Dear Fellow KPITians
Let me start the letter by trusting all of you have got yourselves and your near onesvaccinated and are taking all the necessary precautions to stay safe and healthy. FY2021was an unusual year by all counts. We lived through a pandemic that the world had not seenin the last hundred years. It affected our nancial position it altered our work lifebalance it distorted the school years of our children and completely changed the way welead our everyday life.
Having said that the year also had a silver lining. Typically a vaccine takes 10years to develop. This time it happened in less than a year. The pandemic also broughtthe world together as never before. We all saw the problems faced by humanity and togetherworked towards solving them. The pandemic accelerated some long-term trends such asdigitization and decarbonization. It also enhanced our awareness about climate effects. Ona personal front I think it strengthened our family bonds. Many of us found time to reect on our past and we reached out to our friends with whom we had not talked for a longtime.
The year gone by was thus also a test of resilience for KPIT and our clients as well.You would notice that the theme of the Annual Report is also resilience since it capturesthe true spirit shown by every KPITian over the last year. I am personally very happy withthe way every KPITian has risen to the occasion worked seamlessly as a team globally andemerged triumphant as the year went by.
On the business front while we took a hit on revenues only in the rst quarter of theyear we showed very good recovery during the second half ending the year on a positivenote. We had the last two quarters of the year reporting high revenue growth. Theoperating margins (EBITDA) improved every quarter and we ended the year with 17%+operating margins. I am glad as you would be aware the market has responded wellrecognizing the good work done. For further details on the performance of the year pleaserefer to CEO and President joint letter.
The Automotive and Commercial Vehicle (Mobility) Industry
I would like to use my letter to give you a broad perspective about how the mobilityindustry is changing and what role we see KPIT executing in this change.
The Mobility industry as most of the other industries had a setback when the pandemicstruck and revenues as well as pro ts dropped drastically for most of the players. Theindustry is used to cyclical falls in vehicle sales but this was something totally new andunexpected. Our clients were also no exception to this sudden jolt but as they have donebefore they also showed a lot of buoyancy and soon came to terms with the new normalwhich is even newer for the mobility industry a normal driven mostly by software.
The vehicle is the most complex software-driven gadget that we own today. Electronicsin the form of Electronic Control Units (ECUs) sensors and advanced chipsets work withmillions of lines of code and play a differentiating role in the mobility industry. Theyenable newer business models and disrupt technology across CASE (Connected AutonomousShared Electric) domains. However as the role of software and data grows so does itscomplexity thus making it necessary for the mobility industry to build deep softwarecompetence. The key challenge is to develop the requisite software on one hand and make itready for production in the minimum possible time on the other. This is the challenge thatyour company has taken up.
Emerging Technology Trends:
The growing trend of CASE has software at its heart:
Connected Mobility: A digital cockpit is taking various forms and shapes fromsophisticated infotainment systems for entertainment to maps and other meaningfulinformation for drivers and passengers. Vehicles are starting to talk to each other andother sources while on the road enabling varied use cases for diagnosticsover-the-air updates payments and more. A study by ABI Research suggests that softwareissues cost carmakers $17 billion a year which can be reduced with connected vehicletechnologies. Connected mobility will continue to be a key node in a seamless lifestyle.
Autonomous Vehicles: In emerging markets Advanced Driver Assistance features arebecoming differentiators. Driven by regulation and consumer demand features like ReversePark Assist Blind Spot Detection Drowsiness Detection and several other features arebecoming commonplace. Each of these features is powered by software to avert accidents andkeep the cars occupants safe. In mature markets with standardized infrastructureadvancements towards fully autonomous driving have picked up pace in the last few years.
Shared Mobility: People are moving away from buying a car citing the hassles inmaintenance and driving. This has resulted in an increased focus on shared mobility andthe tremendous growth of on-demand services like Ola Uber and Lyft to name a few. Ananalysis by Morgan Stanley estimates that by 2030 shared car services will constitute 26per cent of all global miles travelled. This growth in the mobility-as-a-service (MaaS)sector is bound to have an impact on how the automotive industry focuses on softwarecompetency and collaborations to deliver more reliable and meaningful consumerexperiences.
Electric Vehicles: Growing environmental consciousness and regulations arecatalyzing the development of a portfolio of EVs with more efficient electric powertrainshigher driving ranges and best-in-class safety. These EVs have sophisticated software forbattery management inverters and varied charging standards across the globe. Software isat the forefront here too. With these trends gaining momentum the cost of electronics asa % of the total cost of a car is expected to go to almost 50% in 2030. This is close to a60% increase over the current levels. While the global vehicle production CAGR for thenext decade is expected to be around 3%-4% the growth CAGR for the automotive software isanticipated to be around 14%. I am glad to inform you that KPIT is at the forefront of allthe underlying technologies. We are investing in these areas and we are con dent that wewill continue to be leaders in dependable technologies relevant for the mobility industry.
Having written about the thrust of our work I think it is important for me to turn toour vision. I must tell you that we conducted a detailed vision exercise in which membersof our extended leadership team were deeply engaged and everyone is now fully committed tothe vision.
Our Vision is:
with YOU for creation of a cleaner smarter &safer world
I must add that every word in this vision is crafted with care and has deep meaningbehind it. Let me therefore dwell on it a little more.
Reimagining: The paradigm shift in mobility gives us an opportunity to thinkafresh. We will achieve this by Building Platforms Tools Accelerators Innovativebusiness models using domain knowledge Delivering globally with diverse teams in cultureslanguages and thoughts Learning & applying transformational technologies (Arti cialIntelligence Digital Big Data)
Mobility: Technologies that enable people and goods to move in cleaner smarter andsafer way. This includes passenger commercial & off-highway vehicles andorganizations that offer mobility as a service.
With you: Every KPIT Stakeholder is a key participant in this vision
Clients - Accelerating the realization of our clients vision
Employees - Providing an opportunity for our freethinking entrepreneurial employees topaint on this canvas while building on our strong foundation
Partnership - Partnering with our customers mobility ecosystem stakeholdersuniversities research organizations and other in uencers to make the vision a reality.
For over 2 decades KPIT has witnessed signi cant growth in the space of embeddedsoftware. Software within vehicles is a key differentiator for the mobility players as ithelps them acquire more customers and expand revenues over the lifetime of the vehicle.This is a disruptive time for the mobility industry. While on one side mobility playersare seeing reduced vehicle sales they are also putting in immense resources intotechnology for upcoming product launches technologies that will take them towardsan electric autonomous and connected future. Two key aspects though need to be addressed:First how quickly and accurately can vehicle makers implement softwareled features sothat their products reach markets in time while ensuring they do not lose market share orposition? Second how can vehicle makers ensure high quality rst-time-right deliverywhile keeping costs at check? It is at this intersection where KPIT plays an active roleand the very reason for our strong partnerships with OEMs Tier-1s and other mobilityclients.
Our focus on the mobility industry our focus on technology-led innovation our focuson select trategic clients our focus on excelling client expectations and our focus oncreating and retaining talent is at the heart of things we do. We are grateful of thecontinued support from stakeholders like yourselves over the years. All this willcertainly yield good results in the coming years. I am very much excited about the journeyahead. I regard your support highly and appreciate it thoroughly.
S. B. (Ravi) Pandit