underway.
Okay, it's already underway. Okay.
Yes.
What will be your revenue like? Will it be per vehicle basis or you will charge lump sum amount? How it will be?
It's both. There is what you call NRE, the non-recurring engineering fee, which is charged upfront. There is, depending on the size of the OEM and what they want, there can be per vehicle monthly, quarterly, yearly charge. There is NRE plus fee.
Okay.
As I mentioned in the earlier commentary, I think this is not one of the largest wins for us in terms of volume, but I think it is very critical to bring the technology, make it work in a new domain on a new two-wheeler and the being first, as well as the business model. I think that's why we mentioned it. It has a potential. We'll see how it goes.
Correct. Okay. So my, next question is, a couple of quarters back, we announced that big contract. Do we have any such more contracts in offering?
Yeah, I think most of our business is driven by the production programs and what we have has certainly led to multiple such possibilities in future. It is a part of our pipeline.
It is part of the pipeline.
The way automotive industry or mobility industry works, it's not about contracts and deals, it's about long-term engagement.
Yes.
Once you are in a partnership model, they have multi-year programs that come out, and as long as you continue to be a partner, that creates tremendous value. I think it gets renewed. That's the kind of model that we are trying to put together. All of these relationships become long-term. We have long-term visibility into their program, and naturally, if we continue to create value for them, we'll be the partner of choice, right?
Right.
That's the kind of model that we are trying to get into. If you look at how Tier 1s work with OEMs, this is the model that they have. As a software integrator, we are also trying to build a similar model working with the OEMs and Tier 1s.
Very good, sir. Last question from my side. As far as balance sheet is concerned, which you have given on page number 18 of the presentation, there is a big jump in this other liability from INR 306 crore to INR 409 crore. What could be the reason?
We'll put the information.
Yes, we'll put the information on the website.
There's nothing significant.
No, I mean, it has increased by INR 100 crore, I was just wondering that, usually you have, I think, probably items like your unbilled revenue and things like that. I don't know. There can be something more.
Yeah, we'll put it up on the website.
The information, we'll put it on the website. There is nothing significant. Just to tell you, even in case of unbilled revenue, we are one of the lowest in the.
Lowest in the industry.
in the industry, we benchmark that. Nothing coming to mind quickly. I think we'll put it on the website.
Okay. It's not something like that amount of debt which is due for payment in one year or something?
No.
You don't have any debt, basically.
No, we don't have.
No.
Okay. Fine. I will get back to you. Thank you very much. Wish you all the best.
Thank you.
Thank you. We have the next question from the line of Ashish Aggarwal from Principal India. Please go ahead.
Yeah, thanks. Am I audible?
Yes.
Okay. Sir, two things. First of all, just on the growth side, given the fact that in this fiscal year, we have signed couple of large deals, right? I think that will give you good growth momentum going into FY 2022. Just wanted to understand what stops you to grow at high teens or even let's say, 20% next year. Secondly, we have now considerable amount of cash in our balance sheet. What is the usage of cash plan? Yeah, thanks.
On the first side, I think we have said that we are quite focused and we'll grow what we have grown. You have seen us over the period that we have always given some of the better results. I do not want to take any numbers. We'll give maybe some picture maybe end of this year. Certainly, I think we have a very positive environment for us to grow. That is the only thing I can say at this point of time. Our pipeline is good, our environment is good, our positioning is good.
But-
Sorry?
Sir, I just want to understand the pipeline, when you say it's good, if you can just quantify in terms of what the growth in that pipeline would be, let's say, on a year-on-year basis or something like that?
Some of this data we have not shared, and as you have seen in the last year, we have given more and more data, and we have been consistent on it. Some of this data we don't give because it is very confusing in some cases. That's why we are not giving. I mentioned that our pipeline has increased significantly, and it gives us the confidence from the adequacy of pipeline for growth in future. I would leave it at that point of time right now, and we'll give a little more color at the end of the year. That is what I would say. In case of cash, absolutely, I think there are two things. I think we certainly will look for some niche acquisitions. We are not looking at any large acquisition. Even though there are opportunities, we will not look at it.
We will look at niche acquisitions, which will help us in accelerating in certain new technologies or customers. These are the two specific areas where we may look at. That certainly we are looking at, but naturally we are very choosy on many of these deals. I think secondly, in many of the technology areas as well as customer, as I have said in the past, I think we feel very confident that we can acquire any customer very quickly as well as we can build many technologies based on our investments we have made. It has to be special to really get into that. We are looking at it actively in certain areas. That is another point. Beyond this year, we will also look to increase our payout ratio beyond this year. I think that also we intend to do.
With that, I think this is where we will be with the cash.
Thanks a lot.
Thank you.
Thank you, Ashish.
