Ladies and gentlemen, good day, and welcome to KPIT Q2 FY25 earnings conference call, hosted by Dolat Capital. As a reminder, all participant 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 telephone. 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.
On behalf of Dolat Capital, I would like to thank KPIT Technologies Limited for giving us this opportunity to host the earnings call, and now I would like to hand the conference over to Sunil Kulkarni, who is VP and Head of IR at KPIT, to do the management introductions. Over to you, Sunil.
Thank you, Rahul. A warm welcome to all on the Q2 FY 2025 earnings conference call of KPIT Technologies Limited. I also take this opportunity to wish you and your loved ones a very happy Diwali. 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 Joint MD; Ms. Priya Hardikar, CFO; and Stuti Bhorkar from Investor Relations, so on the call today, we will have the opening remarks by Mr. Ravi Pandit and by Mr. Kishor Patil, and post which we'll have the floor open for questions, so once again, welcome all, and I'll hand this over to Mr. Pandit.
Thank you, Sunil. Good evening, and welcome to all of you. In this call today, we are going to talk about three things. One is the board resolution regarding the appointment of Mr. Vijay Gokhale. Then we are going to talk about the board resolution regarding the QIP, and then we will talk about the operations of this quarter and how the rest of the year looks. I'm going to talk about the first two points, and my colleague, Kishor Patil, will talk about the third. Over the years, we have recognized that as we are growing in scale, the geoeconomic and geopolitical considerations are becoming more and more important to us. Therefore, understanding how these conditions are changing over a period of time is critical for us.
With that in mind, we were looking for appointing a suitable person on our board, and we are extremely happy that Mr. Vijay Gokhale has accepted our request to come on the board of the company. Mr. Gokhale has had an illustrious career in the Indian Diplomatic Service, the Indian Foreign Service. He has worked in all the three geographies, which are very critical for us: Asia, Europe, and the US. He has served in the diplomatic missions in Hong Kong, in Taiwan, and in Malaysia, and he was also our ambassador to the People's Republic of China. His knowledge about China has been very widely recognized. His books on China have been extremely popular, and they are extremely incisive and perceptive.
Considering the plans that we have for China, we believe that his inputs in this area will be very important. He has also served as the ambassador of India to Germany, and therefore, that's yet another market which is very important for us. And therefore, you know, his expertise in that area matters a lot. Lastly, he has also served at the diplomatic missions in New York, and that's really our third major segment of market. And therefore, we are extremely happy to have him on our board. Our board has passed the resolution requesting his appointment, and now we will take this resolution to the general body very shortly so that his appointment becomes effective. The second resolution that we had today was about the proposal to raise capital via the QIP route.
As you know, over the years, we have grown geographically through our multiple initiatives. Over the years, we have done acquisitions, and we have also done investments in new assets. Our acquisitions have been done for the purpose of increasing either our presence in the market or increasing our depth in various services. We have also invested, as you know, in building facilities, et cetera. As we continue to grow, we foresee the possibility of such acquisitions in the times to come. They may be not so small that we can do the complete fundraising through our own sources, which is what we have done over the years so far.
Therefore, keeping this possibility in mind, we have now taken an enabling resolution from the board, and which is what again, we are proposing here, is for raising capital via the QIP route up to a maximum of INR 2.88 billion, employing a dilution of up to 6% at a KPIT market cap up to INR 48,000 crores or INR 480 billion. We will be seeking approval from the shareholders via postal ballot for raising capital. Now, I would like to stress again that this is an enabling resolution. By the provisions of the act, we can use this resolution for a period of twelve months to raise the capital, and we will go for it as soon as we find there is an appropriate opportunity to deploy this capital.
So you will hear from us about it as and when we are at that juncture. So these are the two issues I wanted to talk to you about. I'm now going to hand over the mic to my colleague, Kishor Patil, who will talk to you about the results for this quarter, which I am sure you will be happy about. Over to you, Kishor.
Thank you, Ravi. Good evening, and welcome to our quarterly Q2 results. Basically, giving 17 consecutive quarters of growth, both in revenues as well as profits. During this quarter, the revenue grew 20.1% year-on-year in constant currency terms, and 19.3% in dollar terms. The revenue, the growth has been largely driven through Asia, and when we talk about Asia, it is, in this case, it is more about Japan, Korea and India. It is driven by powertrain and middleware as the practice areas. The passenger car basically is grown by 5.3% quarter-on-quarter and 26.4% year-on-year.
