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KPIT Technologies Ltd
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Ladies and gentlemen, good day, and welcome to the Q2 FY '21 Earnings Conference Call of KPIT Technologies, hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you, and over to you, Mr. Jain.
Thank you, Vijaya. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies for giving us this opportunity to host this call. And now I would like to hand the conference over to Mr. Sunil Phansalkar, who is EVP and Head IR at KPIT to do the management introduction. Over to you, Sunil.
Thanks, Rahul. A very warm welcome to everybody on the Q2 FY '21 Earnings Call of KPIT Technologies Limited. On the call today, we have Kishor Patil, CEO and MD; Sachin Tikekar, President and Board member; Priya Hardikar, Senior Vice President and Head of Finance; and Sunil from the Investor Relations. As we do always, we will have the opening remarks about the quarter's performance and the way we look at the remainder of the year from Mr. Patil, and then we will have it open for your questions. So once again, a very warm welcome, and I hand it over to Mr. Patil. Over to you, sir.
Good evening. Very happy to take you through this quarter results. This also happens to be one of the most challenging half year in the history of the company. So I would like to just go back and cover what were the 3 goals we have set out at the beginning of this period when COVID hit us and the world. So we had identified 3 main goals at that point of time. One was the conserve cash. So it really builds resilience. The second one was wallet share. We keep, if not increase, the wallet share with our T21 customers. And third, we focus on delivery and operations specifically from work from home, how do we keep the productivity, how do we improve the quality. I must say that we had a very detailed review every customer projects wise. And we are very happy to say, first on the conservation of cash, we moved from INR 328 crores to INR 528 crores in the first 6 months, which is one of the best year -- half-yearly increase in the cash. So wallet share, in most -- if you look at it, while our revenue has come down during the quarter 1 and quarter 2 in the half year, more than half of the customers, it has been stable or gone up. And in some specific customers, it has come down. So there are very few customers where it has come down. Both in case of where we have seen growth and both in cases where the revenue has come down, we -- at minimum, we have maintained the market share, if not, it has increased. So we are very happy with the engagement with our clients. And third was delivery and operations. We have really focused quite well on this. We have invested in building processes, building automation and delivery excellence, specifically considering the kind of complex projects and technologies we are involved and, of course, work from home scenario. And overall, our metrics -- quality metrics have improved significantly during this time. So I'm very happy to say that what -- the 3 goals we have set up, we have done reasonably well on that. Now coming to the quarter 3 -- quarter 2. Overall, the growth has been flattish, as we mentioned, in the past, at the beginning of this period and the beginning of this quarter. The growth was mainly in Europe, followed by America, and then there was -- America and Asia, there was a degrowth. The main thing is during this period, we have won 5 OEM projects, and they have been across Europe, Americas and Asia; and across the technology, electrification, ADAS and connected.So I think one important trend we saw, we have given some details about this in our investor update that the OEMs have started, even though conservatively, new projects with us, apart from the continuing project. So I think that is a very good sign. And the another point I wanted to talk about was that our on-site revenue has reduced.So about 120 people work has been off-shored during this time. So there were 3 specific reasons for this. One is, in U.S.A., as you know, because of the visa restrictions and et cetera, some of the people whose visa has been expired or was due to expire, some of those people, along with some of -- where the customer wanted a cost reduction, all those people we have got back to India. That was the point number one. Similar significant part happened in U.K., that many on-site projects were moved to offshore.And the third part is subcontracting. Specifically with some of the complex projects we have, we have subcontracted some work in a high cost countries in Europe because we did not have that point of time those skills. But during this period, we have been in a position to move that work offshore. With this, roughly 2.5% to 3% of additional work we moved offshore. So that was our volume growth during this time, though the revenues look flattish. On the profitability front, in spite of rupee appreciation, which hit everybody, and the impact would have been 0.4%, there has been increase in EBITDA, about 1%. And again, apart from the change in the mix, as I mentioned, that is reduction in on-site and reduction in subcontractor, there are other reasons as well. So one is the office consolidation. The office consolidation, specifically in India, it of course had some revenue impact of this. But along with that, all the expenses in pretermination of leases as well as the expenses related with that. So overall, there was no impact during this quarter. But we have been in a position to consolidate these