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KPIT Technologies Ltd
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Ladies and gentlemen, good day, and welcome to Q3 FY '22 earnings conference call of KPIT Technologies Limited, hosted by Dolat Capital.[Operator Instructions] Please note that this conference is being recorded. I now hand over the conference to Mr. Rahul Jain. Over to you, sir.
Yes. Thank you, Hemant. Good evening, everyone. On behalf of Dolat Capital, trust all of you are keeping safe. I would like to thank KPIT Technologies for giving us the opportunity to host this earnings call. And now I would like to hand the conference over to Ms. Priya Hardikar, who is our VP and Head Finance at KPIT, to do the management introductions. Over to you, Priya.
Is the management able to hear us? Your line is on talk. Management is -- are you able to hear us?
We can hear you. There is just noise, background noise. So if you can put on mute, please.
Good afternoon. Thank you, everyone, for attending this call. I'm very happy to take you through the quarter 3 of this year. I would also like to give a little more color and insights into the numbers. So it gives you a little better understanding of the performance. We had a decent growth of 21.2% year-on-year and 5.6% quarter-on-quarter. This was partly driven by key practices by electrification, AUTOSAR, middleware. Also, we believe that most of our -- as our -- most of the accounts are global, we would not put too much importance to the geographical numbers. But as you can see, the Europe and Asia did grow during this quarter more. And U.S.A. on prima facie, it doesn't appear to have grown. I just want to say that U.S.A. is a very strong geography for us. And as you can see from the bills or the -- we had during the quarter, most of them have come from U.S.A. So there is nothing much to read between this. Actually, we expect U.S.A. to grow pretty strongly in coming quarters. The second part, if I had to say, is T21 in the growth. We can see that the revenue from T21 have marginally come down by 1% or so. And that, again, is something where we see that we are very confident about the growth of the T21 accounts. There is a significant pipeline as well as some closures, very strong closures during the month last quarter as well as early this year. So we expect T21 to catch up the growth momentum again going forward. This quarter also has PathPartner being integrated with KPIT. PathPartner, one of the main reasons for us to acquire PathPartner was for 2 reasons. One is the availability of talent specifically focused on semiconductor company, which we wanted to really serve our end client, that is OEM well, as well as certain lower labor skills, which are also important for the middleware practice. So in line with that, we started our integration pretty early, and we have a lot of common clients between both KPIT and PathPartner. That's why it is very difficult to give specific numbers in terms of what is the growth through PathPartner, but it is fully integrated during this quarter.Now important thing to understand is this growth of 5.6% quarter-on-quarter or mainly the growth of 21.2% year-on-year. There is a different color to this because there is at least a 10% difference in terms of percentage between on-site and offshore from the 1 year before. What it means is our offshore percentage has gone up by 10% during this year. And hence, our volume growth is significantly higher as compared to the reported numbers. Even on quarter-on-quarter, this shift is significant. Even in this quarter 2 to quarter 3, the shift between offshore -- on-site and offshore is more than 3%. Naturally, this has helped us in more than one way. And one of the main things which it has helped us is a higher profitability and that is what we -- than what we expected. As you know, year-on-year, the net profits went up by 67.6%. And one of the major -- and quarter-on-quarter, it has gone up by 7.5%. And this is both substantial increment and incentives we have given during the year. Just to give you some ideas, I think our overall compensation increments during the year has been more than double of what we had given the earlier years. So in spite of OpEx absorbing this, we have been in a position to improve the profitability, mainly account of 3 reasons. One of the main thing is the movement to offshore. The second is movement to a business model, which is more managed services so that we can take the full advantage of productivity and automation. And third is better realization. When we -- 3 years back when we really started focusing only on automotive and mobility, we had given an outlook that in 3 years, we would like to have EBITDA of 18%-plus. I'm very happy that we could achieve it a little earlier than what we planned. And we are at a -- for the quarter, we are at 18%-plus for the year, we believe this will be around 18%. So this is pretty good, and it has helped again in more than one way to take care of additional costs, et cetera. Now coming back to certain challenges while we are going through this. Naturally, the attrition remains, and people management remains a challenge for the whole industry as a whole. And we were and had one of the lowest attrition in the industry just before the pandemic and even during the pandemic of course. But during the last few quarters, our attrition has been in mid-20s, which is still very, very significantly higher than what we used to have. And while we think that this is something which we need to absolutely take under control. We have taken a 2-pronged approach for this. First, while we are making every effort to specifically contain attrition and for which we are reasonably successful in keeping the attrition low on key talent and [ top-block ] attrition. We believe that we would like to take another approach where we would expect this phenomenon to continue for 2 years, and we hope it doesn't -- it is not true. But if we are in a position to do that, we would like to create an ability to generate the talent and expertise. And as you know, we've been a player which is very focused and expert, we will have to plan this in advance. As you can see, during this quarter, we have added 9% headcount organically and plus team which had joined us from PathPartner. This will be helpful to manage the impact of attrition on plant servicing and delivery of the projects. While