The EBITDA is at 20.8%, which is 27.7% year-on-year growth over last quarter this year. This is after absorbing the increments, which we had given, proper full increment, and also additional ESOP c ost. Last quarter, it was only an impact of two months, so this quarter is of the whole cost. So after absorbing 2.7% impact, our EBITDA is at 20.8%. Our PAT is at INR 203 crores. It includes one time 29.3 crores of profit, one time profit. This is on account of a claim which we got from insurance.
This was about 10 years back, almost 10 years back, when, before demerger, we had a claim on an insurance company against a dispute with a client, and that we have got after more than 10 years. Nevertheless, that has come handy during this quarter. Last quarter also, we had a one-time additional income of INR 32.7 crore. The profitability has increased, that on account of two main reasons. One is the fixed price projects. We, it is our endeavor to increase our fixed price project as much as possible. There is a significant growth in fixed price project over last year and this quarter.
That helps us to make use of productivity increase what we are bringing every quarter. Also, due to the increase of offshoring. These are the main reasons why our profitability has gone up, in spite of additional expenses during the quarter. Then on the people side, our attrition is absolutely the lowest ever, and that allows us to really be ready for, with help, and focus on building competencies and building the right workforce, right talent for the complex projects which for the future. If you really look at the overall environment currently, if you look at the USA, the overall environment, there are opportunities. At the same time, there is a little bit of a tentativeness.
However, in USA we see opportunities for two reasons. One is, USA have banned China software already, and we do believe that will help us in providing that kind of a software or integration opportunities to US OEMs. The second thing is, off-highway and commercial vehicles, which is our second area of focus, and we see that there would be good opportunities in that. So these two, we see as a growth opportunities in this otherwise uncertain environment. In case of Europe, we believe that most of the European OEMs are certainly struggling in terms of their financial performance.
However, we believe that in due course there will be a consolidation, and due to both the competence, relationship and the scale, the KPIT will be beneficiary for the consolidation. Even in Europe, we see that there will be an opportunity in off-highway and trucks. Coming to Asia, we believe Japan, Korea, and India will continue to grow and significant opportunities both in terms of our existing clients as well as some of the global clients going further. There are opportunities, while these companies are also struggling. If you look at it, the mix in terms of OEMs, some of the OEMs are doing very well, and some of the OEMs are struggling.
And we see the same opportunities, in wherever the OEMs are struggling, that they would look for a significant, consolidation as well as the competency to expedite their roadmap, and that we see as an opportunity. And the second is, our current some strong clients continue to grow, and there are more opportunities we see. In case of China, we continue to engage with Chinese OEMs for two reasons. One is to understand and be a part of ecosystem of innovation, so we understand what is happening in China and take it to our clients outside, and engage with them in a very select area where we can add value, both for their forays, in international markets and in certain specific areas, in terms of compliance, et cetera.
We, apart from this organic, as Mr. Pandit mentioned, we see certain market shifts happening in the overall market significantly, and OEMs are looking for cost reduction, improved consumer experience, increasing compliance, and there is increased compliance requirement. We are looking for some inorganic initiatives to address this and tap into this growing opportunity for us. We would do it only when, as you know, only when we find a very suitable candidate, which will help us to establish our really leadership in that area. On the other investment which we have made in terms of QORIX. QORIX is started. At least certain revenues have started in QORIX.
Though, for the large offerings which we have, it will take some time. It has become really a part of Eclipse Foundation and COVESA foundation, and these two will certainly help us in our endeavor to make it really a industry-leading platform. N-Dream, which was our gaming company, again, we have done our investment of the second tranche, taken it to 25% during the quarter. N-Dream has won more programs with other OEMs, and I think that is going to help us in helping clients to create a cockpit for the future and more integration revenues into core.
With this, with the, I would also like to say that our pipeline continue to be strong, with our current wins during the quarter of $2,207 million, which I mentioned about the various reasons why we will continue to see opportunities in the market. These are across the geographies. These are across Europe, US and Asia. And with this in mind, I would like to reiterate that we will be, we are reiterating our guidance for the year.
We believe that due to cost reductions which we have to give to the clients, both on fixed price and especially basically of reducing the cost for them, the revenues will be on the lower side of guidance, while the profits will be on the higher side. While we have talked about 20.5% plus, it will be few point 0.2-0.3 decimal higher than what we have mentioned earlier. So with this, I would like to hand over to the floor for the questions.
Thank you so much, sir. 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 remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead, sir.
