KPIT Technologies Ltd

NSE:KPITTECH

Earnings Call Transcript 2022-Q4

[Operator]

Ladies and gentlemen, good day, and welcome to the KPIT Technologies Ltd. Q4 FY '22 Earnings Conference Call hosted by Dolat Capital.

[Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you, and over to you, sir.

[Rahul Jain]

Thank you, Faizan. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies for giving us this opportunity to host the earnings call. And now I would like to hand the conference over to Sunil Phansalkar, who's Head of IR at KPIT, to do the management introductions. Over to you, Sunil.

[Sunil Phansalkar, executive]

Thank you, Rahul. Good evening, everybody, and a warm welcome on the KPIT Technologies Q4 and FY '22 earnings call. On the call today, we have Mr. Ravi Pandit, our Chairman; Kishor Patil, CEO and MD; Sachin Tikekar, Joint MD, Priya Hardikar, CFO; and Sunil from Investor Relations.

I hope you have all received our investor update and gone through it in detail. As we do, we'll have the opening remarks by Mr. Pandit on the overall performance of the company and the way forward. And post his opening remarks, we'll have the floor open for questions. So I would once again welcome you all and hand it over to Mr. Pandit.

[Sashishekhar Pandit, executive]

Thank you, Sunil, and welcome to all of you. So in my initial comments, what I would like to do is to talk about this last quarter -- the last year. I'll spend a minute or so talking about the trends over the last couple of years.

I would then want to talk about the global customer trends and the workforce trends because I certainly would like to know how do we see the future of our work. And then I would like to talk about what is our next year's outlook and give you a flavor of the company that we are building.

And as Sunil has mentioned post that, we can go into the question-and-answer question. So as Sunil mentioned, you probably have already seen our investor update for Q4 2022 and FY 2022. And I hope you are happy with the performance that our company has delivered.

So if I were to look at the last quarter, we have had an all-round growth of revenue, EBITDA, PAT, cash, et cetera. So the revenue growth was 5.2% on a quarter-on-quarter basis and 21% on a year-on-year same quarter basis at constant currency.

This, of course, understates the volume growth to which I will come in a short while.

Our EBITDA grew 5.6% quarter-on-quarter and 30% at -- on a year-on-year basis and is now at 18.6%. The PAT has grown 20.7% quarter-on-quarter, 50% actually on year-on-year same quarter and is now at 12.1%.

The cash balance now is INR 1,038 crores. This is post the dividend payment that we made. If you remember, we did the interim dividend sometime back. And in this quarter, also, as we have announced, we got the large deal of $125 million in addition to a specific large deal of EUR 70 million. We are ending the year with a staff of about 8,250 people. All in all, the quarter was good. This kind of came on top of a good last year. And let me just quickly look at the last year.

Our revenue for the whole year was $328 million, EBITDA of INR 438 crores, PAT of INR 274 crores. The revenue growth was 19.7% constant currency. But I think it is important to recognize that was accompanied by almost an 8% shift to offshoring. And I think the volume growth was in the region of 28%, which, of course, you have seen its results on the EBITDA and on the PAT.

So EBITDA grew by 41%, PAT by 88%. As I said earlier, we have a healthy cash balance. Actually 79% of our balance sheet is cash. The return on equity has improved from 12.1% last year to 20.9%, the EPS from INR 5.4 per share to INR 10.05. And you'll be happy to note that we have increased our dividend from INR 1.85 per share to INR 3.1, while still having a conservative dividend payout ratio of roughly 31%.

Our growth has been balanced. Our U.S. now accounts for 39% of our top line, euro 40%, Asia about 21%. Pass car, 74%, commercial vehicles are 26%. The growth is spread across our practices both new as well as old.

And we have incubated some new practices during the year to deal with the needs of our clients.

The T21 customers with whom -- on whom we have a large focus account for almost 84% of our revenues. That is really the summary of the last year. It's one way to look at the last couple of years, so we have now delivered 7 quarters of continuous revenue growth and margin expansions and 12 quarters of net cash increase.

Over the last 7 quarters, our EBITDA margin has grown from 13.4% to 18.6%. Net cash has grown from INR 0.9 billion to INR 10.38 billion. And the quarterly revenues have grown from [ INR 65 million to INR 87 million ]. And now we have top 21 clients who are really the who's and whom of the automotive world.

And for many of these, we are their core strategic partners working in areas that define their future. Since our strategic action of merger and demerger, we believe that we have created value for our clients, for you, our investors and for our staff. And I would like to thank you for your continued support.

Now while we talked about the last year and maybe 2 years, I'm certain that you are keen to understand, how do we look at the industry in which we are operating. So I would like to spend a few minutes talking about the global customer trends because that might give you a peek into how we look at our future.

We believe that we are witnessing the most transformative period in the life of our industry, the mobility industry. And this is actually in the last 100 years since we haven't changed as we are changing now. You would recollect that we have been talking for the past few years about CASE, which is connected autonomous, share and electric as the drivers of change in the mobility industry.

