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Birlasoft Ltd
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Ladies and gentlemen, welcome to the Q4 FY '18 Results Call of KPIT Technologies hosted by Emkay Global Financial Services. We have with us today Mr. Kishor Patil, Co-Founder, CEO and MD; Mr. Sachin Tikekar, President and Board Member; Mr. Anil Patwardhan, Senior VP and Head, Corporate Finance and Governance; and Mr. Sunil Phansalkar, Head, Investor Relations and AVP, M&A. [Operator Instructions] Please note that this conference is being recorded. I'll now hand the conference over to Mr. Rahul Jain of Emkay Global. Thank you, and over to you, sir.
Yes, thank you and good evening, everyone, on behalf of Emkay Global. Just one addition, that Mr. Pawan Sharma, who is Head of Solutions & Services business; Mr. Chinmay Pandit, who is Head of Alternate Powertrain; and Mr. Vinit Teredesai, who is the newly appointed CFO, would be part of this call. And for some reason, Mr. Sachin Tikekar would not be available for this call. So that is what the addition to the speakers had from the management. And now I would like the management to take us through the Q4 number and request Mr. Sunil to take it over from here. Sir, over to you now.
Thank you, Rahul. A very warm welcome to everybody on the Q4 FY '18 and FY '18 Earnings Call of KPIT Technologies. I hope all of you have received our investor update and [ felt that ] [indiscernible] after reading that. So are -- we have Mr. Ravi Pandit also on the call. So as always, what we will do is we'll have the opening comments from Mr. Pandit on the performance of the company during Q4 and the year as a whole and then our outlook for the next year. After that, we will throw open the floor for questions. [Operator Instructions] And if there are anything -- any questions pending, please feel free to write to me and I'll be happy to get back to you. So thank you, and welcome once again. And now I will hand this over to Mr. Ravi Pandit.
Good afternoon. Welcome to the KPIT Fourth Quarter Results for FY 2018. And as you know, the year for us has ended well from the revenue, EBITDA as well as the profit point of view. Our revenue went up on a quarter-on-quarter basis by more than 6%, on a year-on-year basis by more than 10.5% and on a yearly basis by over 15%. The quarter gave us a revenue of more than $150 million which is actually the first time in the history of our company. We closed the year at $567 million. And you will remember that we have always been a growth-oriented company, and I'm happy to say that our growth has come back. Our EBITDA in the last quarter was 11.4%. But if you were to adjust the EBITDA for the expenses that we had to do on the margin, EBITDA margins, our EBITDA is actually at about 10.7%. The year also saw a significant growth in the PAT, the year-on-year growth being 23% and the yearly growth being 41%. The profitability during the year also saw its conversion into cash flow, and the cash balance increased from INR 0.77 billion at the beginning of the year to INR 3.18 billion at the end of the year. Let me go and step down and look into what have contributed to our results, the revenue growth as well as the profitability growth. So it's one way to test the operating [ cut ] for the revenues. Our engineering revenues were the leaders in growth. They went up substantially. So did our digital revenues. Our product revenues on a small base also increased, and so did PLM. Among the ERPs, the growth on the Oracle-based ERP was sustained. In terms of geographies, both Europe and Asia brought in growth. And in terms of the verticals in which we operate, the automotive vertical showed growth in the year and so did energy & utilities. Unfortunately, the manufacturing vertical did not show substantial growth. It's one way to look at the drivers of profitability, and you probably identified 2 main ones. One is on the operational part, and we began the year by saying that we would like to grow 10% in the year without increasing our people, and we ended the year with a significant growth on a year-on-year basis [ 12.5 ]% and with around 3% increase in our number of people. So clearly, there was a growth in [ product ] cost and connectivity. And this, apart from the revenue growth itself, contributed to our increasing profitability. The second part which added to our profitability was the delivery part. I think the projects that were delivered during the year were done cautiously. We ran within the company a scheme called [ SGHC ], Star Green [ Tinkering ], which ensured that the projects are delivered well. Now both these things put together contributed to our profitability and liquidity. Apart from this, there are a few other happenings of the year which I would like to take you through. One is on the Birlasoft. So as you know, we announced the scheme of merger and demerger. We are going through the legal process relating to this scheme. The -- this scheme has been announced. We had the Open Offer, and, as expected, the response was somewhat low. And now we are in the process of subsequent regulatory compliances. We believe that as per our