Good day. Welcome to the Q2 FY21 Eearnings 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. Should you need assis tance during the conference call, please signal an operator by pressing star then zero on your touch tone phone. P Iease 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, Mr. Jain.
Thank you, Rituja. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies for giving us this 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.
Thanks, Rahul. A very warm welcome to everybody on the Q2 FY21 earnings call of KPIT Technologies Limited. On the call today, we have Kishor Patil, our CEO and MD, Sachin Tikekar, President and Board Member, Priya Hardikar, Senior Vice President and Head of Finance, and Sunil from the Investor Relations. As we do always, we will have the opening remarks about the quarter's performance and the way we look at the remainder of the year from Mr. Patil, and then we will have it open for your questions. Once again, a very warm welcome, and I hand it over to Mr. Patil. Over to you, sir.
Good evening. Very happy to take you through these quarter results. This also happens to be one of the most challenging half years in the history of the company. I would like to just go back and cover what were the three goals we had set out at the beginning of this period when COVID hit us and the world. We had identified three main goals at that point of time. One was to conserve cash, so it really builds resilience. The second was wallet share. We keep, if not increase, the wallet share with our T21 customers. Third, we focus on delivery and operations, specifically from work from home. How do we keep the productivity? How do we improve the quality?
I must say that we had a very detailed review, every customer projects-wise, and we are very happy to say, first, on the conservation of cash, we moved from INR 328 crores to INR 528 crores in the first six months, which is one of the best half-yearly increase in the cash. Wallet share, if you look at it, while our revenue has come down during the quarter one and quarter two in the half year, more than half of the customers, it has been stable or gone up. In some specific customers, it has come down. There are very few customers where it has come down. Both in case software, we have seen growth, and in cases where the revenue has come down. At minimum, we have maintained the market share. If not, it has increased.
We are very happy with the engagement with our clients. Third was delivery and operations. We have really focused quite well on this. We have invested in building processes, building automation, and delivery excellence, specifically considering the kind of complex projects and technologies we are involved, and of course, work-from-home scenario. Overall, our quality metrics have improved significantly during this time. I'm very happy to say that the three goals we have set up, we have done reasonably well on that. Now, coming to the quarter two. Overall, the growth has been flattish, as we mentioned at the beginning of this period and the beginning of this quarter. The growth was mainly in Europe, followed by America, and then America and Asia, there was a degrowth.
The main thing is, during this period, we have won five OEM projects, and they have been across Europe, Americas, and Asia, and across the technology, electrification, ADAS, and connected. I think one important trend we saw, and we have given some details about this in our investor update, that the OEMs have started, even though conservatively, new projects with us apart from the continuing projects. I think that is a very good sign. Another point I wanted to talk about was that our onsite revenue has reduced. About 120 people work has been offshored during this time. There were three specific reasons for this. One is in USA, as you know, there, because of the visa restrictions and et cetera, some of the people whose visa has been expired or was due to expire.
Some of those people, along with some of where the customer wanted a cost reduction, all those people we have got back to India. That was point number one. Similar significant part happened in U.K., that many onsite projects were moved to offshore. The third part is subcontracting. Specifically with some of the complex projects We have subcontracted some work in the high-cost countries in Europe because we did not have that point of time, those skills. During this period, we have been in a position to move that work offshore. With this, roughly 2.5%-3% of additional work we moved offshore. That was our volume growth during this time, though the revenues looked flat-ish. On the profitability front, in spite of rupee appreciation, which hit everybody, the impact would have been 0.4%. There has been increase in EBITDA, about 1%.
Again, apart from the change in the mix, as I mentioned, that is reduction in on-site and reduction in subcontractor, there are other reasons as well. One is the office consolidation. The office consolidation, specifically in India, it, of course, had some revenue impact of this. Along with that, all the expenses in pre-termination of leases as well as the expenses related with that. Overall, there was no impact during this quarter, but we have been in a position to consolidate these offices during this quarter, which will have some impact next year, positive impact next year. The other thing was interest income. As you have seen, the liquidity has improved, and that's why we have been in a position to invest 70% of this into investments. Of course, it would increase more as we go further.