Hi, good evening, and thank you for taking my questions. First question is just on the commentary you made during the prepared remarks around guidance that you're reiterating. So I think you have given a range of 18%-22% YoY constant currency revenue growth and 20.5% or higher EBITDA margin. So in the first half, we seem to be tracking at the higher end of the range, sort of 21-ish% constant currency revenue growth and EBITDA margin also closer to 21%. So just want to understand how you think about the back half, and then in the context of your commentary, that, that growth might be at the lower end of that 18%-22% for FY 2025.
Yeah, absolutely. So, right now, as I said, the overall environment of the business, basically the OEMs are extremely cautious. And we believe that while our pipeline is very strong, and not only that, we are actually engaging in some very mega opportunities with a few of the clients. But we are not sure about their timing, when these large opportunities get realized during this time. While we have, we again reiterate our guidance. We believe because of some of the postponement of some of these, or the offshoring of many of these opportunities more than what we have done in the past, the top line may look on the lower side of the guidance.
And at the same time, because of the offshoring and the, and of course, the momentum we have, the profitability will be on a higher side.
Got it. That's helpful. Second question is just around the fundraise. So you mentioned that it's an enabling resolution for the next twelve months. Just wanted to understand, I'm sure we are already prospecting potential candidates, so any color around, is there any specific geography or any specific domain, where you're looking for assets? And also, sort of what might be the realistic timeline for potentially closing on some of the assets that you're considering?
So, we continue to prospect, always, you know, and, with our current positioning, I think fortunately, a lot of companies do approach us on an ongoing basis. We believe there are areas of growth which we have identified. One is in terms of cost reduction, specifically, and the second, we have talked about adjacencies. And we have talked about certain compliances or certain key areas, which are required, for companies to work internationally. So in these three areas we are mainly looking at, there are also a few in China, small ones, but we are looking at this. So there are such, I would say four or five types of companies. There's no one very large, but, reasonable size, three, four opportunities.
Also, in addition to that, I must say that we have some very significant opportunity for consolidation and mega deals. We do not know whether the clients, to what timeframe this can realize, but it will also require certain investments in terms of infrastructure and et cetera, from our side. And with all this, we are looking for as much as we can, and you know that we have very strong cash flows. As much as we can, we would do it on our own. And when there would be a significant kind of opportunity, right opportunity in these areas, we would look for other funds.
Got it. That's helpful. And just last question is, as we head into 3Q, historically, we've had sort of different trends. In certain years we've had 3Q because of furloughs and holidays, tends to be seasonally slightly slower. And in some years, we've actually had pickup in 3Q performance. So I just want to understand, you know, based on some of the deal wins you've had recently, what is your thinking on how 3Q might be, relative to the first half?
So, while we have got very strong good deals in last two quarters, based on the environment, we are not 100% sure when they would start, and so I would consider it, you know, not so strong quarter three, from that perspective. As of now, that's how we would put it.
Got it. Got it. Thank you very much, and all the best.
Thank you.
Thank you so much. The next question is from the line of Mr. Nitin Padmanabhan from Investec. Please go ahead, sir.
Hi, good evening. Congrats on another solid quarter. I just wanted your thoughts on a couple of things. So the first is, so we have historically seen that our growth has consistently been very solid for, maybe the last, maybe 15 years plus in this segment, and the only time we really have a real weakness is when there is some major economic impact. Now, in that context, when we look at Europe and specifically Germany, which seems to be in a recession, and that's usually the time when we see weakness. How would you sort of contrast what you're seeing in terms of behavior on spending by OEMs today versus what you would have seen during earlier similar periods, whether it's during the COVID period or the GFC period?
How would you sort of contrast it?
Nitin, I think it's a great question. The point here is, as you know, some OEMs are under tremendous pressure at this point in time, because of various reasons. A, you know, the competition from China. B, the overall economic scenarios across some of the key markets. So, I think there is pressure on certain types of OEMs. Especially right now, the pressure is more on Europe because they are more exposed. European OEMs have large sales in China, and they're getting compromised. At the same time, the European economy is not doing as well.
The U.S. OEMs, to some extent, because of the 100% tariff that they have, they're not facing the competition as much from China, but they see competition from the rest of the global players.
As you know, the Asian OEMs actually take, they always look at the long game, and you know, they will make investments for the long term, and they will not look at quarter by quarter. You know, if you look at from passenger car perspective, of course there is pressure. Right now they are all looking to sort of get their, the cost of the vehicle in the right shape. That does create a lot of opportunities for us. It's just that as Mr. Patil mentioned earlier, they have to reconfigure some of these things, and that does take a little bit of time. We believe that this will create a good environment for us from the growth perspective.
