Release Date: July 24, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- KPIT Technologies Ltd (BOM:542651, Financial) reported a strong revenue growth of 4.7% quarter-on-quarter and 23.1% year-on-year.
- The company launched ECOVOYAGE 2030, a sustainability initiative aimed at achieving net zero by 2030.
- KPIT Technologies Ltd (BOM:542651) has a low attrition rate in the single digits, indicating strong employee retention.
- The company has introduced several new offerings to reduce time to market and costs for OEMs, enhancing competitiveness.
- KPIT Technologies Ltd (BOM:542651) has seen significant growth in Asia, driven by strong performance in middleware and powertrain segments.
Negative Points
- The USA market has shown slower growth compared to other regions, with some OEMs moving headquarters out of the US.
- The company faces intensified competition, particularly from Chinese players in the automotive market.
- There are headwinds in the mobility sector, with challenges varying across different regions and impacting OEMs' sales and margins.
- KPIT Technologies Ltd (BOM:542651) anticipates a 2.8% impact on margins in the next quarter due to salary increments and ESOP costs.
- The QORIX joint venture, while promising, will not contribute significantly to revenues until the end of the next calendar year, and will incur operating expenses in the interim.
Q & A Highlights
Q: Hi, good evening and thanks for taking my questions and congratulations on the completion of the JV with ZF in QORIX. My first question is just around the JV, I think you mentioned that most regulatory approvals are now through JV has also -- ZF has also contributed their share of investment. So just trying to understand, where we are in the process of building some of the middleware offerings. Are we working with any clients as we speak? And also, approximately when we think we will launch some of these offerings to some of our critical clients? Is there any sort of interest that key clients have exhibited here? Any color around that would be super useful.
A: Absolutely. So thank you for this question, I think we are very excited about the QORIX proposition to the industry. See, during the quarter, actually we have become the part of the Eclipse Foundation, which is a very important foundation for the industry. So basically, QORIX becomes a part of this foundation. And we have also agreed to open source some part of the software, which is very important for OEMs because you would recollect that many OEMs wanted to develop their software and operating system on their own in order to have a better control on the software. So this gives a lot of comfort to the OEMs. The way we had planned that maybe next less than less than 12 months now because we have been developing the software. We would have our product ready, and it would go through, I would say, the whole testing and integration for the OEM by the end of the next year. We already are engaged with a couple of OEMs and working with their production programs for the end of the next year. So we are already engaged with a couple of clients in our core client.
Q: My second question is specific to how you've been performing in Asia. I think when we look at the disclosures by the various Japanese OEMs, it seems that companies like Toyota and Honda have committed to 30%-plus electric vehicle R&D growth over the next couple of years annualized. So just trying to understand some of this performance in Asia. Is it largely ramp-up of existing work with Honda? Or could you give us more color on if you're working with a broader range of OEMs across the region beyond some of the Chinese efforts that you mentioned?
A: Chandru, obviously, we had tremendous growth on the back of Honda over the last several quarters and it will continue. On top of that, if you look at Asia as a market, there is business in Korea, there is a business in India, and there is business in China. So these are the ones, countries that are driving our business. And we believe that the Asia growth going forward would be broader and more broad-based across these four countries. And we are also seeing that besides pure manufacturing of vehicles in Thailand, the OEMs also want to do some design and engineering work in Thailand from a hedging perspective. And we believe that, that work with our global OEMs will be able to do in Thailand. So we look at growth coming from five countries across our T25 clients. And to your question about specific focus on Japan and its investment, obviously, we are working with two OEMs at this point. And I think there is interest from the third one as well. So we believe that the growth in Asia has been high and it will continue to be on the higher side in the foreseeable future.
Q: My last question is just specific to the margin performance this quarter. I think when we had guided at the start of the year, we had guided to 20.5%-plus EBITDA margin versus the previous year 20.3% and the previous quarter at 20.7%. We have done 21.1% this quarter in spite of a couple of months of ESOP headwind. So I just want to understand if you were to piece out the headwind just from the ESOP scheme, how many basis points would you say it was this quarter, just sort of similar to the 2.8% impact you mentioned for 2Q? Just trying to understand if you were to adjust out for just ESOP impact, what the underlying margin of the business would have been in 1Q?
A: So if we would have taken out margin impact, so it would be about 1% more, maybe, that would have been our EBITDA margin. But as I said, next quarter, we have also increments, we have our three months of ESOP part. And so these are two main props we have. But I mean, we will, for sure, go by about the guidance we have given on profitability.
Q: Yeah. Hi, good evening, and congrats on another very strong quarter. I Just wanted your thoughts on a couple of things. So first is you did allude to the US geography. We are seeing very strong growth across the others. I Just wanted your thoughts on what's sort of holding back the trends there, considering that the targets for the initial norms continue to be strict even there? So broadly, how should we think about the US geography? You did mention that it should pick up soon. But just trying to understand the underlying dynamics of what's holding that.
A: So Nitin, thanks for your question. Let me answer that question in two ways. What's sort of holding back. Couple of things that happened in the US. One is, a couple of truck makers and one OEM, their headquarters had, over the last couple of years, has moved out of US. So the revenues also get the balance also shift. So that's one reason. And that's why there are very few US based OEMs in pass cars that we can work with. And we have taken a call that in terms of the new OEMs, there are only select OEMs that we'll work with, and that too just to try it out there, not really part of our T25, correct? So that's one part of the -- so this is the reason why you are not seeing the same level of growth. More importantly, what is it that we are doing in order to bring that growth back? So there are three things. One, on the passenger car side, we believe that the existing OEM clients that we have, will have more growth there. And I think it would be visible in the next two or three quarters. That's what we believe. Second part is US is becoming more and more important from our global client perspective. Given there is a 100% tariff on Chinese vehicles on US, it's sort of a secured market for Japanese OEMs and some of the European OEMs. So our engagement with our global OEMs with US is also increasing. So that's the second part, that gives us the confidence that the growth will come back. And last but not the least, as we make investments in off-highway segment, there are three or four key players. Some of the largest players are actually based out of US. So we believe that accelerating on these three levers will help us to sort of
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