There are two additional expenses which have incurred during this quarter. One was a depreciation in Munich facility, which we had mentioned and told that our depreciation will go up. That has gone up because of the Munich facility. The second thing is, COVID-specific provision we made of INR 5 crore for doubtful debts. We made this basically because some of the financial situations of the customers naturally, in spite we will rigorously pursue to recover this, but we thought it prudent to make this provision during this quarter. On the liquidity front, as I said, we have a DSO of 59 days, which is one of the best in our history, and increase our cash by INR 200 crore during the last six months. 70% is invested, and this gives a very good comfort for us.
Of course, this would give us, while we would like to maintain this liquidity, if not improve during next few quarters, till, I would say, overall, there is a better stability, and we pass through these uncertain times. Of course, during that time, it would earn us some interest income, which will improve the EPS. On the people side, as we had mentioned, we had already announced restoration of variable pay, which we had reduced. That will be there from the 1st October, sometime in the October. The second is we have reinstated promotion link increments, so that we have done. Our attrition remains to be lowest in the industry, and we are happy that in spite of some of the measures we took proactively, our people morale remains high.
Last but not the least, on the technology front, you might have seen an announcement on fuel cell. We work with CSIR. This was a R&D project. To really build this as was the first fuel cell vehicle, this is quite a proud moment. More importantly, as our many customers want moving to the fuel cell in future, apart from what we do in electrification, et cetera, I think for their future products in fuel cell, we will be in a position to add value to their projects. That is very creditable to the team. Last, on the technology front, we continue to invest significantly on R&D expenses.
We are in one of the tech places where the technology is changing very fast. We want to make sure that we are ahead in the technology area. We help our customers to really go to the market quicker with the new technology. We spend 7% of our workforce work on R&D projects. This is not bench, this is not this. These are specific projects in the new technology. We have not reduced this part at all during this time. 7% of teams continue to work on this. We believe this is for the future growth of the company. We have not reduced any of this spend. Coming to the outlook, I think T21 revenues have been 86% of our total revenues, which remains very strong. It has increased quarter-over-quarter in the last year.
I think that is a real strength for us as we look forward to the second half. The large deals which we announced last two quarters, along with the five OEMs engagements we have talked about and the strong pipeline we have about some of those large deals and significant deals, we are confident about growth in H2 over H1. The growth will be in Q3 as well as in Q4. We will increase the percentage of offshore. There is some possibility of a secondary wave, but we believe that with the strength what we have and the customers' experience in managing this, as well as our experience in managing this, we are in a much better position to handle this. Even in case of that situation, we are very well-placed to deliver on the promise. On the Q3, if you look at our revenues will go up.
As we had mentioned that restoration of variable pay will be there. There will be increments for the promotion link. The depreciation will go up. In spite of the significant expense which will increase, our profitability EBITDA will be 14%+ during the Q3 quarter. On Q4, revenue will increase. There is a further lower depreciation. We will have more offshore and EBITDA improvement will be beyond the current quarter for sure. This is how we look at the Q4. Overall, we believe that the H2, we will show reasonable growth in terms of revenue and improve our profitability reasonably well. Overall, cash will be higher and I think we will be in a very strong position to go into the new year post that on a strong note. Thank you.
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to withdraw 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 Baidik Sarkar from Unifi Capital. Please go ahead.
Hi, good evening and thanks for asking. We understand there's been a change in your onshore and offshore revenue.
I'm sorry to interrupt, Mr. Sarkar, but the audio is breaking.
Sure. Is it better now?
Yes, it is better.
You can go ahead. Can you speak little slowly, that will help.
Sure. My question was, we understand there's been a change in your onshore and offshore revenue mix leading to a flattish headline number in revenues. How should we understand the quantum of your volume growth that you alluded to in your results? Secondly, in accounts where you're seeing sluggishness right now, probably in the passenger car segment, how serious is the problem and how would you see recovery panning out from these accounts?
Basically, this onsite to offshore is basically I have given three specific examples and basically looking at the headcount which is onsite versus this.
I must say that we have a center like Germany which is like a center in India where we don't look at moving people out here and there. In case of specific projects where it was these projects I talked about in U.S.A., Europe, or the subcontractor, that is the head count which we have brought in. I think that is basically internal information about the onsite movement to offshore, which is reflected into profitability improvement. I think that is the only thing I can say. The second, your question is PACCAR. We have also, if you look at the new wins during this quarter, there are five new wins on the OEM side. I mentioned that the OEMs have started bringing the spending again, and new projects, they are beginning to start spending on the new project, though cautiously.