And hence, you know, in the midterm, we do see solid pipeline coming our way. It's just that we have to get through the next few months of uncertainties for some of these OEMs. So that's our read on the passenger side. On the off-highway side, you know, the cyclical nature of the agriculture, I think it's getting over. So we think that, you know, the growth will actually come back. And it's the same case with trucks. Trucks have been slightly on decline and flattish in the current year. I think next year they are likely to be around the same, but you know, 2026 onwards, there will be growth on the commercial vehicle side. And that's mostly about Europe and America.
So overall, we believe that some of the themes will continue. From the OEM's perspective, it's the reduction in the cost of the vehicle, reduction in the time to market of the vehicles as well as the features. And the third part is also trying to figure out in this changing environment, their client segments, you know, in different markets for the global OEMs. And, you know, how do you really, how do they really differentiate themselves? And that's something I think everybody's trying to figure out, right? What it means in the changed environment. If that answers your question, Nitin.
If I-
Yeah.
Yeah.
Yeah, please.
If I may add also, that the conversations are actually happening. I mean, they are very serious conversations which are happening. What we are saying is a bit of timing, we are not 100% sure of the conclusion.
Got it. So actually I had two follow-ups. One is that what you're seeing today is not so much of a rate reduction, but more of offshoring to sort of help clients sort of reduce their overall costs. Is that a fair assumption? And two, from that perspective, maybe there is near-term lower growth, but as and when things pick up, they sort of pick up, so that was one. The second is, do you think that Asia sort of makes up for the relative weakness from an incremental revenue contribution perspective, considering that geography seems to be recently solid? Do we have the pipeline and the wins to really make up for the relative weakness?
Nitin, in the immediate future, I think the growth is actually coming from Asia, and you've seen that in our Q2 H1 results as well. We believe that, I think that growth will continue throughout. Having said that, we really believe in, again, going back to Mr. Patil's comment, there are European conversations, some serious conversations with the European OEMs as well as the American OEMs. We believe that the growth will come back. We just have to figure out the timing. You know, is it one, two, three quarters? Whatever that may be, because it's the reconfiguration of their priorities, and hence, what kind of business model in which we work with them.
So it's just gonna take a little bit longer, but we believe that, you know, there are significant opportunities in Europe with passenger cars as well as trucks, and in Americas for off-highway and passenger cars.
Just to elaborate on that point, actually, our wins for last both the quarters have come from, larger wins have come also from U.S. and Europe. However, the projects, there is a delay in starting of the projects, and that's what we are looking at in addition to the larger engagements.
Got it. I just have one more quick question, then I'll fall back in the queue. The fund raise that you spoke about and the areas that you spoke about, is this sort of preemptive to the large opportunities that you are seeing? Would you need to... Do you think you'll need to sort of buy out existing vendors who are there for that particular client as a part of that exercise? What were the other questions, yeah.
We are not looking at, buying out any vendor or anything, from that perspective, not those kind of. But the large consolidation will require, infrastructure, depending upon the deals, basically building the infrastructure here as well as outside people, investment, et cetera. And, many of those kind of things. And apart from that, certain competencies, as I said, we know that on the top of mind is the cost reduction for every OEM. And, certain other areas where we want to make sure that we are, as we have been in, SDV and other areas, ahead of the market. And that's why we will make, those investments, in a very high-quality company.
Super. That's very helpful. Thank you so much, and wish you a very happy Diwali, and all the very best.
Thank you.
Thank you.
Thank you so much. The next question is from the line of Bhavik Mehta from J.P. Morgan. Please go ahead.
Hey, thank you. So couple of questions. Firstly, on the offshoring bit, can you explain, like, what is suddenly driving this offshoring? Is this just cost efficiency the clients are looking at, and hence they want to move offshore, or is there some other factors as well? And, also, is it right to assume that the volume of the work is not very impacted, but the pricing is mainly because of onshore to offshore movement?
Absolutely. I think, so, the first part is the volume is not impacted, volume is going. Yeah, while we are trying to increase our productivity another thing, as you can see, we still continue to add, net, net count, in some way, and improve the productivity both. And, the offshoring is happening for two reasons. One is, we have delivered a lot of complex projects, and, now when they are scaling up, they're, that's when we are increasing it offshore. And client is very comfortable, because of, you know, the, the history they have with us and, the work we have been doing. So I think with both these things, we are in a position to increase the offshore.
