Ladies and gentlemen, good day and welcome to KPIT Technologies Limited Q4 FY 2020 earnings conference call hosted by Dolat Capital Market Private Limited. As a reminder, all participants lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you, and over to you, sir.
Thank you, Neeraj. 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 is AVP and Head IR at KPIT, to do the management introductions. Over to you.
Thanks, Rahul. Good afternoon, everybody. A very warm welcome to all of you on the Q4 FY 2020 and FY 2020 earnings call of KPIT Technologies Limited. I sincerely hope all of you are taking due care of yourselves and your near and dear ones.
I wish all of you stay safe and stay healthy. On the call today, we have Mr. Ravi Pandit, Co-founder and Chairman, Mr. Kishor Patil, Co-founder, CEO, and MD, Mr. Sachin Tikekar, President and Board Member, Vinit Teredesai, CFO. We also have Priya Hardikar on the call, who is Senior Vice President and Head of Finance, and a year or two from IIM. As always, we'll have the opening remarks about the quarter and the year gone by and the way we see in the foreseeable future by Mr. Ravi Pandit, and then we'll have it open for questions.
Thanks again for joining the call, and I will now hand it over to Mr. Pandit.
Good evening, everyone. Welcome to our call. In my initial remarks, I would like to cover how the last year was and the last quarter was. I would like to cover what are our goals or focus area in the face of COVID.
I would like to talk about how do we see the overall year, and this is what you probably might be keen to understand about, how do we look at revenues during the coming year. Maybe I'll make some remarks about what's happening in the industry that we are serving and our position in that industry. As you would know that the year which ended on 31st of March was actually our first complete full year as an automotive solutions provider-focused company. It was a good year. We had a revenue growth of over 14% on constant currency terms.
It was an industry-leading growth. The EBITDA growth was much higher than revenue growth, which was at 35%. Our margin also increased from 11.5% to about 13.7%. The PAT growth was also correspondingly quite good. As regards Q1 or revenue over Q3, growth was 1%, year-on-year was 11.5%. EBITDA Q4 over Q3 was 2%. Year-on-year was 17.5%. PAT, although Q3 or Q4 was negative, year-on-year it was 22% growth. You would notice that in all aspects, our profitability growth was higher than our revenue growth. At the beginning of the year, we talked about our focus in terms of customers, and we talked about the top 25 customers. Growth in top 25 customers year-on-year was 20%, against the overall revenue growth of 14%.
You would notice that our emphasis on our key customers has given results. During the year, our attrition also came down because of the multiple actions that we took on the people front throughout the year, and which we have kept you abreast of. The attrition came down from roughly 25% the previous year to about 15%. Our higher profitability has also converted into higher cash. We ended the last year at INR 90 crores net cash balance, and we ended 19/20 at INR 328 cash balance. Our profits have duly been converted into cash. Our DS O has come down from 87 days to 66 days. The key practices about which we have been talking to you, mainly powertrain and autonomous, contributed to almost 60% of our revenues.
I wanted to talk about that in particular because these are the drivers of growth we think that will happen in the years to come as well. On the back of such year, we were looking for a similar growth during the current year when COVID happened. Naturally, in the light of this, we had to reorient ourselves, reset our goals. The three goals that we have kept for ourselves in the face of COVID are as follows. First is keep and improve our service to the customers in such a way that we get their maximum wallet share. We are doing that with maintenance of delivery excellence, maintenance of quality of the work that we do, and the time on which we deliver the work.
You would be happy to note that 98% of our people are already on full systems from their work from home to take care of customer requirements. We were keen that we should never drop the ball as far as service to customer is concerned. Our second focus area has been the well-being of our people. We have focused more on continuity of jobs over management of their continuation of their current level of remuneration. Almost all our people have a VPI component, and this is the part that they may probably have to forego a part of that during the year, which could possibly mean a reduction in their overall payment. We have also been spending this time on training for them and improving the systems for work from home.
As I mentioned, a large number of our people are working from home, that contributes, we believe, to their well-being, while at the same time taking care of our customers' requirements. We are focused on our top talent and on retention of that top talent.
Our third goal for the year, in the face of COVID, has been improving and keeping a good cash on hand, because it is likely that the customers may also not pay in time. We have now ensured that we have a good chest of cash to ensure that our cash on hand position remains stable through the next year. Coming to the question of the revenue, how do we look at the revenues for this year? You know, the world is in such a phase of turmoil that nobody really knows how things are going to pan out.
I'll make some conjectures about this year. This is no guidance, much less a commitment. As I said, this is not our core focus during the current year. There has been obviously a drop in Q1 revenues over Q4. After the initial panic in the market, we have seen the customer inquiries stabilizing and going up a little bit. We expect that Q1 will see possibly about a 15% drop over Q4, but H2 will be better than H1. We believe that over a period, we should be seeing some uptick. Again, as I said, this is no guidance because we don't really know how the whole thing about COVID will pan out. We notice more conversations with our customers. Those conversations are strategic in nature.