I think that along with the deals which we have won in quarter one and two, that's what gives us the confidence that the growth will be back in the passenger car segment.
Yeah, just to add to that, to give you a macro perspective on the segment. If you look at Q1, the drop in the industry was anywhere between 30%-50%. Some of the OEMs have started to announce their results for what is our Q2 now, which is their Q3. The quarter-on-quarter, the results are encouraging, even though year-on-year, there is still lot of sort of gap to bridge. From Q1 to Q2, our Q1 and Q2, there is a positive momentum. We hope that it continues. We are looking at H2 little more optimistically.
Your cash buildup has been quite commendable given the circumstances.
We are not able to hear you. We can't hear you.
I was saying your cash buildup has been quite commendable given the circumstances. How do you see the quantum of your payouts evolving from here on? Is there a higher dividend or a buyback in the offing? Your thoughts on that? Dividend or buyback.
No. I actually talked about it. We feel that till there is a bit of uncertainty, of course, we would like to keep and build on this. The payout ratio we have talked about around 25% as a policy. We'll do that. The rest of the money, how we deploy, whether in any form or the other, we will take that call later part of the year when I would say the uncertainty will be lower.
Thank you very much for the clarification.
Thank you.
Thank you. The next question is from the line of Sandeep Agarwal from Edelweiss. Please go ahead.
Yeah. Hi. Good evening to the management team, and thanks a lot for giving me the opportunity. First of all, I wish a good to everyone, and also congrats on a good execution. I have a question from Techshaw particularly. I was just wondering, we have, for example, in this quarter signed five OEM, and I understand the negative impact of the revenue, if not on margins of the offshore part. If you take a little broader view of next 12 months or 24 months, is it fair to assume that this kind of signings which are happening on the OEM, it will lead to a very significant acceleration in growth? You think it is too early to call that out, number one?
Number 2, if you read the international different journals and research on the autonomous cars and powertrain and everything, the kind of outlook which those journals are putting out for this segment is very optimistic. We being specialized in this area, how do you see our next two to five-year scenario for our company? You think we can grow really extremely well in these areas because of the substantial potential which is showing up in the outlook? If you can give some light from a longer-term perspective, not like for a quarter or two, but little longer-term view. I'm not asking for a guidance or a quantitative number.
Thank you for your question. I think, we have talked about in the past how we have delivered our results in last three years. I feel that we are in a good place where we have, I would say, clear focus strategy on our customer. Our relationships are strong. We are investing continuously, even during this period on the new technology. We believe that we will hopefully go back to that in the new year. That is what our objective is. During this period, we talked about all the financial numbers, our client engagement, we have increased quite a bit. Other than any other possibility, we believe that we should get to at least, I won't say the best year, but one of the better years next year, and any year after.
This will be a very good time for three reasons at a high level this. One is the electrification. We are in a very well position in Europe because we have a significant presence in Europe on electrification, and we have a very significant engagement. You may see it in the past deals and maybe in some future deals. That allows us to really capitalize on this market. As you have seen, some of the customers like BMW had an increase in the electrification vehicles 40%-50%, some number like that. Overall, there is a tremendous push in this area. I think our credentials as well as our strength is significant in this area, which will allow us to do that.
On autonomous, while people have prioritized ADAS over AD, that is level 4, level 5 automation is little bit pushed out and more focusing on level 3 plus automation. That is again by itself a good opportunity, and our credentials and market size is pretty significant in that area. We feel that in commercial vehicles, we feel like the adoption of autonomous will be faster. Even though it has not started with the same, if I would say rigor till now, we think in the next six months and looking at how the market is bouncing back in some of these areas, we believe in next six months, we see that some of these things coming back. The third is because the autonomous was pushed out to deliver a value, I think the differentiation is happening on digital cockpit.
These three area of spend will remain strong, apart from normal growth in other areas. We believe based on this, we see a good environment for us as we go through this uncertain time.
Thanks. That's very helpful, and best of luck for the current quarter.
Thanks.
Thank you. The next question is from the line of Mohit Jain from Anand Rathi. Please go ahead.
Hi, sir. First is on the margin outlook. From a longer-term perspective, you highlighted the trend towards higher offshore. If you have to just extrapolate this, let's say to FY 2022 or 2023. Earlier our margin aspiration, I guess, was closer to 16%-18%, this was pre-COVID. How it has moved from that perspective given that facility cost benefit will come and you will probably move to higher offshore?
