KPIT Technologies Ltd

NSE:KPITTECH

Earnings Call Transcript 2021-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Earnings Conference Call of KPIT Technologies hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. And over to you, sir.

[Rahul Jain, Vice President of Research]

Thank you, Rashida. Good evening, everyone. On behalf of Dolat Capital, wish all of you are keeping safe. I would like to thank KPIT Technologies Limited for giving us the opportunity to host this call. And now I would like to hand the conference over to Mr. Sunil Phansalkar, who is the VP and Head IR of KPIT to give a management introductions. Over to you, Sunil.

[Sunil S. Phansalkar, Chief Investor Relation Officer]

Thank you, Rahul. Good afternoon, and a very warm welcome to everybody on the Q4 FY '21 earnings call of KPIT Technologies Limited. I sincerely hope all of you are staying safe and taking good care of yourself and your near ones. On the call today, we have Mr. Ravi Pandit, Co-Founder and Chairman. We have Kishor Patil, Co-Founder, CEO and MD. We have Priya Hardikar, our Senior Vice President and Head of Finance; and myself. So as we do always, we will have the opening remarks by Mr. Pandit on the performance of the company and as well as how we see it in the near future. And then we can have the floor open for your questions. So thank you for attending this call. And once again, a very warm welcome to you. And I will hand this over to Mr. Pandit now.