offices during this quarter, which will have some impact next year -- positive impact next year. The other thing was interest income. As you have seen, the liquidity has improved. And that's why we have been in a position to invest 70% of this into investments. So the yield on this has increased. Of course, it would increase more as we go further.There are 2 additional expenses, which we have incurred during this quarter. One was the depreciation in Munich facility, which we had mentioned and told that our depreciation will go up. That has gone up because of the Munich facility. And the second thing is COVID specific provision we made of INR 5 crore for doubtful debts. And we made this basically because some of the financial situations of the customers, naturally -- in spite, we will rigorously pursue to recover this, but we thought it is prudent to make this provision during this quarter. On the liquidity front, as I said, we have a DSO of 59 days, which is one of the best in our history; and increased our cash by INR 200 crores during the last 6 months, 70% is invested, and this gives a very good comfort for us. Now, of course, this would give us -- while we would like to maintain this liquidity, if not improve, during next few quarters till, I would say -- overall there is a better stability, and we pass-through this uncertain times. But of course, during that time, it would earn us some interest income, which will improve the EPS. On the people side. As we had mentioned, there is -- we had already announced restoration of variable pay, which we had reduced. So that will be there from the 1st October -- sometime in the October. The second is, we have reinstated promotion-linked increments. So that we have done. Our attrition remains to be the lowest in the industry. And we are happy that in spite of some of the measures we took proactively, our people moral remains high. Last but not the least, on the technology front. You might have seen an announcement on fuel cells. We worked with CSIR, and this was an R&D project, and to really build this as the first fuel cell vehicle. This is quite a proud moment. But more importantly, as our many customers want, moving to the fuel cell in future, apart from what we do in electrification, et cetera, I think, for the -- their future products in fuel cell, we will be in a position to add value to their projects. So that is very creditable to the team. Last, on the technology front. We continue to invest significantly on R&D expenses. We are in one of the places where the technology is changing very fast. And we want to make sure that we are ahead in the technology area, and we help our customers to really go to the market quicker with the new technology. So we spend 7% of our workforce work on R&D projects. This is not bench. This is not risk. These are specific projects in the new technology. We have not reduced this part at all during this time. So 7% of team continued to work on this. We believe this is for the future growth of the company, so we have not reduced any of this spend. So coming to the outlook. I think T21 revenues have been 86% of our total revenues, which remains very strong. It has increased quarter-over-quarter during the last year. I think that is a real strength for us as we look forward to the second half. The large deals which we announced last 2 quarters, along with the 5 OEMs engagement we have talked about and the strong pipeline we have about some of these large deals and significant deals, we are confident about growth in H2 over H1. The growth will be in Q3 as well as in Q4.We will increase the percentage of offshore. So there is some possibility of a secondary wave. But we believe that with the strength what we have and the customers' experience in managing this as well as our experience in managing this, we are in a much better position to handle this. So even in case of that situation, we are very well placed to deliver on the promise. On the Q3, if you look at, our revenues will go up. As we had mentioned that restoration of variable pay will be there. There will be increments for the promotion link. The depreciation will go up. And in spite of the significant expense, which will increase, we will -- our profitability EBITDA will be 14% plus during the Q3 quarter.On Q4, revenue will increase. There is a further lower depreciation. We will have more offshore. And EBITDA improvement will be beyond the current quarter, for sure.So this is how we look at the Q4. So overall, we believe that the H2, we will show reasonable growth in terms of revenue and improve our profitability reasonably well. And overall, cash will be higher. And I think we will be in a very strong position to go into the New Year post that on a strong note. Thank you.
[Operator Instructions] The first question is from the line of Baidik Sarkar from Unifi Capital.
I understand there's still a change in your onshore and offshore revenue...
I'm sorry to interrupt, Mr. Sarkar, but the audio is breaking.
Sure. Is it better now?
Yes, it is Baidik. You can go ahead.
Can you speak little slowly, so that will help.
Sure. So my question was, we understand there's been a change in your onshore and offshore revenue mix leading to a flattish headline number in revenues. How would you -- how should we understand the quantum of your volume growth that you alluded to in your results? And secondly, in accounts where you're seeing sluggishness right now, probably in the pas car segment, how serious is the problem? And how would you see recovery panning out from these accounts?