In the last 1 year, all of these have trends -- all these trends have been converging into a new phenomenon, which can be rightly called the software-defined vehicle. So recently, we had computers inside a car. Now we have a car around the computers, the computers are actually becoming the core of every vehicle, which actually is -- where it is actually described by the term software-defined vehicle.

So the question is what changes are driving this? Why is it that people are talking? Why is it that the industry is talking about software-defined vehicle? And I think there are a few reasons, a few drivers for this change.

First is, of course, it's a desire to build an intelligent vehicle, a vehicle, which is aware and responsive to the environment. And second is the -- there is a need to build agile systems, which are highly responsive, which can be changed over the year. The auto companies now believe that data monetization is their way forward. So they are not looking at a situation where there is a onetime sale of a vehicle and thereafter, there is no connect with the customer. Instead now there is a realization that the automotive -- the car delivers data all the time. And the auto OEMs would like to partake in the monetization of the data. There is also a need for better cost control, and there is a need to drive the speed of change.

Now all these drivers are actually being -- are actually making a big change in the automotive industry. So what are the changes that are now being made? So clearly, there is a change in greater architecture. From a situation where there was decentralized computer inside a car, sometimes having almost 110, 130 ESUs.

Now there is a movement towards the [ golden ] architecture where you may have 4 or 5 computers. And this is one way to go to a central compute platform. This means a big change in the computer architecture and the large opportunity for a company like us to participate in this transformation.

There is also a movement of agile technologies because the world is realizing that this industry is going to change fast. That means all the software functionalities in a car will have to change fast. And therefore, the technology has to be agile.

And therefore, it is going to make a change in the programming languages that are there. There is a huge change in the industry interfaces. There is now a much tighter linkage with the semicon industry. We all have heard about the semicon shortages.

And we also heard about the desire of a lot of auto companies to get into at least some kind of silicon manufacturing. But over and beyond that, there is a need for a much closer collaboration and cooperation between these 2 industries, which again, creates opportunities for a company like us, which is really engaged in the world of integration.

All these changes in the architecture or in the way in which the cars are going to be operated, is also making a change in the organizational structure inside the auto companies. There is a consolidation of embedded software, programs across application domains and there is an increase in complexity because of this. This calls for deep domain knowledge, the appropriate technology assets and skills.

Now it is important to note that the changes are happening both in pass cars as well as in trucks, both of which are our clients. So what does it mean for a software developer and integrator like us? It means that now our clients are clearly seeing needs of partners and not for vendors.

Now this is just has been our philosophy of working with our clients. We have been looking at these partnerships. And now there is a growing realization on the part of the other companies also that they need partners who would work with them for a long period of time.

We are also looking for partners who bring deep competency, which is what we have been investing in, when we are looking at platforms into accelerators. And as we have been telling you that over the years, we have been making investments in this year after year. The car companies look for a partner who can be dependent upon.

And our credo is actually reimagining mobility with you that you really stand for the partnership that is at the core of our working. But this is a reimagining mobility for with you for a premier say for a modern world. And our goal and which is what we stated a few years ago, our goal has been to build a company focused on mobility, a company which knows software better than any auto company, and which knows auto better than any software company.

And that is the rate -- that's the area where we are playing. And I think now we see greater and greater potential for a role like this. We believe that we are at the right place and the right time, and we are making every effort to play our rightful role in these exciting times.

So now this is what is happening in the overall industry. Just as there are changes in the industry, there are changes in the workforce. Actually, very tumultuous changes. So aided by electronics and telecommunications, telecommunication revolution and accelerated by COVID, major changes are happening in the world of the workforce. We believe that the days of large, centralized workplaces with fixed work time are changing.

And these changes in many industries, whether in mobility industry or finance, whether in logistics or even food is creating huge demand for software talent. And we now have a situation where the demand for talent far exceeds the supply. And this is resulting in the high attrition and turmoil that you see across the industry.

We believe that this will take a few years to calm down. We expect that the attrition will continue to be in the mid-20s. And we are learning to deliver our growth despite the tough situation. And we are looking at multiple ways in which we can handle this.

We are looking at global centers. We are looking at local centers. We are looking at hiring of freshers and treating them rapidly. We are working on diversified staff [ covenants ] accounting for lifestyle changes in different life stages of our people. We are tackling our alumni network. We are strengthening our referral program. We are doing a lot of work on automation and also a bit of processes for work management in the new paradigm.

We believe that this new paradigm is going to stay, and we are working our way forward to succeed in this new area. Now let me look at the next year's outlook. As we have stated, we are looking at growth between 18% to 21% constant currency in terms of revenue, 18% to 19% EBITDA margin and about 25% volume growth.