we have done a decent job and our client CSAT scores have actually improved, and we believe that this approach will help us to be better prepared. And I think we can maximize revenues in due course, if they are well prepared beforehand and with the additional bit of , if I had to say, headcount. So we believe that this will really help us to really maximize the opportunities and increase our share of client revenues in the next couple of quarters and later. So that is why we have taken these steps, and we are moving in that direction. I would also like to talk about certain technology areas in which we are focusing. As you all know, we are a very domain-specific company. We have a deep domain knowledge on automotive and mobility. On top of it, I think we are creating a very strong expertise and differentiation in 3 areas, which is integration, middleware and new architecture and cloud. And in order to really create a full-fledged offering, we have announced certain partnerships and alliances during this quarter with the industry leaders. One is in dSPACE. One is dSPACE, and Microsoft, and one we talked about [indiscernible] earlier. So with dSPACE, we talked about into charging and BMS. With Microsoft, we talked about the dSPACE and Microsoft into virtualization and the rest with middleware and the new architecture. While we are focusing on T25 strategy and we will be now in due course in this quarter, we will refresh our list, top T21, and hopefully add a few more clients to the list. We have another strategy, which we have initiated, and I spoke about its last quarter as well on creating a special focus on disruptors. While we think that the conventional OEMs, which we are focusing, have a very strong presence in the market, in the niche markets, in certain segments of the market or certain geographies. We would like to ensure that we are addressing also some of the disruptors. While we are doing so, we would like to really bring a focus on this area -- in this area as well. And this is something we have started taking certain steps. And over the period, you will hear more from us on this area as well. In terms of cash, we continue to do the work consistently over the last few years. When we started the merge, it was about INR 70 crore balance with us, which has moved to more than INR 1,000 crore. Our DSOs continue to be 48 days, which is one of the best we had. We declared a dividend -- interim dividend of INR 1.25 per share. As you may remember, we announced a dividend distribution as well as allocation policy. In line with that, over the period, we will go to 35% of the payout, and we are moving in that direction. And in that direction, we had given this interim dividend. Naturally, we have -- are sitting on certain cash and we would look at certain areas of acquisition to do 2 things. One is specifically creating a stronger positioning as well as strength in the areas, as I talked about, integration, middleware, and cloud. And the second is, of course, also to create an appropriate strategy for disruptors. So this is what we are looking for. We are very excited with the prospects we have in the industry. We are very happy where we are and the kind of visibility we see with our clients and with our offerings. And thank you for joining us today, and we look forward to any of your questions.
[Operator Instructions] The first question comes from the line of Vimal Gohil with Union Mutual Fund.
Congratulations on strong margin performance. Sir, my question was on your on-site offshore ratio as you said that over the last 1 year, on-site offshore ratio has -- is up -- or the offshore ratio is up by almost 10 percentage points. How much of that was led by the pandemic-related changes in delivery model? And how much of that was actually led by the clients being okay with more offshore delivery because of the inherent cost advantages that they have. If at all, it was directed by your client itself. Then can we expect a further improvement in our offshore ratios going forward?
So let me just give a little bit background. If you remember, as we are a very, very focused player and specifically on certain domain, we had a lot of people outside India initially to increase our domain experience. And we had been consistently saying that there will be an opportunity for us to move a lot of work offshore. I may say it's a combination of both the reasons because of the pandemic and because then the openness of the client and actually that helped us to make that transition happen. And that helped us to really move this shift into on-site offshore. And I may say that we are comfortable now where we are. But I mean, there will be some percentage we can do more over the period, but nothing significant. This was a significant move, and that's why we brought it out.
Right, right, right, sir. Just it was interesting you spoke about focusing on integration middleware architecture and cloud. Just wanted to get some sense as to how much each area has been contributing to your numbers. Just I mean any broad sense would help, which one is currently contributing a higher proportion. And is the mix expected to change going forward? If you can just help us with that mix.
Yes, certainly. Integration is the largest part of our business currently and a little bit of -- in middleware, we call it, used to, in some way, it was AUTOSAR. Middleware is, of course, plus, plus, plus many things. So integration is, I would say, the large part of our business for now. We created this special focus on software-defined vehicle middleware, new architecture. So that is currently -- it is there, but there is a lot of room to increase this offering over the next few years. And the cloud is something which is very new. We have just started certain offerings along with our practices. So that will grow as -- even the OEMs are getting ready for certain specific services. We are not going into general cloud, right? So we are going into the cloud, which is very specific to the services, which will be provided. And from that perspective, most of all, we started some of these units. So this is something for next a couple of years later, but that is where we would like to start focusing.
Got it, sir. And lastly, I mean, assuming that offshore will continue to rise, as you've said, this does have implication on margin. So would you just take it on the P&L or maybe reinvest it back to the business?