timetable towards the end of the year or on early part of next year, we should be done with the -- essentially the merger and demerger part. It is our belief that once we do that, we would have 2 separate companies, one focused on automotive engineering and the second one on business IT which can both be leaders in their respective fields. And I would like to state here we appreciate the response that we have got from your community about the parts that we took forward as a part of this merger and demerger. The second update that I would like to give you is about a legal case that we have with one of our ex clients, a company called Copart. We have been talking about this for the last 4 years or 5 years. This has been a part of our notes to financial accounts and operational declaration to the SEBI. So yesterday morning -- now this case has been going on for some time, and the jury trial just got over yesterday morning. And the jury gave their verdict and -- a written copy of which we bought today. And there were multiple claims by them against us and one claim by us against them for the payment for the delivery of services. The process of dispute -- the process of -- judicial process in the U.S. includes a jury followed by a judge's judgment. So what we had was a jury verdict. This was followed by the judges going through the verdict. They have to look at it from the legal sustainability. And then the judge will give his judgment. Thereafter, we have the option to accept the judgment or go in an appeal against that. We expect that in the next few months, the first level working would be over and we will get a judgment by the first level judge. At that point in time, we will have a complete clarity about what is the result at the first level. As we have stated in our announcement, under the current jury verdict, we have a liability to pay $16 million. We believe that the judgment is not right in law and we would certainly be taking appropriate steps to ensure that we get to a fair and equitable judgment. We believe that this will take a few more months. We gave the intimation because as soon as we got the information from the jury verdict, we thought it is best for us to intimate to everyone. So these are the 2 things which I thought we should update you about apart from our business here for the last year. One other thing that I would like to add is that ever since the year in which we went public, you have been meeting us. And along with us, you have been meeting our CFO, Mr. Anil Patwardhan. Mr. Anil Patwardhan is planning to retire, and this may be his last investor call in his official capacity. And I just thought some of you might want to bid him adieu. So this is as regards the immediate year ended we are. Talking about the next year, our investor update speaks about what is our guidance for the next year. We anticipate that our revenue growth would be between 8% to 10% in the current currency terms, and we anticipate that our EBITDA margins would be between 11.5% to 12.5%. These are a little lower than our current EBITDA margins without the transaction expenses. But over the next year also, we will have the similar expenses and we have, therefore, provided for it. So that's regard our growth and profitability. We believe that our areas of growth will continue to be the current areas, which includes the PLM, the [indiscernible], et cetera. The geographies to bring us growth over the next period will be both Europe and Asia. We believe that the Birlasoft transaction should come through during the current year. So these are some of the broad observations that I had to make. We would like some questions from you in which my team members present here will pass it next. Thank you.
[Operator Instructions] We have the first question from the line of Mohit Jain from Anand Rathi.
Well, so just on the margin trends. So what kind of rupee assumption are you going with for FY '19 margin guidance?
So we are looking at about INR 66 to INR 67 as the level of the rupee. So if the rupee stays at where it is right now, we might see some positive impact on the margins.
It also depends upon the [indiscernible].
Yes.
Sorry, what was the last point?
So obviously, the cross-currency movements will also have an impact.
Right. And what is your outlook for the FY '19? It looks like you had a fantastic FY '18, and it looks like this time, momentum continues. So our growth, revenue will be higher in FY '18. So what is the -- for FY '19. What is the plan there?
Yes, so we believe that the momentum will be there. We had sort of great momentum last year. So we will see some good growth next year. Not exactly -- it may not be exactly what we had last year but certainly a pretty strong growth next year. See, basically, most of these technologies that exist are very, if I had to say, specialized projects. And from that perspective, we are cautious in saying how much we can scale in some of these practices. From that perspective, we are going to be realistic, too.
Any project completions currently that you will foresee now which can happen in the first half on the [ automotive ] side? Or revenues to be stable from here on?