And embedded in this is all the continuous investments that we have been doing to make our growth in the long term sustainable. I would urge you to look at our company beyond our numbers. We have set out to build a company, which has deep social commitment and a commitment to integrity.

Our social commitment is for every society in which we work, whether it is U.S.A or Germany or China or Japan. And we are working in the area of education and environment, energy and engagement. And these are the areas which are very core to us. We have been working on education, especially in the field of science and technology because we believe that the society cannot improve without the use of science and technology.

And I would urge you to look at the work that we are doing for educating people, students at various level from school to college to PhD for improving the knowledge of science and technology. We also do a lot of work on environment.

Of course, the work -- for improvement of environment is embedded in every software that we deliver, whether it is really into a clean software cleanest automotive is our connected automotives our shared automotives, et cetera.

But environmental considerations are also embedded in the way in which we work. We work for green energy. And in all these areas, we have a deep commitment of our own people. And it's our commitment to build a company, which is a good global citizen. So this is to tell you about how we see the recent past or future immediate as well as distant. And what is the type of company that we want to build. I want to thank you for a patient listening.

We are now open for any questions that we may have. Thank you.

[Operator]

[Operator Instructions] First question is from the line of Karan Uppal from PhillipCapital.

[Karan Uppal, analyst]

Congratulations on a very good set of numbers. Sir, first question is on the dividend. Sir, the dividend you reported this quarter was about $125 million. So just wanted to check back whether you are winning all up from the T21 clients or have you started winning outside the T21? And what is the normal deal region for any particular quarter, if you can give us some sense? And what is the pipeline overall?

[Sashishekhar Pandit, executive]

So our focus has been on T21. T25 as we say and T21 currently figure out. So most of these wins would be for T21. The large deal, which we have mentioned is also about the -- from this client. We have not been reporting any other numbers in terms of their pipeline or big deals. From this quarter, we have decided that we will start sharing the numbers in terms of [ building ] during the quarter. In line with that, we have announced that.

So every quarter, we will give you this number. I think this is what we can share, which should give you some idea about the business environment. As we are giving a clear outlook on the revenue and the EBITDA margins, we would request you to go by that. This at least gives you some confidence about the direction in which we are focused.

[Karan Uppal, analyst]

Appreciate you sharing the numbers. The second question was on the margin guidance. So a very strong guidance from your side. So I just wanted to understand what are the levers to sustain the margins at current levels despite the costs, like travel facility and overall high attrition environment continue. So what are the levers for you to sustain the margins?

[Kishor Patil, executive]

So as Mr. Pandit mentioned, we have shown the increase in the EBITDA margins over the last 7 quarters. So there are 2, 3 things which will really drive the margins. The number one, of course, is the revenue growth, which obviously gives you a lever. The second, which is very important, as we talked about, our volume growth is higher and that really drives a better margin. And the third is a higher realization. I think we have been in a position to -- we do work in a multiple ways to use our assets, we use our different business models and the productivity by which bringing a high realization.

As we have mentioned, more and more projects we are undertaking which are more managed services as well as the other business model, which allows us to increase our realization. Also, many of -- most of our work is also a very pretty, if I would say, cutting-edge technology that allows us to also increase our realization.

So with that, we believe we should be in a position to increase our -- we should be in a position to absorb the additional cost which we have. We do have other leverages on the cost side also. And still, I believe, as compared to many other cases, I think, we have a margin -- we have an ability to still bring more operating efficiencies, which we will bring during the year.

[Operator]

The next question is from the line of Chandramouli Muthiah from Goldman Sachs.

[Chandramouli Muthiah, analyst]

My first question is around the headcount increases. I think we've gone from 6,500 employees a couple of quarters back to almost 8,200 employees now. I understand most of these are freshers. So just trying to understand, as you compete for talent at colleges in India, what are some of the skills in addition to coding that you're looking for in the workforce that you are hiring from campus and color there would be helpful.

[Kishor Patil, executive]

So there are 2, 3 things. First, we have also built a relationship just like clients with universities. We have developed some of these relationships much before -- we run many contacts. We have a program, which basically starts from the days when the people are doing innovation in their college days.

From there, we -- from the -- we start engaging with the people from the -- when they are in the year 2 or 3, and we make -- that is a general, what you can say skill development program we have. And in the fourth year, when we make the offer.

So we actually have a pretty well connected with the students in most of the cases, not all the cases, but in most of the cases. Generally, learnability is what we are looking for. We are looking for passion for automotive. These are the 2 very important reasons why hire people.

[Chandramouli Muthiah, analyst]

Got it. That's helpful. Second question is just around what percentage of business today would you say is from new age OEMs and semiconductor companies? I understand you're working with -- working on pilot projects with companies like Rivian, Lucid, NIO, [ Renaissance strategic ]. Could just give us some clarity on at this point, what percentage of revenue is coming from these 2 segments?