Thank you. We have the next question from the line of Ankit Agrawal from Yellowstone Equity. Please go ahead.
Yeah. Hello, sir. I had a few questions.
Yes, please.
Yeah. The first one is on REVOLO. Can you update as to how is it performing and what are our plans going forward?
I think we have said it in the very earlier, maybe about a year back, that when we started as a new company, we decided that we will not do anything with the hardware, we will focus only on the software technology. Our new positioning is a completely software integrator positioning. Allow OEMs to integrate new technologies into vehicles. Based on our REVOLO, the software which we have developed and the assets has been a part of our EPT practice.
EPT?
EPT means electric powertrain practice. That is one of the best growing practice, and that has certainly given us an advantage both in terms of assets available with us, whether it is in battery management, inverter, et cetera, and actual experience of integration of hardware and software, which has been a part of our EPT practice. As a product, we have discontinued selling it in a particular full product solution. We have just taken the software ahead.
Got it. Okay. Second question is regarding the inventory write-off this quarter. I think there's some mention of around INR 6 crore of inventory write-off. Could you give more context around it?
I don't think there is any mention in the inventories write-off this quarter at all. If you look at our P&L snapshot that we have circulated as well as the published financial statements, I don't think there is any inventory write-off statement at all.
Okay. That was for March 2020. Sorry, my bad. Okay. The third question is on depreciation. If I looked at your depreciation related to some of your peers, it appears on the high end. What could be the reason for this?
There are two, three reasons. I think we have been sharing this, and actually at the beginning of the year for investors, I had given a quarter-wise breakup of how it will work. The first thing is two years back, when we de-merged from the earlier company, all our assets have been new. We had a new campus. Every asset is new. That increased our depreciation. Also, some of the facilities which we have taken in Europe as well as outside rental, because of the accounting standard, that has also been capitalized. With that, we had a significant higher portion. As you have seen, we had given clearly that it will move in a particular direction and reduce by the year, and it is exactly in line with that. As the years go and our revenue increase, I think that will come down.
Okay. That's all from my side. Thank you so much.
Thank you.
Thank you. We have the next question from the line of Vimal Gohil from Union Asset Management. Please go ahead.
Yes, sir. Thank you for the follow-up. Sir, my question was on your on-site and offshore mix. You highlighted that some of the projects that you won earlier will transition to offshore. Given the current pandemic, a lot of clients would have realized the benefits of executing projects offshore. What is your view? Will offshoring show a structurally higher trend going forward? Or will we revert towards that normal on-site, the project gets executed on-site first and then goes offshore, things like that. Will that trend continue?
Yeah. There are two points I mention. I think one is, in case of a very new technology, both clients will feel more comfortable. In case of new technologies, whenever they come or a new very complex program, when it comes, they feel comfortable doing it on-site, as well as even from our side, to moving that kind of a complex to our offshore immediately is not as easy as in case of a generic IT work. We have been in a position to do it over a course of time in certain practices, in some practices more than the others. In some cases, access to certain infrastructure is also important with the client. Depending on that, we do. Overall, as a direction, we do see that we can do more work in India.
Right. In conclusion, your offshore rates are still suboptimal, so to say, and they have some way upwards.
I don't understand what you mean our rates are suboptimal. You mean our offshore percentage?
Yeah. By percentage, I mean there is a lot of-
Yes.
-room.
Yes, absolutely.
Some of your peers are as high as maybe 68%. I don't know what your rate is right now, but maybe it could go higher from the current level.
Yes, certainly.
Would it be possible to disclose these on-site offshore mix going forward, sir?
See, most of the times we have said also that these are full price projects. Sometimes in this new technology, for example, one of these autonomous project we did, I think at a point of time it was 100% on-site. We are not priced based on on-site and offshore. We then started moving it toward offshore as we feel it's comfortable, et cetera. That is the reason we don't share these details.
Fair enough, sir. No problem. Thank you so much once again and have a good day.
Thank you. We have the next question from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah, hi. Thanks for the opportunity again. Sir, if you look at the revenue per employee, it's gone up quite nicely. It's up 15% sequentially and up almost 9% year-on-year. I just wanted to understand, is this purely driven by utilization or would there be something like a licensing or something driving that number? If I look at headcount, it's lower than same time last year, but the revenue per employee is also higher. Either utilization is much higher or there's some additional licensing kind of revenue. I just wanted your thoughts on those ones.
Yeah, there are two points specifically. As I mentioned, one, certainly utilization has gone up. I think we tightened that. That is certainly one element. The second element is on the basis of productivity and few license revenues, as I mentioned. See, what happens is, many of these projects, we have taken based on productivity, and we have seen a reasonable improvement in the productivity over the last year. I think that has helped us. Also some license revenues, not significant, but reasonable revenue.