As our investor update shows, we have been getting into some really nice, good long-term big deals. On the whole, we feel optimistic about the overall future. See, finally, our future is tied with the future of the industry. We believe that the automotive industry or mobility in a broader sense, will be an important growth engine for the world. It will continue to grow. Potentially as a result of COVID, there would be more demand for personal vehicles rather than public transportation. Potentially, there will be more demand for people who are looking at self-driven cars or fully autonomous cars, again, rather than public transportation. We continue to maintain our position as leaders in these technologies. We have invested in these technologies through building expertise in this area and will continue to do so.
We believe that our focus on this industry, our focus on a fewer number of customers, our focus on good people, and our focus on good client service should yield us good results over a period to come. These are my initial remarks. Should we have any questions, we shall be more happy to take them. 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 your 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'll wait for a moment while the questions are coming in. The first question is from the line of Mohit Jain from IIFL Securities. Please go ahead.
Hi, sir. First is on the 15% drop that you're anticipating in Q1. This will be largely volume-driven drop, or do you think the substantial part which will come from price reductions for the year?
This is largely a volume-driven part. Specifically in U.S. and U.K., we have seen the customers have reacted very quickly. This has been quickly stopping certain kind of programs, motor projects, which I guess most of them we work on are in terms of a platform of production programs. At some point of time they will come back, but we don't know. Right now what we have seen is largely the volume-based detriment.
Second, sir, I missed your initial remark on the cost containment measures. You were talking about stay at home will be less. What will be the quantum of that and for what duration is it effective?
What we have done, there are two, three things we have done. One is, we see that in the first part we have done is we are looking at consolidating the facilities which we have. As work from home, as Mr. Pandit mentioned, 98%, that has worked very well. We have watched our productivity well, and we believe we can improve that going forward. Overall, we believe that work from home will become more normal. We have started consolidating facilities. In India, we already have taken steps to reduce at least three facilities, and in Germany, we have taken steps to reduce two facilities. That is the first kind of a thing. The second, of course, is the discretionary spends. That is the second thing. The third is on the compensation part.
What we have done is we have converted some part of the salary. It is lower at the lower grade, going high at the higher rate into a variable component. What we have told is we will take a call on this VPI payment. Generally, we do twice a year. Instead of that, first, the component of the VPI has increased, the second, we have said that we'll take a view at the end of the year, depending upon the overly yearly performance rather than a half-yearly performance. That is basically the step we have taken.
The payout will be at the end of 12 months, but you will provide.
individual on a quarterly basis.
Yes. In line with the performance of the quarter.
All right. What is this percentage, sir? Variable versus total?
It's very-
Was it in the last quarter?
Roughly we have increased 10, 15% additional to what it was earlier, sir. That's how it is.
Of the total compensation, around 15% is the variable.
No, no. I won't go into detail. I mentioned that we have increased by about 10%-15% overall. About what the VPI % was earlier.
Okay, sir. Lastly, on this pledge thing that you have.
if you could help us understand what is this primary collateral and what is the plan to repay, because it's currently at 100% of your stake. How should we look at it?
I think the basic point of, it was a short point we are trying to make, and we will not go into details because actually it is not very normal to talk about it in case of a company. Still, the two short points we wanted to make is our main promoter company, which is the Proficient, where all our promoters are part, including myself, who are a part of that, our main promoter company, is free of any pledge. Which is owning more than 33%. That is a first short point we wanted to make. The second point we wanted to make is all this has happened because we have bought in additional shares. That is the second part we wanted to convey. There is no other reason why we have purchased that.
The third thing, even in the personal case, the way we have this is not against loan against shares. This is a collateral against shares. I think this is what we wanted to make a statement. I don't think we can go beyond that.
As per the current setup, you do not foresee any situation wherein
That's exactly the point we wanted to say.
Okay. Thank you, sir. That's all from me.
Thank you.
Thank you. Next question is from the line of H.R. Gala from Fillip Advisors. Please go ahead.
Hello. Thank you for these good results, and your initial remarks are also very encouraging. I just wanted to know that, over a period of longer time, maybe four or five years, will we still remain in the auto vertical, or do we have plans to get into some other verticals also? That is my first question. Second question is, if you can just throw light on some of the deals which you have mentioned. You have just quantified one deal, $ 50 million, five years from a European automaker's electrification program. There are still some more. What kind of revenue or visibility do they provide in FY 2021, subject to, of course, COVID development and next few years?
So-
First question, vertical.
Yes, vertical. Yes. Basically, when we are looking at automotive and mobility as a vertical in overall business, I think there are many factors to it. I mean, most of our business has been in the passenger car for so many years. Now we have brought in a focus on commercial vehicles. As you can see that during last year, actually, we grew reasonably well into the commercial vehicle part. We believe while there is a good enough headroom for passenger car itself, plus now the commercial vehicle is something which we want to really brought in more focus. As you might have heard that autonomous and some of these technologies will become more relevant into movement of goods.