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

Good evening, all of you, and welcome to the KPIT Technologies investor call. As Sunil mentioned in his opening remarks, what I would like to do is to offer some opening comments before we draw the session open for questions by analysts. I would like to divide my comments into broadly 3 parts: a, how has this last quarter been and this last year been; b, we will talk about the industry because there have been a lot of questions about how do we look into the future; and c, I would like to talk about the next year or maybe a near-term possible outlook. So I trust you have got our investor update, and what we have been trying to do every quarter is to increase the depth and coverage of the information that we provide. And so I may not need to go much detail into the last quarter or the last year, but let me just share some highlights with you. So on the back of a very good Q3, we also had a good Q4. In our dollar terms, the revenues went up by 6.8% quarter-on-quarter. The net profit went up by almost 12%. EBITDA percentage jumped from 15.7% to 17.2%, a very healthy jump indeed. The DSOs came down to 54 days, and as a result of the profitability and good collection, the cash balance that we had on our books went up from INR 630 crores to INR 822 crores. And remember, we don't have any debt anymore, and the balance sheet is very healthy. Almost 70% of our assets are in cash. So that is how the last quarter was and very credible, I think, indeed. If you were to look at the year, as you would remember, the first 2 quarters were bad for the industry and bad for us. And on a year -- overall year basis, our revenues came down by about 5% -- or EBITDA by about 5% and [indiscernible] of 4%. So this way one to compare last year's Q4 and this year's Q4, which I would say are both kind of normal quarters, we can see a very good change. Our revenues, although in financial terms, there was a small drop of 3%, the volume was the same, which clearly showed that now the customers are certainly preferring on-site -- offshore work to on-site work. And so our revenues, although they have dropped, the volume has remained the same. Our EBITDA has gone up by 24% and PAT by 26%. Our margin -- EBITDA margin has gone up from 13.5% to 17.2%. Cash, you would recollect a couple of years ago, we hardly had any cash interest, and our cash has been going up. In this last 4 quarters, the cash balance has gone from INR 327 crores to INR 822 crores, almost INR 500 crores of accretion during this period, driven by the profit as well as good collection. So this has been the year as a whole, and I hope we will be happy with the year. Our own team is also quite happy with the year. The question, however, I'm sure is in you mind, whether this is indicative of the years to come, better outperformance will continue in the years to come and how do we look at our company in the context of the industry that we are sharing. As you all recollect, some 3 years ago, we announced that we will not be a general-purpose IT company, that we will be a company focused only on the mobile industry, which means we will focus essentially on the automotive, both pas cars and CVs. And so in a sense, our future is now chimed to the future of the automotive industry. And there are questions, because earlier this -- in the last 12 months, the industry took some hit on the back of a solid revenue, and there also been the impact of active shortage on the industry. And so there are naturally some questions in the minds of some people as to how things are likely to pan out. Although as you know, the auto industry took some hit 4 quarters ago, in the last quarter or so, in the recent months, things are coming back. The pent-up demand has started coming back. And so I think that it will get gain it's normalcy shortly. What is important is not just the number of cars that are being sold, but also the nature of the cars, and that is something that I want to spend a little less time on. The -- over the period, the role of electronics and the roll-up structures inside a car is becoming increasingly critical and very crucial. Some people have called a car as a computer [ zombie ]. High-end cars have anywhere between 110 to 113 ECUs or computers on them. And in all of them, there are literally millions of lines of codes, more lines of code in a car now than in an airplane. And this is the current status. But going forward, it is very clear that the role of electronics and our software is increasing even more, and this is driven by 4 factors, which we call it CASE, connected, autonomous, shared and electrical, and let me spend a few seconds on each one of them.Connectivity is becoming increasingly important. A car is not an island by itself, it is connected with other cars. It is connected with the ground, and it is connected with the owners or the drivers who run it. And that connectivity is extremely typical going forward, especially as the people are now looking at self-driving or autonomous cars. So there is a lot of work happening in the area of connectivity, and our company is quite deeply invested on that. The second major trend is the area of autonomous. And as more and more vehicles are becoming shared, the desire to cut the travel cost. In the western world, this desire is very high, which means that more and more companies are going in for self-driving vehicles. I wouldn't say it is really like any year around the corner, but the dates [ I'm told ], that is unmistakable. Autonomous driving, of course, involves a huge amount of structure because, typically, what you have is multiple sensors and cameras, which collect the pictures around the car. Then there has to be a software, which interprets those pictures and convert them into recognizable objects. There is a lot of AI involved in this, and then you use that to connect with the behavior of the car. So again, a new potential, where million of lines of data has been being connected, so that the AR models become more and more dependable. The third one is shared mobility, and I spoke about it in Q earlier. Even shared mobility is all driven by software. And whereas people are now saying that in the Western world, the personal ownership of the car is going down, and shared ownership is going up. What it really means that an earlier car, which was being driven by maybe 15,000, 20,000 kilometers a year, will now be replaced by shared cars, which will be driven by a few hundred thousand kilometers, driven a few hundred thousand kilometers every year because they will run continuously. And you will have more and more car models coming here in a shorter and shorter time frame, which means that every car -- new car model, which will replace your old car, you have to really sharp in inspecting -- in inspection of features, which again means higher electronics in them. And the last one is, of course, electric. And you would have probably read, GM has made a commitment to hopefully electric by the end of the decade. Most of the other car companies have made such similar commitments. So this is why even Dangler, BMW, most of the them are increasing the market with the electrical. And this means, again, a lot of use of electronics and software because the batteries had to be managed properly, the engine -- ECUs had to be managed properly, the DC-DC converters had to be managed properly. And all of that is driven, as I said, by software. So the way we see that there will be growth in the use software inside the car. A company like McKenzie, for example, has said that over the next decade, the growth of software inside the car is going to be almost like 10%, 12% every year. This is the sphere in which we are playing. And so we work, as I said earlier, not as a general IT company. We are a pure technology company focused on the mobility industry in the midst and/or engineering, almost 90% is focused towards electronics. So we are in the peak of these major changes that are happening. Our own vision of ourselves is that we want to be reimagining mobility along with our customers. We want to be at the guidings or the leading area of this, and we want to operate as software integrators of choice for our partners. And we believe in the light of this, there should be enough work for us to do in a very, very exciting area. Keeping this in mind, we have actually taken 4 missions, or you could call it 4 initiatives, and I want to spend a minute each to tell you what we are doing, so that you can appreciate the mission on the work that we are in. So we are -- we believe that the work that we do is extremely critical from our customer's perspective because the software we rise moves inside the car, a car which is sold by our customer to these end customers, with which he is giving warranties and guarantees, and he is expecting this customer satisfaction to be very high. So he is looking at high-quality softwares to be really dependable high-efficient software. And what we want to do is to make our customers successful. And with that in mind, we are looking at actually 4 major missions for us to carry out. First is to come up with leading-edge platforms and practices. We want to become the best in the area in which we are. And with this in mind, we are now focused on a few practices, such as connected vehicles, autonomous vehicles, powertrain, auto start, which is like connectivity software, autonomous driving connectivity and such other areas we are working on. And in each of these areas, what we are trying to do is to build a lot of tools, platforms, accelerators which can help us deliver better software, faster, cheaper to our customers, so that they can succeed in their marketplace. In this area, we make significant investments. And so these are the areas where we believe we should get some edge on overall competition. The second initiative that we have, our mission that we have is zero defect delivery. As I mentioned, the software that we deliver is mission critical, and we want to ensure that our customers should be able to sleep easily at night once they use our software. So a lot of efforts have been going on inside the company on zero defect delivery. And on that, we have done, I would think, fairly well. There is still a way to go, but I think we have progressed quite well in this area. The third mission we have is the best place to grow. And see, this is the work in which we are engaged. It is something that is driven by passion. It's driven by passion for a cleaner, smarter, safer mobility. And we want to attract people who are passionate about this area. We want to attract people who are technology savvy and who want to make mobility much better. So our focus has been to attract the best to retain them, to train them and to grow them professionally and personally along with the company that we expect to see growing. We do many efforts -- many initiatives in this area. Some of you would be probably aware of the work that we do in KPIT Sparkle, which is where we attract innovative minds across the country. Last year, we had over 21,000 students from 600 colleges across the country from almost like 24 states to participate in this. And they were the candidates who are looking forward to working in an exciting environment. And we propose, and we work towards providing that environment. And that's a very major initiative, which is personally guided by our CEO. We hope that we will attract and retain the best of the talents, so that our customers gain and gain. The last of the 4 missions is, of course, what we call a T25, the top 25 customers -- clients that we are looking at. We don't want to be providing services to each and every client that can be around. We want to stay focused on a few clients that we want to deliver them the highest value. We believe that there are a lot of benefits of long-term association. We believe that we would end up not being vendors to our clients, but being long-term partners. So -- and we can discuss with our clients their long-term plans and their growth plans. And we have seen a lot of debt emerging out of our strategy of T25. We are also beginning to find that the top customers that we are working with are truly global in nature. So you can -- typically, the same companies operate across Asia, Americas and Europe. And our work with them in one area, in one region helps us in another area in another region. So these are the 4 missions that we are following very closely, and we trust that all of them together will result in a profitable growth for us. And we believe that, at least in the last couple of years, we are beginning to see sprouts of this initiative. Now looking at what we are planning to do as a strategy, which you can call it inch wide and mile deep, we believe that we will become an integral part of the automotive ecosystem. We believe that we will enjoy the fruits of the growth of this industry in their engineering area, which, as I mentioned, is really expected to be very good. And therefore, we believe that it is possible to have some kind of a secular growth in times to come. We are banking on this, and I should say we are preparing for this. Now we want to continue to focus on the mobility industry, but what it means is that we will work also in the carbonator-related industry, which constitutes, so to say, the entire ecosystem of the automotive industry. So we are seeing ourselves now engaged with the semicon companies in so far as they are working with the auto company. We also see with the onslaught of 6G and 5G, there would be a lot of connect between telecom and automotive industry, and we see that we will clearly play a role in both these areas. Currently, we are focused largely on the pas car business, but we are also seeing a significant growth potential in the commercial vehicle business because some of the technologies that I mentioned to you about from each perspective, they are extremely relevant from the CV and business perspective. Typically, a CV owner is focused on his profitability, so he appreciates everything that can add value to his bottom line, and we are striving to become that partner who will do that. So these are like my broad comments about the growth in the years to come. And I would like to say that we are, at this time, very hopeful about how things can pan out over the years. I would like to just take a moment to talk about a very momentous decision that we took 3 years ago. You would recollect, at that time, we were a software company. We were about $0.5 billion. And then we decided that we want to let go of our general software business and really focus on a single vertical. At that point in time, some of us thought whether this would be to good thing, of whether reaching our stars -- reaching -- whether hitching our wagon to a single industry could be dangerous. But I believe that things have panned out well looking at it from an investor perspective, and this is something that has been [ contemplated ] at length in our investor update. Our shareholders, now that they own a share each of KPIT as well as Birlasoft, they have gained about 54% CAGR since the day on which we announced the merger and the merger's fee. And since the day in which it was implemented, that is 2 years ago, their CAGR of total value has been about 40%. So I believe that from the perspective of our investors, it has been a good decision. From our own perspective, we believe that our focus is more clear, our best is greater and the value to our customers is also higher. So we believe that this has come out quite well. Now the last issue that I want to talk about is next year. As our investor update says that we expect decent growth in the next year, I would put it in mid-teens, barring unforeseen or exceptional circumstances. We expect the EBITDA also to be in the same range where we are. It's currently at 16%, 17%. We believe that our cash acquisition will continue, and our focus will be to maintain a strong balance sheet. So I think these are my opening remarks. We shall be happy to take any questions that you may have for all of us. And thank you again for attending this call.

