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KPIT Technologies Ltd
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Ladies and gentlemen, good day and welcome to the KPIT Technologies Q3 FY '21 Earnings Conference Call 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, sir.
Thank you, Melissa. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies Limited for giving us the opportunity to hold this call. And now I would like to hand the conference over to Mr. Sunil Phansalkar, who is EVP and IR at KPIT, to do the management introductions. Over to you, Sunil.
Thank you, Rahul. A very warm welcome to everybody on the Q3 FY '21 earnings call of KPIT. While we are still in January, I would take this opportunity to wish all of you a very happy, healthy and prosperous 2021 and beyond. I hope you have been able to go through the investor release that we have uploaded. And on the call today, we have Mr. Kishor Patil, Co-Founder, CEO and MD; we have Sachin Tikekar, President and Board member; Priya Hardikar, Senior Vice President and Head of Finance; and myself from Investor Relations. As the usual practice, we will have the initial comments on the quarter and the way we look ahead from Mr. Kishor Patil. And then we will have it open for your questions. So once again, a very warm welcome to all of you, and I will hand this over to Mr. Kishor Patil.
Good afternoon. I'm very happy to take you through a satisfying quarter 3 for KPIT. Our revenue growth has been 6.7% quarter-on-quarter. Our profits have increased. PAT has increased 50% quarter-on-quarter. Even if you look at the year-on-year growth, our EBITDA for this quarter has been higher than 10% over last year. The growth has been driven mainly by T25, which has been our strategy. 85% of the revenue still come from T25, and that is exactly what it will -- or it would also happen in future. ePT, that is electrical powertrain was -- has contributed higher to the growth. In terms of geographies, Europe grew by 14%. USA by 5%. And in case of verticals, the growth has been across verticals, mainly passenger car, commercial as well as new mobility. The impressive performance on the profitability has come on account of better quality of revenue; increase in the productivity and operational efficiency; consolidation of offices, which has given us benefit in terms of costs. As we can see, our revenue per employee have gone up during the quarter reasonably. If you really look at last 8 quarters, we have consistently been increasing the cash for the company -- net cash for the company. Cash conversion has been very strong. It happened during this quarter, also very difficult quarter in that sense, because of the holidays, but we continued to have a very strong cash conversion, and the net cash goes beyond INR 629 million, INR 629 million. The strong -- sorry, 620 -- yes, INR 629 million crore, sorry. The stronger balance sheet -- the balance sheet remains very strong. In case of deal wins, typically, the broad-based OEMs and -- have driven the -- basically the wins which we had during this quarter. We had one special win, which is a Triumph 2-wheeler. We are proud about this win basically because this is a different business model. And in case of a 2-wheeler, this is the first real in-production, you can say, connectivity platform. And many have tried this but have not yet succeeded specifically in view of new-generation 2-wheelers which are coming in then in case of electrical bikes. We believe this could have a reasonable potential, but we are also very happy about being the first in bringing such a technology. If you look at the Q4, I would say that we are very optimistic and confident about further normal growth in terms of revenue. Also, we are looking to increase our EBITDA further. I think we started this year on a very difficult note, specifically being only focused on the mobility sector, which was one of the most impacted sectors. But by the end of the Q3, if you look at, I think we are very confident that by Q4, we will have a better performance as compared to the last quarter, Q2. So in case of EBITDA, tax, net cash. We have also made a lot of strategic wins during the year, which we have announced, and these are in new technology areas. We have also done a lot of work in terms of development of team, leadership development and competency development, which really would go well for us as we enter into the new year. So we have made this year [indiscernible] in spite of a very difficult year. Looking forward, I feel that there will be -- I mean, as you might have seen some announcement, like GM has announced more than $10 billion investment into electrification. Similarly, Volkswagen has made such announcement. So there are very high investments which will happen in these technology areas. I believe, for multiple reasons both in terms of compliance as well as for competitive reasons, next 4 to 5 years, there will be a significant investment into new technology. And KPIT being arguably one of the largest and most well-placed players in this space, we would have our fair share of business from this space. I may also say that the unique position in KPIT has put itself in, which is independent key software integrators, becomes a very important positioning and need for the OEM as they are adopting new technologies. So we feel very positively looking into the next year and beyond. Thank you.
Sir, would you like to begin with the Q&A session?