No, the overall pipeline is very strong, our -- in -- both in engineering as well as in the areas of our business that Pandit mentioned. So we'll continue to drive the current growth momentum in these areas.
Can you say anything on the utilization? [indiscernible] at the project level from '18 now? And how many do we plan to hire to support the [indiscernible] numbers?
So we are looking at obviously our utilizations currently are at -- if you look at ops, they're at about 72%, and we believe that there is a scope at -- even at the growth rate that we have, we should be -- I mean, our level of utilization should be about 75%, 76%. We believe that in a couple of years, we should be able to reach that.
So '19 there is no -- like no [indiscernible] at current levels?
It should marginally go up.
But it will continue?
Yes, there will be a -- I mean, there would a specific hiring that we will do.
And on site, like 93% can move towards 95%?
Starting 93%, 94% is a level that we should look at on site. We don't see it going beyond 94%.
So the best year done is only 95%, right, in FY [indiscernible]?
Yes. So now, I mean, if you look at it, we are also looking at development centers as on site, especially in the areas where automotive engineering is strong. And that's why we believe 93%, 94% is a good number to look at.
[Operator Instructions] We have the next question from the line of Neerav Dalal from Maybank.
I had a couple of questions. One, if you could give me the subcontracting cost for the quarter?
The subcontracting cost for the quarter was about INR 90 crores.
INR 90 crores. And I wanted your comments on the products in the platform, the business. How do you see -- what drove the growth this quarter? And how do you see the -- what is the outlook going ahead?
On the product side, we do not give specific guidance for the quarters. We do believe that our products still doesn't have a quarter-to-quarter kind of -- this kind of a life cycle. So there is a variation from quarter-to-quarter.
No, at least what growth in the fourth quarter and the outlook for FY '19, if you could just give what products, where you're seeing traction and how they were panning out.
So we are looking at the areas in which we are looking at traction both in terms of IoT or mobility platforms which we have been seeking. In terms of connected vehicles, it is difficult whether both commercial vehicles, 4 wheelers or 2 wheelers kind of business. And the second is in high-demand, bulk-demand areas. So we believe that one of the large growth areas we are looking in this year which brought a big boost [indiscernible] expect when to come. But overall, we see that our growth last year was pretty strong. And we will continue because the numbers are -- the base numbers are very small. So we will continue to grow. But the one major change which we are doing is strong -- the total solution, hardware plus software. As far as possible, we are moving towards software-only platform. That's why the revenue may or may not grow as much because it may show a different growth number as compared to last year. However the profitability will be better.
So on the [ Automotive ] side, we actually delivered our -- most of the projects completed just at the start -- in early April, and we see a lot of opportunities coming off on that side not only from the end customer but also from OEM partners who want to work with us to bring electrified vehicles on the road.
[Operator Instructions] Our next question is from the line of [ Shamil Kurae ] from [ Phillip Capital ].
And based off your -- congrats on a very good set of numbers. So my question is on the guidance. So we have the one for FY '19, 8% to 10% USD revenue growth. So just wanted to know like our engineering R&D, which is more than 1/3 of our [ Q3 ] revenue and which is growing by 15%, 20% for us as it is for our competitors. So what -- or why do you take a little bit conservative guidance? Does this mean that we are seeing some weakness in other parts of business? Or any reason for it?
I think there are 2 key things. First is we always take a view based from where we are today, and we had a very strong Q4, and we are going into the next year with a pretty good [ black palm ]. Our -- we believe that, as we -- as I say, our automotive engineering is -- we see very good traction on digital. We see good pipeline kind of growth. On the PLM kind of a side, we see good growth. Then a little bit of, I would say, the softness in the demand in the ERP side. But I think this is a timely time building the pipeline for the next few quarters, and we may have a better view going into H2. That is basically how I would put it.
[Operator Instructions] Our next question is from the line of Abhishek S. from Equirus Securities.
A couple of questions from my side. The first is on the revenue guidance. Could you provide us color in terms of the seasonality that you expect through the year, thinking of the 8% to 10% growth?
I think we typically -- our second quarter is one where we see a reasonable growth. Typically, Q4 is -- Q4 or Q1 is the strongest and then you can believe on that. Q2 is less typically a stronger quarter, and then the Q4 is the stronger quarter. That's how we typically have any impact. Pawan, you want to add?