[Operator]

[Operator Instructions] The first question is from the line of Karan Uppal from Phillip Capital.

[Karan Uppal, Research Analyst]

Congratulations, sir, on a very good set of numbers. First question is on the deal wins. So can you please talk about how the deal wins were in Q4? And how is the pipeline looking overall for next couple of quarters? And I appreciate if you'll talk about in terms of the practices, whether you are seeing demand in autonomous, connected, electric. So that would be my first question. And secondly, on the powertrain business, this quarter, it was flat. So any specific reason for that?

[Kishor Parshuram Patil, Co]

So 2 things I would like to say. On the pipeline, we do not give a specific number, but let me tell you that our wins -- pipeline base during this year has been one of the highest in the last few quarters, and the pipeline gives us confidence about what we have -- given what we talk about the next year. So I think there is enough pipeline sufficiency to move on to the next year. So that is the point number one. And it is across the region, and it is across the practices. So we see actually some of the practices in the past where a couple of them were -- I would say were not growing, and we had mentioned to you at that point of time that this will come back. And we are very happy that this growth is across the region and across the practices. On the PT point of view, I think there is no point in looking to that every quarter. I mean, if you look at -- if PT has driven our growth last few quarters, the large deal wins were there. And then it happens every quarter here and there. I think nothing specific actually. We -- as we have always said that, that will be a major area of growth for us. Specifically, I mean, apart from Europe, which was always -- which has a tremendous focus on electrification, now U.S. has also -- U.S. companies and overall U.S. as a region has also got a very high focus on electrification. So actually, that's a high-growth area for us over the near term.

[Karan Uppal, Research Analyst]

Okay. And sir, on powertrain business.

[Rahul Jain, Vice President of Research]

That's what he...

[Kishor Parshuram Patil, Co]

I think powertrain is what I explained to you. So naturally, the conventional powertrain business will get more and more ammunitions, not something which will grow to the extent like electric powertrain. And our practice also in electric powertrain is higher, actually, as all the growth is coming largely into electric powertrain. And we have been an opportunity to sustain and grow marginally also in powertrain.

[Operator]

The next question is from the line of Vimal Gohil from Union Mutual Fund.

[Vimal Gohil, Research Analyst]

I think my question on revenue growth has been answered regarding the guidance. And my question is now is on margin and offshoring. What I believe is that there has been some increase in offshoring, which has led to some increase in the gross margins. Just wanted to understand what has been the extent of increase in offshoring. And is it sustainable going forward? I mean, will we see an increasing trend of offshoring going forward? If yes, then is there an upside risk to your 17% EBITDA margin guide?

[Kishor Parshuram Patil, Co]

So let me say 2 things specifically. I think we have given the guidance between 16% and 17%, while our Q4 is 17.2% for a couple of reasons. One is, naturally, this year, we'll see increments, which will come up, and we had to really spend that. The second part is also, we are looking at -- and specially, we are looking at the market and attritions. We have to provide for some of this on a higher side. The third part specifically is in terms of labor for the -- which may get into effect sometime during the year. We also see that, I think in the H2, we actually hope that there will be partial operations, which will restart, which will also increase the expenses -- operating expenses. And last but not the least, Mr. Pandit talked about T25 and our deeper engagement. We would like to invest in that area, and we are taking some more concrete strategic steps in order to improve our engagement. So these are the areas of spend. At the same time, we are going to increase offshoring during this year. Certainly, that is -- area is there, and we are looking at improving margin across the practices and the region. The second area, which we see is on the productivity side. As you see that trend for the last 3 quarters and going forward, our fixed price engagements have gone up. And with the productivity improvement -- significant productivity improvement initiatives we have, we hope that is going to help us to improve the contribution. And in -- because of these 2 reasons, I think we have guided between 16% and 17% for the next year. So I would leave it at this point.