Yes. So basically, this onsite to offshore is basically, we have -- we had talked, so I've given 3 specific examples, and basically looking at the headcount count, which is onsite versus this. So I must say that we have a center like Germany, where -- which is like a center in India, where we have not -- where we don't look at moving people out here and there.But in case of specific projects where it was -- these projects I talked about in U.S.A., Europe, or the subcontractor, that is the headcount which we have brought in. I think that is basically internal information about the onsite movement to offshore, which is reflected into profitability improvement. I think that is the only thing I can say.The second -- your question is pas car. That's why we have also -- if you look at the new wins during this quarter, there are 5 new wins on the OEM side. That's why I mentioned that the OEMs have started bringing the spending again; and new projects, they are beginning to start spending on the new project, though cautiously.So I think that, along with the deals which we have won in quarter 1 and 2, that's what gives us the confidence that the growth will be back in the pas car segment.
Just to add to that, to give you a macro perspective on the segment, if you look at Q1, the drop in the industry was anywhere between 30% to 50%. Now some of the OEMs have started to announce their results for what is our Q2 now, which is their Q3. The quarter-on-quarter, the results are encouraging. Even though year-on-year, there is still a lot of, sort of, gap to bridge. So from Q1 to Q2 -- our Q1 and Q2, there is a positive momentum. And we hope that it continues, and that gives us the -- we are looking at H2 a little more optimistically.
Your cash buildup has been quite commendable given the circumstances...
We are not able to hear you?
We can't hear you.
So I was saying that cash buildup has been quite commendable given the circumstances. How do you see the quantum of your payout to volume from here on? Is there a higher dividend or a buyback in the offering? Your thoughts on that?
Dividend or a buyback.
No. So I actually talked about it. We feel that till there is a bit of uncertainty, of course, we would like to keep and build on this. The payout ratio, we have talked about around 25% as a policy. So we'll do that. The rest of the money, how we deploy, whether in any form or the other, we will take that call later part of the year, when I would say the uncertainty will be lower.
The next question is from the line of Sandip Agarwal from Edelweiss.
First of all, I wish good to everyone. And also congrats on a good execution. So I had a question from cash flow, particularly fee. I was just wondering, we have like, for example, in this quarter, signed 5 OEM. And I understand your -- the negative impact of the revenue, if not on margins of the offshore part. But if you take a little broader view of next 12 months to 24 months, is it fair to assume that this kind of earnings which are happening on the OEM, it will lead to a very significant acceleration in growth? Or you think it is too early to call that out, number one?Number two, if you read the international different journals and research on the autonomous cars and powertrain and everything, the kind of outlook which those journals are putting out for this segment is very, very optimistic. So -- and we being specialized in this area, how do you see our next 2 to 5-year kind of scenario for our company?You think we can grow really extremely well in these areas because of the substantial potential, which is showing up in the outlook?So if you can give some light from a longer-term perspective, not like for a quarter or 2, but a little longer-term view. And I'm not asking for a guidance or a quantitative number.
Yes. Thank you for your question. I think as you have -- I mean we have talked about in the past, how we have delivered our results in the last 3 years. I feel that we are in a good place where we have, I would say, a clear focused strategy on our customer. Our relationships are strong. We are investing continuously even during this period on the new technology. So we believe that we will hopefully go back to that in the New Year. And that is what our objective is. During this period, we talked about all the financial numbers. But our client engagement, we have increased quite a bit. And -- I mean, other than any possibility -- any other possibility, we believe that we should get to at least, I won't say the best year, but one of the better years next year and a year after.So this will be a very good time for 3 reasons at a high level. One is the electrification. We are in a very well position in Europe because we have a significant presence in Europe on electrification. And we have a very significant engagement. And you may see it in the past deals and maybe in some future days. And that allows us to really capitalize on this market.As you have seen, some of the customers like BMW had increase in the electrification vehicles, 50% or 40% to 50%, something like -- some number like that. And overall, there is a tremendous push in this area. I think our credentials as well as our strength is significant in this area, which will allow us to do that.Also on autonomous, while people have prioritized ADAS over AD, that is Level 4, Level 5 automation is a little bit pushed out and more focusing on Level 3, 3-plus automation. That is, again, by itself, a good opportunity. And our credentials and market size is pretty significant in that area.Also, we feel that in commercial vehicles, we feel the adoption of autonomous will be faster. And even though it has not started with the same, if I would say, rigor until now, we think in the next 6 months and looking at how the market is bouncing back in some of these areas, we believe in the next 6 months, we see that some of these things coming back. So -- and the third is because the autonomous was pushed out to deliver a value, I think the differentiation is happening on digital cockpit. And so these 3 areas for spend will remain strong, apart from a normal growth in other areas. So we believe, based on this, we see a good environment for us as we go through this uncertain time.
