Dear Fellow KPites
We completed another year of transformation for the Company amidst the fast-changingindustry scenario and geo-political environment. I would like to use this letter toexplain the industry and KPIT performance the world as we see it today and our actionsand plans for the years to come.
"The year that went by"
Overall Financial Snapshot
In FY18 our revenues grew by 14.8% in $ terms and the bottom line depicted a growth of6.02%. In Rs terms the overall revenue growth stood at 10.3%. The services revenue showeda growth of 13.4% in $ terms while there was a growth of 50%+ in the products revenuealbeit on a smaller base.
Our operating profitability for FY18 was similar as compared with the previous year.Having said that we started the year with lower profitability margin than last year andshowed improvement in the operating profitability quarter on quarter every quarter.
We continued our focus on the Strategic Customers and are witnessing early results ofthe investments made by us over the last couple of years in account management. We areseeing larger deals and larger pipeline buildup from the strategic customers. When westarted the year we had laid down a goal of achieving a 10% growth in revenue with zerogrowth in headcount. I am happy to state that we achieved a constant currency growth of12%+ with only a 3% addition in headcount. As a result we could improve on theutilization levels and thus improve on operating profitability every quarter.
At the beginning of the year we had laid down 4 priority areas to focus on viz.Growth Profitability Delivery
People & Processes.
Growth: The focus on industry verticals strategic customers technologyinvestments and targeted new accounts has yielded us good results. Engineering Digitaland PLM were the major growth areas for us during the year. We also laid emphasis onalignment of practice and pre-sales in these growth areas and geographies which gave us agood growth trajectory during the year. Our technology investments channelled throughPractice Development Forums (PDFs) and the CTO Organization have helped us createbest-in-class vertical focussed offerings for our customers feeding growth in thestrategic customers. Profitability:As you would recollect we had excess people ascompared to the revenues generated when we started FY18. Our goal was to bring thealignment between headcount and revenues after considering various factors like skillsetsgeography locations non-billable headcount and employee pyramid. I am happy to state thatwe made good progress on this front during the year and our headcount addition during theyear was substantially lower than the revenue growth achieved.
Another area of profitability improvement was productivity increase and automation. Wehave in-house developed best-in-class productivity improvement and automation platformsbased on self-learning and artificial intelligence algorithms which have helped us win newAMS deals with better profitability. We continued the rigor in cashflowduring the year andended the year with a healthy Net Cash Balance. We realize the importance of boosting theshare of offshore revenues and increasing onsite billing rates and are focusing even moresharply on these areas to expand profitability.
Delivery Excellence: Over the last two years we have invested in deliveryexcellence to ensure flawless delivery and enhanced customer satisfaction which hasyielded positive results for us. We increased the rigor on Multi Level Reviews (MLRs) andweekly cadence with the customers. We focussed on enriched Program Management andcontinued improving the Risk Management Framework with clear documentation andcommunication with the customers.
People and Processes: We continued our focus and investments on people developmentand enrichment. KPIT Continuous Improvement Training Program is our flagshipEmployee Training and Certification Program focusing on developing technical domainprocess project management and leadership skills. Over 8000 employees covered as part ofthis program with over 5000 employees certified with their yearly targets of creditpoints. We brought in most of the enabling functions under the purview of continuouseducation achieving75%certificationsat closure of the year. PACE (Program forAcademic Collaboration & Engagement) is our university collaboration program toengage attract and nurture young talent from campuses. We launched the KPIT EDxPlatform an online platform to disseminate knowledge Excellence and anytime &anywhere. This platform will help deliver online content to PACE partners customers andinternal & external stake holders.GENESIS is our flagship Graduate EngineerTrainee
Program across SBUs. Through this program we ensure that freshers go through a rigoroustechnical and soft skill training before they join the projects. We have extended GENESISto US locations and the same is gaining fast momentum. Our other initiatives include PMDP(Project and Program Management certifications) aligned with international standardsuch as PMI PMP LMP (Leaders in the Making Program) focused on middlemanagement Think Digital and Higher Education
Initiatives. Under the Higher Education Initiatives KPIT and CoventryUniversity collaboration for two programs M. Tech in Automotive Electronics andMBA in Strategic Engineering
Management has been awarded one of the most prestigious awards under the categoryof "Outstanding Course Team" during the Annual Excellence Awards to celebratethe 175th year of the Coventry University's formation. On the process side we are workingon making processes simple clear nimble and non-duplicate which is an ongoing process.