[Sachin Tikekar, executive]

This is Sachin Tikekar. As we mentioned, we are actually taking the water and we are in the process of defining our strategy. In the meantime, there are a handful of new clients that we are working with. So currently, I would say it's about 3% to 4%. And obviously, over a period of time, the revenue will go up. However, what is most important at this point in time is we clearly defined our value proposition to them and create large border that will create a sort of tremendous value for them.

And over a period of time that becomes a tremendous growth engine for us. As of now, as you can say, the conventional -- the pipeline is tremendous. We're focusing on the conventional OEMs that we have. So the growth will be [ profited ] by them for the next few years. But we believe that we will continue to keep that the new mobility. And in the next few years, that will sort of create more growth opportunities for us. Does that answer your question?

[Chandramouli Muthiah, analyst]

Sure, sure. And just my last question, if I could just squeeze in is around cash balance. I think we've used the cash balance by about 4x in the past 3 years. So just trying to understand from a capital allocation standpoint, how would you define your capital allocation priorities, if you were to sort of just bucket it between M&A, dividend payout and the investment in the business?

[Kishor Patil, executive]

So we have a dividend policy, and we have mentioned about in the next few years, we'll get to about 35% of the payout ratio. We have been increasing slowly that number. And we feel comfortable with that number as a payout for dividend. We do believe that for the growth we are looking at. And if in case of certain new technologies and the areas where we may find suitable acquisition company, then we will go for it.

We are very careful about it because, frankly, right now, we do have a client access and we are in a position where we can reach out to any clients in automotive and mobility and get that client. So unless we find that there is a very niche technology which has been developed and which will be very useful for our clients and for future, that's when we will look for acquisitions, if at all. And naturally, this will be high-quality companies. So we -- as and when these opportunities come up, we will use this judiciously.

[Operator]

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

[Nitin Padmanabhan, analyst]

Congratulations on a strong quarter. I had a few questions. So one is the large deals that we have won, I think historically, you have mentioned that when you get into software architecture deals, it's not only -- it requires stitching multiple partners into the deal.

So in that sort of scenario, are we -- when we think about the profitability of these, are they very similar to the existing business? Was the first question. Or is it better or worse? That's what I want to understand.

[Kishor Patil, executive]

So many of these deals certainly are where there are more than one party is involved in many cases, but the revenues which we are recognizing and the revenues which we are reporting that order is something which KPIT will deliver to the client. So this is the -- at least the profitability will be the same as what our normal business is.

[Nitin Padmanabhan, analyst]

Sure. That's helpful. Second is, I think this year, compared to the beginning of last year, it appears that the visibility is quite strong, and we have had this last year as well. And historically, I think over the last 10, 15 years, whenever KPIT has given a guidance even as a combined entity, you have historically started the year and then Q3 was usually a phase whereby when you would get incremental visibility and then sort of change it.

That's actually been history. Now when we go forward, I just wanted your thoughts on -- in terms of the underlying momentum on revenue and deals, what is it that's sort of giving more comfort? Is it the pipeline of larger deals? Or is it the existing velocity of business itself is so high that even without the large deal...

[Kishor Patil, executive]

I think fundamental to the visibility and our business, as Mr. Pandit mentioned, is we are -- first is our focus on clients. Basically, we are focusing only on a relatively short number of clients, like the T25. And that -- basically, that is the core of our strategy.

Because of that, we have strategic relations with the clients. They are looking at us as a partner. We are engaged very deeply with them. Apart from the fact that we are engaged with their most of the long-term projects, specifically in software-defined vehicles and some of these areas. That gives us a better understanding and visibility in terms of client spend as well as client spend. In addition to that, what we have mentioned, as you have seen, our orders, which we have won during the quarter, along with the long deals -- large deals gives us that confidence. So I think over the period, when we started 3 years back, I think we talked about T25 strategy.

And more and more in every year, I think naturally, our relationships are strong -- have grown stronger, with more and more clients. So with more and more with this T25 clients. So that is giving us more visibility and confidence.

[Nitin Padmanabhan, analyst]

Yes. Yes. Yes, probably, yes. Just one data point if I may ask. You mentioned $125-odd million of deals apart from the EUR 70 million deal. Any -- could you give a sense in terms of how it was roughly last year? Is it much better than last year on that number, excluding the large deal?

[Kishor Patil, executive]

This is what we closed during the quarter, and I think we will consistently give what we have closed during the quarter. I would not say this is abnormally higher outlook.

[Operator]

The next question is from the line of Ankit Agrawal from Yellowstone Equity.

[Ankit Agrawal, analyst]

My first question is I know we are mostly into integration services. But what about the other segment verification and validation services? Just wanted to understand, like, is there any overlap between integration and verification validation? Are there any synergies? And are there any revenues we're generating from verification and the validation segment?

[Sachin Tikekar, executive]

I think it's a good question. When we say we are -- our role is that of a software integrator. If you look at AV cycle, we operate on both cycles, both sides of [ business ] that we start with the requirement actual development. And the other side of VA is actually validating and verification. So when we say we are a software integrator, we work on any part of the -- or all of the depending on the program.