No, I think that's it.
That's helpful. On the margin guidance, could you -- I think last year you gave really high things the second quarter. So have you thought about -- given the results for the year and any comments on that perspective?
It's too early to talk about those because we have not announced it internally as well. So I think we'll cover it when it comes.
Okay. And lastly, just a bookkeeping question on the tax rates. What could be it for you finally?
So I think, to the -- we have been planning, we saw tax rate of around 24%, 24.5%. So we can expect our tax percent in the same sort of tax rate. If there is any opportunity to improve that, then we'll continue to work on that.
That's helpful. And just last one, again, for bookkeeping. The depreciation for the quarter jumps in the middle, and is there anything that we should be aware of?
No, there was nothing significant. There was some depreciation on account of the new business, that it was capitalized.
P&P, yes.
So in P&P, a new investment that has got capitalized, and in fact, that decision coming in the last quarter.
[Operator Instructions] Our next question is from the line of Apurva Prasad from HDFC Securities.
My first question, we want to understand if there are any one-offs in this quarter revenue if at all.
So there is...
I think , as we said, there's been growth in the products business, and products business is one business where it has variations quarter-on-quarter. So apart from that, there is nothing one-off in the market.
Right. And just if you can probably give more color in terms of how you're seeing the automotive product engineering business, maybe if you can talk toward the competitive landscape, that will be helpful. And also if you can talk about how do you see margins trending there.
So on the automotive business, we do believe that in the new technology areas, we are very well placed, typically, above rank. The growth which is coming specifically from Europe and Asia is -- as well as U.S. in this area, is -- we are working in our area to engage kind of areas. And our competition is largely more with the European [ would declare ] as well as the large companies in the space. So we are happy where we are today, and that growth will continue from that prospect. What was your second question?
It was the margins on the segment.
Those margins. So margins for this business, we are growing. I think this is the time when -- as I mentioned, it's still kind of typically pretty difficult to predict, and when we are getting in this area, both in India as well as outside, we are building these development centers as well as working there in India. Apart from that, we are investing substantially in building the technology for this business. There are a lot of investments we are making in this area. Because of that, our current market in both the business are similar. But as in a year or 2, I think these margins will go up significantly as the volumes will go up.
So can these margins potentially go towards high teens?
Yes, definitely. I mean, there is nothing wrong with the rate for -- there's nothing wrong with anything else. It is about [ whatever it is ]. But we cannot exactly tell you which here. We can't talk about this here.
Sure. And lastly if you can provide a headcount number for distribution?
So total number of people engaged in the year?
Yes.
It's roughly about [ 6,500 ].
About [ 6,500 ].
[Operator Instructions] We will take the next question from the line of Nitin Padmanabhan from Investec.
Best of luck, Anil. You'll be missed.
Thank you, Nitin.
So basically my question was around the performance on the engineering services this quarter. What is -- May has been quite strong, and what is driven by -- any specific large deals that drove the strength this quarter? Or is it pretty broad-based kind of a growth?
It's a pretty broad-based kind of a growth that we have seen in this business. We have grown in all the geographies and so there is not a particular project that a particular customer. It is fairly broad-based, across the regions. So there is nothing specific to this quarter.
Sure. And going forward, how do you see this business in terms of growth? So this year has been particularly very strong. And do you think these levels of growth rates can be sort of sustained considering the environment, or at least potentially, can it be sustained? I know there's a guidance, but looking at the demand, would it be out of -- beyond the opportunity to have this kind of growth?
Our external environment is pretty strong for the growth. As I mentioned, we are very well positioned. Our pipeline is strong. So the strong growth will continue in this business. All the strong growth will continue in the business. I cannot say that it was like the last year's level. It was particularly very strong. But we are very confident about at least growing the numbers we have mentioned in the past of 15%, 20% growth.
Sure. And just one last one from my side. On the Products and Platforms, you were looking at a couple of maybe OEMs or -- in the overseas markets as well, I think, OEMs or transport companies in the overseas markets. Anything specific there? We have seen Eicher this quarter from the Indian market. Anything in the overseas market that [indiscernible] that should be fine.