Okay, got it. Second question was on the QIP fundraise, just a clarification. Did you say that it won't be just one large M&A, it could be two or three companies also you may acquire with the fundraise?
Absolutely. So it's not a single transaction.
Okay, got it. That's it from my side. Thank you.
Thank you.
Thank you so much. The next question is from the line of Garvit Goyal from Nvest Analytics Advisory LLP. Please go ahead.
Hi, am I audible?
Yes, you are.
Good evening, sir. Congrats for a good set of numbers. I have two questions. One is, like, considering that we do have cash and cash equivalent of approx. 950 CR, right? So, I want to understand from you two things. One is, how management reached to the number, specifically, 2,880 CR, like, what is the thought process behind it? Secondly, you mentioned about three areas. Can you put some more colors on all those three areas? Like, what is the thought process, how we are looking to diversify from the existing business, by going into these three areas? These are my questions.
First thing is, we have a cash and continue to have a very strong cash conversion. As we said, we had to make multiple investments, and we have making those investments all these years. But we had to make it in infrastructure, we had to make it in some payouts of the old acquisition, we had to make it into some of the new acquisitions we made. I think when we are looking at it, we are looking at holistically. Right now, if you look at it, it is about three months kind of a cash is what we have, which is not too much from that perspective. But that would allow us in a normal course of growth in our organic way.
But when we look at the new acquisition, that's the time when we will look at the fundraise. I think I mentioned already. I think it is about the adjacencies, it is about the cost reduction, and it is about certain specific compliance-related practices. I think we have talked about it few times earlier also, so anything beyond this would be difficult.
Sir, one more question on the demand environment. Like you mentioned, in your next one to three quarters going to be slowdown. So how do you see FY 2026 from this kind of situation?
So, first thing is, we have not said. We are saying that we are going with our... We have made two statements. One is our growth. We are reiterating our guidance, number one. Number two, our revenues will be on the lower end of the guidance because of the offshoring and other things, while the profitability on the higher end for the same reason. That is the second part. Third thing, we have said that our pipeline is strong and our conversations are very strong for the large strategic deals. We have talked about the environment in all three geographies specifically, so we are very confident about the demand coming forward.
We just wanted to, you know, we have been always very forward, coming forward always to share what is happening in the market, as well as what we are going to do about it. So I think in that light, we talked about the external environment.
Understood, sir, then thank you so much as well.
Thank you so much. The next question is from the line of Aman Soni, from Envest Analytics Advisory LLP. Please go ahead.
My question is done. Hello?
Yes, yeah. Will you please speak up?
My question is already answered.
Okay, thank you. Thank you.
Thank you so much. So the next question is from the line of Karan Uppal, from PhillipCapital India. Please go ahead, sir.
Yeah, thanks for the opportunity. The first question is related to the, you know, incremental spending.
So, you know, among various areas like SDV, middleware, electric powertrain, autonomous, mechanical, so which are the areas which are driving the incremental spending from OEMs, and which are the ones where spending is being pushed back? Any color would be very helpful.
So, number one is the cost reduction. Whatever allows client to reduce the cost of the final product, they are very interested. Right now, that is number one priority, specifically, on even the electrification as well as the other one. So that is, the number one part. The second is, they want to reduce the program life cycle, significantly. Want to make sure that the programs which they have announced for 2026, 2027 or 2028, as the case may be, those are not delayed and those are delivered, and if they can deliver before. Because many of these OEMs have relatively less number of, programs as compared to the Chinese or other OEMs. So these are the two areas on which the spend is happening.
So the investment on SDV continue to be there, but it is only on the area where you can reduce the time or the cost, and the overall cost reduction part. These are the two part. And the third, which I mentioned about, is on the compliance.
Okay. Okay. The second question is, maybe if you just step back and look at, let's say, FY 2024 and 2025. So the large part of the growth was driven by, you know, large deals like Renault and Honda, which we signed earlier. Now, if I look at the TCV for last six quarters, except for Q4 of FY 2024, the TCV has been in the range of $150-$200 million. So you have also spoken about, you know, large deals in the pipeline. So are you expecting any large deals to close maybe in Q3 or Q4, which can help you on the growth trajectory for FY 2026?