So the short answer to your question, validation and verification is a key area for us, and we've been working on it for many years now and will continue to do so. In new vehicles that they get launched with new features, vehicle and validation becomes more and more critical. Especially, going forward, when we put new technologies such as autonomous driving, it actually calls for potential amount of verification and valuation.

[Sunil Phansalkar, executive]

Also, if I may add on the -- looking at the complexity of programs, this becomes a very critical activity of integration. Actually, it takes more time than the development before it gets into production. And that's where KPIT's expertise is very critical to the client to shorten this time.

So we have developed multiple technologies specifically areas where -- you see areas where you are seeing a semiconductor shortage and other areas where the availability of the infrastructure is limited.

During that time, how we can conduct this kind of a validation and testing virtually is where KPIT has invested a lot and has already deep expertise. So it's very much part of our software integration service.

[Ankit Agrawal, analyst]

Okay. Okay. Interesting. The reason I was asking is that I was looking at one of your older tabulations from August 2019, when you have given the McKinsey study or statistics, and the market price for verification and valuation is shown as $10 billion in 2020 versus $4 billion in integration. So is it fair to say that our target market is like $10 billion plus $4 billion to $14 billion as of 2022?

[Sunil Phansalkar, executive]

That is right.

[Ankit Agrawal, analyst]

Okay. So in that case, our market share would be around like 2%, 3%. So we are badly stretching the surface. Does that mean that we -- like how much of this market size is available to us, like for our kind of services?

[Sunil Phansalkar, executive]

It's a very difficult question. We do track for our T25 clients specifically. And what we see generally is -- I mean it's very difficult to give you the numbers because they're very -- but what I can say is the way we work with the T25 clients is where we engage at least in 2 areas, if not 3 areas, specifically in a very involved way on the key projects with the client and where typically our wallet share is the highest for that client.

That's when we call a strategic relationship, and that's how we have decided on T25 clients. Naturally, there is a headroom both in terms of some of the new services we can introduce also gaining a higher market share from the newer aspect.

[Ankit Agrawal, analyst]

Okay. Okay. Understood. Understood. Very helpful. Just one more question. In the past, you had mentioned some of the platforms like [indiscernible] or JRM. Could you give like a...

[Operator]

Sorry to interrupt you Mr. Agrawal. Your audio is breaking from your line. Please check.

[Sashishekhar Pandit, executive]

You ask the question again. We didn't hear you there.

[Ankit Agrawal, analyst]

Yes, yes, sure. Am I audible now?

[Operator]

Yes.

[Ankit Agrawal, analyst]

So in the past, you mentioned some of the gains of your platforms like [ Maximus growth ], JRM. Can you elaborate more on them, like what kind of capabilities do they have? And we don't hear those names -- we have not heard those name in a while. So just trying to understand like what -- are the spectrum still there.

[Kishor Patil, executive]

So as you know, after we brought in the focus, I think there are -- we are focusing more on passenger current commercial vehicles. Some of these platforms which we have developed are very important from the future business model of the client, where they are looking at monetizing the time of a passenger in a car or a vehicle.

So that's where we call it where the clients -- our clients are trying to change the business model. They are looking at how they can -- as Mr. Pandit mentioned, how we can -- how they can get more revenue by delivering services rather than having revenues only at the point of sale of the vehicle.

During that profit, some of these platforms are repurposed or reused or used in this way. There are -- we do have 1 or 2 clients which -- where we have one license with projects -- products or platforms, I would say, and there are certain revenues coming from them on ongoing basis. But looking at where our key focus and if you look at the wallet share of the client or wallet share of in different buckets, this is a small percentage of our revenue.

[Ankit Agrawal, analyst]

Okay. Understood. Understood. And are we also looking to get into -- get more into design and development of products over time? Or will we focus more into services only?

[Kishor Patil, executive]

We are focusing more on software integration services, as we discussed. We do help in accelerating development on the new platform and specifically in the new architecture platform for the clients. KPIT has invested consistently and consistently over the last many years in terms of building platforms, accelerators and tools, which allows to accelerate the development of our clients.

So that is what we would do. We would not have shrinking that projects -- products. That's not what we are looking at. And we are looking at helping them to develop their applications quicker, faster, better and integrate that. So that, that can be taken to production quickly and with a dependable -- with dependability.

[Operator]

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

[Unknown Analyst]

Am I audible?

[Kishor Patil, executive]

yes.

[Unknown Analyst]

So initially, we see that engines were the main drivers for automotive. Now software is driving the vehicles, right? So OEMs will also develop their own in-house capability. So don't you think that your side of business will get shrinked when OEMs they start delivering or doing in-house development of their software?