I think, as of now, as we have mentioned, I think we are comfortable with 18%-plus EBITDA. We have said that over the period, we may go towards 18% to 20% over the next 3 years or so. But right now, I think 18% is a good milestone for us. And looking at the current situation, both on demand and supply, maybe that seems a reasonable margin for near term.
Right. So any gains from offshore will be reinvested back [indiscernible]?
Yes, certainly, I mean.
The next question is from Karan Uppal with PhillipCapital.
Yes, yes. Sir, a couple of questions from my side. First is on the partnership with dSPACE and Microsoft in the homologation of autonomous vehicle. So sir, can you please elaborate a bit on this partnership, the kind of work KPIT will do and how you see this opportunity going ahead? And how are the deals structured here? And any deal wins you have in this space?And second question was on basically FY '23. So we see that FY '22 will end at an impressive growth rate of about 20%, but -- almost 20%, but that was also supported by a favorable base last year. So do you believe that the current growth rate can continue for next year as well? Any sense would be helpful, not asking for any particular number.
So to go back to your first question, I think the idea, what we have, is we are going to provide a solution to the plant problem or a certain specific offering. We would like to go to an end-to-end offering. So with this offering with our solution and integrating some of the solutions which other people have. And we try to have alliance with the best in the industry. So that's why we put that. And this basically talks about over the period as autonomous homologation rules are coming up, I think the first one has come in Europe, and it will now get into some other places as well. So being early to really set yourself, it's a new area. It's pretty -- it will take some time to set this up. So from that area, we have started doing that. And some of the -- our -- some of the other practices along with the autonomous and -- will allow us to really put these 2 altogether. Certainly, we have started engagements with the client on a smaller scale, and we expect it to mature as people start coming with autonomous vehicles and the regulations come in place across.The second question you had was on?
FY '23, any changes in rates?
FY '23 growth. And I think the basic answer for that is we see a strong demand, and I see a strong demand in our world, which is T25 and some of the disruptors we've talked about. So we see a very favorable environment for our growth. We -- I talked about certain challenges on the talent side, and I told you what we are trying to do to address that. So we feel positive, but we will give more -- better color to this in the month of April.
Sure, sir. Sure. Sir, just last question. You had mentioned that you are creating a special focus on the disruptors. So are these disruptors contributing any revenue right now to your [ P&L? ]
Yes, it does. It's small in number. But -- and in some way, it happened because of -- not with a very clear strategy, but it happened a little bit accidentally or transactionally. But now we want to put together a very clear strategy, a separate unit, separate focus to further this. And so right now, the revenues are there, are not very significant. We do have some good clients. But I think with this, we would like to build on this going forward.
The next question is from Nitin Padmanabhan from Investec.
Hello?
Nitin, we are not able to hear you.
Nitin, your line is on top mute.
Am I audible now?
Yes, you are.
Yes. Okay. Okay. Apologies. I had a couple of questions. The first one is, if you see this particular year that we are close to ending, I think we have seen very strong growth and also a very reasonable load offshore shift. And that's also driven very strong margin performance. When we think about next year, how do you think we should sort of characterize it? Do you think that the offshore shift has sort of stabilized in what you sort of mentioned, maybe there's some scope? Do we sort of look at it as a year of potentially less drag from an offshore shift in terms of growth and maybe stable margins? So high growth, stable margins. Is that the way we should think about the profile as we get into next year? That was the first question.
Yes. So the way I would put it is, as I mentioned, that there may be some shift in offshore, but not as significant as it happened in the last year. And I would probably take in the medium term these margins, 18%-plus, there's a stable margin for the company. And of course, the growth environment is strong, and we'll give more color to this in the month of April, as I mentioned.
The second question was, you had earlier mentioned about software architecture team that are large in size, and there could be a couple of those opportunities over time. Do you see any of those -- what -- any update on those or any thoughts in terms of how those, at least in the pipeline, are progressing? Do you think we'll have a few wins as we get into next year, through the year?
So we are working with about 4 such deals right now. And we are hopeful that at least by the end of quarter 1, we would have started working on something.
That's very helpful. And lastly, within this strategic '21 account, the weakness that we have seen in this particular quarter, which is a 1% drop, if I've understood this right, it's primarily because of the 3% offshore shift that we are seeing a decline in maybe some furloughs. But in reality, it's not really a drop in volume, it's actually a growth in volumes. But it's maybe lower revenue at higher margins. Is that a fair way to put it?
Yes, it's a combination, Nitin. As we said, that if you look at some of the strategic engagements that we have signed up and some of the programs that we are working on, all of them are -- bulk of them are driven by our T21 apply. So looking forward, we believe that the rate of growth with our T21 will be solid.
Your next question comes from Chandramouli Muthiah with Goldman Sachs.
My first question is on the broader industry trend of potentially more work coming in from the operating system architecture side. So just trying to understand, are these deals sort of longer term? Are they larger in size than the historical deal sizes that you've been working on? Because from what I understand, a large deal for KPIT has typically been sort of $50 million to $60 million in contract price. Would the operating system architecture shift related work that you're in talks around, would those be larger deal size opportunities going forward?