Yes, please.
[Operator Instructions] We have the first question from the line of Mohit Jain from Anand Rathi.
One is on the top line. So -- and share your outlook for next quarter. And we don't share TCB data unlike some of our peers. so what kind of visibility, growth, et cetera, [ can you share ] terms of your pipeline? And any color on FY '22, how things are looking at your end given that offshoring is likely to stabilize at current levels?
Yes. So 2, 3 things. I think I gave you outlook for the next -- in the sense how the environment will be for the next year and beyond, okay? That was my main purpose of talking about the investment and the announcements by the new OEMs, including some large happening like with PSA and merger with few large OEMs. But from our side, I would say the pipeline is strong. I think during this quarter, we have increased our pipeline substantially. We believe that we are in a well-placed position in terms of pipeline. We have -- we always talk about some reasonable wins, which we have been announcing. So from that perspective, we look at it very positively going forward into the next year. We are very well positioned getting into the next year. From the offshoring perspective, I think we feel -- on the offshoring and also the different business model, as I mentioned. But I think that, that would happen. It really depends upon which customers because it also depends upon the maturity of a customer as well as the type of technology. But we believe that after we have delivered multiple production programs over last few years, we are well placed to make more offshoring happen next year.
Okay. And sir, second was, at the time of listing, we were talking about this 18% kind of an EBITDA margin in 3 years. So where are we? Given that offshoring have gone up, what is the moving target now? And by when do you think full benefits of cost optimization will come into play?
We had mentioned about 16% to 18%. We are happy that we are closer to the range. I'm sure we will do our best.
By [ 2023 ] you will be within that band comfortably, right? Is that a fair call?
I mean we will deal year by year. I think right now, I would stick with what we are showing. And the -- of course, we'll improve our profitability from here, but I would not give any number right now.
Okay. But no planned investments into SG&A or something which can eat into our current quarter margins?
No, there is nothing significantly which will impact the margin.
Okay. Okay. And sir, lastly on headcount, there was this reduction of like almost 500 people while demand environment continues to be strong and continue talking about hiring. So what is the current -- when do you think headcount stabilization will be done with?
So what we did from our perspective is we have -- we have done -- basically every year, we take up about 4% of our bottom lot. I think we went ahead and did that regularly this time ahead of our appraisals. Also, about 1% or so, a little more than 1%, we had the again, nonaligned headcount. I think those are actions we took which have resulted into the reduction into headcount. But at the same time, up to September, from April to September, we will have 600 people on board from the colleges And of course, we will take a view as the year progresses.
We have the next question from the line of Vimal Gohil from Union Asset Management.
Congratulations on a strong quarter. So my question was regarding -- your revenue growth for this quarter has been driven -- a large portion of it has been driven by the powertrain business. I want to know, what is your outlook on the rest of the practices, which is autonomous, ADAS and electric? And just one suggestion. If you could just give some broad breakup as to what do we do in the other line items, that will be great. My second question was on the margins. If you could just break that up -- if you just break the EBIT margin improvement on a quarter-on-quarter basis as to how much has come from consolidation of facilities, how much has come from reduction of headcount and how much has come from improvement in utilization of offshore.
So this is Sachin Tikekar. I'll answer the first part and Sunil will take up the second part of the question. First part, when it comes to our verticals and when it comes to our practices, I think it's better that we take a yearly view rather than a quarterly view because there are always programs coming up and programs getting over. In general, the trend seems like there is no doubt that electrification is going to lead the way. That's the trend. And KPIT is in a great place to really create value for our clients in this space. Having said that, as we get into the Q4 and as we get into the new year, we believe that the growth is going to be fairly well done. What I mean by that is when it comes to the 3 geographies, we'll see a balanced growth coming from all 3. Similarly, across our key 3 offerings, there will be growth. And again, during the course of the year, some will grow more than the others. But we believe that in Q4 and getting into the early part of the new year, we'll see more balanced growth coming our way. That's the answer to your first question. The second part was you wanted to know a little bit more about the EBITDA part.
Just one. The other segment, what do we do there? Are we going to...
Well, we -- yes, if you look at the practices breakup, the other segment currently involves diagnostics, it involves in-vehicle networking and it involves a little bit of the e-media practice that we have. So these are the major components.