I think that sector, even for some time during this year, will be, I would say, will show lesser growth over the period that will invest into the technology because they have a stronger business case, actually, as compared to past time. The third is the new mobility, as we call, and there are many areas into new mobility. We believe that all these three areas give us a significant area for growth.
Apart from that, there are many other areas which are coming.
The way we are looking at is how we can improve the pie of what we do today. While we believe that there is a significant headroom in terms of our current strategy, which is to focus on T25, because all of these customers spent hundreds of millions of USD, if not a few billion USD, in terms of technology, depending upon the customer. I think we may want to expand a little bit beyond P25, and we are exploring which customers, and specifically in the area of new sub-verticals we are talking about, like commercial and others we can add. That is one part of the business we are looking at.
That's a growth area. The second we are looking at is really what we see is many of these customers had a tendency in the past. They have grown many in these areas very traditionally. I feel that we feel doing what we have done in last few years, and specifically after bringing a very sharp focus into our positioning, which is probably one of the very few company which is focused on software integration. We believe that our ability to really go back and replace their traditional model is significant. It will take some time, but that kind of an opportunity exists for us.
The third thing we believe is, there are areas in terms of some other companies, like in semiconductors and in some telecom, who have connected with the automotive industry, and they are trying to play certain services, specifically in case of connected as well as in autonomous.
In these areas, we can work with some of these customers in that part. Last but not the least, I think we can build a significant partnership with many new generation companies who are, again, trying to play in this game, which includes something like Microsoft or you can say Amazon, those kind of companies. We believe that overall the pie is much more. We believe our positioning is extremely strong, so we should be in a position to really work with these opportunities in the years.
Globally, this COVID-19 has been a COVID disaster. Do you think our major customers, the programs, as you said in your initial remarks, that some of the programs, et cetera, might be deferred or something like that. Can that affect our period of one or two years?
What we mentioned is basically this impact has been While of course that COVID impact is globally, as we said that we do not know how it will pan out over the period, but in the initial time, this impact we have seen, quick impact we have seen is in U.S. and U.K. Now we are not saying that it will remain limited there. We are not making any statement like that.
Actually, we believe that some of our value proposition may be more relevant, but it may take a little bit more time to go back to customers. That's how we feel.
Okay.
Now, last but not the least, you asked about the large deals.
Yeah, large deals.
Yeah. I think, as Mr. Pandit mentioned, I think major area remains electrification, where we see a significant growth. We see growth in autonomous, and we see growth in connected. In these three areas, we see deals, which are new deals which are coming up.
That's where we see our opportunity going forward.
Overall, what kind of revenue visibility do you see? INR 50 million in one, you said, five years. Now, it might get extended because of several factors. All these new deals which you have got put together could give you what kind of revenue visibility?
of two, three, four years.
Actually, I won't go into that number. I must say that most of these deals are of a similar size and going across multiple years. That basically is the change which we have achieved, and there are many such conversations which are going on.
Okay. Last question from my side. Why is that U.K., Europe profitability so low as compared to U.S.? Whereas, the revenue level is almost same.
Sorry, Europe profitability?
Europe profit. Yeah.
Yeah. You will see the change over the period. I think we basically thought that while we are trying to establish ourselves as the leading player in this area.
Apart from India, we established a center in Germany. I think I have been saying that. Actually, we have a campus which has come up there. We believe that allows us to really build a very key skill and domain knowledge, which is difficult to build otherwise. That investment, along with some of the core technical knowledge in the new upcoming areas, both electrification and autonomous, that is the investment we've made in Europe. That's why that profitability looks less.
Okay.
It is something which you will see a difference going forward.
Okay. Just the last question from my side, if you can just permit me. As far as our geographic presence is concerned, which geographies do you think will show higher growth in years to come?
Hi, this is Sachin Tikekar . As you can see the trend, essentially, Germany is the country that drives the future of automotive and mobility. That's where we are actually expanding our presence, and that's where we've been making investments for the last few years. We will continue to see growth coming from Europe over the years. We also believe that there is going to be growth from Asia. Whether it's Japan and some of the other developing countries within Asia, that's where the growth will be. As U.S., I think U.S. is our sort of very dependable geography. Very steady and profitable. The combination of the three geographies from the long-term perspective will pan out really well for us and sort of give us a good balance.
Okay.
That's what we actually see.
Growth path going forward for years now. Does that answer your question?
Yeah, that answers my question. I think when you look at the EBITDA margin higher than 15%, 16%, because of work from home, you will be saving on a lot of overheads and plus other cost containment measures which you have taken. How do you see the EBITDA picture?