I think we would maintain that right now, 16%-18%. We don't know what else will happen and how things will change otherwise. We feel that is a good profitability, I would say, for us. It allows us to invest in whatever other areas we need to. 16%-18%, I would keep that as a guidance as I had talked about in the past.
Sir, second is on the top 35 accounts growth. Last quarter you highlighted that there was significant uncertainty, then you were expecting some movement in the top strategic 25 accounts. Has anything materialized or is that risk behind us and you expect these strategy accounts to continue at a stable number going ahead?
Yes. This is Sachin Tikekar. Mr. Patil mentioned that recently we had a significant win. All of them are from our top 25 accounts. The overall outlook from their perspective, especially in the areas in which we operate, looks very optimistic. The recovery of automotive, which consists of both passenger car and commercial vehicles, may take some more time, but recovery for KPIT will be at an accelerated pace because the spend that they have in software is coming back. In the last three months, there have been a lot of constructive conversations about future. Some of those conversations have materialized into good-sized deals with our T25 and given their Q2 results for them that are on the positive side, we feel that our confidence will go up as we get deeper into the rest of the year.
Okay. Next one on utilization. If you could give a range of where the utilization is and when can we expect headcount addition to start again?
On the people side, let me tell you about the headcount addition. I think we have used this time also to really go deeper. Specifically, we have positioned ourselves very strongly as a software integrator, which is a very critical part. It's almost like a new category of a player, pure software player, which has emerged. I think with that, we have really focusing on those kind of deals. I believe we will still not have, or maybe we'll have de-growth another one quarter in the net headcount for the company. We have given an offer for 6,700 people for this. Basically, for the current year, which will join later part of this year. That will start looking from the quarter one onwards. That is how I look at it.
Sir, it's not given Who will join during FY 2021, is that correct?
I can't say that right now, but I'm just saying those are the people who will join in next two to three quarters.
Understood. Sir, on utilization, you were saying something.
Currently, Mohit, if you look at the combined utilization, we are at around 72%, 73%. As we move ahead, we believe that over the next three to four quarters, we should be able to increase it by at least 4%-5%.
78% would be the estimation.
Fourth quarter, yes, between 76%-78%, I think that is the range as a combined utilization number.
All right. Priya, one thing, tax rate. Explain to complete this quarter what is FY 2021 and 2022 tax rate likely to be?
Sure. Tax rate, we've been saying that it is for the complete year as a whole. The quarterly movements happened because of some of the Ind AS impact on the office consolidation, and otherwise. You should look at it H1 as a period, it would fall in the line with what we had given as an outlook.
It will continue to be in a similar range from a one H perspective.
Yes.
Thank you. That's all from my side.
Thank you.
Thank you.
Thank you. The next question is from the line of Madhu Babu from Centrum Broking. Please go ahead.
Yeah.
Hi, sir. Just on the cash deployment, I think INR 520 crore is the current net cash. How much of it is abroad and how much of it will give a higher yield and how the other income will be there for next year?
I guess-
Current income is very low. Yeah.
Madhu, currently in the investor update, we have given a breakup of how much cash is invested in India and how much is outside India. Our endeavor is to increase the amount of cash that we bring back in India, and that will happen over a period. If you look from last quarter to current quarter, it's almost double. It was about INR 10 million last quarter, it's INR 19 million this quarter, and you'll see that going up every quarter as we move ahead.
All that in India is in high-yielding assets?
Yes. Obviously, safety comes first for us and then the yield. That is how we think about it.
Okay. Other thing on the depreciation, I think there was a spike. How the steady state depreciation, when it will moderate?
On the depreciation side, as we had given even in the investor update, we believe that by end of this year in Q4, the depreciation should normalize when we will completely have the office consolidation impact.
Okay. Just one last one, sir. Next year, do we see this revenue deflation continuing into next year? I think post-COVID, when the clients analyze that a lot of has been done from work from home, would you see further offshore shift and that revenue growth momentum might be 10%, 12% next year because of this deflation continuing?
As you know, our proportion of low-cost country is already on the higher side. Last quarter, we made some shift. I think for the rest of the year, some more people will move. We have to keep in mind that we are building a world-class practices, and in order to remain on the cutting edge of the world-class practices. It's important for us to have large presence in countries like Germany, especially Munich, hence our investment. Beyond this year, we'll have to strike the right balance. For the next two quarters, I think the trend will continue to some extent. After that, we have to make sure that we have enough presence in areas that are on the cutting edge, whether it's Europe, parts of U.S., parts of Japan and China, we'll have to maintain some numbers there.