The next question is from the line of Mohit Jain from Anand Rathi.
Sir, first is on the margin outlook. From a longer-term perspective, you highlighted the trend towards higher offshore. So if you have to just extrapolate this, let's say, to FY '22 or '23, earlier our margin aspiration, I guess, was closer to 16% to 18%. This was pre-COVID. How it has moved from that perspective, given that facility cost benefit will come and you will probably move to higher offshore?
I think we would maintain that right now, 16% to 18%. We don't know what else will happen and how things will change otherwise. So we believe -- we feel that is a good profitability, I would say, for us. So it allows us to invest in whatever other areas we need to. So 16% to 18% is a -- I would keep that as a guidance, as I had talked about in the past.
Sir, second is on the top 25 account growth. Like what are -- last quarter, you highlighted that there were significant uncertainties and you were expecting some movement in the top 25 -- strategic 25 accounts. Has anything materialized? Or is that risk behind us? And you expect these strategy accounts to continue at a stable number going ahead?
Yes. This is Sachin Tikekar. Mr. Patil mentioned that recently we had significant wins. All of them are from our top 25 accounts. And the overall outlook from their perspective, especially in the areas in which we operate, looks very optimistic.So the recovery of automotive, which consists of both passenger cars and commerce vehicles, may take some more time. But recovery for KPIT will be at an accelerated pace because the spend that they have in software is coming back. There are -- in the last 3 months, there have been a lot of constructive conversations about future. Some of the -- those conversations have materialized into good-sized deals with our T25. And given their results, their- our Q2 results for them, that are -- on the positive side, we feel that our confidence will go up as we get deeper into the rest of the year.
Okay. Next was on utilization. Like if you could give a range of where the utilization is? And when can we expect headcount addition to start again?
So on the people side, let me tell you about the headcount addition. I think we have used this time also to really go deeper, specifically we have positioned ourselves very strongly as a software integrator, which is a very critical part.There is -- it's almost like a new category of a player, pure software player which has emerged. And I think with that we are really focusing on those kind of deals.So I believe we will still not have -- we'll -- or maybe we'll have degrowth another 1 quarter in the headcount -- net headcount for the company. But we have given offer for 600, 700 people for this. So basically, for the current year, which will join later part of this year. And that will start looking from the quarter 1 onwards. So that is how I look at it. On the...
Sir [Technical Difficulty] who will join during FY '21. Is that correct?
I can't say that right now. But I'm just saying that we have made -- those are the people who will join in next 2 to 3 quarters, from quarter 4.
Understood. Understood. And sir on utilization, you were saying something.
So currently, Mohit, if you look at the combined utilization, we are at around 72%, 73%. And as we move ahead, we believe that over the next 3 to 4 quarters, we should be able to increase it by at least 4% to 5%.
So 78% would be the acceleration?
Fourth quarter, yes, 76% to 78%, I think that is the range as a combined utilization number.
Right. Lastly on tax rate [Technical Difficulty] calculate this quarter, what is -- like FY '21 and '22 tax rate likely to be?
See our tax rate, we've been saying that it is for the complete year as a whole. The quarterly movements have happened because of the IndAS impact on the office consolidation, and otherwise. You should look at it H1 as a period, it would fall in the line with what we had given as an outlook.
So we'll continue to be in a similar rate from a 1H perspective?
Yes. Yes. Yes.
The next question is from the line of Madhu Babu from Centrum Broking.
Just on the cash deployment, I think, INR 520 crores is the current net cash. So how much of it is abroad and how much of it is your higher yield? And how the other income will be there for next year? Currently other income is very low.
Madhu, currently in the investor update, we have given a breakup of how much cash is invested in India and how much is outside India. Of course, our endeavor is to increase the amount of cash that we bring back in India. And that will happen over a period. So if you look from last quarter to current quarter, it's almost double. It was about INR 10 million last quarter. It's INR 19 million this quarter. And you will see that going up every quarter as we move ahead.
So I mean all that in India is in high-yielding assets in the -- or...
Yes, I mean that is what obviously, safety comes first for us and then the yield. So that is how we think about it.
Okay. And the other thing on the depreciation, I think there was a spike. So how the steady state depreciation? When it will moderate?
See, on the depreciation side, as we had given even in the investor update, we believe that by end of this year, in Q4, the depreciation should normalize when we will completely have the office consolidation impact.