We will not be in a position to right now say this. Basically, we'll have to see how things change. Of course, I already mentioned about consolidation of facility and other things.
Yeah
I would also request some other questions actually coming. I think you have already taken five, six questions.
Okay. Thank you.
Thank you.
Thank you.
Anyone who wishes to ask a question, you may press star and one. Next question is from the line of Nitin Padmanabhan from Investec. Please go ahead.
Yeah, hi, good evening. Thanks for taking my question, and congrats on the last deal.
Thank you.
Two things. One is, if you look at the conversations that you're having with clients, are you seeing any shifts or reprioritizations of spends? If you could give some color from a geography perspective, would be helpful. Do you think that post, once we come out maybe three, six months down the line, you could actually see some shifts, or if we haven't seen it yet?
Okay. This is Sachin Tikeka r again. Obviously, the entire automotive industry and mobility has been impacted. It's been only two months before clients can actually assess the overall impact of the situation. They are trying to prioritize, as Mr. Pandit said earlier on, and Mr. Patil reiterated. The areas that are getting prioritized over the others at this point, electrification, AV, and Mr. Patil spoke about connected, led by digital software.
These are the three areas being prioritized as automotive companies, OEMs respond to this situation. They are definitely being prioritized over all the other programs and other spends. That's the immediate response that we see from them in the last two months. We have reasons to believe that may continue in future. There is no reason for us not to believe that going forward. In Europe, obviously electrification, there is a commitment, and it's been reiterated.
We'll see more and more of that. I think the ADAS part, again, Europe is the leader. U.S., Asia have picked up. Connected, I think, is going to be across all three geographies. Again, we are taking a longer-term view. We are not talking one or two quarters here. You asked about a general question, I'm giving you a general answer over a period of time. Difficult to speculate what's going to happen today and tomorrow. As you know, what the world is going through. Things are fairly dynamic, but some of the trends over a period of time will remain the same. Does that answer your question?
Yeah, it does. The second one I wanted to ask was, until now we haven't seen any impact from a pricing perspective. It's largely been on the volumes. Do you think that our portfolio is relatively more resilient to any pricing drops considering the shortage? Do you think that could be a potential risk as we go through the years as these automakers see some sort of trend in? Is that even a risk that you would even worry about?
We all of us need to understand what the automotive mobility and some of the other industries are going through, something that nobody has actually seen. There is a tremendous amount of deep pain. It's our responsibility to demonstrate empathy while they're going through this very difficult process. Correct? We are working with them to make sure that our long-term value proposition doesn't get diluted. In the meantime, if we have to support them get through the difficult period, we'll make those adjustments. We'll ensure that our long-term value proposition, quote-unquote, pricing in some case, doesn't get diluted. I think that's how we are engaging with our clients, and that's what they actually appreciate about KPIT.
Just to add to what Mr. Tikekar mentioned, I think one thing we see is that a clear opportunity to do more offshore than in the past. Basically because the remote working has, even though it looks very intuitive, but now the realization has struck that even people who were on site were working remotely. That has given a different dimension. People are more open, even in case of a critical program. We do not want to rush immediately because our first priority is to make sure that we deliver well and well done. We certainly see an opportunity to move more towards offshore.
Sure. I'll just sort of press a bit on this. In client conversations, we have some trouble and let's say someone does ask for some kind of a cut. One, the way to think about it is to try and push them to say that we could potentially do this offshore, so let's just convert this to offshore. Do you see clients really pushing for one-time discounts of that sort, or that's not something that's really happening at this point?
That's your thought .
Right now, I think the focus is on doing more with less, and I think our ability to do things for them globally. There is enough on the table that can be delivered through our global centers that can create more value for them for the money that they're already spending. Those are the constructive conversations that we are having with the clients. Given our positioning in some of these areas, we really don't want to get into the price conversations right now. I think by engaging with them, we are able to find a middle ground.
Great. Just one last one from mine. In terms of the deal pipeline that we have, how large is the pipe today and versus what has been, we just converted one? Just your thoughts on the deal pipeline, how it looks and so on?
Overall, to be honest with you, Mr. Pandit said that at the beginning of the year, the pipeline looked great. Mr. Patil said we are actually getting ready for a similar year to last year in terms of our growth, both in top line and bottom line. The pipeline per se remains pretty decent. It's just that COVID has put everybody into a dilemma in terms of prioritization. That's what our clients are doing. We have not heard of any of our large deals being completely taken off the table. What we are seeing is they are postponing and prioritizing some of these deals. The pipeline is not going away anywhere. It is remaining. I think it's going to take a little bit longer, and at this time it's hard to speculate how much longer.
As you would understand, is the case with not just this industry but many other industries.
Fair enough. Thank you so much, and all the best.
Thank you.
Anyone who wishes to ask a question you may press star and one. Next question is from the line of Ashish Aggarwal from Principal Mutual Fund. Please go ahead.