[Sashishekhar Pandit, executive]

It is true that OEMs would like to do their own development of software. But the rate at which the software technologies are changing and the rate at least the complexity is increasing, it is not very easy for every OEM to build those skills. That's why they are recognized that they need partners.

And our role is that of a partner which helps our client OEM to succeed in this marketplace. And I believe that it is very unlikely that every part of the software integration will be taken in-house by every OEM in times to come.

[Operator]

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

[Andrey Purushottam, analyst]

This is Andrey, Sangeeta's partner. I have 2 questions. First of all, your revenue per employee, revenue development per employee has shown a slight decrease over the 5 quarters. Could you explain what is that reason?

[Sunil Phansalkar, executive]

Yes. So I mean, if you look at the commentary, our offshore has been increasing over the last 4 quarters or so. And the revenue per employee, obviously, is a function of the mix of revenues between on-site and offshore. So as a result, the revenue per development employee has gone down. There is an increase in offshore, but you can see the effect on margins, where margins have improved because of the shift.

[Kishor Patil, executive]

The other point is during this period, we hire a lot of -- onboard a lot of freshers onboard or onboarding happens when they become a productive a bit later in our case. So that also has an impact on that.

[Andrey Purushottam, analyst]

Right. And my second question with respect to a more into the future. Global inflation is becoming a concern across the world. Are you beginning to see that conversation seeping to in your discussions with OEM? And is there any flavor of that you could share with us? And is there any impact on your business? On the one hand, I would say you are far more into long-term development initiatives. So it should not concern you overly in the short run. But I just wanted to get a sense from you as to whether this discussion is happening at all?

[Sashishekhar Pandit, executive]

I'm sorry, we didn't understand the first part of the question. You talk about global warming.

[Sunil Phansalkar, executive]

Increase in inflation, is there any impact on your business? I think that's the...

[Andrey Purushottam, analyst]

I was talking about global inflation entailed higher interest rates and, therefore, a reduced demand in the auto industry as a whole. [ So is that playing in ] your conversations and [indiscernible].

[Kishor Patil, executive]

So right now, as we mentioned, I think we are largely working on the programs which are for 2025, '26. We are not working on the vehicles, which will be manufactured and delivered next year or year after. So most of our -- most of our programs are 2025, '26 and beyond.

There is some work which is there, but which is very essential to the continuing of the vehicles on the road for these. So large part of our business is very dependent on that for this kind of a work. So I think that gives us that comfort.

[Andrey Purushottam, analyst]

Okay. And congratulations for a great set of numbers, not just for this quarter but for the last so many quarters.

[Operator]

The next question is from the line of Sandeep Shah from Equirus Securities.

[Sandeep Shah, analyst]

Congrats to the management for a great quarter and great outlook. The first question is in terms of the FY '23 outlook. Is it factoring a slowdown in the low-tier of geography a, because of geopolitical issues certainly rising inflation. What we are reading that more than Germany maybe on a blink of [ exhibition ].

And as we get a chunk of revenue, which is involved in the [indiscernible]. So do you believe this can lead to some negative surprises or we are already factoring this into the guidance? And why I'm asking this is even in a COVID time, when the world has gone into recession, we also had an impact despite we're working on models that are likely to be launched in [indiscernible].

[Kishor Patil, executive]

So it's a valid concern. But I think there are 2 points I would like to say. First is, in case of -- at the time of COVID, when our revenues went down for 2 quarters specifically, it was for 3 specific plants. And that was the impact we had. It was largely in [ scope ] of these 3 specific clients, our revenues had gone down. Most of the impact was due to that.

But right now, if you really ask me, I think things have moved much beyond. Actually, the COVID has accelerated its long-term programs. What the companies are looking at for 2 things. First is, as I mentioned, they are already late. They are behind at least 4 to 5 years as compared to some of the disruptors, which are getting into their market share, specifically into electrification.

And the pressure, which they will get in terms of retaining their market share as well as changing their business model is very big. So if you look at all the announcement, the large -- all the large companies have announced very significant investment for this program. This is -- these are the programs which are long term, which are well funded.

And when we have identified our clients, generally, that is a very specific care we had taken for the companies who can go through different periods and sustain these investments. And actually to your point, I think we work -- fortunately, we work in all the geographies. We are very strong in U.S. We are very strong in Asia. And I think we have a balanced growth and portfolio to really take care of any short-term details, if any.

[Sandeep Shah, analyst]

So just quarter to that whether guidance factors this? Or as of now, you cannot factor this as none of the client negotiation indicated macro impact?

[Kishor Patil, executive]

We have taken to the best of our understanding, right now.

[Sandeep Shah, analyst]

Okay. Okay. And just another connected question. Some of your global competitors, we also had a higher [ community base actually increase ]. Is there an opportunity for a player like India where I think clients are looking to diversify their delivery base through vendors outside these countries to other countries, including India as of now?