Okay. And just one last one, sir. I mean next year, do we see this revenue deflation continuing into next year? Because I think post-COVID when the clients analyze that a lot of work has been done from work from home. So would you see further offshore shift and that revenue growth momentum might be like 10%, 12% next year because of this deflation continuing?
I think we have to strike the right. As you know, our proportion of low-cost country is already on the higher side. And last quarter, we made some shift. I think for the rest of the year, some more people will move.However, we have to keep in mind that we are building world-class practices. And in order to remain on the cutting-edge of the world-class practices, it's important for us to have large presence in countries like Germany, especially Munich, hence our investment. So beyond this year, we'll have to strike the right balance. For the next 2 quarters, I think the trend will continue to some extent. After that, we have to make sure that we have enough presence in areas that are on the cutting edge, whether it's Europe, parts of U.S., parts of Japan and China, we'll have to maintain some numbers there.
And the 5 deals we mentioned in the release, so like who are the competition, like LTTS or Tata Elxsi or even the Tier 1 vendors or some local players? So just wanted to understand whom we are competing in these new edge practices.
On the 5 deals that we have won, he is asking?
Yes, on the OEMS, which we announced. Yes.
There are -- so we have different competitors in different areas. So the competitors on the powertrain side, whether it's electrification, there are certain competitors.Then on the ADAS, there are very limited competitors. And also on the infotainment, overall digital cockpit, I think the competition is a little more wide across the geographies.For the first 2 areas, most of our competitors are from Germany and U.S. In infotainment and connected vehicles, generally, there are competitors from U.S. to Europe to China, right, including India, right? And so that's really our footprint. There are very -- mostly we compete with very specialized players from Europe and U.S., especially for the first 2 practices.
The next question is from the line of Nitin Padmanabhan from Investec.
Last quarter, I think you had made a mention that 60% of the revenue decline that we saw last quarter, some of that should sort of come back over a period of time. What would be your experience there in terms of the spend coming back from those clients?
As we mentioned earlier on, by passing of every month, our confidence is going up. I think first 3 months, everybody was in a frozen state. Last 3 months, there have been a lot of constructive conversations and actual conversions into actual business. And we believe that the trend is going to continue.
So to give a more -- go into a little more details, I think the -- what -- places where we had lost revenues on the existing customer, we have a visibility that 50% of that will come back on the same program, out of which maybe 30% has come back and few or some will come back in next 2 quarters.
Sure, sure. That's very helpful. And it's with regard to these that we have actually seen the offshore shift I'd presume, and not on the new deals, the large deals that we signed. Am I right?
No, no. I think let's just clarify. So when the dip happened from last year's Q4 to this year's Q1, there were a handful of customers on which this did happen. Out of that, 30% has already come back, we believe another 20% to 30% will come back before the end of the financial year. That's one part.On top of that, with our existing clients and with some new clients, we are signing new deals. And most of the -- out of the 4 out of the 5 deals that we talked about earlier on, they are all beyond the areas where we took a little bit of a cut. Is that -- does that provide clarity?
Sure, it does. Just from the wins that we had, right, the large deal wins, have they started revenue accretion yet? Or it's yet to start in a meaningful way?
So I think we -- I mean out of the 2 deals, large deals, which we have announced, I think we have started to work on both the projects. And initially, of course, there is some time where we start taking over some of these projects from the existing client staff or the other vendors. So that we have started. I think we'll start revenue accruing from this in Q3 as well as in Q4, of course, and onwards. So 2 have happened already.
Next question is from the line of Ankit Agrawal from Yellowstone Equity.
Sir, my question is regarding the variable pay. So you said you're going to reinstate some of that. Could you give some ideas to like -- to what level it will grow compared to pre-COVID?
No, no. We are reinstating the 100% of that from the quarter 3.
Okay. Okay. So the reason I'm asking is because you also made the ESOP change. And at that time, I think the argument was that ESOP change plus some -- the favorable ESOP exercise price together with reduced variable plan would give you a good compensation structure. But now we are, I think -- both the ESOP plan would be favorable as well as the variable pay would go back to 100%. So would that impact the EPS overall?
No. So that is, of course, factored in whatever we are saying. But I would like to give a little further clarity. First is, first 6 months, people have lost that anyway. So that is a significant impact, which they will get back from this. So that is number one.We have not given generic increment. We have given only promotion based increment, so at least to our key staff. The third thing is it will also allow us to really retain the critical staff because we are a specialist player, we have to make sure that we retain our key staff. So I think these are the 3 reasons why we did the restructuring of the ESOP plan.