Technology and Innovation
Innovation has always been on the forefront of our business strategy. The KPIT CTOFunction is our R&D arm and is responsible for Technology Incubation Co-innovatingwith customers fostering a culture of innovation not only within the organization butalso in the business ecosystem and carrying out advanced research in collaboration withresearch labs and academia. We drive innovation by having a consolidated view oftechnologies across our organization and create innovative leadership offerings. In thisregard the CTO function focuses not only on turning ideas into viable offerings but theywork with delivery functions and customers to ensure first successful implementation ofthe incubated product service or solution in the customer environment. KPIT's InnovationFramework enables an environment conducive to free exchange of ideas and nurturing aculture of innovation within and outside the organization - among employees academiaresearch labs start-ups etc. KPIT's Innovation Council a part of the InnovationFramework has on board many experts from the industry and academia. The council is guidedby Padma Vibhushan
Shri Dr. R.A. Mashelkar and it serves as a forum to provide updates on the innovationrelated activities conducted by KPIT around the year. The KPIT CTO function is accreditedas a research and development facility by the Department of Scientificand IndustrialResearch (DSIR) under the Ministry of Science and Technology. This recognition is aproof of our excellence in the research domain successful technology demonstrations fromtime to time and strong connect with academia and research institutions. (CDO) The totalnumber of patents filed by KPIT as at the end of FY18 stood at 58 including 53 patentswith complete specifications.
As at the year end we have 40 granted patents across different geographies. Most ofthese patents are in the domain of electric and hybrid technologies ADAS (Advanced DriverAssistance
Systems) BMS (Battery Management Systems) Infotainment VLSI (Very Large ScaleIntegration) and High PerformanceComputing.FY2018 was the fourth year of KPIT Sparklea national design and development innovation contest for science and engineering students.The theme of the competition in this edition was Next Generation Energy andTransportation Solutions'. This year we received over 12000 registrations frommore than 600 engineering and science colleges. Highlight for this year was theincreased participation from premier institutes (IITs NITs) from 9 to 28. We alsohad participation from 63 of top 100 institutes across India the list as publishedby the MHRD (NIRF rankings). Team Electrodes from Indian Institute of TechnologyKharagpur won the Platinum award of Rs1 million for their project Bacteria
Digital @ KPIT
Over the last three years we have been investing in digital technologies to createbusiness solutions for our customers. With expertize and leadership in engineering IOT isthe leading area of digital for the Company. Today's businesses function in real-timeintegrated ecosystems where quick decisions must be made based on a steady stream ofinformation from sources like wearable devices smart assets and intelligent machines. Thecomplexity of integration has increased dramatically but the expectations to provideaccess to intuitive uninterrupted and safe technologies for operations persist. KPIT isworking with its customers to transform operational processes to deliver quick valuestreamline operations better manage assets and improve compliance with regulations.
Our digital approach to market concentrates on five major areas viz. Smart FactoryAsset Optimization Supply Chain
Management Employee Experience and Digital Customer Experience. Business drivendigital solutions are focused on connected manufacturing intelligent supplier managementdigital customer experience and digital marketing. The technology driven digital solutionsmainly involve big data & analytics middleware and integration services clouddeployment mobility solutions and testing & validation. While we take these servicesto our customers it is important that we change our own organization and help transformthe way 12000+ employees perform their work. To spearhead our fast evolution as a digitalorganization we created the role of year. It is important to createtheChiefDigitalOfficer
#ThinkDigital Culture' amongst employees across all levels. For the concept ofdigital to be; ingrained into everyone's minds within the organization an overhaul inideology skillset and corporate ambiance is needed. To enable this the CDO team hasdevised a well-constructed digital strategy that identifiesand develops digital solutionsto improve in-campus productivity creates awareness of the power of digital usingtraditional branding techniques partners with customers for key events that highlight ourrelevant digital competencies to the right target audience and enables upskilling ofemployees through focused workshops trainings and expert talks. A digitally enabledworkforce thus has set the tone towards improving people productivity.