[Vimal Gohil, Research Analyst]

Right, right. And the second question was with reference to your media comment that you made in the morning saying that the automotive spend on ER&D is expected to grow between 10% to 12%. Safe to say, sir, that KPIT with its engagement with the top 5 clients will probably gain more share within their spend and will grow at a higher pace than that.

[Kishor Parshuram Patil, Co]

Yes. I mean, certainly, we will be beneficiary of that. And as we have said that we are looking at, barring any unforeseen circumstances, making kind of growth for the next year. If you look at our current run rate, we are around 10%. And we believe that -- as I said, looking at the external factors, we should be in a position to really get to this kind of a growth rate of [indiscernible]. And we will be -- and to your point, we will be the beneficiary of the spend into our key strategic plan.

[Operator]

The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

[Rajesh Kothari, Founder, MD & Director]

I have 2 questions. One is industry-specific. Is it possible for you to give a little bit more insights in terms of the competitiveness of KPIT, kind of players with whom we compete? Is it more like the captive houses of these auto companies? Or are these global companies, including maybe some South Asian nations? That is first question, and then I will take the second question.

[Kishor Parshuram Patil, Co]

So actually, if you look at the competitive landscape, it really varies for every area. I mean, every practice, every area, it changes. And I think we always have said that I would not look at it as a competition with the captives, but let me put it like this. We share the engineering spend with captive most, and we collaborate with the client. And we look at their strategy, what they want to do on their own and what -- where we are in a position to add value. So from that perspective, we see that there are clear areas where KPIT plays a very significant role, specifically into productionization of the software. When the software goes into production, it's a pretty -- I would say, it's a complex process and also something you have to do for a longer time -- point of time. So I think that is one area. The second area, I would say, if you look at the external competition, naturally, there are multi-facet, and again, across the practices. In some cases, there are specialist companies in a few specific domains, like I see [indiscernible] like LaSoft kind of a company, which is more into...

[Rajesh Kothari, Founder, MD & Director]

Which company?

[Kishor Parshuram Patil, Co]

LaSoft kind of a company, which was -- which is more into domain of infotainment or e-cockpit area or -- so there are companies like that. If you really look at some companies, which -- and what the OEMs are trying to do is when they are moving -- going into the next level of architecture and production, they are also trying to own more software. So sometimes, they are trying to own the software, which still now was being supplied by Tier 1. So I think that is where we have won a couple of deals in the past. So that's one area where we are trying to own the software and work with OEMs and take the responsibility of software from Tier 1. And the third is we are working with the Tier 1 who really transform them as OEMs are changing, and they are expecting more from the Tier 1s, including the software. So we are working with Tier 1 for -- again, from an integration perspective and bringing up their software capabilities.

[Rajesh Kothari, Founder, MD & Director]

Okay. My second question is, if I look at your numbers, well, of course, the Q-o-Q numbers are definitely group. But I'm looking on the full year basis and as well as on fourth quarter on Y-o-Y basis, where the most segments, basically, we have seen the very big growth. So just trying to understand how one should look at it, of course, you have a one segment which is growing and segment which is degrowing. But net-net, if I look at the thing then FY '21 over FY '20, whether U.S. or Europe or Asia, across verticals, across geographies, there is a degrowth. So -- including new mobility as well. Of course, it is a very small base. So just trying to understand is how one should look at this.

[Kishor Parshuram Patil, Co]

So I think we have mentioned that if you really look at the Q4 part, Mr. Pandit also mentioned about it, I think the EBITDA, if you have seen, it has moved from INR 75 crores to INR 93 crores. And I think there has been a big shift into on-site to offshore in many areas. Specifically, I will take one example on which we have mentioned in the past. Like one significant assignment in autonomous; last year we had taken, which was like 100% we were doing for 18 months from on-site, has moved significantly, like 70% offshore. So some of these features -- things now happen. And many of these programs, which were one of its kind, we had to be very, if I had to say, cautious about it in the beginning, and that transformation has happened during the year. And I think -- so that is the reason it gets reflected into also EBITDA increase. And as I mentioned to you, going forward, and as Mr. Pandit mentioned over next 4, 5 years, we see a significant opportunity across the practices for our T25 clients.

[Rajesh Kothari, Founder, MD & Director]

So basically, you are saying even just for such on-site to offshore, either way, then it would have been a much bigger number in terms of the top line.

[Kishor Parshuram Patil, Co]

Yes. I mean, it would have been a higher number for sure, and we would not -- it won't be a degrowth number.

[Rajesh Kothari, Founder, MD & Director]

And last the question, if I may, sir. For creating this kind of a company where you have own multiple lands, multiple segment, and I don't think you disclosed TCV, how basically -- from the visibility perspective, how one should track the company?

[Kishor Parshuram Patil, Co]

I think the way we look at it is I think it is about our focus, right? I think we are looking at -- if you look at it over the period also, our model is very close to our T25 plan. So our 85% of the business is a repeat business with our clients. And as I mentioned, the spend is increasing, we are getting a higher share of that business. If you have seen over the period, our deal sizes have increased, and we can announce you, we cannot announce you. In some cases, we are lucky when the client allows us to announce some of this. But based on the repeat case of customer, they're increasing the share and our position in that -- on that basis, we are giving our estimate for the next year. And as I mentioned, even if you look at the last -- this quarter's run rate, it about -- comes to about 10%, closer to 10%.