The five deals we mentioned in the release. Who are the competition? Like LTTS or Tata Elxsi or even the tier 1 vendors or some local players. Just wanted to understand whom we are competing in these new-age practices .
On the five deals that we have won? Is that thing?
Yeah, on the OEMs which we announced. Yeah.
We have different competitors in different areas. The competitors on the powertrain side, whether it's electrification, there are certain competitors. On the ADAS, there are very limited competitors. Also on the infotainment, overall digital cockpit, I think the competition is little more wide across the geographies. For the first two areas, most of our competitors are from Germany and U.S. In infotainment and connected vehicles, generally, there are competitors from U.S. to Europe to China, including India. That's really our footprint. Mostly we compete with very specialized players from Europe and U.S., especially for the first two practices.
Okay. Okay, sir. Thanks and all the best.
Thank you.
Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Hello, good evening, everyone.
Good evening.
Last quarter, I think you had made a mention that 60% of the revenue decline that we saw last quarter, some of that should sort of come back over a period of time. What's been your experience there in terms of the spend coming back from those clients?
As we mentioned earlier on, by passing of every month, our confidence is going up. I think first three months, everybody was in a frozen state. Last three months, there's been a lot of constructive conversations and actual conversions into actual business, and we believe that the trend is going to continue. To go into a little more details, I think what places where we had lost revenue from the existing customer, we have a visibility that 50% of that will come back on the same program, out of which maybe 30% has come back and some will come back in next two quarters.
Sure. That's very helpful. It's with regard to these that we have actually seen the offshore shift, I presume, and not on the large deals that we signed. Am I right?
No, I think let's just clarify. When the dip happened from last year's Q4 to this year's Q1, there were a handful of customers on which this dip happened. Out of that, 30% has already come back. We believe another 20%-30% will come back before the end of the financial year. That's one part. On top of that, with our existing clients and with some new clients, we are signing new deals. Out of the four out of the five deals that we talked about earlier on, they are all beyond the areas where we took a little bit of a cut. Does that provide clarity?
Sure, it does. It's just from the wins that we had. The large deal wins. Have they started revenue accretion yet, or it's yet to start in a meaningful way?
I think out of the two large deals which we have announced, I think we have started work on both the projects. Initially, of course, there is some time where we start taking over some of these projects from the existing client staff or the other vendors. That we have started. I think we will start revenue accruing from this in Q3 as well as in Q4, of course, and onwards. Two has happened already.
Sure. That's very helpful. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Ankit Agrawal from Yellowstone Equity. Please go ahead.
Hello.
Yeah, good evening.
Yeah, good evening. Hello sir, my question is regarding the variable pay. You said you're going to reinstate some of that. Could you give some ideas to what level it will go compared to pre-COVID?
We are reinstating the 100% of that from the quarter three.
Okay. The reason I'm asking is because you also made the ESOP change, and at that time, I think the argument was that the ESOP change plus the favorable ESOP exercise price together with reduced variable plan would give you a good compensation structure. Now we are, I think both the ESOP plan would be favorable as well as the variable pay would go back to 100%. Would that impact the EPS overall?
No. That is of course factored in whatever we are saying. I would like to give a little further clarity. First is, first six months, people have lost that anyway. That is a significant impact which they will get back from this. That is number one. We have not given generic increment. We have given only promotion-based increment. At least to our key staff. The third thing is it will also allow us to really retain the critical staff because they are a specialized player. We have to make sure that we retain our key staff. I think these are the three reasons why we did the restructuring of the software.
Yeah. As we have said in Q3, the EBITDA margins will be above 14%, and in Q4 we'll see an expansion in both EBITDA as well as PAT. There will not be a negative impact, but obviously going ahead, we see a positive impact on EPS due to the overall growth and improvement in operational efficiency.
Okay, got it. Just to confirm then, the ESOP plan is more applicable to senior-level staff, you're saying?
No.
The critical staff?
No. See, we are a technology company and we have made sure that all our key technical team, the leadership team, it's quite a spread-out plan, and a significant part of that goes to our technical team.
Okay. The variable pay, is it fair to say that the number of employees receiving the variable pay would reduce because again, there you would be more selective than?