And as we have said, in Q3, the EBITDA margins would be above 14%. And in Q4, we'll see an expansion in both EBITDA as well as PAT. So there will not be a negative impact. But obviously, going ahead, we see a positive impact on EPS, due to the overall growth and improvement in operational efficiency.
Okay. Got it. But just to confirm then. So the ESOP plan is more applicable to senior level staff, you're saying? The critical staff?
No, it is -- see, we are a technology company, and we have made sure that all our key technical team, I mean there's a leadership team is -- it's quite a spread out plan, and a significant part of that goes to our technical team.
Okay. Okay. And the variable pay, is it fair to say that the number of employees receiving the variable pay would reduce because, again, there, you would be more selective than...
No, no, no. We didn't say that at all. We said that -- we had said that we will not pay variable pay during first 6 months. So -- and we had changed some of that more in the first 6 months, made more amount variable. So that we are reinstating. And so they will have their VPI. And of course, it depends upon the performance of the company, how much we pay out of that and the individual.
The next question is from the line of Shashi Bhusan from Axis Capital.
The deals that would have got deferred or canceled due to pandemic, are we seeing those coming back in the pipeline for discussion?
Yes. This is Sachin Tikekar. As we mentioned earlier, so out of the deals that went down in Q1, 30% of those are already back, and we believe another 20% to 30% will come back before the end of this financial year.
Sure. And do you see any change in clients' behavior that is spending pattern in terms of changed priority in the post-COVID world? Like they are prioritizing a few things, which they were not earlier and they are de-prioritizing few?
Absolutely. As you know, the impact on manufacturing, including automotive, has been dramatic of COVID in a negative way. So obviously, the pattern and the behavior has changed, and they needed to reconfigure everything. They are prioritizing what is important to them very, very clearly. And what is important to them is the future. And the future, fortunately, for KPIT lies in software-driven vehicles.So I think we see change in the behavior. Obviously, they want to do more with less, and they also want to prioritize the programs that they have and invest more in the areas that will sort of continue to give them edge in future, right? So there is a clear behavior from that perspective. The prioritization, they have taken it to another level, right, given the situation.
The next question is from the line of [ Sanket Goradia from VEC Investments ].
I wanted to kind of just get your view on -- we've seen a good improvement in the DSO. Is that sort of sustainable? And going forward are you looking to further improvise on this? Or this should be the normal or the new normal?
So this is Priya Hardikar. What happened this quarter was we had a couple of days gain because of some of the customers whom we had given extended credit period that -- those monies were received in this quarter. Therefore, at least 3 to 4 days were benefited because of that. The rest of the days benefited purely out of our operational efficiencies and rigor on operations. So 59 will not be -- I don't believe that it will be a regular sustainable DSO for us going forward.
So between 62 to 65 is normal.
Yes, the right normal.
Fine, Fair enough. Fair enough. Just on your -- the hydrogen fuel project, could you kind of just maybe give some color on what we are doing and what is the kind of maybe CapEx, if at all we are incurring for this? And sort of what is the broad sort of metrics on this project?
No, it is not -- it's quite -- funded by the government, apart from the employees who were allocated on the project, I think we did not have any CapEx or any other expenses, but mainly of the people who are working on this project for a long time.I think the main thing, the area in which we work was basically on the control side of this and integration of powertrain with the fuel cell. So these were the mainly 2 areas on which we worked.
And from KPIT's perspective, as Mr. Patil mentioned earlier on, this is a really good way to create a new offering for KPIT as more and more of our clients in future will get into fuel cell, right? So that gives us higher credibility because of the real hands on experience.
And hopefully, we can make some difference to Indian market.
Understood. So the way to understand this is this will be a government-funded project where KPIT is kind of offering its resources for sort of -- to get the product in place?
Yes, we co-invested on the people side, along that.
Okay. Okay. And sir, just one last piece for the management...
Largely, I would say -- sorry, just going back. It's a largely innovation effort. I must say that, as I said, we have 7% of our employees work on new technology projects and building that. So it is one of those.
Understood. So it's more on the innovation side, which we can then maybe use for our other clients?
Yes.
Fair enough. Just one last piece, I wanted to understand, for H1 we have about INR 28 crores CapEx. I wanted to just understand what has we done this CapEx on?
The majority of the CapEx, as we have said...
INR 38 crores. Sorry, 38 crores. Yes.