Sure. Fair enough. Sir, just another question, maybe this a little related to. If I look at the five years until FY 2020, FY 2016 to FY 2020, we grew at a 15.5% CAGR. During those periods, we never had any of these large deals or any such things. At this point of time, I think it's the first time that we are seeing three large significant deals come through. When we think about it that way, is it fair to assume that compared to the earlier growth trajectory, that we should actually be higher? Or is there something that I'm missing in the underlying math?
I can only say that one is the way we are doing the business is also changed. I think we are taking a more full responsibility of the project. I think we have established ourselves very well. That is exactly where most of the OEMs are. Many of the OEMs are moving to new architectures of their vehicles and larger programs on electrification or autonomous, and we are in a position to take a substantial ownership of many of these. I think that has really led to that. I would say it gives us more visibility into future and more flexibility both in terms of how we operate and hopefully over the period, more monetization of assets which we build. I think that is the benefit we will get. I'm sure in some way it would help us for growth
When we think about it should reflect not only some growth, but also in terms of margins and revenue per employee and all put together?
Yes, certainly, I think that is reflecting a bit in the last results.
Sure. Fair enough, sir. That's quite helpful. All good, then.
Thank you.
Thank you. Before we take the next question, we would like to remind participants to ask a question, you may enter star and one. We have the next question from the line of H.R. Gala from Finvest Advisors. Please go ahead.
Yeah. Sir, please can you broadly tell us what kind of capital expenditure plans we will have?
Sir, capital expenditure plan, we are still working on our strategies for AOP FY 2022. Capital expenditure plan will depend on how we will utilize the capacity and looking at the new deals that we will win.
We will put together the plan.
Okay. How much it will be in the current year?
Just to explain further on this, there is no significant capital-
Yes
facility we are looking at
Nothing out of turn for our base. It will be everything which is normal in the course of business.
Mm-hmm. I think you will be also taking assets on lease also.
Assets on lease, I don't know what you are referring to. The lease assets-
The right to use assets.
The right to use assets are basically the leased facility, the offices.
Yeah. Okay. Let me ask you this.
It's just that Mr. Patil mentioned that we are not looking at any more new additional CapEx, significant CapEx increase.
Okay. That has also increased to about INR 100 crore in this nine months period. I was just wondering that whether you will have these kind of recurring requirements?
No.
What? No. Okay. Thank you.
Thank you.
Thank you. We have the next question from the line of Ashish Kacholia from Lucky Investment. Please go ahead.
Yeah. Good afternoon. Congratulations to the KPIT team for a good set of numbers.
Thanks, Ashish.
My question is basically, Kishor, if you could talk a little bit about the scalability longer term of our business, because some of our peers in the engineering and design space seem to be working across multiple verticals. The scalability in those kind of seems to be a little more assured than our company, which is focused on a single vertical, which is automotive. Could you kind of just share some of your thoughts on how much our company can scale to eventually in three, five, 10 years, whatever, INR 500 million, INR 1 billion. What is the eventual scalability potential of our company until we run out of customers and a disproportionate share of their R&D budget?
Right. Ashish, I think it was a very well-thought strategy we picked up on being on one single vertical because we wanted to be a leader in one area, which hopefully helps us to grow quicker and have a higher market share, actually. That has been our thesis that as a company, we wanted to be a leader globally in one package. What is happening is, there are two sets of customers. One, there are many conventional OEMs, which are our major customers of T25, and there are few new generation OEM. As you know that because of the legacy, the conventional OEMs, they had to do a lot of work on their software. There are companies in the new generation, including Tesla, and there are a few more, which have started building their own, basically the whole software and the vehicle in a different architecture.
What has happened is all these conventional companies, OEMs, they need to react to this significantly. I think next four to five years, you will see some of the highest spend in this area. This is going to be complex. This is driven by change in the architecture. It will be driven by domain. We believe that we are in one of the best places to capture this opportunity. It will be a mix of what they build and what they work with the partners. Some of which they, of course, as the valuations are driven by multiple factor, one of them is owning of the IP assets. Many of them are building their own platforms, and they intend to do this. There, they need a partner who can help them accelerate that.
More important is the software integration, where multiple software is coming together in the software, which is not what they have developed, but outside of vehicle and also the hardware and software integration, et cetera. I think we have positioned ourselves very strongly in that area, both because of our assets and experience in the production program. I think at least next five years, I can talk about, I see a significant opportunity. As a company, we had said in the past also that we believe there is a significant potential because I guess most of the companies will, as the business mainly moves around software, I guess ongoing basis, most of them will start spending more than INR 1 billion annually over the period, I feel. We'll have a significant opportunity to grow.