[indiscernible]?
It's vehicle engineering and design.
Okay. Okay. Fair enough. Yes. And if you could just comment to the margins, the second part of the margin, that would be great.
We haven't given any specific numbers. But at a broad level, let me put it. The maximum impact has been both on the basis of quality of revenue, which I would put into -- more into offshoring, productivity improvements and license revenue and productivity. And the second is operational efficiency. So that would be largely the contributing revenue. Consolidation of offices would be marginal.
Sir, how much was license revenues in this quarter?
I don't think we give these details, ongoing business.
We have the next question from the line of Nitin Padmanabhan from Investec.
Congratulations on a great Quarter.
Sorry to interrupt, sir. There's a slight background disturbance. Could you please switch to the handset?
I am on the handset. Is it better?
Yes. Yes, Nitin, we can hear you.
You can hear me, okay.
Nice, Nitin.
Yes. Sir, I think the first question was on the strategic 21 clients. Do you see -- how do you see the growth profile across those 21 clients? Is -- are you seeing consistent growth across them? Or do you think that they would -- there are areas where there is some sort of a leakage? Just your thoughts on these 21.
Overall, Nitin, if you look at the top 21, I think all of them dealt with what they had to do during the pandemic, especially in the first 6 months. Now that they have taken the -- some of the costs out that were not a priority, they are actually reprioritizing their spend. And fortunately for KPIT, the spend mostly is going to be in electrification, autonomous driving and connected vehicles led by digital cockpit. So when it comes to these 3 areas, almost all of our T21 and T25 clients have made a commitment to make these investments. So from that perspective, overall perspective, I mean, different clients are taking a different view. But from KPIT's side, I think there is a common part, which is prioritizing investments in these 3 areas. That's what we see at an aggregated level when it comes to our T25 clients.
Do you think the tentativeness on spending both the pandemic and -- that is sort of true and from here on things would just incrementally improve from a spend profile perspective?
I think that's a fair statement, Nitin. And it's a gradual process, right? It's not an on and off switch. As most of our clients get more confident into the future and as they have a better handle on their overall expenditures, they are having more and more conversations about their future production programs with us. So it's going to be a gradual process but absolutely trending in the right direction over the last 6 months.
Sure. And so I think you answered this partially, but I just wanted to dig in a bit more. If you look at AD/ADAS and connected vehicles, AD/ADAS, I understand, there'll be some reprioritization of spend for fundament. But do you think that has sort of bottomed out in terms of where we are today in terms of the numbers? And on the connected vehicle side, both trying to understand whatever incremental that they're seeing, do you think this has also sort of bottomed out?
I don't know what you mean by bottomed out. But I think if you look at all of the OEMS, whether they're from the passenger cars or the commercial vehicles side, all of them have announced some of their new production programs. Some of them got shifted by 1 year or so. And then they have made some tweaks within. So for instance, some of the OEMs said that instead of Level 5 of autonomous, there will be more spend on Level 3, maybe get -- heading into Level 4. That kind of reprioritization has been done. When it comes to connected, there are 2 sides to connected: so connectivity within the car, which is to do more with the spend that they have in areas like digital cockpit; and then connectivity beyond, outside of the vehicle. Outside of the vehicle, given the pandemic, has certainly become very important because you want to be part of the connected. So they're reprioritizing that. And they're also prioritizing digital cockpit because that's going to be the way forward. So across all these 3 areas, we see signs of -- not signs of commitment, but I think there are commitments by our clients to get into these programs.
What [indiscernible]?
I wanted to add a few things. One is, during the last few quarters actually in autonomous, one of the largest programs we have been moving offshore, because this was a new technology area. Earlier, all our people were on site, right, and it took us some time to really move some of these deals and have confidence for customer and as well as ourselves to move it offshore. So I think that has been also one significant part in some of these cases. And to add to what Mr. Tikekar said, I think we have -- in case of pipeline, I think we are reasonably covered equally on these practices.
Well, that's helpful. So whatever he's referring to in terms of bottomed out, was the revenue number in these 2 practices? So I think you alluded that the AD/ADAS was because of offshoring. But in terms of from an absolute growth number perspective, do you think this is sort of a bottom here with more coming through the funnel? That's what I was trying to understand.
Yes, yes. So as I mentioned earlier on, going forward, we see more balanced growth across the 3 areas.