Yes. I mean, this, of course, depends upon every client because every client has taken a different view. And as you know, this is very core to many clients. So they would like to -- some of them would like to do -- largely manage it also by themselves. They would do some of their work -- they would have some of their teams, some of the products, which are in the market and some of the players like us putting it together. So -- but potentially, this will be a 3-year deal at least and it would be of a reasonable size. So to your point, this will be at least medium to large deals.
Got it. Got it. Makes sense. That's helpful. Second question is on your order pipeline. So you mentioned earlier in the call that you are in advanced discussions with some of your U.S. customers on large deal opportunities. So just trying to understand, would you be able to give us some color on your total contract values or order books outstanding with your T21 clients? That will be very helpful detail.
See, there are 2 things I would like to mention. I think what I've mentioned is actually the wins which we have given during the quarter. Most of those are from U.S. is what I mentioned. So if you look at some of the deal wins, we mentioned in the new engagements, most of those are from U.S. and we have mentioned that also. So that is one point. And what was your second question on that, sorry?
Yes, yes. Just around the commentary you've have given around sort of strong demand environment. Historically, you haven't necessarily given too much detail on book-to-bill ratio or will it be able to...
So what we will do is -- so I understand that there is this demand. I think in the -- from 1st April, we'll find out a better consistent way of giving this to you. I think we'll find a right way so that we can give a consistent data to you.
Sure, sure. And I think -- because I think it was an industry where sort of 4- to 5-year visibility you seem to have on demand. So any sort of order book values or total contract values would be really helpful trying to understand the growth opportunity in the company. I think that's the spirit of the question that we had.
I understand.
Got it. And last question is on the per-employee realization. So I was just trying to do some maths. Since FY '19, your dollar realization per employee has risen approximately 3% annually. So I just wanted to understand, what are some of the factors that have helped this? And how should we think about this number going forward? You've sort of increased your employee count. If I were to include PathPartner, almost 1,000 new employees' quarter-on-quarter. So just trying to understand, is this sort of 3% to 4% annualized improvement revenue per employee, is that something that you think is sustainable going forward? And what are some of the factors that might drive any rates of this nature?
I mean I would like to look at this more in a range because it really changes in a particular quarter, in a particular time also for 2, 3 reasons. One is on-site, offshore during that quarter. Second is the fresher additions we do because freshers do take a little bit of a time and specifically for us to get them to work, and they have to go through extensive training and on -- hands-on training and projects. So all that adds up. And so I would say that you can look at this range continuing roughly with certain 5% here and there.
The next question comes from Sandeep Shah with Equirus Securities.
And congrats on a good quarter. Just wanted to understand our strategy going behind disruptors because it looks like most of the automotive engineering R&D spend has been concentrated with the top 10 OEMs or max to an extent to top 20 or top 30 OEMs. So how will we derisk our model if you go behind disruptors? Because their overall pool of engineering R&D spend may not be that big. And if anything happens where they do not get a funding, then it could be a risky strategy for KPIT as a whole. So how will we select? What would be the selection criteria? And how will we derisk on that kind of a potential risk?
As Mr. Patil mentioned earlier on, our focus right now remains on our T21 clients. And we believe that in the mid- to long term, we'll have solid growth coming from them. That's our bread and butter today, and we will not take our eyes off of them. Having said that, we also have to keep our ears to the ground and see what kind of change is happening in the marketplace. Clearly, there are some disruptors who have created a lot of splash in the market and are leading the way, and then they have a bunch of followers. So this is something that we need to pay very close attention to. And as Mr. Patil said, fortunately for us, there are some of them with whom we are already engaged. But this is the year where we have to create a separate bandwidth and a strategy to chart out a plan for the next 3 to 5 years. What's really our value creation for the disruptors -- for our T21 from the existing OEMs, our value proposition is very clear to them. So we want to make sure that it's as strong for the disruptors over a period of time. So this is something we'll look at very seriously this year. But the real shift will start to happen in the next 3 to 5 years. So this is -- like I said, this will not be at the expense of our T21, right? That's our bread and butter. We'll continue, will create a separate bandwidth and then we'll grow it from there over a period of time. Does that answer your question?
Yes, yes. And just a related question. Any strategy to diversify beyond T21 going into sectors outside automotive and how fast that diversification could be?
Okay. The thinking behind that, we call it T25 strategy. We have 21 who are part of it. Obviously, we'll add some more, especially from 1 or 2 passenger cars, maybe 1 or 2 commercial vehicles that will add to our T25. And over a period of time, some of the disruptors will also become a part of this over a period of time. So that's really the strategy. Our focus is on helping our automotive clients move from being automotive passenger car vehicle -- commercial vehicle players to -- through mobility players in the future. That's really our calling. And that's what we'll continue to focus on going forward because we see tremendous headroom in this area in future.