Okay. So we have a new center established in Munich, Germany, and that was the major CapEx that we have done in H1. We are done with the CapEx there. And so I think that was the major component of the CapEx, apart from the normal CapEx that happens on hardware-software licenses, I mean, software licenses and the hardware required as maintenance CapEx.
The next question is from the line of [ HR Gala from Finvest Advisors ].
Congratulations for really good results. Encouraging, very encouraging commentary that you have given in the beginning. Sir, I just wanted to know that shifting work from on-site to offshore, just increases our margin, but what impact does it have on the top line. Can you explain to us?
Yes. Roughly, I mean I cannot really go into very detail and 100% work out. But roughly, if you look at it is about a couple of million dollars, $2 million to $2.5 million, if the work would have remained on on-site.
Okay. Okay. So then that is compensated more than that by the gain in the margin? So in the absolute amount of the EBITDA that company generates, it doesn't make difference or does it make any difference?
It doesn't make much difference.
Okay. Okay. Sir, these hydrogen fuel cell, et cetera, do you think it can compete with the electrification of the vehicle on some of the projects?
It is not a competition. It is, I would say, alternate technology. So it will go as an integration of fuel cells with electrification technology. For some of the projects have already started outside. Most of the OEMs have some of the projects, which are not for a production grade. But in some -- in 1 or 2 cases it is. Specifically in some markets, we believe this technology will get adopted quicker than the others.
So it will be a technology which will work parallelly along with electric vehicles?
Yes.
Another difference there is fuel cells will benefit the commercial vehicles, especially trucks and buses more than the passenger cars. It's not to say that passenger cars will not go there, but it will be dominated by the commercial vehicles at the beginning.
So that is what I wanted to know that do you think that the OEMs would be more prone to go for, say, hydrogen fuel cell rather than going for electrification? Can that type of scenario happen?
See -- yes, it will happen over the period in commercial part for long --this. But it takes quite some time because see, what happens is, as you know, the vehicles are on the road for more than 12 years now, maybe in electrification maybe 15 years. So to mature this technology takes significant time. So many of those projects -- see, even the production programs go for 3 years once you start a production program. So it's not as something will happen next year.
No, that's fine. I'm saying overall longer period.
Yes. Yes.
Because we understood from some other -- I mean the auto component people that is hydrogen cell can have a very big fire and the explosion hazard. What is your thinking on that?
See, the technologies keep on changing. I think we don't know, but it is something where many companies are investing. Some of -- many of our customers have invested into specific vehicles.So it is all about when you start and when -- where you go, right? So as I said, it gets matured. And that's why I said that adoption really depends upon when it is hazard-free and people see it more reliable, dependable technology.
Okay. Sir, my second question is on that Lavanya that we have acquired. What are we looking at it?
Vayavya.
Vayavya.
Sorry, Vayavya.
So we are frankly, evaluating the impact due to COVID because as some of the technology prioritization of the areas of the customers get changed because of the discretionary nature of some of the technologies. So we are evaluating from that perspective and the impact on the financials. So that's why we will take a decision sooner.
We have not yet acquired the company?
Yes, we have not completed the acquisition. It is not yet closed, and we are still evaluating.
[Operator Instructions] The next question is from the line of [ Shalu Asija from Investment Research ].
My first question is regarding, I want to know revenue segregation between onetime client versus continuous client? Can we have that segregation?
Our business model is a repeat customer. We are basically focusing on T21 customers, which is 85% of the revenue, which is a completely repeat customer. Now outside of that, we have another set of 25 customers, which at some point of time may enter in these T21 customers. So we are not really -- I mean there may be 2% or 3% -- a couple of percent maximum. I don't exactly see, which may be like that. Most of the -- our basic business model is a repeat customer.
Okay. Okay, sir. And sir, can you tell me the impact of consolidation of offices you mentioned in the presentation on top line, bottom line in coming quarter?
As Mr. Patil mentioned in his opening remarks, the impact of office consolidation on the financial statements is more or less neutral, as the remeasurement of its liability towards the lease discontinuation and against which there were certain fixed assets those needed to be amortized, accelerated, depreciation for those premises; and certain other expenses as per the accounting standard those were accounted for. In the current quarter, because of office consolidation, there is a neutral impact, no significant impact on this.
Okay. And regarding the impact, what are you saying? I haven't...
No, no. Obviously, there is no impact on revenues because of office consolidation. It is only the impact which had happened on the cost side, and there are positives and negatives, which almost cancel each other. So neutral on the cost side and, obviously, no impact on the revenue side.