So Karan, you know, as we discussed earlier on, there are a few clients in Europe as well as in Americas, where we are actually in conversations of building, you know, long-term large engagements. And of course, there are conversations in Asia as well. So we do believe that there will be some engagements that are gonna be fairly large to come. But we also think that from our existing clients, we'll have business that will grow. So it's gonna be a balanced growth across, we just have to figure out the timing of it.
And then, one thing we have said time and again, that with the current clients, with the current spend that has, we can double the revenues which we have. I think, these are the basically, which could happen normally in organic, in the normal course of business. Some of these are the opportunities on the top of it.
Okay. And last question is, I mean, with respect to fundraise, so, is management thought process also in terms of diversifying the, you know, the vertical, maybe looking at some of the other verticals, apart from auto? Is that also a thought process?
I think we have mentioned that currently we are looking at off-highway and commercial as an additional vertical.
Okay. Thanks a lot, and all the best.
Thank you. Thank you.
Thank you. Our next question is from the line of Ayush from B&K Securities. Please go ahead.
Yeah, hi. Thank you so much. So, congratulations on the good set of numbers. So, just wanted to understand, sir, one thing, that if we see that, you know, the commentary for the large deal pipeline and the vendor consolidation opportunity that you have out in your opening remarks. So, why are we like, you know, providing that the lower end of the guidance should be there? Because if we see that we are having the vendor consolidation opportunities in U.S., Europe, Asia, and then also, you know, we are highly entrenched with the Tier 1 clients. So, what leads to the caution towards the lower end of the guidance? And then, what are we looking forward with the strategy Tier 1 clients for the next year?
How, you know, how they are shaping up their budgets, or how they are seeing their programs continuing with us?
So I think we answered this question earlier, that even where we have won the deals, some of them have been, the implementation has been delayed by a quarter or two by specifically European OEMs, we have one. And so this, this being the year-end of most of the OEMs, and we probably will see the results of European OEMs. I think for a quarter or two, they may be very cautious. Similarly, the situation is there. So that's why we are not sure when these deals will actually realize some of this. And then we... But as I said, these are serious conversations, and even some of the deals which we have won, we have not started. So I think in the medium term, we see a good, we are confident about good growth.
Okay. Next question is on margins. So definitely, you know, if we consider that, if we do even like the flat-ish margin for the next two quarters, we would be almost like 27.20, 20.7, that is, 0.8 kind of a figure for the EBITDA. So are we, like, eyeing for 21% plus for this year? Because, like, the wage hike is behind us, so it will be, you know, giving us a bit leverage going forward. And what's the forex situation are we facing that can act as a headwind for the next two quarters?
I think, two things: we are given first, quarterly, we don't give the quarterly guidance, we give the yearly guidance, and I think we have been very clear about it. We, as a company, we have continued to make investments, and some of these, adjustments to some of these growth opportunities, some of these large piece engagements, some of the, key programs we have taken. We are not going to - I mean, we continue to grow, and many of those expenses will be there. And that's why we have given what we see as a margin. Also, you know, the currency movements have been very crazy, actually, in last, few quarters. So I think, with that, I think this is what best we can do.
And just a last question on commercial vehicles. So, if I heard it clearly, you mentioned that 2026 will be, you know, the growth for the trucks. So should we expect the same kind of a momentum that can kick in, like what we have seen in the passenger side of the vehicle part? Or, like, will it be, you know, just a starting phase for the truck, and after post-2026, it would be like a kicker phase for us?
We actually believe that some of the programs will start sometime in 2025 because they'll have to make. You know, it depends on from OEM to OEM, you know, when they have the new vehicle launches and what does that mean from. You know, when I said growth is coming back, that means, you know, the number of vehicles being sold will actually grow in 2026 over 2025. So, you know, the build part from the OEM will actually increase in 2026. However, they continue to make investments in different technologies, you know, that are relevant to us, and those programs just start.
The point here is then, we've been sharply focused on passenger cars all these days, even though we have had some business with commercial vehicles or the truck makers. Now, we are actually, for the last few quarters, we've been doubling down on that very consciously. So we believe this, you know, building those expertise and understanding what their needs are, will lead to additional business for us. And I think they need help in the areas where we have deep expertise. So I think the meeting of these two things will happen over the next few quarters.
Great. Thank you so much.
Thank you.
Thank you so much. The next question is from the line of Rajat Agarwal from Atharva Investment Managers. Please go ahead.
Good evening, sir. This question is specific to the Volkswagen Group and their strategy. Recently, there were news reports that they have dropped their all-electric vehicle target for 2030, and have incorporated, and have actually said that that target now includes hybrid vehicles as well. So while you have addressed the immediate headwinds for the next few months, do you think that development itself will end?