Anything that we can talk about?
So we are actively engaged, looking at a couple of OEMs outside of India for the electric powertrain, and we see that traction growing.
The other factor, I would say, is in our PES business, not [ digital products ] business, we worked with many large OEMs across the region. And some parts of our IP [indiscernible] like battery management.
Sure. So consequently margins can be actually far better in those cases. Sure.
[Operator Instructions] We'll take the next question from the line of Rahul Jain from Emkay Global.
Firstly, on the battery management side and in engine electric opportunities, if we are to see where we are positioned and what is the near -- medium-term to long-term kind of opportunity for us? Because, I think, suddenly in the last 2 years, the news flew in the space has seen significantly with government adapting across markets. So how we are positioned competitively, and what is the opportunity for us in this space?
So the first answer is, as I mentioned, this opportunity exists in both PES areas as well as Products and Platforms. In the PES area, as I just mentioned, most of the companies where we are -- we're engaged with the conventional powertrain, they are investing more and more, specifically on all the parts of the world but specifically in Europe, in the electrification part. And that's where we are engaged. And I think some part of our actual vehicle programs, we are changing more towards the electric. Over the period, the conventional powertrain programs, they get converted into more electric powertrain programs. However, next few years, I think there is an opportunity to do both, and I think that is the significance. So that is one part. On the Products and Platforms?
So on the products side, you're right, especially in India, a lot of -- interest has piqued up. We have also been working -- in the last quarter, we announced our collaboration with Eicher. The vehicle is certified. We have actually won some deals together with them, and we see opportunities opening up.
I mean, my question was more in terms of any size, any number, any growth that we -- because -- I mean, that people who, be it vendors, who would benefit in the space would be really exponential. So how we see being part of that play even though on a hypothetical basis there?
Especially in India, as well as other spaces, feel it's a nascent market even though there's a lot of discussion. The market will pick up very quickly. But the structure of the market is still evolving. In our case, as we mentioned, we would like to be a technology player, and that's why we would collaborate with certain companies like Eicher and, I mentioned, about some parts in Southeast Asia. That's what we will do. So as this opportunity increases and this year we got pretty well established, we'll access the market, we will ride on that.
Okay. And secondly, given the kind of segment that we are in and the kind of growth that we displayed right now, I think the growth rate in these segments are projected better than the markets compared to the traditional overall mix of the IT services pool. So in that light, why do we see this guidance where it is, and why not far better than that?
I think we have talked about this in the past, right? We would like to maintain that, and we will give results, if we're in a better environment going forward.
So -- but in general, do we see that these spaces on the relative basis are doing better because there is a better growth rate projected for the software -- as in market that is better growth projected for [ ENR ] in this case? So does that put at least on advantage basis, it's not from pure growth perspective kind of a question but from a market, well, the market for other peers?
That's what we have said around that. There areas in which we are -- especially, engineering and digital and PLM are areas where we see good growth opportunities. And we are also very well placed in these areas.
[Operator Instructions] Our next question is from the line of Neerav Dalal from Maybank.
I just wanted to understand if you could share something more about the Eicher relationship. Could you explain how the relationship will work and how the [indiscernible]?
Sure. So the technology collaboration where we are working with Eicher and we have fully developed the electric bus. And from a product development point of view, the product is validated and certified, and now we are kind of working together to bring this product to market. Our role is primarily on the technology side, but given this is a nascent technology, we have worked together on multiple fronts as well.
All right, then how would the revenue sharing on that happen? Is there something that isn't disclosed?
It's a technical -- technology fee kind of an arrangement.
Okay. Then for now, Eicher will be building for electric bus [indiscernible] So that is how all this would work, right?
Yes, you're right. Also, the vehicle has [ a ton of ] branding. So our electric powertrain brand, ITS and REVOLO will be on the vehicle as well.
Ladies and gentlemen, that was the last question. I now hand the floor back to the management for closing comments. Over to you, sir.
So thank you, everybody, for attending the call. And I hope you all got opportunities to ask your questions. But if you feel that you have anything else, please feel free to write to me, and have a good evening. Thank you very much.
Thank you, members of the management. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.