We have the next question from the line of Ashish Aggarwal from Principal India. Mr. Ashish Aggarwal from Principal India. Mr. Aggarwal, are you still connected with us? The next question is from the line of [ H.R. Gala ] from Finvest Advisors.
Sir, I have a few questions. In your journey to increasing the EBITDA margin, how do you balance out the margins in different geographies? Because given the same volume of business which we are doing in U.S., U.K. and the rest of the world more or less, the margin differential is very high. So how do we understand that? And do you think it can level to a particular level so that the company as a whole can move to, say, 16%, 18% type of trajectory? That is my first question.
Yes. So I think 2, 3 things I would like to mention. I think typically, we look at, as you say, geographical margins. But I'll give you some examples. First is, strategically, we decided to invest into certain geography more. These are like development centers. These are not marketing offices. And these are leverages -- leveraged across. The important part is many of the new technology work, we have done in some of these geographies, which we have leveraged in the other geographies. So it becomes very difficult from that perspective. But to your point, certainly over the period, we will see that. But as -- you know that there are some of the more advanced clients which are more demanding. And the new technology work which we do initially, because a lot of that work gets done on-site and then moves offshore, which I was explaining that some time back, I think those are just some of the impacts. But of course, we are very careful about this. And these are the leverages we have in the future, where we will be in a position to improve some of these margins reasonably well.
Okay. That was the first question. The second question is, sir, can you say something about this Triumph tie-up? You said that you are the first one to do and it has not been worked out anywhere in the world. So what exactly we are going to do in that?
What we have is a connectivity platform for 2-wheelers. And we did a program with Triumph where Triumph is one of the first companies in 2-wheelers to have a connected platform that is working very efficiently and effectively. Now that we have done this together, the asset actually belongs to KPIT. Triumph is our first partner to get this out. But now, we really want to -- given the pandemic, I think micro mobility is becoming important. So more and more, 2-wheeler companies, as they get into the electrification and so forth, they also want their 2-wheelers to be smart and connected. So all the global OEMs in 2-wheelers want to have similar platform. Now some of them have made efforts to build this platform on their own, but there is something that is still lacking. So now that we have a proven use case with Triumph, we are getting more and more inquiries from 2-wheeler OEMs whether we can work with them in a similar fashion.
Okay. So when do you think this app will get commissioned?
Well, it's already underway.
Okay. It's already underway. Okay, okay. And what will be your revenue like? Will it be per-vehicle basis? Or you will charge lump sum amount? Or how it will be?
It is both. So there is a what you call NRE, the nonrecurring engineering fee, which is up front. And then there is a -- depending on the size of the OEM and what they want, there can be per-vehicle monthly, quarterly, yearly charge. So there is NRE plus a fee.
As I mentioned in the earlier commentary, I think this is not one of the largest wins for us in terms of volume, but I think it is very critical to bring the technology -- make it work in a new domain, on a new 2-wheeler. And so being first. As well as the business model, right? And that's why we mentioned it. It has a potential. We'll see how it goes.
Correct. Correct, correct. Okay. Sir, my next question is, a couple of quarters back, we announced that big contract. Do we have any such more contracts in the offing?
Yes. I think most of our business is driven by the production programs and what -- will happen and -- certainly lead to multiple such possibilities in future. So there are -- it is a part of our pipeline. It is part.
It is part of the pipeline.
So the way automotive industry or mobility industry works, it is not about contracts and deals, it's about long-term engagements.
Yes.
One you are in a partnership model, they have multiyear programs that come out. And as long as you continue to be a partner, that creates tremendous value. I think it gets renewed. So that's the kind of model that we are trying to put together. So all of these relationships become long term. We have long-term visibility into their programs. And naturally, if we continue to create value for them, we'll be the partner of choice, right, to -- so that's the kind of model that we are trying to get into. You look at how Tier 1s work with OEMs. This is the model that they have. So as a software integrator, we are also trying to build a similar model working with OEMs again.
Very good, sir. And last question from my side. As far as balance sheet is concerned, which you have given on Page #18 of the presentation, there is a big jump in this other liability from INR 306 crores to INR 409 crores. So what could be due to?
We'll put the information out.
Yes, we'll put the information on the website.
There's nothing significant or...