[Kishor Patil, executive]

See -- I mean what we have seen in the past as well as this, I think, companies do not -- in this kind of a strategy program, companies do not move projects with any glitches with some of these areas. And there will be some cases where they may ask us for more help. But I think what we believe is that will help us in having more share of new opportunities with the client. That's where we see the opportunity.

[Sandeep Shah, analyst]

Okay. And just in FY '23, can you share what could be the wage headwind for the whole year? Because I think Mr. Ravi Pandit's comments indicate that because of your niches, accretion may take another couple of years to calm down. So is it fair to assume FY '23 wage hikes as a headwind on margin could be higher than FY '22? And what could be that quantum and when will it come? And how we will compensate that being factored into the margin guidance?

[Kishor Patil, executive]

I think we have answered this question already. I think what are the ways in which we will offset this. Naturally, we have considered that when we had given the guidance. This includes -- we have long-term incentives. We have higher increments we had given even last year. I think it will be more in line with the increments we have given last year. So I think -- and we have different levers which I just mentioned some time back.

[Sandeep Shah, analyst]

Okay. So it may be close to plus or minus 300 basis points?

[Kishor Patil, executive]

Yes. And we'll find a way to offset it.

[Sandeep Shah, analyst]

Okay. And just last 2 bookkeeping question. If I look at in the cash flow statement last year, we are having an outflow worth INR 25 crores for the nonminority investor payout as a whole. So what are the nature of this payout as of now?

[Priyamvada Hardikar, executive]

So in the current financial year, there was a minority stake in the company that we acquired in 2017, MicroFuzzy that was acquired in the first quarter. That was the only investment that we did and now it is 100% subsidiary.

[Sandeep Shah, analyst]

Okay. Okay. Okay. And Madam, just in your guidance, what are you factoring on a cross currency headwind for FY '23 as a whole?

[Priyamvada Hardikar, executive]

So for FY '23 as a whole, we have a target head rate in consideration. As for our ForEx policy, we have considered the head rate, and we are working on the [ plain vanilla ] and forward contracts for the sale. And that is what we've considered for our annual operating plan.

[Sandeep Shah, analyst]

So what I'm asking is the impact on our revenue growth. So from a constant currency post guidance of 18% to 21%, what are you factoring the cross-currency? What would be the reported U.S. dollar growth guidance if you need to convert into that?

[Sunil Phansalkar, executive]

I think, Sandeep, it's very difficult to say what the reported U.S. dollar number would be right now. So that is very difficult why we have talked about [ integration ].

[Operator]

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

[Vimal Gohil, analyst]

Most of my questions on the demand environment are answered. Just a balance sheet-related question. Basically, what I noticed is in your other financial liabilities have gone up quite sharply from INR 80 crores, INR 85-odd crores to INR 189 crores. And there are higher provisions versus last year from INR 33-odd crores to INR 65 crores, which is probably helping some of your cash acquisition. If you could just help me the reason behind the sharp changes here?

[Priyamvada Hardikar, executive]

The liabilities include primarily 2 reasons. One is as Mr. Patil explained. He has given in terms of our retention strategy, some long-term incentives and those have been approved in non-current as well as current other liabilities. Apart from that, based on the recent acquisition that we did, there is a noncurrent -- noncontrolling interest is also accrued in the books. So the majority portion of it that you see in the other financial liabilities is basically the accrued incentive cost and the noncontrolling interest purchase.

[Vimal Gohil, analyst]

So noncontrolling interest purchase will be for the FMS acquisition, right?

[Priyamvada Hardikar, executive]

No, that was for past partners, where we are consolidating the entity, but it is right now at 60%. The balance noncontrolling interest is 40%, which is what is being accounted for.

[Vimal Gohil, analyst]

And ma'am, what about the higher provisions about INR 65 crores or higher?

[Priyamvada Hardikar, executive]

No, those are normal provisions. If you compare our overall scale that has increased. So for the provisions, they are mainly for leave encashment and gratuity where the head count has gone up and so has the [indiscernible]. So it will have an impact on deferred tax assets as well as the provision.

[Vimal Gohil, analyst]

Right, right. And sir, just a question on your 25% volume growth guidance versus a 21% revenue growth guidance on the top end. Basically, this would imply a further increase in offshoring, which probably means your bullishness on margin. But after this, could we certain assume that FY '23 will probably see a sort of a ceiling in terms of our offshoring revenues? Or do we still expect -- after FY '23, do we still expect offshoring to continuously increase?

[Kishor Patil, executive]

I think it's -- I may say that naturally, it can't grow with the speed in which it has increased in the last years. But there will be opportunity multiple ways in terms of more offshoring, but I'm sure there are other opportunities in some business model, high realizations in some other ways.

But to your point, offshoring will continue to increase. I mean, that's what -- we think there will be some different business models which are evolving also based on near shore, et cetera. So there are some other levers which may come up.

