Changing business models of auto OEMs creating new opportunities: KPIT CFO

KPIT Technologies, an automotive (auto) and mobility-focused software company, is experiencing positive momentum and better-than-expected growth, despite macroeconomic (macro) uncertainties. This success is attributed to its niche positioning and critical offerings to the industry, according to its Chief Financial Officer (CFO) Priya Hardikar.

KPIT has recently revised its constant currency revenue growth outlook for 2023-24 (FY24) to over 37 per cent, up from the earlier guidance of 27-30 per cent.

The company, serving leading auto manufacturers worldwide, is now exploring new opportunities driven by changing business models among the top 25 original equipment manufacturers (OEMs).

“Clients are now considering changes to their business models. For instance, there could be a feature allowing you to heat the car during winter, and consumers can subscribe to this additional feature directly from the original car manufacturer. They are exploring ways to generate revenue beyond the initial car sale and throughout the entire lifecycle of a car. This marks a significant business model change for OEMs,” said Hardikar.

She noted that this new trend may involve the widespread deployment of Cloud computing and artificial intelligence, along with new avenues for vehicular communications.

“As we progress, our clients are focusing not only on communication systems inside the car but also on communication outside the car. The entire software-designed vehicle architecture will encompass both these aspects. We are also developing a practice to facilitate communication beyond the car,” Hardikar said.

During the second quarter (Q2) of FY24, the company reported new deals worth $156 million, a slight decrease from the $190 million reported in the first quarter (Q1).

In recent quarters, KPIT has announced significant engagements with automakers such as Honda and Renault.

“We are closely monitoring the current macro situation. We do not foresee any cuts in our clients’ spending. Our work is highly focused and niche, and any delays could impact the launch of new models, electrification, and their market position,” added Hardikar.

While the company has been offering auto-embedded software for the past 16 years, its intensified focus on this domain in six years has led to margin expansion and accelerated growth.

The earnings before interest, tax, depreciation, and amortisation (Ebitda) margin guidance for the firm has been increased to over 20 per cent, up from the previous range of 19-20 per cent.

With offshoring at an optimum level, revenue growth, and improving operational efficiencies, the CFO anticipates further margin improvement.

“We have maintained the Ebitda at 20 per cent despite absorbing the impact of increments effective July 1. This can be considered the highlight of this quarter,” she concluded.

The EBIT margin for Q2 stood at 16 per cent, up from 15.9 per cent in Q1FY24. The gross impact of wage hikes was 250 basis points, offset by revenue growth and net realisation improvement.