No. I mean it has increased by INR 100 crores, so I was just wondering that -- because it will have, I think, probably items like your unbilled revenue and things like that, I don't know. There can be something more. So...
Yes. We'll put it up on the website.
The information, we'll put it on the website. But there is nothing significant. Just to tell you, even in terms of our unbilled revenue, we have one of the lowest...
Lowest in the industry.
In the industry [indiscernible]. So nothing coming to mind quickly. I think we'll put it on the website.
Okay. But it's not something like that amount of debt which is due for payment in 1 year or something?
No. No, no, no.
No.
Because we don't have any debt basically?
No. No, we don't have.
No.
Okay. So okay. Fine, I will get to it.
We have the next question from the line of Ashish Aggarwal from Principal India.
Am I audible?
Yes.
Okay. Sir, two things. First of all, just on the growth side, given the fact that in this fiscal year we have signed a couple of large deals, right, and I think that will give you good growth momentum going into FY '22, so just wanted to understand, what stops you to grow at high teens or even, let's say, at 20% next year? And secondly, we have now considerable amount of cash in our balance sheet. What is the usage of cash plan?
Yes. On the first slide, I think we have said that we are quite focused and we'll grow what we have grown. Now you have seen us over the period that we have always given some of the better results. So I do not want to take any number. We'll give some of -- maybe some picture maybe end of this year. But certainly, I think we see -- we have a very positive environment for us to grow. So that is the only thing I can say at this point of time. Our pipeline is good. Our environment is good. Our positioning is good. So...
But sir...
I can say the only -- huh? Sorry?
Well, sorry, I just want to understand the pipeline. When you say it's good, if you can just quantify in terms of what would -- the growth in the pipeline would be, let's say, on a year-on-year basis or something like that. Is that within...
Well, I think some of this data, we do not -- have not shared. And as you have seen in the last year, we have given more and more data, and we have been consistent on it. Some of this data we don't give because it is very confusing in some cases. That's why we are not giving. But I mentioned that our pipeline has increased significantly, and it gives us a confidence on the adequacy of pipeline for growth in future. So I would leave it at that point of time right now. And we'll give a little more color at the end of the year. So that is what I would say. In case of cash, absolutely, I think there are 2 key things. I think we certainly will look for some, again, niche acquisitions. We are not looking at any large acquisitions. Even though there are opportunities, we will not look at it. We will look at niche, tuck-in acquisitions, which will help us in accelerating in certain new technologies or customers, because there are the 2 specific areas where we may look at. So that, certainly, we are looking at. But naturally, we are very, very choosy on many of these deals. So I think secondly, in many of the technology areas as well as customers, as I have said in the past, I think we feel very confident that we can acquire any customer very quickly as well as we can build many technologies based on our investments we have made. So it has to be special to really get into that. So -- but we are looking at it actively in certain areas. So that is another point. We will -- beyond this year, we will also look to increase our payout ratio beyond this year. So I think that's also we intend to do. So with that, I think this is where we will be with the cash.
We have the next question from the line of Ankit Agrawal from Yellowstone Equity.
Yes. I had a few questions.
Yes, please.
Yes. The first one is on Revolo. Can you update as to how is it performing and what are our plans going forward?
I think we have said it very -- earlier, maybe about a year back, that when we started as a new company, we decided that we will not do anything with the hardware and we will focus only on the software technology. Our new positioning is a completely software integrator positioning to allow OEMs to integrate new technologies into vehicles. So based on our -- Revolo, or the software which we have development assets, has been a part of our ePT practice.
Electric powertrain.
ePT means electric powertrain practice. And that is one of the best growing practice, and that has certainly given us advantage both in terms of assets available with us, whether it is in battery management, inverter, et cetera, or an actual experience of integration of hardware and software, which has been a part of our ePT practice. But as a product, we have discontinued selling it in a particular full product solution. So we have just taken the software ahead.
Got it. Got it. Okay. And -- okay. Then second question is regarding the inventory write-off this quarter. I think there's some mention of around INR 6 crores of inventory writeoff. Could you give more context around it?
I don't think there is any mention in the inventories write-off this quarter at all. I think there is some -- if you look at our P&L snapshot that we have circulated as well as the published financial statement, if you look at, I don't think there is any inventory write-off or statement at all.