Yeah, thanks. Just wanted to understand on the margins front, how should we look at your profitability in FY 2021, given the steps you have taken? Secondly, just pressing some points on the pricing side. It's almost two months into the quarter. Do you have your clients asked about the pricing cut which could have an impact on your growth going into first half?
Okay. Mr. Pandit laid down our priorities for the year. Number one, engage very deeply with our clients, create more value for them and deliver excellence. That is our number one goal for the year. Take care of our employees, make sure our top few employees remain committed and remain very liquid, not only for the short run but in the long run. That's our focus. That's the answer to the question about the margins. We will not say anything more than that on the margin part. What was the second question?
My question was on the pricing side. Have the clients asked for it till now?
I think they're asking pricing twice a year. I think we are in conversations about creating more value, doing more with less. We are not entertaining any discounts or pricing conversations at this point in time.
Okay. Lastly, one thing which you mentioned was that there might be a higher credit period for the clients and everything. We have done a good work reducing our debtor days to 66 days. How much increase that could happen going into first half because of client asking for more credit period?
Again, it's all going to be depending upon the revenue that we get locked. As you know, the DSO is dependent on the revenue that was collected and the cash collection that happens in. At this point of time, putting a number is not correct. As Mr. Pandit and Mr. Patil mentioned, as we see a little bit of a drop in revenue the first half would see a certain amount of our DSO going up, not because of the cash machinery not working but because of the base becoming a little lower. We anticipate that as of today with all our clients, our collections have been pretty much streamlined. Even as we have passed into the last two months towards the completion of the financial year, we have not seen any places whereby our collections have been delayed.
The clients have been pretty much committed to making the payment for all our invoices that have happened.
I may add that in couple of customers we have extended credit period one time for next couple of quarters but that is not a very significant part. I just wanted to bring it out as Mr. Tikekar mentioned that we had to support during that same period. In a very exceptional situation we have extended that. It's not something which is very significant.
Okay. Thanks a lot.
Thank you.
Thank you.
Next question is from the line of Karan Desai from PhillipCapital. Please go ahead.
Yeah. Thanks for the opportunity. Just one question on your T25, top 25 accounts. The concentration remains pretty high at 80% plus. Any stress do you foresee at the moment in FY21 because of this T25?
No, very good question and this is something that we are monitoring at least twice a week. Again, we are committed to our T25. They are committed to us. That's why we call them T25. However, given the magnitude of what's happening in the world, there are obviously some risks in terms of some of the OEMs and some of the tier ones so we need to be very mindful about that and be proactive about it. Mr. Patil actually mentioned that we actually are in conversations with some tier ones and some of the other OEMs that are not part of T25 as a potential backup to two or three that may be at risk.
We are continuously monitoring our relationship and index with the T25, and we are just trying to be prudent. There are going to be some risk with three or four of them.
We hope that they come out of this successfully. Just in case they struggle, we are creating a pipeline of a few others who can potentially replace them.
Just to add, I must say that it is more of a strength for us. T25 strategy is more of a strength, because most of our key customers are doing well. We have established ourselves very well with them. We see actually more opportunity and, in case of a consolidation, more business coming to us from these customers. While we are looking at a situation where if some of them struggle, largely in most of the other customers, like 80%, 90% of the customers, we see this as a strength, which we have built.
Okay, sir. Thanks. Just one thing on this, three to four customers which you mentioned, could you just throw some light on how much revenue they contribute? Any average would be.
We wanted to present a macro picture of the automotive industry in such way. Anything of this magnitude, there will be a turmoil for 10%, 15%. We don't have any specific. We just have to be mindful. If something happens, we need to have a backup. That was the intent behind it, rather than having specific clients in mind.
Sure. Thank you so much. All the best to our company.
Thank you very much.
Thank you. Anyone who wishes to ask a question, we have R1. Next question is from the line of Hitesh Mehta from SBI Capital Q1. Please.
Yes, sir. Thanks for the opportunity. Sir, a couple of questions. First, about our top client, whether we have seen their strategic program on electrification or, let's say, autonomous, seeing some kind of deferment or cut considering the where crude oil prices. I am referring to medium-term, not very short-term from quarter or two, but from their overall thinking perspective, medium-term challenges in terms of how they want to spend, where they want to spend. Second question is about connected vehicles. Connected vehicles, which we report a separate segment, showing weakness throughout the year. If you can provide, and that is one of the focus areas, so what is driving weakness there even pre-COVID times? If you can provide some perspective. The last question is revenue loss. We have indicated around one-and-a-half percentage revenue loss in Q4 because of COVID.
How much it was towards supply and how much was demand, if you can provide that perspective. Thank you.
Sir, sorry. My apologies. We'll have to take one question at a time. I can't remember all three questions. Can you just ask one question? We'll go one by one. Can you ask the first question first, please?
Sure. just on the top-
We are working 24/7, so it's affecting our memory. Please just give us one question at a time. Thank you.