No. We didn't say that at all. We had said that we will not pay variable pay during first six months. We had changed some of that more in the first six months, made more amount variable. That we are reinstating. They will have their VPI and of course it depends upon the performance of the company how much we pay out of that.
Okay.
The individual.
Okay. Got it. Thank you.
Thank you.
Thank you. The next question is from the line of Shashi Bhushan from Axis Capital. Please go ahead.
Yeah. Thanks for taking my question, sir. The deals that would have got deferred or canceled due to pandemic, are we seeing those coming back in the pipeline for discussion?
Yeah. This is Sachin Tikekar. As we mentioned earlier, out of the deals that went down in Q1, 30% of those are already back, and we believe another 20%-30% will come back before the end of this financial year.
Sure. Do you see any change in clients' behavior, that is, spending pattern in terms of changed priority in the post-COVID world? Like, they are prioritizing few things which they were not earlier, and they are deprioritizing few.
Absolutely. As you know, the impact on manufacturing, including automotive, has been dramatic of COVID in a negative way. Obviously the pattern and the behavior has changed and they needed to reconfigure everything. They are prioritizing what is important to them very clearly. What is important to them is the future. The future, fortunately for KPIT, lies in software-driven vehicles. I think we see change in the behavior. Obviously, they want to do more with less, and they also want to prioritize the programs that they have and invest more in the areas that will sort of continue to give them edge in future. Right. There is a clear behavior from that perspective. The prioritization, they have taken it to another level. Right? Given the situation.
Sure, sir. Very helpful and all the best for the year.
Thank you very much.
Thank you. The next question is from the line of Sanket Goradia from VEC Investments. Please go ahead.
Thank you for the opportunity. Wanted to kind of just get your view on, we've seen a good improvement in the DSO. Is that sustainable and going forward, are you looking to further improvise on this or this should be the new normal?
Hi. This is Priya Hardikar. What happened this quarter was we had a couple of days gain because of some of the customers whom we had given extended credit periods, that those money were received in this quarter. Therefore, at least three to four days were benefited because of that. The rest of the days benefited purely out of our operational efficiencies and rigor on operations. 59, I don't believe that it will be a regular, sustainable DSO for us going forward.
Between 60-65 is normal.
Right. Normal.
Thanks. Fair enough. Just on the hydrogen fuel project, could you kind of just maybe give some color on what we're doing and what is the kind of maybe CapEx, if at all, we are incurring for this and sort of what is the broad sort of matrix on this project?
It's quite funded by the government. Apart from the employees who were allocated on the project, I think we did not have any CapEx or any other expenses, but mainly of the people who were working on this project for a long time. I think the main thing, the area in which we work was basically on the control side of this and integration of powertrain with the fuel cell. These were the mainly two areas on which we worked.
From KPIT's perspective, as Mr. Patil mentioned earlier on, this is a really good way to create a new offering for KPIT as more and more of our clients in future will get into fuel cells. That gives us a higher credibility because of the real hands-on experience.
Hopefully, we can make some difference to Indian market.
Understood. The way to understand this is, this will be a government-funded project where KPIT is kind of offering its resources to get the product in place.
Yeah. We co-invested on the people side along with the-
Okay.
Yeah.
Okay. Sorry, just one last piece for the management.
Sorry, just going back. It's a largely innovation effort, I must say that. As I said, we have 7% of our employees work on new technology projects and building that. It is one of those.
Understood. It's more on the innovation side, which we can then maybe use for our other clients, yeah.
Yeah.
Fair enough. Just one last piece. I wanted to understand, for H1, we have about INR 28 crore CapEx. I wanted to just understand what have we done this CapEx on?
Majority of the CapEx, as we have said.
Sorry, INR 28 crores, yeah.
Okay. We have a new center established in Munich, Germany, and that was the major CapEx that we have done in H1. We are done with the CapEx there, and so I think that was the major component of the CapEx, apart from the normal CapEx that happens on software licenses and the hardware required as maintenance CapEx.
Understood. Okay. Thank you, and have a good day.
Thank you.
Thank you. The next question is from the line of HR Gala from FineWest Advisors. Please go ahead.
Hello, Mr. Patil. Congratulations for really good results.
Thank you.
Very encouraging commentary that you have given in the beginning. I just wanted to know that shifting work from on-site to offshore does increase our margin, but what impact does it have on the top line? Can you explain to us?