Okay. So -- Okay. So probably -- okay, so that was for March -- really sorry, my bad. Okay. And then the third question is on depreciation. If I look at your depreciation related to some of your peers, it appears on the high end. What could be the reason for this?
So there are 2, 3 key reasons. I think we have been sharing this. And actually, at the beginning of the year for investors, I had given a quarter-wise breakup of how it will work. See, the first thing is 2 years back when we demerged from the earlier company, all our assets have been new. So we had a new campus. Every asset is new. So that increases our depreciation. Also, some of the facilities which we have taken in Europe as well as outside rental, because of the accounting standards, that has also been capitalized. So with that, we had a significant higher proportion. But as you have seen on -- we had given clearly that it will move in a particular direction and reduce by the year, and it is exactly in line with that. As our -- as the year go and our revenue increase, I think that will come down.
We have the next question from the line of Vimal Gohil from Union Asset Management.
Sir, my question was on your on-site and offshore mix. You highlighted that the projects that you won earlier will sort of transition to offshore. Given the current dynamic, a lot of clients would have realized the benefits of executing projects offshore. What is your view? Will offshoring be structurally -- will ensure structurally higher trend going forward? Or will we revert towards that normal on-site -- the project gets executed on-site first and then goes offshore just like that? So will that trend sustain?
Yes. So there are 2 points I mentioned. I think one is -- I mean, I think in terms of very new technologies, both -- clients will feel more comfortable in case of new technologies. Whenever they come or a new, very complex program, when it comes, they feel comfortable doing it on-site. As well as even from our side, so moving that kind of a complex for offshore immediately is not as easy as in case of a generic IT work. So we have been in a position to do it over a course of time in certain practices -- in some practices more than the others. Also in some cases, access to certain infrastructure is also important with the client. So depending on that, we do. But overall, as a direction, we do see that we can do more work in India.
Right. So in conclusion, your offshore rates are still suboptimal, so to say, and they have some way to go forward -- some way upwards.
I don't understand what you mean our rates are suboptimal. You mean, of course, percentage?
No. By some -- yes, by percentage, I mean, there is a lot of [indiscernible].
Yes. Yes, in excess of it, yes, that is right.
Because some of your peers are as high as maybe 68%. I don't know what your rate is right now. But maybe it could go higher from the current level?
Yes. Sure.
Would it be possible to disclose this on-site/offshore mix going forward, sir?
We have -- most of the time, we have said also that these are full-priced projects. And sometimes in this new -- I mean, for example, one of these autonomous project we did, I think at a point of time it was 100% on-site. And it is not -- we are not priced based on on-site and offshore. We then started moving it to an offshore as we feel it's comfortable, et cetera. That is the reason we don't share these details.
We have the next question from the line of Nitin Padmanabhan from Investec.
Sir, if you look at the revenue per employee, it has gone up quite nicely. It's up at, say -- it's up 15% sequentially and up almost 9% year-on-year. I just wanted to understand, is this purely driven by utilization? Or will there be something like a licensing or something driving that number? Because if I look at headcount, it's lower than same time last year, but the revenue per employee is also higher. So either utilization is much higher or there is some additional licensing kind of revenue. I just wanted your thoughts on what to think about...
Yes. There are 2 points specifically, as I mentioned. One, certainly utilization has gone up. I think we've heightened that. That is certainly 1 element. But the second element is on the basis of productivity and few license revenues, as I mentioned. See, what happens is for many of these projects, we have taken based on productivity, and we have seen a reasonable improvement in the productivity over the last year. And I think that has helped us. And also some license revenues. Not significant but a reasonable level.
Sure, fair enough. Sir, there's another question, and maybe this is a little [indiscernible]. If I look at the 5 years until fiscal '20, fiscal '15 to fiscal '20, we grew at a 15.5% CAGR. And during those periods, we never had any of these large deals or any such deals. And at this point of time, I think it's the first time that we have seen 3 large significant deals come through. So when we think about it that way, is it fair to assume that compared to the earlier growth trajectory, that we should actually be higher? Or is there something that are missing in the underlying manner?