[Rajesh Kothari, Founder, MD & Director]

So basically, you're saying that T25 clients, which are most important clients for you, their spend is going to be, say, 8%, 10% higher on annualized basis. That's what you are...

[Kishor Parshuram Patil, Co]

10% to 12% higher.

[Rajesh Kothari, Founder, MD & Director]

Okay. And your share, whatever your share might be, that also you would likely to increase further.

[Kishor Parshuram Patil, Co]

Yes.

[Operator]

The next question is from the line of Mohit Jain from Anand Rathi.

[Mohit Jain, Analyst, Technology]

Sir, on your geographical split, so this time, I think U.S. shot up quite sharply, whilst Europe had just become our largest region, I think, last quarter. So is there a change in the spend that you're looking at between these 2 regions?

[Kishor Parshuram Patil, Co]

Yes. I think we actually think that -- I mean, actually, when you look at our Asia has shown the highest growth in terms of percentage. So I think we would be one of the very few companies, which has such a balanced portfolio. U.S. and Europe, both are big markets, right? Things can change quarter-to-quarter. But overall, as I said, our estimate for the next year, our profitability for the next year and growth across the practices, and on all the 3 parameters, we are seeing the growth. So there is nothing which probably is specific to a particular region.

[Mohit Jain, Analyst, Technology]

So no specific win ramp-up or anything that you would have seen in the U.S.

[Kishor Parshuram Patil, Co]

It will vary to some extent, right, here and there, but we don't -- there are no trends. There is no secular trend.

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

And other comment that I made here was that, no, I think it's not proper to call a win in a particular geography because an Asian client may be operating in Europe and U.S., and we get some business from Asia to be executed, say, in Europe. So the whole growth division is so fungible. I wouldn't draw a lot from that.

[Kishor Parshuram Patil, Co]

Absolutely, absolutely. That's a great point.

[Mohit Jain, Analyst, Technology]

Okay. And sir, second was on the M&A. Like you mentioned in the presentation, you guys are now looking for tuck-in. So any size that you can specify on areas where you see gaps? Could it be regional or more tech-driven? Or what kind of area?

[Kishor Parshuram Patil, Co]

We are not -- so absolutely, we are not looking anything large -- very large. I guess, more of around INR 20 million, plus, minus, right? So more driven by technology or some of the gaps in the strategy to accelerate that largely, instead of building what we can accelerate. So some of the areas, which we have said in the past, like semiconductor, as Mr. Pandit mentioned, or some of those areas. And there are a few other areas which we are looking at.

[Mohit Jain, Analyst, Technology]

So semicon, meaning semicon chip design kind of area. Or are you looking...

[Kishor Parshuram Patil, Co]

No, no, no. Software, software, software, which basically what the big changes, which are happening is software. I mean, we in are already engaged with the semiconductor company. Semiconductor companies are playing a very significant part of the new architecture program, which Mr. Pandit mentioned about ECUs and controllers and, et cetera. So they are also taking a higher responsibility. As we see our role as a software integration partner, the understanding of chip design and of integration first help them with kind of a software, which we call middle ware as well as integration. For both these cases, the relationship with semiconductor will be very useful. So we are not looking at semiconductor companies more as a client, but more as a go-to-market partners to the OEMs and basically understand their -- use the expertise of semiconductor and the solution to service our OEM set.

[Mohit Jain, Analyst, Technology]

Sir, the INR 20 million, is the revenue size? Or is it enterprise value that you're looking at?

[Kishor Parshuram Patil, Co]

Typically, I mean, INR 20 million is the revenue size, what I mentioned.

[Operator]

The next question is from the line of Andrey Purushottam from Cogito Advisors.

[Andrey Purushottam]

I had 2 questions. One is that from a medium-term perspective, could you give some color to the amount of opportunity that you see in CD and the 2-wheeler space? That was the first question. And the second question is that you have 2 large deals in the recent past on the EUR 50 million, EUR 60 million kind of variety, which is a departure from the past from where the deal size has been fairly smaller. How do you see this trend calling out? Do you see a continuance of this trend? And I know that you cannot predict this on a quarter-by-quarter basis, but from the sense that you get on the ground, do you see the possibility of such multimillion-dollar or euro deals increase in the future?

[Kishor Parshuram Patil, Co]

Yes. So I will take the second question first. I think we see this trend for certainly larger engagement because as their challenges are significant in that -- in front of them. I think it is important they are looking more for -- as a partner rather than mentor. So in that case, they want higher ownership of their partners in a specific area, and it is across the domains. And as the architecture will become more significant, more complex, it will be across the domain and over many years. So from that perspective, these deal sizes are going up. And sometimes, people don't sign specifically the POs, but it is very hard once you are in a production program, which is run over 3 years to 4 years. So that is how we see. So that trend is absolutely there. Did I answer your question, the second question?

[Andrey Purushottam]

Yes. And is this also related to the fact that you mentioned earlier that the OEMs are going towards a tendency of wanting to own their software, and therefore, that also increases the size of the deal?

[Kishor Parshuram Patil, Co]

Yes, absolutely, because as I mentioned, for example, one of the deal which we won in the -- one of the 2 deals, which -- 3 deals, which we announced, which we won, was basically taking the ownership of the software on behalf of Tier 1 completely by KPIT for OEMs, so that OEM has a better control over that. So I think both kind of deals, which were, of course, the ownership and overall responsibility is high, and that is the reason the size is up. Okay. And on the second, 2-wheelers and 3-wheelers, we do have some solutions, but our basic focus on both is on T25 is our strategy for growth. We see the spend from T25 is pretty significant. The opportunity is very high. So we would like to focus on these clients. And wherever there are certain platforms or products where we find maybe applicable for this, and we do have 1 or 2, there, we will find partners who can take to this 2-wheeler or 3-wheeler.