We will re-look at this maybe when we are double the size of where we are, whether there are any other verticals we need to look at. Till that time, we see we are in a very good position, and we would like to maximize what we have built.
Something you want to say? No. I'll just add to what Kishor said, is, Ashish, if you look at it, vast majority of our revenues actually come from passenger cars. There is tremendous headroom to go within passenger cars. We have just scratched the surface when it comes to commercial vehicles. Commercial vehicles are also looking at making investment in electrification, in ADAS, and in connected vehicles. We think that's going to be another sub-vertical that will grow for us. We are also looking at new mobility. All of this will lead to new mobility. We believe that there will be opportunities for us to grow within those also. Within mobility, I think we think that there is enough headroom to grow in passenger cars. There is untapped potential both in commercial vehicles and in new mobility.
Given all of this, we believe that for the next three to five years, there will be enough headroom for us. There is enough growth that is available for us.
Right? Thank you. Thank you gentlemen, and all the very best.
Thank you.
Thank you. Ladies and gentlemen, to ask a question, you may enter star and one. We have the next question from the line of Rahul Jain from Dolat Capital. Please go ahead.
Yeah. Hi. Congratulations on very strong quarter. Just two questions. Firstly, we have seen that the peers in the similar space are talking very positively, coming to you also on the auto side of the business. My general question is that, with the kind of volatility that we have seen in this vertical or cyclicality also in the past, and also given the project kind of a nature involved, do you think a long-term predictability is a possibility? Although opportunities are huge, but can those kind of clear prediction can be drawn, not aspirations?
I think I would just like to put it into buckets. First is, we have many times mentioned that their technology spend does not depend on number of vehicles they sell. That is there. Actually, because of more specialized platforms they need to build and the new technology they build, I think it is disproportionate to number of cars which people are selling today. They have to make significant investment into technology. As I mentioned just before, I think the new architecture programs, many of them will put in over next four to five years, and that will be the largest spend area. We believe, for next four to five years, we see a significant opportunity for our side of the house. From that perspective, I would say that, at least for a reasonable period, we see a good potential for it.
Okay. Just to add on that, I think from a service offering perspective is the areas that we are focusing, we are pretty much aligned the way the industry is moving. From a focus client portfolio perspective, do you think the way the industry would shape up, we are with the right set of customer today itself? We see things that would evolve significantly over the next five years as various countries have different timeline of achieving electrification?
No, that's a great question. What we are saying is we have put together a process, which we look at twice a year. We look at our T25. There are two factors that we take into account. One is, what is their positioning in this changing environment? Are they the ones who are gonna make it? Secondly, what kind of value KPIT can create for them, right? I think if the answers to these questions is yes and positive, those are the clients that we want to engage with from long-term perspective. That's how we have selected our current list of T25. Having said that, we understand that this is a dynamic market. There are disruptors, the new mobility players that are coming into it. We know that some of our conventional OEMs are gonna make it.
We know that some of the newcomers will disrupt the game. Every six months, we sort of do a deep dive to look at where these T25 stand, and what are the new ones that are likely to disrupt the play, and what is KPIT's value proposition to them, right? These are the aspects that we evaluate. Even though we are focused, we want to keep the process fairly dynamic so that we are not blindsided by the changes that are happening in the environment. Does that answer your question?
Yes, sir. Just a small more nuance from here. As you know, we are seeing a trend of not just auto company making more of a tech product, which we used to call it historically, but car is getting more electrical. It's the other way around as well, where a tech companies are making autos inside . From that perspective, do you think our relationship of being the right partner, is it disrupted that environment versus the traditional model, which we have done well so far?
Yes. I think what you are saying, what I called the disruptors, you are probably calling them technology companies, right? Is that what the question is about? You're absolutely right, and that's what I mentioned. We understand that the disruptors are technology companies themselves who want to get into mobility space. We are keeping a very close eye, and we have also initiated some partnerships that will help us to create greater value for them. The value proposition is getting fine-tuned, and we believe that in the next year or so, we'll have a very clear strategy and clear value proposition for these disruptor companies. We are monitoring them very closely. We are also building a partnership and ecosystem so that when the shift happens, we are ready for the shift.
Having said that, we still believe that many of our existing, what you would call conventional OEMs and Tier 1s, are making significant investments, and we believe some of them are going to be very successful in the new model as well. Keeping focus on them is equally important.
Right. Great. That's it from my side. Thank you.
Thank you.
Thank you. Ladies and gentlemen, as we have no further questions at this time, I would like to hand the floor back to the management for closing comments. Please go ahead, sir.
Thank you everybody for your participation, and if you have any questions later on, please feel free to write to me, and we'll be happy to get back to you. Thank you and have a great evening. Bye.
Thank you very much. Thanks.
Thank you. Ladies and gentlemen, on behalf of Dolat Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.