I can only say that one is the way we are doing the business has also changed. I think we are taking a more -- full responsibility of the project. I think we have established ourselves very well. And that is exactly where most of the OEMs are. Many of the OEMs are moving to new architectures of their vehicles and the larger programs on electrification or autonomous. And we are in a position to take a substantial ownership of many of these. I think that has really led to that. I would say it gives us more visibility into future and more flexibility both in terms of how we operate and hopefully over the period more monetization of assets which we build. I think that is the benefit we will get. I'm sure in some way, it would help us for growth.
And so when you think about it, it should reflect not only from growth but also in terms of margins and revenue per employee altogether?
And secondly, I think that is reflecting a bit in the last results.
[Operator Instructions] We have the next question from the line of [ H.R. Gala ] from Finvest Advisors.
Yes. So can you broadly tell us what kind of capital expenditure plans we will have?
So capital expenditure plan, we are still working on our strategy for AOP FY '22. Capital expenditure plan will depend on how we will utilize the capacity and looking at the new deals that we will win together with the plan.
Okay. And how much it will be in the current plan?
Just to explain further on this, there is no significant capital facility we are looking at and nothing out of turn for our -- it will be everything which is normal in the course of this.
And I think you will be also taking assets on lease also. So...
So assets on lease, I don't know what you're referring to. The lease that...
The right-to-use assets.
The right-to-use assets are basically the leased facility, the offices.
Yes. Perfect. Maybe this would...
And as Mr. Patil mentioned, that we are not looking at any more new additional CapEx -- significant CapEx increase.
Okay. Because that has also increased several hundred crore in this 9-month period. So I was just wondering whether you will have this kind of recurring requirements or no.
No.
We have the next question from the line of Ashish Kacholia from Lucky Investment.
Congratulations to the KPIT team for a good set of numbers.
Thanks, Ashish.
My question is basically, because your -- if you could talk a little bit about the scalability longer-term of our business because some of our peers in the engineering and design space seem to be working across multiple verticals. So the scalability in those kind of seems to be a little more assured than our company, which is focused on a single vertical, which is automotive. So could you kind of just share some of your thoughts on how much our company can scale to eventually in 3, 5, 10 years, whatever, 500 million, 1 billion. There is a -- what is the eventual scalability potential of our company until we run out of customers and a disproportionate share of their R&D budgets?
Right. Okay. So Ashish, I think it was a very well-thought strategy we picked up on being on one single vertical because we wanted to be a leader in one area, which hopefully helps us to grow bigger and have higher market share actually. That has been our case, is that as a company, we wanted to be a leader globally in one package. Now what is happening is there are 2 sets of customers. One, there are many conventional OEMs which are our major customers of T25. And there are a few new-generation OEM. Now as you know, that the -- because of the legacy, the conventional OEMs, they have to do a lot of work on their software. And there are companies in the new generation, including Tesla, there are a few more, which are -- have started building their own -- basically the whole software and the vehicle in a different architecture. Now what has happened is all these conventional powertrain -- conventional companies, OEMs, they need to react to this significantly. And I think next 4 to 5 years, you will the -- see some of the highest spend in this area. Now this is going to be complex. This is driven by change in the architecture. It will be driven by domain. We believe that we are in one of the best places to capture this opportunity. Naturally, it will be a mix of what they build and what they work with the partners. Now -- some of which -- they -- of course, as the valuations are driven by multiple factor, one of them is owning of the IP assets, many of them are building their own platforms, and they intend to do this. But there, they need a partner who can help them accelerate that. But more important is the software integration, where multiple software is coming together in the software, which is not what they have developed but outside of vehicle, and also the hardware and software integration, et cetera. I think we are -- we have positioned ourselves very strongly in that area both because of our assets and experience in the production program. So I think, Ashish, next 5 years, I can talk about I see a significant opportunity. As a company, we have said in the past also that we believe there is a significant potential because I guess most of the companies will -- as the business mainly moves around software, I guess, ongoing basis, mean most of them will start spending more than 1 billion annually over the period is -- I feel. So we will -- we'll have a significant opportunity to grow. But we will relook at this maybe, when we are double the size of where we are, whether there are any other verticals we need to look at. Until that time, we see we are in a very good position, and we would like to maximize what we have built. Anything you want to say?