No, I completely agree. I think automotive will have a long-term visibility in terms of growth. in terms of if we have an opportunity, similar opportunity in semicon, telecom or maybe aerospace, are we open to look into these kind of sectors as well?
We'll continue to look at mobility. That's really our calling, and mobility will go beyond what you look at as passenger cars and commercial vehicles over a period of time, and we'll move in that direction. That's number one. When you talk about semicon and telecom, from the length of automotive, we'll obviously partner with them, we'll work with them to create value for our clients on the mobility sector. So we are taking a very close look at that. Mr. Patil talked about our alliances and through PathPartner, some capabilities that we have acquired in the semicon. But semicon companies and telecom companies are our means to create higher value for our mobility clients.
Okay. Okay. Just 2 keeping questions. Just based on guidance, it looks like the inflight growth, which we forced for the fourth quarter, could be as big as 5.7% on a Q-on-Q basis and that looks likely to be 100% organic. So what will drive this? Because will it be a 2Q deal win, which may ramp up in the 4Q or even there are deal wins which are enough in 3Q, which will help us to post a solid exit rate on the 4Q numbers as well?
So I think it was -- there are 2 things. I think what we just wanted to say that we revised our guidance. And on the revised guidance, we will not be at the lower end but on a higher end. We are not giving any specific numbers. I also mentioned about the mix of the revenues and et cetera. So it really depends upon that. But the growth drivers are not going to be any different. I think we'll look it as a strong quarter, but it is not going to be any different than what we have shared earlier. So basically the same T21 clients, same practices, same thing. I think that will continue to drive our growth.
Okay, okay. And just last, in terms of PathPartners, at the time of acquisition, the revenue size, which we have discussed, if we arrive on that for a full quarter consolidation in this time, then looks like PathPartners would have contributed 3.5% Q-on-Q growth in this quarter as a whole. But in your opening remarks, you also mentioned about some common clients. What could be the exact contribution of PathPartners in terms of this quarter's immediate contribution?
It is very hard. That's why we have not given the number. Otherwise, we give the numbers most of the time in the past, as you know. But see, the point here to say is there is a certain type of business, which is not in line with KPIT's strategy. We have actually some of which we have divested, some of which we have shut down. We have aligned the focus with KPIT clients. We have common clients. We have common pool. So I think it is -- that's why it is very difficult to give you the number, but I mean it's not the most significant number.
Okay. Okay. Is it fair to say, do we work as a subcontractor for PathPartners before acquisition? And that's why the intercompany revenue gets nullified and that's why the growth contribution cannot be that big.
I mean, I don't know whether you mean subcontractors, but yes, we are working on commonly on projects, some common projects, and common clients. Yes.
Yes. Okay, okay. And last thing if I can just squeeze on taxation. If I observe on a quarter-on-quarter, the current tax, and the deferred tax as a percentage to PBT has a huge volatility on a Q-on-Q basis, what drives this as a whole?
I don't think there is a major drive. If you look at our effective tax rate, it is in the same range of 20%. In fact, in this quarter, it is some basis points lower than 20% versus it was a little higher in last quarter. We have said that during -- as a year as a whole, it will range between 20% to 20.5%, and that's how our quarters have been.
So I understand that. I'm just saying current tax and the deferred tax because current tax sometimes goes above 30%, 35% term. Sometimes it comes to 20%, 22%. And then there are material changes related to that towards deferred tax as well.
So deferred tax positions are mainly dependent on how the [indiscernible] unit taxability. There are multiple factors there or even how the gratuity payable amount there. So there are multiple factors of how deferred tax is calculated. We will not be able to comment on the volatility of deferred tax because there are multiple factors affecting it.
The next question comes from Mohit Jain with Anand Rathi.
Three questions. One was related to your segmental breakup. So this ADAS and connected. Do you think...
I can't get -- can you...
Segmental breakup.
Segmental breakup.
So ADAS and connected. These 2 segments have been slow moving for like 4, 6 quarters, while it appears that they should have been relatively on a faster trajectory. So what should we expect going ahead? And what is keeping them in this slow lane, so to say?
So actually, one of the practice where we had the largest change from on-site to offshore. And if you remember some of my calls earlier, I had said that to service some of our clients, we actually hired a very significant number of people outside India. Because some of that domain knowledge did not exist with us. And as I mentioned a little bit earlier that we took this opportunity to allow us to move that work offshore. So one of the major shifts much disproportionate to the overall number has come in at ADAS during this time. And connected vehicle, yes, basically, it is -- I believe we will start seeing some more traction during this quarter onwards -- next quarter onwards. We'll see -- start seeing some traction. There has been, if I had to say, certain -- see, basically, the traditional infotainment, traditional cluster, this program merged into what we call the cockpit. And that changeover is very complicated by the fact that there are different players which has come in, et cetera. So it is settling down. I think you will see that growth slowly coming in the next quarters.