Yeah. I cannot really go into very detail and 100% work out. Roughly, if you look at it is about a couple of million dollars, $2 million - $2.5 million if the work would have remained on on-site.
Okay. That is compensated more than that by the gain in the margin. In the absolute amount of the EBITDA that company generates, it doesn't make difference, or does it make any difference?
It doesn't make much difference.
Okay. With hydrogen fuel cell, et cetera, do you think it can compete with the electrification of the vehicle on some of the projects?
It is not a competition. It is, I would say, alternate technology. It will go as an integration of fuel cells with electrification technology. Some of the projects have already started outside. Most of the OEM have some of the projects which are not for a production grade, but in one or two cases it is. Specifically in some markets, we believe this technology will get adopted quicker than the others.
It will be a technology which will work parallelly along with electric vehicles?
Yes.
Wow.
Little difference there is the fuel cells will benefit the commercial vehicles, especially trucks and buses, more than the passenger cars. It's not to say that passenger cars will not go there, but it'll be dominated by the commercial vehicles at the beginning.
That is what I wanted to know, that do you think that the OEMs will be more prone to go for, say, hydrogen fuel cell rather than going for electrification? Can that type of scenario happen?
Yes, it will happen over the period in commercial part for a long days. It takes quite some time because, as you know, the vehicles are on the road for more than 12 years now, maybe in electrification, maybe 15 years. To mature this technology takes significant time. Many of those projects. Even the production programs go for three years once you start a production program. It's not as something will happen next year.
No, that's fine. I was saying overall a longer period.
Yes.
We understood from some other auto component people, that is hydrogen cell can have a very big fire and the explosion hazard. What is your thinking on that?
The technologies keep on changing. I think we don't know, it is something where many companies are investing. Many of our customers have invested into such vehicles. It is all about when you start and where you go, right? As I said, it gets matured, that's why I said that adoption really depends upon when it is hazard-free and people see it more reliable, dependable technology.
Okay. My second question is on that Vayavya Labs that we have acquired. What are we looking at it?
Vayavya.
Vayavya.
Yes.
Sorry, Vayavya.
No. We are frankly evaluating the impact due to COVID because as some of the technology prioritization of the areas of the customers get changed because of the discretionary nature of some of the technologies. We are evaluating from that perspective and the impact on the financials. That's why we will take a decision sooner. We have not yet acquired that company.
Yeah, we have not completed the acquisition. It is not yet closed, and we are still evaluating.
Okay. Thank you very much. Wish you all the best.
Thank you.
Thank you. The next question is from the line of Shalu Asija from Investment Research. Please go ahead. Your line is unmuted, Asija.
Hello.
Please go ahead. Yes.
Hello. Good evening, sir.
Good evening.
Hello. Yeah. My first question is regarding, I want to know revenue segregation between one-time client versus a continuous client. Can we have that segregation?
Our business model is a repeat customer. We are basically focusing on T21 customers, which is 85% of the revenue, which is a completely repeat customer. Outside that, we have another set of 25 customers, which at some point of time may enter in this T21 customers. There may be 2% or 3%, couple of percent maximum. I don't exactly see which may be like that. Most of our basic business model is a repeat customer.
Okay, sir. Sir, can you tell me the impact of consolidation of offices you mentioned in the presentation on top line, bottom line in coming quarters?
As Mr. Patil mentioned in his opening remarks, the impact of office consolidation on the financial statements is more or less neutral. As the remeasurement of its liability towards the lease discontinuation and against which there were certain fixed assets, those needed to be amortized, accelerated depreciation for those premises, and certain other expenses as per the accounting standards, those were accounted for. In the current quarter, because of office consolidation, there is a neutral impact. No significant impact on the same.
Okay. Revenue impact what are you saying? I haven't seen.
Obviously, there is no impact on revenues because of office consolidation. It is only the impact which has happened on the cost side, and there are positives and negatives which almost cancel each other. Neutral on the cost side, and obviously no impact on the revenue side.
Okay. Thank you. Can you also give me the segregation between on-site and offshore revenue? Like on-site, how much revenue comes from on-site, and how much revenue comes from offshore?
I think that is an area where what we have said is we have a center in Munich. We have a similar thing in the U.S. The mix keeps on changing. People keep moving. What we have said is roughly about 2% is the shift that has happened. In terms of percentage, it can be roughly about 50%-53% on-site, roughly in that range.