No issues. Just on the first thing, about the top client overall strategic program, whether you expect their strategic program to have some medium-term implication, not for a quarter or two kind of thing, because where crude oil prices and changing overall priorities, so electrification, autonomous, if you can provide some, whether it can have implication on medium-term priorities?
If you take medium-term, the answer is we really don't see much of impact. Especially on electrification, everybody is actually committed. Many of our key clients have actually demonstrated their commitment in the face of COVID. We believe that will continue to grow. The AD/ADAS part, there is more focus on ADAS production program. We have not seen any kind of changes on the ADAS production program, especially for the next two or three. The medium-term trend regarding electrification, AD/ADAS, and connected, driven by COVID, We don't see much of a shift there.
Your question was about the top customer. I think, absolutely, we see actually a significant attraction. We will not go into details, the customer specific, but in the public domain, there is enough information of key OEMs really committing to this. We see actually certainly a more emphasis on electrification, specifically in connected. In autonomous, as Mr. Tikekar mentioned, ADAS is what they are focusing on. Some of the AD programs are little bit spaced out. That is the only thing in case of our key customers.
Understood. The second question was about connected vehicle. Connected vehicle is the segment which we report is showing weakness throughout FY20, even pre-COVID. If you can provide some perspective, what is driving weakness there?
No, I think it's a fair point. Year-over-year, you have to remember that we probably had the highest growth from the previous year to last year in connected. There were two really large programs that were one-time programs that got over. We believe that there is also a shift from traditional infotainment and cluster to e-cockpit, and those programs are getting rolled out now. We are engaging very deeply with our key OEM clients as well as tier 1s to drive. We believe that we'll see growth coming back over a period of time, driven by e-cockpit or digital cockpit. It was a one-time, and if it was not for COVID, we were actually getting very focused. Again, mid to long term, we are putting our best on connected.
The other thing I may just mention is these are also very large program and long-term program. It takes some time for the closure. It may take some time, but absolutely, this is the area of focus, and this will get prioritized by our customers.
Hello, sir. Whether the, in connected vehicle, it is a few clients, which is where we are working on their program, or it is fairly diversified. If you can help us understand out of, let's say, top 25 key focus areas, what will be the presence across our identified areas, electric vehicles, and how many clients we might have already penetrated? If you can provide that perspective, it would be helpful for us to understand better.
We'll tell you what our goal is. We have a simple matrix. We have 25 clients and there are three large service areas. Some of them are green for each. The point is, over the next three to five years, all of them need to become green, right? That's what strategic relationship is all about. I would say that with a majority of them, I'm using the word majority, we work with T25 across the three areas. Some more, obviously.
Okay. The last question was about revenue loss of one and a half % in Q4, which we indicated. How much was supply and how much was demand-led sector?
If I understand your question correctly, see, when abruptly across countries, across continents, there are lockdowns announced, there is a disruption. This loss of revenue is only because of the disruptions that happened because of the sudden closure of geography. Even though we have comparatively small presence in China was in complete lockdown for the entire quarter. For 15 days, most of the world actually that is relevant to us went to the lockdown. It was due to that. Does that answer your question?
Broadly, you are indicating it is largely supply. Demand is likely to play out from Q1 onwards.
Yes.
Understood. Thanks.
See, in my initial comment, I talked about 15% drop in revenue that could happen over two years.
Thank you, sir.
Thank you. A reminder to all the participants, you may press star and one to ask a question. Next question is from the line of Ashish Kacholia on the King manager. Please go ahead.
Yeah, good afternoon, gentlemen. My question is basically pertaining to our EBITDA margins, which we were emphasizing before this COVID thing came along. Could you give us any sense on what was the EBITDA margin that you would have thought we could have done in two, three years before this COVID thing came along?
Yeah. I think we had mentioned that before the COVID, we had talked about somewhere between 16%-18% in three years.
Okay
had mentioned, we would have gone with that.
Okay. Any changes in the pricing, et cetera, currently, which can I mean, one year we may get obstructed by a lower capacity utilization, but the next year and the year after that, can we.
I don't see-
cover the ground?
Otherwise, no fundamentals are changed. This year's disruption, we cannot really forecast.
Assuming that this COVID thing passes away and things get back to normal.
Yeah
we can hope to get back to that kind of a margin for the future.
Yeah.
Right. Thank you very much, and all the very best.
Thank you.
Thank you. Anyone who wishes to ask the question, you may press star and one. Next question is from the line of Rahul Jain from Kotak Securities. Please go ahead.
Yeah, hi. My first question is, what are the key changes in industry trends that you may see post-COVID kind of environment given your current conversation with them and also from your experience from previous cycles, such as maybe industry consolidation risk and pain in the shared mobility trends probably, or more investment in the autonomous? Do you see some major changes or risk as such on these factors?