Will, will you please repeat the last part of your question? You got cut off. Will it. Hello?
Volkswagen's. Hello, can you hear me?
Yes, yes. Just the last sentence, if you could repeat, please.
Basically, I just wanted to understand the impact of Volkswagen's resetting of their 2030 target on their overall spend vis-a-vis the electric vehicles and our engagement with them. In the medium term, does it impact our outlook of our relationship with them?
We believe that there are significant opportunities with the Volkswagen Group. As you know, you looked at some of the announcements that Volkswagen Group have made. They are in the process of reinventing themselves in many ways, given the impact that they've faced in China and the competition that they're facing from China. You know, they are reprioritizing some of their areas. There is also. They are also trying to consolidate their efforts across the globe, so that there could be substantial cost leverage that can be taken. We are part of some of those conversations, right? In general, we think that as soon as the dust settles down, we'll have significant opportunities coming from Volkswagen Group. Coming specifically to powertrain part, you're right.
I think, you know, like many OEMs, some OEMs have pushed out the battery electric vehicle program. However, some of them are actually revisiting their hybrid programs, whether it's a mild hybrid for some markets or plug-in hybrid for the other markets. So we believe that there will be more alternate powertrain opportunities coming our way. In fact, if you look at our results and some of the large engagements that we have closed, there is quite a bit of a contribution from what we call propulsion, you know, that covers different types of powertrain. So we remain, we believe that going forward, the alternate powertrains will remain a significant part of our business.
So as of now, you do not see any negative impact on your outlook over the next two to three years, as far as that specific relationship is concerned? Is that correct?
You know, I'm glad that you, you know, brought up over the next two to three years. We feel very confident about growing that relationship.
No, I'm always looking at two to three years, sir.
Absolutely.
I understand the-
We are very-
Yeah.
No, we remain very optimistic about our partnership.
Wonderful. So next quick question on QORIX. Any thought or any guidance on when do you see this becoming substantial? And are these revenues from our existing customers, or are they, or is any new customer onboarded with QORIX?
No, no. First thing is, QORIX revenue will not be consolidated in KPIT accounts, so it just actually, you know, the revenue, the profit or loss from their operations, our share. And, you know, it's being a product company which is investing into this initially, we do not expect, and it has not been factored in whatever guidance we give. However, as and when they win a new client, the services revenue of integration will come directly to KPIT. So that is where we are looking at those opportunities. We are in a very good position right now, and, we believe, it will take time. I mean, when we actually announce also, I have mentioned that it will take twelve to eighteen months to come out with a main product.
Till that time, there are revenues that have started, which are smaller in number. Nevertheless, the client engagement is started, and we have started getting the revenue. We, we means QORIX have started getting.
Great, sir. Thank you. Thanks a lot.
Thank you.
Thank you so much. The next question is from the line of Garvit Goyal from Nvest Analytics Advisory LLP. Please go ahead.
My question is answered, sir.
Thank you. Thank you.
Thank you. The next question is from the line of Sanjay Satapathy. Please go ahead, sir.
Yeah. Hi, sir. Thanks a lot for the opportunity. So just quickly trying to reconfirm. So you have said that you've cut down your revenue guidance to the lower end because the mix is shifting towards offshore. But at the same time, part of the margin benefit, you think that you'll be spending in your capability. Is that correct, sir?
First, we have not cut down our guidance. We have reiterated our guidance. I've just given you a color on that, that it won't be at a higher, because people assume when we have given a certain state where it should be. And the second is we have given the reason why it will be, and that's the reason I said the margins will be better. But, so earlier we had expected a certain margin, our margins will be better. So, please understand, we have given a guidance. Very few companies have given, I mean, it is about two or three times of the next companies who have given the guidance. And, we are just saying that it will be on the lower end of the range we have given.
On the top line, but overall, on the bottom line, you are maintaining your guidance. That is what you are saying.
Yeah. Not only that, we are saying the profitability is higher than what we have said, 20. We have given 20.5, it will be higher side.
Okay. Also, you have made a fair comment that not many people have given guidance, and not only KPIT has given guidance, but has made us people kind of feel that you will always beat it by a big margin, so that is the only thing which we have gotten used to, and, sir, of course, you have given huge amount of clarification as to your fundraising and what will be the deployment and considering the kind of cash you have and the kind of money that you are looking at, it looks like it is going to be a huge one, which will probably bring in its own set of challenges in terms of more integration and all that.