Another part is you'll see that our growth in others is significant. In some of the others, we have actually spun off a practice, which was part of one of these practices before. That's why you see higher growth in other, point number one. And point number two, some of the other long-term directional deals that we talked about related to software-defined vehicles and middleware, they are also forming part of that, and they will also lead to better growth in all these 3 areas in the future. So when you spoke about offshore shift, like is there a volume growth number or something for ADAS wherein we can assume that this sector is also [ going at a pace similar to the company? ]
The individual numbers is hard to give. But I can tell you that, that is the largest in that number. The shift is largest.
It is largest, okay. Second was related -- it's a bookkeeping question but related to CapEx. Like -- it looks like 9 months' CapEx has sort of gone up. And what is the number there for 9 months? And what is the outlook on CapEx for full year?
So the general CapEx has gone up, the operational assets increased. If you look at the property plant and other tangible assets as at December end, quarter-on-quarter, there is not much movement. During the 9 months, yes, but those have -- all have been operational.
So now going forward, the CapEx should fall sharply? Or what is the expectation?
The regular CapEx will continue, more or less.
And measuring it as percentage of revenue, which used to be around 2% or up 2%, now it is, I think, trending at 3% or above or higher maybe. So should we expect that '23 we'll see a decline in total CapEx outlay? Or do you think there is some...
We should look at the class-wise assets. I'm not sure whether the percentage to revenue will apply to all the classes put together.
I mean, to put it other way, our infrastructure expense is minimal. I mean, we will have some smaller offices in some parts that we are having some satellite offices, et cetera, but it's very low. Largely, the expenditure is to support and add for the work from home. I think that's the only expenditure which is...
That should be relatively -- I mean we should see a peak in '21, '22 and then it should sort of follow up. Is that a trajectory which we should expect or?
It depends. I think this quarter, for example, if we have a significant number of people added. So...
Then it will proportionately increase.
Proportionately increase, understood. And sir, last was, you have discussed this during the call, but these new areas or segments that you plan to enter through inorganic initiative or something. So is there some kind of an outlook that we can have that apart from auto, this is the vertical? Let's say, you spoke about aerospace, but is there any specific vertical that is in your mind where you would like to enter?
No, I think just to -- I don't know what you're referring to. I think we were very clear when we said that we'll stick to mobility, and that's really going to be our focus, correct? And everything that we are doing, our current business and future business, all the investments are for our passenger car, commercial vehicle and what we call disruptors. So that will remain our areas of focus.
At least next 3 years, you can say that we will not add anything else, even a subvertical.
No, understood. I got confused because I heard aerospace is part of mobility, and that's why you call it mobility. So that's why I was clarifying if that includes aerospace or just...
I'm glad you asked that question. It would have created other things, other ways.
The next question is from Dipesh Mehta with Emkay Global.
Related question to the previous participant. Now you gave some clarity about others' rating. Can you provide some detail about what we include in others and what shift we are witnessing there?
Yes. I think some of the things, if you look at the middleware and the architecture that you talk about, I think body, body electronics play a significant role in that. And that's one area where we've seen tremendous growth, and we'll continue to see that growth going forward. And the architecture itself and all the projects that are related to the middleware, including AUTOSAR.
Okay. So AUTOSAR is part of others for us?
Right now. They will define it going forward. But I think right now, it is.
I think in Q1 FY '20, we provided some sense about the breakup of others. And that time, we indicated AUTOSAR is around 5, 6 percentage. Mechatronics is around 7%, 8% and vehicle is around 10%. Can you provide a similar kind of update, let's say, what is the breakup currently, whatever couple of headings which you can identify and give some sense?
See, generally, I can tell you that AUTOSAR has been our high-growth practice and the middleware, as I talked about, it is going to be a major practice. So you can consider a significant part of that portion going to this practice and the body.
And the body electronics, okay, okay. Then the last question is about, I think, do we say what will be the contribution of PathPartner in this quarter?
I think I answered this question a few times, that it is -- why we cannot give an exact number, but I also mentioned that it is not as significant.
Okay, okay. And the decline in what we are seeing, let's say, revenue per employee is largely because of the acquisition-related impact or is largely more towards offshore kind of thing?
It's basically because of the fresher addition.
Okay. Do we say that number, how much we might have added?
We have given the details. Overall, we have given 9% people during the quarter organically, plus 500-plus people through PathPartner headcount.
But it doesn't give fresher, right? I'm asking specifically fresher, whether we are sharing that number.
Well, I think maybe 70%, 80% of the addition would be freshers.
The next question comes from [ Dave ] with Invest Yadnya.
Sir, you have mentioned 3 domain specifics, right? Integration, middleware and cloud. So in terms of level of complexity, which is the most complex? And can you give the margins with respect to these areas?
I think I talked about these new technologies or new areas of spend which are coming up on top of what we do. Integration is the current one, what we do. And so from the complexity perspective, there are different complexities. Middleware is a different complexity. It's quite complex from that perspective. It's pretty close to hardware and operating system. So it's pretty complex. Cloud is different. It includes more integration work. So it is different. So I think every part has a different complexity. It's too early to give any -- I mean we only do the segmentation; we would do that right now. I just included it as a part to give you an idea about the future course of our technology.