I think Mr. Pandit covered some of this in his initial remarks. One is, again, early days, we believe that electrification across will be key because it's good for the environment. People have made commitments to it. I think it will continue. Autonomous, I think, may get accelerated a little bit more because people would want individual mobility rather than shared mobility in the immediate future, especially against the public transportation. We'll see that. We believe there can be more small cars. Maybe in developing countries, the two-wheeler sale may go up, especially electric two-wheelers and so forth. These trends are very obvious. From connected perspective, whether it's connectivity inside the car or inside the vehicle or outside the vehicle, e-cockpit and all the other connected services, that trend again is not going to get reversed.
As things come back, I think these three trends will continue to be there in a different form because of what we are going through at this point in time.
One small addition, if I may, too, but in the short term, we may see a reverse trend for shared mobility that may get impacted for some time.
Yes. Shared mobility has two aspects. It's the mobility of people, which Mr. Patil is referring to, where there could be a little bit of a fear, right? When it comes to shared mobility where movement of goods is concerned, we believe that that's going to pick up. Fleet from our commercial vehicles perspective and so forth, we'll see an immediate demand. You're already seeing the stock of e-commerce companies actually doing really well, and they depend heavily on commercial vehicles. That's another trend that we'll see.
Right. Only on the consolidation part, maybe from the previous cycle reference also, where we have seen some consolidation or shared development kind of a program which the auto company were following, what are the risks or what are the opportunities you would like to highlight? Do that mean your businesses, some of these T25 customers collaborate better, more? Is this a positive, negative, or difficult to quantify?
I think we look at it as an opportunity. I think this may happen specifically in the area where there are little bit more uncertainty and there is lesser standardization as of now, like in autonomous. There are already three, four such platforms which are being developed. In other cases, it is actually most of the OEMs want to own software, so in that sense, the sharing will happen at component level, more on the manufacturing side, hardware side, lesser on the software side in most of the other domains other than autonomous. Naturally, either of the way, we see a bigger role to play for us because, we are playing closely with the ecosystem, both with the OEMs and the tier 1s. We see as a good opportunity, yeah, because we are already part of certain platform development.
As you are aware, we have made few announcements in the past. In other cases, wherever the standardization is happening, again, we have been playing a good role for last 10 years. We see this more as an opportunity, because even in case where the platforms are developed, there is a huge amount of work which is done in terms of integration for individual company. I think that gives a benefit when we are a part of platform development.
Okay. Thanks. Lastly, any quantification we could do on total cost saving, through various programs, comms, facilities and so on? Any color you would like to give on the total picture, what kind of savings we could have?
I think very difficult to quantify right now. I think we have given more color and information than most of the others, I think. This is what we are comfortable with.
Okay. Fair enough. That's it from my side. Thank you.
Thank you.
Thank you.
Next question is from the line of Ashish Khetan from Kotak Investments. Please go ahead.
Yeah. My question for them basically, sir, how satisfied are we with our traction in the American market?
Sorry, can you say it again?
How satisfied are we with the traction that we can see in the American market? U.S. market.
Yeah.
Ashish, this is Sachin Tikekar. What we described earlier on, Americas for us is a solid sort of steady high profitability.
Largest
Till date the largest. I think, what we were thinking pre-COVID is, we need to look little bit more. There are opportunities that are taking place. There has been some consolidation with the OEMs and Tier ones across geographies between U.S. and Europe. Given that, and the leadership that the Europeans have taken, we were actually thinking about engaging more with additional clients from the U.S., especially in the commercial vehicle, whether it's on-highway or off-highway. That was we were planning, and that's exactly what we're going to continue to do. To your question, as compared to Europe and Asia, the growth over the last three years was on the lower side, and we were responding to that because we didn't want our largest geography to slow down.
We have taken certain steps that now we are going through, but we believe that we'll make sure that we see more opportunities not only on the passenger car side, but I think on the commercial vehicle side, on-highway and off-highway as far as the U.S. is concerned.
Also, some of the partnerships I mentioned in my earlier comments, the new generation players in automotive, many of them have a good presence in U.S., and we believe that we can leverage much better.
Right. My other question is basically with this commercial vehicle market in the U.S. Is it a big chunk of our sales at the current point of time?
If you look at commercial vehicles, we're about 23%-24% overall, but obviously, since it's less than passenger cars, we were expecting higher. Just like the case last year, the growth was slightly higher in commercial vehicles as compared to passenger cars. Given its size, I think the growth rate will be higher, potentially.
Okay. This 23% can go up over a period of time as a mix of our sales?
It has to. It's still in nascent stages, right. We have had focus on it only for the last two years. We believe that the headroom is a lot more in commercial vehicles.
At the same time, we are aware that this year it will be a bit slow. Commercial will be slower than the passenger car during the current year.