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

CV also.

[Kishor Parshuram Patil, Co]

CV is absolutely the focus for us. T25 basically talks about passenger car and commercial cars. In the last 2 years, we have brought in more focus on the -- I mean, we have increased our focus on commercial vehicle, which was earlier there, but we did not have a specific organization to really bring the revenues from that. So I think, over the last year and so, you will see that our commercial division -- I mean, business from our commercial vehicle manufacturers is going up.

[Andrey Purushottam]

And can you give some color as to what are the areas in which your business is going in commercial vehicles? You also talked about the fact that the commercial vehicles is concerned about the total cost of operations, so perhaps your software may address those issues or some other issues. Can you give us what are the needs of commercial vehicles that you are trying to serve? And which are the needs that are emerging that you are going to cater to?

[Kishor Parshuram Patil, Co]

Certainly. So it is exactly the same area, but there is a -- may I say that the technology option may be a little differently done, but it is the same electrification. People are going for electrification. Now in some cases, it may be hybrid. In some cases, it may be dual cell, it may be -- so there are multiple options, and commercial vehicles manufacturers may choose different options or pas car. But it's the overall area level, it is the same as electrification. On autonomous, that is where -- if you really look at any shared services or if you really look at many of these areas where transportation of goods, if you can look at it, that's where also the -- specifically in the cities, last miles and, et cetera, there are -- where there are applications for autonomous more significant. In other areas, also, if you look at e-cockpit, which also includes some areas of autonomous, there are certain regulations also, which are coming where you need better connectivity as well as better features in the driver's [ cabin ]. So I think those are the areas, which are driving this.

[Operator]

The next question is from the line of Nitin Padmanabhan from Investec.

[Nitin Padmanabhan, Analyst]

Just a couple of questions. The first is over the last, I think, 3 to 6 months, a lot of OEMs are sort of put sort of deadlines in terms of by when they want a complete EV portfolio. Is there any change in the urgency to close deals or anything that you see from these customers? And how do you see the sort of intensity of deal-making over the next maybe 12-odd months with reference to these clients versus the others who still haven't sort of put in deadlines?

[Kishor Parshuram Patil, Co]

Yes. So certainly, there is urgency, as we talked about, the adoption of electrification happening across the region. Earlier, it was more in Europe now moving to U.S. Autonomous also for some time, it has been slowed down. But now, it is ADAS. If you look at MNC Level 3 automation, it is again there. So I think on all these areas, actually, there is urgency because people have lost of almost a year before. And if you look at what they're competing with, they're competing with Tesla, and they are competing with the new-generation tech companies which have come with a full force. So there is, of course, an urgency. And I think most of the key decisions of many of these programs, along with the new architecture, will happen in these 24 months.

[Nitin Padmanabhan, Analyst]

Sure. And on the T25 clients, we currently have 21. And by -- just your thoughts on by when you think the strategic clients that they have always looked to sort of capture should be within our base? And the second question was, interestingly, and it's nice to see that the revenue from strategic clients are now at pre-COVID levels. But what we're also seeing is that a lot of mobile phone OEMs have started launching electric vehicles. So in that context, is there any change in -- how would you think about these T25 clients that you have earlier looked at? And is there -- would these clients be potential areas where you look at, in addition?

[Kishor Parshuram Patil, Co]

Certainly. So we have -- the way I would answer is we have currently 21 designated as the client. And when we say designated as a strategic plan, it means there is a certain set of organization and investments we make to engage the level at which we do, et cetera. But of course, we have a list of potential clients who will move into this strategic plan. And there are another set of clients, which, at the right time, when we think of our relationship at the right level and we get a visibility, we move into the strategic plan. Now in these areas, there are, what we call it as a, new technology companies, disruptors, as you may say, of those. As you said, there are a few companies coming. But we are very conscious about working with some of this and making sure that they are in a right position to -- really, if I have to say, be successful, both in answer of the strategy and overall team. So we track them, we engage with them. And some of them, we have seen reasonable success, both from Chinese and other clients as well, Asian clients as well, also some from the California and Silicon Valley clients also. And what we expect is some of this will move into T25. And we look at the T25 client list every 6 months, and we basically look at it, and if there are any changes, we incorporate it.

[Nitin Padmanabhan, Analyst]

And sir, 2 more quick questions from my side. One is a lot of -- there seems to be a lot of electric vehicles sort of launches out of China. So is it easy to sort of work with these customers? And do you see these -- any of these customers sort of even coming within our strategic 25 or being meaningful for you? How easy is it to sort of penetrate those accounts? And the second one was like a bookkeeping question. I think when we relisted as KPIT Tech, we have spoken about how 60% of the powertrain revenue was EV. How would that number change when you look at it?

[Kishor Parshuram Patil, Co]

Yes. So I will answer the first question. As I mentioned to you, we are engaged with these clients, and we have seen good engagement with some of them. So it is possible that some of them will -- and I mean, as they become more successful and as our -- there is a clear reason when we bring the person into T25. One is we are well engaged. And I think in China, our presence has been there for quite some time. I think, almost 10 years kind of, I think. And we did not go anywhere here and there, but we were focused on going to OEMs and our specific plans. And see, as you know, there are more than 100 OEMs in China, and we probably would have visited 60%, 70% of them at some point of time. But after that, we have shortlisted clients with whom we can work with. And we have been focused on it over the period consistently without any, if I have to say, losing that focus. So we believe at some point of time, when the time is right, and we see some early signs in engagement, so we are engaging with them. And we have reasonable presence for us to leverage that. So I think from that perspective, I feel comfortable with that. The second thing, you may know that when the China sales went up significantly of the automotive, most of that was European companies who have presence in China. Their brand sales or foreign brands, even some of, of course, U.S. also, but largely in general. Their sales went up. So naturally, we are engaged with them in China also. But to your question, we are working with the new-generation companies in China, Asia and otherwise, and some of them may enter in T25. On the second side, I think that ratio, I won't have it exactly quickly, but I can tell you that it would have increased reasonably because our EPT growth has been higher, and conventional powertrain growth would be marginally higher. So I think the ratio would have changed. I don't have exact numbers, but it would be more like 70-30.