I'm sure the company is ready for that. You are pretty close to the deal, otherwise you would not have announced this kind of fundraising. Is that correct? Because you have always been very disciplined about capital.
I will just comment that we have a reasonably successful history of integration. We have grown every acquisition we have done, and leverage it very appropriately or significantly, because they all have been very strategic acquisitions. And we expect that, and as I said, its timeframe, we cannot say, but we are certainly in active discussions.
Understood. Thank you a lot, sir.
Thank you.
Thank you so much. The next question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead, sir.
Hi. Thank you for taking my follow-up question. The first follow-up is just around... I think over the past two to three years, we've given long-term outlook that it's a really good industry to be in, and we see sort of longer-term, 20% plus organic growth opportunity with the T25 clients that you're working with. So just in the context of maybe the slight change in macro environment, little bit of geopolitical uncertainty, and also maybe slight delays in execution of some of these strong opportunities, does that sort of range of 20% plus, you know, organic growth opportunities, has changed a little bit over the near term?
I think those opportunities are there. In this case, I explained to you what we see right now. But we do believe. I have mentioned that we can be at least two times of our size, if not more, with the current clients and the current, you know, the focus we have. So absolutely.
Got it. That's helpful. And just in terms of the company's long history of M&A integration, I think the largest transaction we've done has been Technica, and I think we've executed pretty well on it over the past couple of years. So just want to understand internally, before you decide to allocate capital to a particular asset, are there any financial metrics in terms of, you know, minimum IRRs or hurdle rates of return or payback periods that you keep in mind? And could you just contrast, you know, what typical net margin you'd like on an asset versus the current yield on cash that you have?
Yeah. So of course, we are extremely careful. I may say that there are significant numbers of deals we have walked away from than what we engage. And the reason is our careful diligence on that because it's a lot of effort and while the organic growth is strong, it's basically in some way you are investing into a larger initiative. So two, three things. First, we make sure that it is not a margin dilutive in a certain period, maybe you know, in a 12-18 months, it is not margin. Then it's not dilutive on EBITDA. That's the first point. Second, it is not EPS dilutive. That is the second part we look at. These are the minimum things.
Third, we look at cash conversion, which is very important for us, and so we look at fairly good returns. The IRR et cetera, I mean, you know, our return on capital has been very strong, and we continue to drive it. I think if we drive the certain profitability and the certain growth, I guess that is how it comes, so we ensure that those are some of the criteria we look at. Of course, the most important part is how critical it is for our clients, whether it is on the top of their mind, because that allows us to really get a positioning premium and the growth.
That is very, very important, and it should put us in the top two or three players in the world in that area. These are very, very important for us, and this is what we drive.
Got it. Thank you very much, and all the best.
Thank you.
Thank you so much. The next question is from the line of Ruchi Mukhija from ICICI Securities. Please go ahead.
Thank you. I wanted to check the change in demand dynamics that you alluded earlier. Did this persist through the quarter, or it was more quarter-end phenomena?
Sorry, we couldn't understand your question. Could you please repeat?
Yeah. I want to check the change in demand dynamics that you alluded in your commentary, where you are experiencing offshoring and slight indicating slight slowness in the second half. Did this kind of demand scenario persist through the quarter, or it was more quarter-end conversation with the client? I'm trying to assess whether KPIT managed to deliver 4.6% growth despite these dynamics, or we started to see change in the client conversation more towards the end of the quarter only.
I think the offshoring is of course, we have started earlier because we had to hire people to onboard them, et cetera. But, as to the cost, as we mentioned, that we have won a lot of deals, and the mix has changed specifically to ensure that we deliver on the project in a lower cost to the customer.
Ah, that's it. That's helpful. Thank you.
Thank you.
Thank you so much. The next question is from the line of Ankit Agarwal from Yellowstone Equity. Please go ahead.
Yeah, hello. I had a quick question on QORIX. You had mentioned that you might add one more partner to the JV, probably an OEM. So just wanted to see if there is an update on that.
So first thing is, we never said it would be an OEM, actually, but yes, it will be a very important partner. And we are in advanced discussions. Absolutely.
Okay. Okay, thank you.
Thank you. Hello?
Thank you so much. Ladies and gentlemen, next, 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 for your participation in the call, and have a great evening. If you still have some questions, please feel free to write to me, and we will be happy to get back to you. Thank you, and bye.
Thank you. Thank you.