Okay. Okay. And can you also give me the segregation between on-site and off-site -- offshore revenue? Like, on-site, how much revenue comes from on-site and how much revenue will come from offshore?
I think that is an area where -- what we have said is we have a center in Munich. We have a similar thing in the U.S. So the mix keeps on changing. People keep moving. What we have said is roughly about 2% is the shift that has happened. In terms of percentage, it can be roughly about 52%, 53% on-site, roughly in that range.
Okay. 52% to 53%. Okay.
The next question is from the line of [ Neet Mehta ], an individual investor.
Congratulations for your good set of numbers. Sir, I actually wanted to ask you, like you said you are going to increase the wallet, I mean wallet share of the existing customers. So what is your strategy or rationale behind doing that?
As we mentioned earlier on, our strategy is essentially to focus only on a handful of clients that we call T25. We have 21 such identified clients. And the whole approach is to go deep and wide. And what that means is, if we are working with a client in the electrification area, we want to make sure that in a strategic manner we also get into the other areas in a strategic manner. That's what we want to do with each one of those 21 clients. We believe that our engage -- current engagements are very valuable to them. It's just that there is scope for going across practices and doing more work with them. That's how we create greater value for them, and it also suits KPIT's business model. So that remains our focus.The whole thing is all about expanding our footprint across the canvas of our T21 clients. So we are engaging more and more deeply with them. We are doing -- even during the COVID, we are doing multiple textures virtually. We are also doing many workshops to help them do more with less.So some of the programs that they are forced to put on hold, we are coming up with creative ways so that they are able to execute on those programs, and we are able to increase our wallet share.
And just to add, for example, you -- I mean I'm just taking one example. There are many so. But if you take the electrification program. Now people will come with more and more electrification platform and program in Europe. So if we are working with a customer, I think, basically, we'll engage with more platforms. That's what it will mean.
Okay. Okay. Great. Sir, could you just give me your current patent numbers?
How many patents...
So it is about 65, which we have filed. And there are many technologies which -- where we don't file patent because it is not necessary that you should file a patent. So I think there's a lot we are doing, I think, on that area. That's one investment we have not reduced at all.
And sir, like, I wanted to ask, is there any update of you working with Tesla?
I would not go into customer-specific thing. But I can only tell you that we work with many OEMs and many Tier 1s, which look at that. We do not directly work with Tesla as of now.
The next question is from the line of Karan Uppal from PhillipCapital.
Just one question on the 5 OEM projects, which you have won. Could you give us a sense about the size and the duration of these projects? And are these similar to the large 2 deals which you had announced in Q4 and Q1?
So first of all, all 5 of them, they cut across the 3 geographies and they also cut across the 3 areas. So some are in electrification, some are in AD, ADAS, and there is one that is in connected vehicles. They cover the 3 geographies. All of them are multiyear, multimillion-dollar programs, right? And our hope is that, as Mr. Patil explained earlier on, if you are working with them in a program now, there will be more and more platforms. So hopefully, they will continue for a long time. So these are not one-off kind of engagements that will start and abruptly end.
Okay. And these projects will ramp-up in H2, correct?
As Mr. Patil mentioned, yes, I think most of the ramp-up will happen during the course of H2. You're right.
[Operator Instructions] The next question is from the line of [ Sanket Goradia from VEC Investments ].
Just wanted to understand on the doubtful debt in advance. If you could just give more commentary on, are we providing -- I mean, is the client base from our the T25 list, and we've even written off about INR 4 crores? So directionally, what is going on with that please?
These 2 -- couple of customers are not the T21 OEM accounts where we focus on. These were a couple of customers who got impacted owing to the COVID situation. And under abundant precaution, we have made the provision. While I say this, we are making all the efforts to recover the -- our dues from both of them.
And the ones which we've written off?
We have made a provision. We have not written them up as bad debt. And therefore, we are making efforts to recover the monies from them.
Yes. But we have written off INR 4 crores, right? INR 14 crores is what we are providing for and INR 4 crores is what we've written off, right?
During the quarter, we have provided for INR 5 crores among these 2 customers.
As there are no further questions, I would now like to hand the conference over to the management for closing comments.
So thank you. Thank you, everybody, for participating in the call. And if you have any further questions, please feel free to get in touch with me. Thank you, and have a good evening.
Thank you very much.
Thanks.
Thank you.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.