The next question is from Karan Danthi with Jetha Global.
I just want to benchmark your performance against your peers. We just reported a few days prior, and this shown 14% Q-on-Q growth. Albeit on a smaller base, they still result in a higher absolute would-be growth Q-over-Q. So is this a function still the offshoring piece you mentioned? Or I guess is it a function of mix where they're winning more ADAS and connected vehicle deals? How do you want to interpret such a large discrepancy?
Excuse me, I think -- sorry to interrupt you. We are not able to hear you very clearly. And the question also seemed very long. So if you can be a little clearer and louder, that will help.
So your peer, which is your listed peer in India, reported 14% Q-over-Q growth in their auto segment or transportation segment. So there's a rather large discrepancy between that number and your 5% growth. So any way to just help us understand the reason for such a large discrepancy?
I think I would not like to comment on any other company. I can talk about the performance of this company and consistency and the way we have set up the expectation. But if you go into the details of -- there are 2, 3 things. One is instead of quarter-on-quarter, if you look cumulative for the 9 months, first, it gives you a little better numbers and if you take it over a period. The second, if you can look at some intergroup revenues, that will give you some color. And basically, some of these entities had really supported quite a bit in the last year. And we had also suffered that loss of revenue. So some of those issues are there. I would not like to analyze it like that. I would like to focus on our business, how we see the outlook and what we are doing against what we promised.
Yes. So just a follow-up there then. Who do you regard in your competitive set across your major business lines? So in integration and then in middleware and cloud, I guess who is in this competitive set today, really in the competitive set?
There are different companies in different spaces because, as you know, we are one of the very few companies who just focus on automotive and mobility. There are companies who focus on more than one vertical and -- but I would say in the integration as well as this area looks after a good competition, I would say, comparable competition from Asia -- from Europe. And that was a strong competition from the integration as well as domain perspective. The -- most of the domains, they have been there. There are certain companies. I would say from India, there are companies, but they compete in a certain part of the practices. In Europe, there are also boutique companies who are doing that. There are generic companies or if you look at it, some French companies who are there -- who have been there, some German companies who are now part of this European company. Most of them work in 1 or 2 domains. So our real competition is also happening with a company like Bosch. Actually, if you ask me in the middleware area or some of these areas, the companies we clearly would compete is some of these companies. And the difference there we have is we are an independent company. We are not a part of any tier 1. So we can create a solution which is more independent. But it's a choice of the OEM or it also sometimes goes down to, if I had to say, at what stage, if it's delayed or it depends upon the situation [indiscernible]. So that seems to be more competition for us from the Bosch software side.
Understood. And just the last one. You had commented a little bit on deal sizes, especially for the newer type of deals coming in. Just a framework for us over the next 2 to 3 years or the medium term? Is a $100 million deal something that is doable given the skill sets that you have today internally, or the skill sets that you're seeking to build? So can a KPIT being a domain-focused player win $100 million deal with one individual customer?
The short answer is yes.
Okay. And are there any skill sets missing? Or do you have all the skill sets you think necessary at the moment? It's just a question of building capacity and we have the deal.
So the point it really goes back to how the OEMs want to operate. There are certain OEMs who are comfortable, as you know. They are matured in working with the player and taking the -- I think those are the guys who can do it. Some other companies have a different way of doing it. So actually, from our skill set perspective, if you ask me, of course, we can stand on certain -- and always, there is a scope to stand on certain competencies. But there's nothing significantly missing to that.
And as you know, looking at the complexity of some of the programs that we are working on, it's also an ecosystem play. So not one company is going to do it all. We have to partner, and Mr. Patil talked about some of the partnerships that we have. So together with our partner ecosystem, we believe that it really complements the areas and creates a larger value for our clients.
And that was one of the reasons for also doing the alliances and partnerships.
The next question comes from Ankit Agrawal with Yellowstones.
First of all, congratulations for a different set of numbers, especially on the margin side. First question is, based on your industry experience and the demand environment that you're seeing, what is your best guess in terms of how much time would it take to double our revenues? Will it be 3 years, 5 years, 7 years? I'm not looking for a specific guidance, but just some sense.
At this point, what we can say is -- I'm just going to reiterate what we said earlier on, we really see solid robust demand for the next 3 to 5 years. And I think there is a really solid opportunity for us to help our clients in this area, and we see favorable market conditions.
Okay. And let's say -- I mean, if you want -- if we had to -- for -- to serve double the revenues that we are doing currently. In terms of employee strength and infrastructure, what kind of additions do we need? Or are we -- or we can do double, 2x the revenues on the current resources as well?
I think simple math is that, but it doesn't quite work that way. As a company, we've been investing in our tools and accelerators. We also try and figure out ways to create greater value to our clients so that we can shorten their time to market. So our focus continues to be on the automation side, along with our tools and accelerators. And that's why the revenue growth and the growth in the headcount is not necessarily linear.