Right. My last question is basically from whatever we can understand, Tesla seems to have a higher market cap than many of the other companies put together. How are you, given the fact that we are not, probably Tesla does a lot of their work in-house. Over a period of time, do we see that the rest of the industry is in a position to respond to the technological challenge from Tesla? Because you guys are kind of working at the front lines. Since we are not going to be able to work with Tesla, they have their own philosophy of working in-house.
How are you seeing the preparedness of the rest of the industry to kind of compete with them in actual product and delivery terms?
Tesla is a mystery to many, right? It is what it is. I think they have taken the lead, they have taken some bold steps, and the market has responded really well. They do most of the work in-house. As we believe that, as in case of any large OEM, as you become truly global and large, you need to seek partnerships outside. It's not a scalable model, what they have. We believe that they'll open up. We have two, actually, tier ones who are our clients and who happen to work very closely in a strategic manner with Tesla. We believe that there may be opportunity in future for us to work directly or indirectly for Tesla, for point number one.
Point number two, all the OEMs, the Europeans and the U.S. and some of the Japanese ones, obviously they're responding very well to where Tesla is going. For their programs, whether it's electrification or connected, where they have a little bit of a head start over some of the other OEMs, those are the programs that we are actually working on, as far as the other OEMs are concerned. We believe that there are two things. Some of the existing OEMs will respond really well and do compete very well with Tesla. Secondly, there are some disruptors that Mr. Patil talked about. Correct? Some of the companies in Silicon Valley, all of that, they may not have the reach in automotive, but they are very strong on software and connectivity and so forth.
They can also see some kind of disruption and give Tesla a run for its money.
Great. Thanks, Adarsh. Thank you very much.
Thank you.
Thank you. Next question is from the line of Prakash Chellam from Marathon Edge Partners. Please go ahead.
Yeah, hi. You traditionally capitalized a lot of your, invested a lot in your R&D expenditure. Just a question, going ahead, are you looking at any changes in terms of looking at billability of your R&D team for the billability of the entire sort of investments that you do in practices and so on with customers? Thank you.
Prakash, let me understand the question. You're saying that we made a lot of investments in R&D, and there are people engaging in R&D. Are we going to move those people from R&D into billable projects? Is that the question?
Yes, kind of. Also in terms of whether you're going to look at even in an environment of doing good R&D work, sometimes it's good to kind of engage with the customers and test it by seeing if they're billable by jointly co-engaging in R&D with those customers. Are you looking at any billability metrics for your R&D team and so on going ahead? That's the question.
I think one of the reason why we have established ourselves so strongly is basically our ability, both in terms of domain knowledge as well as in terms of what we have been ahead in the curve in terms of when the customer wanted a new thing to be introduced, we were ready with that. That approach is not going to change in this. Of course, there are two, three things which are happening. Number one, we have invested very significantly over last three years in autonomous. I think, and where I think we see now many more projects, and many of those people engaged, as well as we have the bits which we have developed. Similarly is the electrification, where we have again, made a significant investment. There is a prioritization and in some new areas we will invest.
Overall, there may be some few changes in terms of mix and the areas of work. Overall, in the philosophy, we will continue to do it. We will see whether we can do something which we have done in the past, some of the larger programs, whether we can do something along with some customers. Nevertheless, we will continue to do investments into, as I said, work in terms of new areas.
The large new win, congratulations on that. Could you give us some color on how much of that you would see as impact in this year? It's a INR 50 million win. Could you give us some sense of the ramp-up and so on? That's my last question. Thank you.
Prakash, again, the question is the win that we talked about of INR 50 million, you're saying how much of that will lead to revenues during the current year? Is that the question?
That's correct. How it will play out over the next few years.
I think we will start the transition in a month or so. I think we will see some revenue in the H2 part.
Okay, great. Thank you so much. I appreciate it.
Thank you.
Thank you. Next question is from Pankaj Aggarwal from Yellowstone. Please go ahead.
Yeah. Good evening, sir. My question pertains to CapEx plans. I think you mentioned earlier in your earlier conference calls that your CapEx guidance is about 23% of sales. Is there any change to that? If you could reiterate what areas are we planning to spend the CapEx amount?
Yeah. As Mr. Patil mentioned in the initial comments, we have deferred a few of our office programs that were planned for, this year our CapEx estimation is it will be somewhere in the range of around 1% to 1.25% of the overall revenue for the commitments that we have made. It will be mostly into the areas of consolidating our operations in certain geographies and then certain amount of IT upgrade-
Security.
IT security upgrade that will be happening.
Okay, got it. Thank you.
Thank you.
Thank you very much. There are no further questions now on the conference, over to the management for closing comments.
Thank you all for participating in the call. If you have any further questions, please feel free to write to me and I'll be happy to get back to you. Take care and stay safe. Bye.
Thank you.
Thank you. Thank you very much. On behalf of Dolat Capital Market, I would like to conclude this conference. Thank you for joining us. You may now disconnect your line. Thank you.