"The Year Ahead"
Our growth over the last 6 quarters has been at the top end of the industry. We are agrowth oriented Company and thus we are happy to get back on the industry leading growthpath though we will be focused more on profitable growth going forward. We have guidedfor a constant currency revenue growth of 8% to 10% during FY19 as compared to the lastyear.
We believe our operational EBITDA Margin will be in the range of 11.5% to 12.5%. Theactual reported EBITDA will be lower due to one-time restructuring (merger-demerger)related expenses in FY18. In the MD&A section of this annual report we have adetailed note on the proposed merger and demerger scheme announced during the year.
In the coming year we have specific focus on Customers People Technology &Innovation and Delivery Excellence.
These four areas of focus would help us achieve better growth and profitability. Iwould like to spend some time explaining the thought process and the 4 initiatives wewould pursue:
Customers: Growth is important equally important is the value we deliver to thecustomer and the quality of the revenues that we generate. Majority of actions in thisregard are:
1. Growth from Strategic Accounts (T40)
2. Growth led by focused practices
3. Opening of Named New Accounts
4. Large Deals with SBU(practices)/IBU (Industry Vertical) collaboration People: Wewill continue to focus on people development and retention via emphasis on:
1. Localized Global (Glocal) Delivery Model
2. People Development Cross CertificationUp SkillingSkilling
3. Focus on Internship and Apprenticeship in India and global delivery locations
4. Becoming a H1 independent Company.
5. Top Block Performers Attrition Control
Technology and Innovation: Technology is at the core of everything we do.Innovation is a way of life for us. To further on technology and innovation we would focuson the following: sustainable
1. Technology Leadership through focused investments
2. Technology roadmaps for every focus practice
3. Technology roadmap for every strategic account
4. Deep relationships with customer CTO/R&D Head
5. Technology mentoring
Delivery Excellence: Since the last 2 years we have created a centralized deliveryexcellence function to ensure on-time and flawless delivery. Delivery excellence will beachieved through:
1. Identification of high risk programs and added rigor in monitoring these programs
2. Increased customer experience/satisfaction through delivery excellence
3. Focus on in-time and in-cost delivery
4. Delivery led growth in strategic accounts
5. Rigor on Multi Level Reviews weekly cadence with customers
"The Years Ahead"
The IT industry has been witnessing sweeping changes in the last couple of years andthe traditional IT services market is shrinking. At the same time there are manyopportunities created with the advent of newer technologies led by digital.
In such a scenario it is important for IT firms to be nimble and proactive. This isespecially true for mid-sized firms. We believe it is necessary for mid-sized IT firms tocreate a niche for themselves and seek leadership in the areas they operate. With thisthought process we announced the scheme of merger and demerger in January of thiscalendar year. While we have detailed on the same in the MD&A section of this reportpost the regulatory approvals we will have two focused companies (One $500+ mn DigitalEnterprise Company and the other a $250+ mn Engineering company focused on the automotivevertical) with a potential to succeed in their respective domains. Webelievesignificantpotential there is for value creation in both these companies. I amhappy to say we are progressing well on the regulatory front as far as the time lines areconcerned. We have initialized the business familiarization process and leadershipinteractions for the first two levels of leadership for both the companies. I am gladabout the similarity and comfort in the culture and values of the two organizations. Ibelieve the whole process to be over by the end of this calendar and am excited with theprospects for both the companies going forward.
KPIT Mission & Purpose
Our mission is to become a Technology Company that cares. Our Aspiration is to createTechnologies for a Better World. We envision a cleaner greener intelligent world aworld that is self-efficient. We provide technologies sufficient that help our customersmake high quality less costly products that use less energy or fewer materials. We striveto improve the state of the industries we serve by making customer operations efficientusing technology and thus create value for both the customer and KPIT. It is our missionto provide Technologies for a Better World.
We have returned to the growth way which is in our DNA. I am confident of maintainingsustainable profitablegrowth momentum going forward because of a core committed teamwithin KPIT and continued support from stakeholders like yourself over the years. Iregard this highly and appreciate it thoroughly.
|Warm Regards |
|Sincerely yours |
|S. B.(Ravi) Pandit |
|Chairman & Group CEO |