The last question is more on the accounting side. I notice there's a significant volatility to the stand-alone numbers this quarter. But just trying to get a sense like what kind of revenues do we book in the stand-alone entity and what goes into subsidiaries?
See, stand-alone subsidiary is a transfer pricing model that we operate on. And it depends on the customer contracts and the projects differently. So stand-alone entity records for the offshore business that we have across all the subsidiaries. That's all I can say. I mean...
I would not say anything to analyze the stand-alone subsidiary, but we don't look at it. Our internal MIs is also consolidated. I think...
You should look at consolidated accounts, including profit and loss and balance sheet.
And we give you a breakup across all our practices and we give -- we add color to that. That's how we run our business.
Correct.
Okay. But internally, there would be some logic, right? For doing that -- for revenue booking.
No, no, no, there is...
I mean, the booking is if there is an on-site, then it is [ recorded ].
Yes, specifically, followed as per the transfer pricing guidelines that we have. There is no other -- like Kishor mentioned, our management reporting system is entirely based on practices and geographies and our T25 clients, and that's what you should also look at.
The next question is from [ Madhav Sharma ] with investor.
I would like to ask you, me as an investor, I would like to know whether this industry as a whole can ever build any kind of competitive advantages? Or not just KPI, but ever in the future, only yes or no, can the company ever build more to in this industry?
No, no, can you say that? I'm not sure -- it's not clear to me. I'm not able to hear you. Can you please repeat your question?
So my question is, I would like to know as an investor that whether in this industry, a company can ever build a competitive advantage of pricing power or any kind of model?
So the way I understood the question is, in our industry, a company, can it build a competitive advantage and a pricing model? Is that the question?
Yes, so that's the question.
Yes, I think we have done that. I think if you look at our shift in the last 3 years, we have done that. I'm sure there are others who are also doing it, not in -- and it's across the industry, whether if you look at an OEM, I think Tesla has done that. If you look at tier 1, some of them are doing it. And then there are companies like us who are also creating a clear differentiator and creating our own niche in this industry.
Okay, sir. But I would really like to understand this, that as you just replied about like 2 questions earlier where you were like there are many companies in India that do not -- that focus on this part of your business also, but they are diversified into other sections of industries also. But I want to know when a lot of companies are doing what you already are doing right now. How is that KPIT is going to stand out in the longer term? So you say that 3 to 5 years, you see demand volumes driving your growth. But after that, if you do not happen to have any kind of advantages competitively, so how are they going to sustain?
I think this is a very basic question, but you may have to study and maybe talk to our team because we have run out of time, but I will give you a very short answer. So first is in -- at least in India, that is what you're looking at, there is not any other company which is half our size in this area, in the software in automotive field. So that is the point number one. So first is the focus is always the biggest differentiation. And that's why not many companies prosper versus others because of the focus. And the third is, of course, we have been investing into a lot of assets, what we call the PTAs, to differentiate ourselves, both in terms of domain, technology, and productivity. I think that is the reason we have stayed ahead in terms of this area. And of course, last but not the least, the strength we have with the global presence with the key clients, which is T25. So these are our advantages, and it is not very easy automotive. See, our strategy has not come in the last 2 years because there is a spend. We have been working in this area for 17, 18 years. And if you look at some acquired entities even before. So I think deep domain knowledge and strength, ability to have a production software in the car running for 15, 20 years is a very significant advantage in automotive.
And secondly, to your point, whether this industry itself will provide enough headroom for the next 3 to 5 years, absolutely. This one industry where the existing OEMs are spending money to remain competitive, there are disruptors who are spending money to be part of this shift from traditional vehicles to mobility. So in next 3 to 5 years, we see a fairly good headroom for us to grow and continue to deliver value to our clients.
The next question is from...
I think we can take a last question, but because we have really 10 minutes left.
So the last question is from Sandeep Shah with Equirus Securities.
Just a bookkeeping question. In terms of other expenses in this quarter has gone up, so is there any nonrecurring charges which may not repeat in the fourth quarter? And how to look at as a percentage of revenue in other expenses?
Other expenses in this quarter has gone up mainly because of some recruitment, training, travel. So operating expenses have gone up. There are a few professional fees also, but I would not call them nonrecurring going forward.
Okay. So this PathPartner, investment banking charges may be also a substantial portion or it's not big to call out?
It's not too big to call out.
Okay. And just last, in terms of disruptors, are we also saying we could be behind OEM like Tesla, who will also to be a disruptor in the EV space? Even that kind of a size of a company, we could be behind? Or if I'm not wrong, correct me, if we are already working with a company like Tesla?
No. Yes, there are companies like Tesla who would -- Tesla is a lead disruptor and there are a few others. So all of them will be on our target list. Some of them will be on our target list, not only...
So with this, we would like to conclude the quarter 3 earnings call. Thank you from our side and take care and stay safe, everybody.
Thank you. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.