[Operator]

The next question is from the line of Dipesh Mehta from Emkay Global.

[Dipesh Mehta, Analyst]

I have a couple of questions. First is about, can you say now what will be our own site, offshore make? I think earlier, maybe 1 year, 1.5 back, we used to have 55-45 kind of make. So now, how it has evolved?Second thing is on supply side-related challenges. So can you help us understand what is our hiring plan pressure versus later and how we intend to manage our talent pool, considering we are looking somewhere around mid-teen kind of growth rate? And third thing is about autonomous program. I think partly, you alluded in earlier questions, but if you can briefly touch upon autonomous program. Any acceleration or deceleration? Because earlier, we have seen some softness in L4, L5, whether that L4, L5-related spend also returning or it is L2, L3, which is giving good traction and likely to nullify softness in L4, L5 kind of program.

[Kishor Parshuram Patil, Co]

So first is that we always said we will not -- it's very hard for us to give on-site offshore ratio, and we will not give for 2 reasons. One is many of them are fixed price engagement. And if you see even in the last year, there is a significant change in the contribution. This is because of on-site, offshore. It is not -- it's very hard to track it, so we don't give it. The second is, in some cases, not many, but in some cases, our pricing mechanism is also based on output. So that is another reason why we do not give it. So -- but overall, I can tell you that from the -- this side, there will be at least 5%, if not more, shift in favor of offshore in the last year, and we hope that continues. That is point number one. The number two was on autonomous. If you really look at, I have answered that question. I think we don't see any softness. We see a more adoption of Level 3 vehicles. And I had said in India, also, you will see more of some of those vehicles until Level 3 coming in next few years.

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

Supply side.

[Kishor Parshuram Patil, Co]

The supply side, I think, last year, we had a low attrition. A year before, also, we had one of the lowest attritions in the industry. And we will have a higher attrition for H1, and it will stabilize by H2. That's what we think. But from your question, specifically, we had given our offers to about 600-plus people from campus. And we are also now moving towards quarterly hiring model parallel, along with the campus model, which will allow us more flexibility as well as, I would say, just-in-time mechanism also for supply chain because, otherwise, you -- it becomes difficult, so that we can also address the ratio between lateral and fresher. So looking at the environment, we can adjust to that ratio. So that's where we are. We feel reasonably confident about H1 where we have tied up our ends.

[Dipesh Mehta, Analyst]

Sir just last related question is about pyramid, whether you think employee pyramid can be good margin lever. Or do you think considering required scale, employee pyramid is limited kind of scope to leverage kind of from a margin perspective.

[Kishor Parshuram Patil, Co]

Yes. It is certainly not as -- it is not as leverageable as it is in a normal pure IP maintenance kind of a program. It is not exactly like that. But certainly, what we are trying to do is our focus on creating assets training as well as tools is high, so by which it is certainly a lever. As I mentioned -- I think in the next year, we will see some benefit out of this because last year, we did not have pressure. And certainly, it's a lever for sure.

[Operator]

The next question is from the line of Rajesh Kothari from AlfAccurate Advisors.

[Rajesh Kothari, Founder, MD & Director]

Sir, basically, these new programs in which we are dealing with our top customers -- top 20 customers, these are basically for their model launch primarily for Indian or Asian market or it is for the global.

[Kishor Parshuram Patil, Co]

Global market, of course. They're all global. I mean, naturally, Asian manufacturers would have Asian. But European, American -- and these are all global launches for most of the OEMs, as we talked about in the past.

[Rajesh Kothari, Founder, MD & Director]

Okay. Why I ask this question is because if I look at, say, European market there, the EV sales are already buzzing. One of highest is probably happening, EV competing in the U.S. market. So there it means so many programs have already done and so much spend is already done, correct? So I'm just trying to understand that what is -- somebody has already worked on it, so whether we have done a good part of that work in terms of the opportunity because these programs, let's assume it is for 2 years, 3 years, 5 years. In that case, the revenue growth cannot be 15%, 17% because it's the best of the times. In that case, the revenue growth needs to be much more higher, correct? And maybe after that it may back to maybe 10%, 11%, 12% or maybe 8%, 9% in the long term. But in the short to medium term, it needs to be significantly higher because these programs are very big programs.

[Kishor Parshuram Patil, Co]

Certainly. I mean, if you look at our engagement with BMW, where we have made some announcement, it has been very high. And actually, different plants are at different stages, and our engagement cycles with them are at different levels. But certainly, the engagements can be very, pretty significant, and as I mentioned, over the years.

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

The question you wanted to ask was whether at the end of the major EV programs, that pipeline will die up. So actually, it doesn't happen like that because although they may have an EV program, which comes to an end this year, next year, there are further improvements required in the EV program. Maybe a different battery chemistry will come. Maybe different battery management system will come up. Maybe their voltage will change. So all these things means continuous upgrades and changes. If you were to look at the internal combustion engine, which has been around for about 100 years, we continue to do extensive work in internal combustion engine because there, also, there was change from towards electronic controls, there was change towards more efficiency, higher requirement of energy efficiency and all that. So similar things will happen in electric vehicles also. The motor manufacturers will continue to have better and better quality motors. The materials of motors will change. Therefore, the motor issues, motor controllers will change. So it is not going to be the end of improvements in one single book. It's going to be a continuous improvement for, I don't know how many more years.