I'll just add to what Kishor said, is actually, if you look at it, the vast majority of our revenues actually come from passenger cars. And there is tremendous headroom to go within passenger cars. We have just scratched the surface when it comes to commercial vehicles. And commercial vehicles are also looking at making investments in electrification, in AD/ADAS and in connected vehicles. So we think that, that's going to be another subvertical that will grow for us. And we are also looking at new mobility. All of this will lead to new mobility. And we believe that there will be opportunity for us to grow within those also. So within mobility, I think we think that there is enough headroom to grow in passenger cars. And there is untapped potential both in commercial vehicles and in new mobility. So given all of this, we believe that for the next 3 to 5 years, there will be enough headroom for us. There is enough growth that is available for us, right?
[Operator Instructions] We have the next question from the line of Rahul Jain from Dolat Capital.
Congratulation on very strong quarter. Just 2 questions. Firstly, we have seen that this year, business in similar space are talking very [ seriously ] coming to also on the auto side of the business. But my general question is that with the kind of volatility that we have seen in this vertical or cyclicality also in the past, and also given the project kind of nature involved, do you think a long-term productibility is a possibility? Or is there opportunities, as you -- but can those kind of dealer production can be drawn out aspirations?
So I think I would just like to put it in 2 buckets. First is we have many times mentioned that their technology spend does not depend on number of vehicles they set. So that is that actually. Because of more specialized platforms they need to build and the new technology they need to build, I think that it is disproportionate to number of cars which people are selling today. So they have to make significant investment into technology. As I mentioned just before, I think the new architecture programs, many of them will put in over next 4 to 5 years, and that will be the largest spend area. And we believe, so for next 4 to 5 years, we see a significant opportunity for our side of that. So from that perspective, I would say that at least for a reasonable period, we see a good potential for it.
Okay. And just to add on that, I think from a service offering perspective in the areas that we are focusing, we are pretty much aligned the way the industry is moving. But from a focused client portfolio perspective, do you think the way the industry would shape up, we are with the right set of customer today itself? Or do you think that would evolve significantly over next 5 years as various countries have a different time line of achieving electrification?
No. That's a great question. And what we are saying is we have put together a process which we look at twice a year. We look at our T25. We look at -- there are 2 factors that we take into account. One is, what is their positioning in this changing environment? Are they the ones who are going to make it? And secondly, what kind of value KPI we can create for them, right? I think if the answers to these questions is yes and positive, those are the clients that we want to engage with from a long-term perspective. And that's how we have selected our current list of T25. Having said that, we understand that this is a dynamic market. There are disruptors, the new mobility players that are coming into it. We know that some of our conventional OEMs are going to make it. We know that some of the newcomers will disrupt again. So every 6 months, we sort of do a deep dive to look at where the T25 stand and what are the new ones that are likely to disrupt the play and what is KPIT's value proposition to them, right? These are the aspects that we evaluate. So even though we are focused, we want to keep the process fairly dynamic so that we are not blindsided by the changes that are happening in the environment. Does that answer your question?
Yes, sir. Just a small -- more nuance on it. And as you know, we are seeing a trend, not just auto company making more of a technology product, which we should call it historic because the car is getting more electrical, it's the other way around as well. Then tech companies are looking also in that. So from that perspective, do you think our relationship of being the right partner, is it [indiscernible] versus the positioning model which we have done well so far?
Yes. I think what you are saying, what I call the disruptors, you are probably calling them technology companies, right? If that's what the question is about, yes, you're absolutely right. And that's what I mentioned. We understand that the disruptors are technology companies themselves who want to get into mobility space. We are keeping a very close eye. And we have also initiated some partnerships, right, that will help us to create greater value for them. The value proposition is getting fine-tuned, and we believe that in the next year or so, we'll have a very clear strategy and clear value proposition for these disruptor companies. So we are monitoring them very, very closely. We are also building partnerships and ecosystem so that when the shift happens, we are ready for the shift. Having said that, we still believe that many of our existing what you would call conventional OEMs and Tier 1s are making significant investments, and we believe some of them are going to be very successful in the new model as well. So keeping focused on them is equally important.
[Operator Instructions] As we have no further questions at this time, I would like to hand the floor back to the management for closing comments. Please go ahead, sir.
Yes. So thank you, everybody, for your participation. And if you have any questions later on, please feel free to write to me, and we'll be happy to get back to you. Thank you and have a great evening. Bye.
Thank you very much and...
Thank you. Ladies and gentlemen, on behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.