Okay, 52. Okay. Okay, sir. Thanks. Thank you.
Thank you.
Thank you. The next question is from the line of Nit Mehta, an individual investor. Please go ahead.
Good evening, sir. Congratulations for your good set of numbers. Sir, actually, I wanted to ask you said you are going to increase the wallet share of the existing customers. What is your strategy or rationale behind doing that?
As we mentioned earlier on, our strategy is essentially to focus only on handful of clients that we call T25. We have 21 such identified clients. The whole approach is to go deep and wide. What that means is, if you are working with a client in the electrification area, we want to make sure that in a strategic manner, we also get into the other areas in a strategic manner. That's what we want to do with each one of those 21 clients. We believe that our current engagements are very valuable to them. It's just that there is scope for going across practices and doing more work with them. That's how we create greater value for them. It also suits KPIT's business model. That remains our focus.
The whole thing is all about expanding our footprint across the canvas of our T21 clients. We are engaging more and more deeply with them. Even during the COVID, we are doing multiple tech shows virtually. We are also doing many workshops to help them do more with less. Some of the programs that they're forced to put on hold, we are coming up with creative ways so that they are able to execute on those programs, and we are able to increase our wallet share.
Just to add, for example, and I'm just taking one example. There are many such. If you take the electrification program now, people will come with more and more electrification platform and program in Europe. If we are working with a customer, I think basically we'll engage with more platforms. That's what it will mean.
Okay, great. Sir, could you just give me your current patent numbers? How many patents do you have?
It is about 65 or so.
65
which we have filed, and there are many technologies where we don't file patent, because it is not necessary that you should file a patent. I think there's a lot we are doing, I think on that area. That's one investment we have not reduced at all.
Okay. Sir, I wanted to ask, is there any update of you working with Tesla?
I could not go into customer-specific things, but I can only tell you that we work with many OEMs and many tier 1s.
Which look at that. We do not directly work with Tesla as of now.
Okay. Thank you. Thank you, sir. That's from my side.
Thank you.
Thank you. The next question is from the line of Karan Uppal from PhillipCapital. Please go ahead.
Hello.
Yes, hi.
Yeah. Hi, thanks for the opportunity. Just one question on the five OEM projects which you have won. Could you give us a sense about the size and the duration of these projects, and are these similar to the last two deals which you had announced in Q4 and Q1? Thanks a lot.
First of all five of them cut across the three geographies and they also cut across the three areas. Some are in electrification, some are in ADAS, and there is one that is in connected vehicle. They cover the three geographies. All of them are multi-year, multi-million dollar programs, right? Our hope is that, as Mr. Patil explained earlier on, if you are working with them in a program now, there will be more and more platforms. Hopefully, they will continue for a long time. These are not one-off kind of engagements that will start and abruptly end.
Okay. These projects will ramp up in H2, correct?
As Mr. Patil mentioned, yes, I think most of the ramp-up will happen during the course of H2. You are right.
Okay. Thank you so much, and all the best.
Thank you very much.
Thank you. Ladies and gentlemen, to ask a question, you may press star and one now. Reminder to the participants, to ask a question, you may press star and one now. The next question is from the line of Sanket Goradia from VEC Investments. Please go ahead.
Thank you. I'm back with the question. Just wanting to understand on the doubtful debt and advances. Could you please give more commentary on Is the client base from the T25 list and we've even written off about INR 4 crores. Directionally, what is going on with that piece?
These two couple of customers are not the T21 OEM accounts where we focus on. These were a couple of customers who got impacted owing to the COVID situation. Under abundant precaution, we have made the provisions. While I say this, we are making all the efforts to recover our dues from both of them.
The ones which we've written off?
We have made a provision. We have not written them off as bad debt. Therefore, we are making efforts to recover the money from them.
Yeah, we have written off INR four crores, right? INR 14 crores is what we are providing for, and INR four crores is what we've written off, right?
During the quarter, we have provided for INR 5 crore among these two customers.
Okay. Thank you.
Sanket, thank you.
Thank you. As there are no further questions, I would now like to hand the conference over to the management for closing comments.
Thank you. Thank you everybody for participating in the call, and if you have any further questions, please feel free to get in touch with me. Thank you and have a good evening.
Thank you very much. Thanks.
Thank you.
Thank you. On behalf of Dolat Capital, that concludes this conference.
Thank you for joining us and you may now disconnect your line.