[Rajesh Kothari, Founder, MD & Director]

Sure. Yes, of course, is a constant struggle. But so is it possible for -- do you have any idea in terms of, say, on average basis, typically, this kind of spend is how much percent of the total, say, for example, for one car? And typically, how much, say, with the midsized car? Then how much typically such spend is as a percentage?

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

I don't -- I didn't quite understand your question, but very broad figures we gave earlier. This overall spend, [ mechanism ]sales will grow by 10% to 12% over the next decade, which I think is a fairly good approximation of both the size of the market. I think we can go by that number. The composition of that can change. Like for example, there was maybe spend on L 4, L 5 for autonomous. Now people are really focusing more on L3, getting it right. So those kind of variations will continue to happen. But I would think that it is useful to look at the aggregate, and that market is 10%, 12% growth.

[Operator]

The next question is from the [indiscernible] from [indiscernible].

[Unknown Analyst]

Sir, what I see is like a huge cash pile-up of around INR [ 822 ] crores in the balance sheet. And going to that run rate and the guidance which you have given, I see around INR 100 crores, INR 130 crores kind of a cash being added to your profitability posting your dividend around 20%. So what kind of -- one is like any organic acquisition, which you can do. And the other if that is not done, so what kind of return are you expecting on this cash pile-up on an annualized basis? Any guidance on this, sir?

[Priyamvada Hardikar, Chief Financial Officer]

So we are working on our cash cycle as well as the improvement that we can do in our income side year-on-year basis. But we believe we'll be able to improve the return in the current year than the last fiscal. We can't give you the exact numbers, but the income side will definitely improve.

[Unknown Analyst]

Anyway around, say, 5%, post tax?

[Priyamvada Hardikar, Chief Financial Officer]

No, I can't give you the numbers because the investment -- type of investments are sometimes different, so those numbers can be given. The income will certainly improve.

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

And if you look at the cash, we give the breakup as to how much in India and how much is in overseas accounts because we have subsidiaries, we have delivery centers, which are outside India. So there are, of course, cash requirements there. So the whole cash is not -- which is in India and which can be invested. So I think in our investor update, we gave that breakup as to how much cash is in India and how much is outside India. So that breakup also needs to be considered. But if you look at the income that we are generating, it is increasing every quarter. If you look for the last 4 quarters, the absolute number is going up, and that trend will continue going forward.

[Unknown Analyst]

And sir, what I understand is the large part of this cash, in addition there are some account of receivables.

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

These which have reduced significantly. Am I right on that?

[Priyamvada Hardikar, Chief Financial Officer]

Yes.

[Operator]

The next question is from the line of [indiscernible] from Kotak Securities.

[Unknown Analyst]

I just wanted to understand, do we carry any risk on the softwares we write? And if yes, how are we hedging that?

[Kishor Parshuram Patil, Co]

So it is similar. As you get into any software development, of course, in some of these programs, we have a higher responsibility. There are multiple ways in which we do. I think one is going into very detailed in terms of putting the responsibility of what will be -- who will own what kind of thing. Second, we -- in very rare cases, I mean, we typically have a cap on liabilities in most of our programs. So that is there. And the third is we naturally take -- if there is any specific contract where the liability is higher, we take a specific contract-related insurance -- liability insurance. So these are the 3, 4 ways in which we do. Also we take out the carve-outs in our agreements. Our agreements are very tight, and that is also something which we work very closely.

[Priyamvada Hardikar, Chief Financial Officer]

And one of the missions that Mr. Pandit and Mr. Patil spoke about include zero defect delivery. So our focus continues to remain delivering the defective products to our clients.

[Unknown Analyst]

Right. The background from which I'm coming is that recently, Tesla was trying this autonomous car, and it hit and some accident happened. So I'm just trying to understand if...

[Kishor Parshuram Patil, Co]

Yes. Those liabilities, we don't take as there is no indirect liability. We don't take any indirect liability.

[Unknown Analyst]

Okay, okay. And what -- currently, you have mentioned, if my understanding is correct, that your pricing is more on a fixed contract basis -- a fixed-price contract basis. So going forward, is there any possibility that we also try to do a revenue sharing model on the number of cars being sold and that software used on those cars?

[Kishor Parshuram Patil, Co]

So I don't think that is a great model. While we do have -- in wherever we have position, there are 2, 3, if I have to say, platforms, which we're going to part where we get certain royalty kind of per car basis revenue is around, what, maybe, what kind of revenue? See the 2 things. One is, when you start developing the software, as the car comes into production after 2, 2.5 years. Secondly, you don't know whether it will be -- that model will be successful or not. And so certainly, that is not something which is available. And as I said, more OEMs want to really own the software. So from that perspective, this model is very limited for using. And also, as you know, more number of cars may go down over the period, right, and the value out of a car will wax off. I think in multiple ways, this model is very limited in its purpose.

[Operator]

Ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to the management for closing comments.

[Sashishekhar Balkrishna Pandit, Chairman and Group Chief Executive Officer]

So thank you, thank you, everybody. I hope we have been able to answer your questions. But if there are still any more questions, please feel free to write to me, and we'll be happy to get back to you. So take care and stay healthy. Bye.

[Kishor Parshuram Patil, Co]

Thank you.

[Operator]

On behalf of Dolat Capital, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.