Mid-cap firms with their niche focus have given trail-blazing performances in Q1. Pune-based auto sector-focused KPIT Technologies is one such. The company’s net profit was up 2.5x on a year-on-year basis and revenue growth was 15 per cent YoY. In the US dollar, revenue growth on a constant currency basis was up 4.3 per cent. The company also acquired a 30 per cent stake in PathPartner for Rs 90 lakh. Kishor Patil, co-founder, CEO and MD KPIT Technologies in an interview with Shivani Shinde, talks about growth drivers, impact of chip shortages on auto sector and acquisitions. Edited excerpts:
Q1 numbers seem to be upbeat. What is driving growth for KPIT Technologies even as the auto sector struggles?
We have continued on the growth trajectory that we have witnessed in the past few quarters. From a Q1 perspective, we wanted to start the fiscal on a strong growth base, but more importantly we are also focusing on profitability. On a sequential basis our EBIDTA improved to 17.3 per cent and our PAT has also doubled. Moreover, we are also improving our cash reserves. Rather, over the last 9-10 quarters we have been focused on improving our cash realisation.
Our pipeline is strong and we are confident of mid-teen growth in FY22. We have always said that we see this momentum going forward for next 3-5 years.
…and is this growth coming in despite stress in the auto sector due to chip shortages?
KPIT is a software solutions provider and we work on future models. The auto industry generally works ahead of time, so today they are working on 2024-25 production lines and we are writing software for those projects. Everybody wants to come out with a variety of offerings that have more electrical, autonomous and connected car features.
The automobile world has two different players, first category is the Tesla types that are extremely tech focused and the others who have to now play a catch-up game to such competition. Majority of the large auto makers are behind in terms of tech architecture and capabilities when it comes to such components and software integration, they are focusing on these segments in a big way to be launched in a specific timeframe. KPIT has been involved in a lot of new project initiatives of major auto manufacturer’s and hence we have not seen any impact of the current chip shortage on our business.
Rather some of the shortages that have happened is also an opportunity for KPIT as any change in chip design means change in porting integration, which is an opportunity for us.
How sustainable is this growth?
We have stated that the current timeframe in terms of architectural shift in the auto sector is most significant. This kind of shift has not happened in the last 100 years or so. But to be able to capture this we are focusing on two key aspects; how do we scale in new technology area and two, how do achieve zero defect delivery.
This shift in architecture at automakers has also meant a shift in the way deals are structured. One of the biggest impacts has been ownership. Clients are looking for partners who can take the ownership and responsibility of the work. With such a framework the tenure of deals have now gone up to 8-10 years.
When you say scale, it means people too. How is KPIT making sure that the current attrition that the industry is witnessing does not impact demand?
We have really invested a lot in people. We like to say that working with KPIT means, “best place to grow’. I think at KPIT this is the most exciting time with work being driven by tech innovations. People who are passionate about mobility and tech, KPIT is the place to be.
On attrition, we did factor in that attrition will go up. From the financial point, we will have our increments this quarter. We are hopeful that attrition will stabilize in the second half of the fiscal.
Having said that, I believe that KPIT has always invested in people, but with growth coming back there is a huge opportunity to grow and we have created career paths for our employees.
Cash reserves are good, will acquisition be an area for the use of cash?
We will always continue to grow, be profitable and create cash surplus. We would like to acquire, but we would like to acquire companies that accelerate new tech capabilities for us. Our comfort size would be $20-50 million. But what I have seen in the recent past, especially with our focus on auto, is that many local companies are keen to merge with KPIT. They think KPIT is very well positioned.