[Vimal Gohil, analyst]

Got it, sir. Got it. And sir, just one more question. Basically, the question on revenue per employee was answered, but if I were to look at the cost per employee, is that also explained by higher pressure addition and offshoring? Or is there something else to it? So cost per employee if I see has gone down to almost 6.5% on a Y-o-Y basis. So what explains that?

[Kishor Patil, executive]

So it is mainly pyramid. It is mainly pyramid. And the other part which we have done is offshoring, where we had mentioned that for many of the projects, we were in a position to move people offshore from the on-site I think, both of those things happen.

[Vimal Gohil, analyst]

Right, right. And sir, lastly, my question on your overall strategy, while I do appreciate you being with top 25 clients and focusing on them. And mostly, most of those clients, I believe, would be the OEMs. Sir, how about targeting some of these global Tier 1 auto ancillaries? I guess, the spending intensity for some of these auto platforms is also high there. So any intention of getting into those or getting aggressive for getting those clients?

[Sachin Tikekar, executive]

If we talk of T25. It has a large number of OEMs. It also has some Tier 1s. Obviously, when we engage with OEMs, we get long-term visibility of larger programs, and we engage with them in a strategic manner. So obviously, the planning and everything becomes easier working with OEMs. Having said that, there are also a handful of Tier 1s who take a similar partnership approach. And we've been engaging with them for several years, and we'll continue to do so going forward.

[Operator]

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

[Unknown Analyst]

I want to know more about the other segment, what clients like here. This segment is seeing good growth. So could you shed some light on the growth of [ their's ] and what KPIT is doing for these clients?

[Sunil Phansalkar, executive]

Sure. I think you're talking about the growth in the other segment, right?

[Kishor Patil, executive]

Other clients or other segment?

[Sunil Phansalkar, executive]

You said practices, right? And Mr. Pandit, is that, correct, you're alluding to practices, right, the growth that you've seen in other practices?

[Unknown Analyst]

So actually, both other practices and clients. Yes.

Or other clients, if I'm to narrow it down further, yes.

[Sashishekhar Pandit, executive]

So when you say other what we mean other than what?

[Kishor Patil, executive]

It's T25.

[Sunil Phansalkar, executive]

So let me address both. So first, speaking of clients. As Mr. Patil said and at the beginning, Mr. Pandit also talked about, there is this tremendous demand at this point in time from our T25 clients, especially the OEMs, they need help, and the demand exceeds the supply. Given this, it becomes even more important for us to continue to focus on T25. And that revenue percentage will grow of T25 substantially in the coming years. So I hope that answers your first question.

Second question is about others in terms of our offerings and practices. Mr. Pandit talked about move towards software-defined vehicles, where we are actually working on the architecture. What happens is when you work on the architecture, if you programmed by itself. And once the architecture is in place, different practices, business to the different practices flow, whether it's autonomous driving or body or some of the other or even intelligent profit. The shift over software-defined vehicle is actually getting reflected in the growth that you see in the other, coupled by also our -- there are fundamental changes in the vehicle because they're becoming because of [ case ], that has also sort of given traction to our growth when it comes to our vehicle engineering design practice.

It's the combination of 2. That's why you see very high growth coming from others. What we'll have to do now since this is sort of a permanent check, we'll have to revisit the categorization so that we are able to reflect what we are doing more accurately to all of you. Does that answer your question? Or am I making it more complicated for you.

[Unknown Analyst]

Yes, that's very helpful.

[Operator]

The next question is from the line of [ Ramesh Modi from Wido Capital ]. As there is no response from the current participant, we'll move on to the next question from the line of Amit Agrawal from Burman Capital.

[Amit Agrawal, analyst]

First is regarding the PCV announced during the quarter. So of this INR 125 million, what would be the new deals and what would be the contribution from the renewables?

[Kishor Patil, executive]

I think we would not be in a position to give that. We will -- we would report every quarter the total deals includes new as well as renewals.

[Amit Agrawal, analyst]

Okay. But in terms of -- will the majority will be from new deals and any broader indication?

[Sunil Phansalkar, executive]

Things are -- I think the reason why it's very difficult for us to give you the breakup is because it's mix. More and more engagement that we work on, they are actually transforming into larger work, so it's very difficult to segregate for us. That's kind of difficult for us to break down even further.

[Amit Agrawal, analyst]

Got it. And any broader color in terms of the same number, how this has grown year-on-year or sequentially how this number has grown?

[Sunil Phansalkar, executive]

As Mr. Patil said, from -- as compared to where we were a year ago, there is no dramatic shift. I think at this point, we just feel that the guidance is sufficient for the guidance that we have provided for the year.

[Amit Agrawal, analyst]

Got it. And sir, last question from my side. Sequentially -- how the velocity in the pipeline of the new deals have changed, sequentially?

[Kishor Patil, executive]

I think what we see is all the discussions all the opportunities, we see a very strong demand. That's what Mr. Tikekar -- he was referring to. And so there is a pipeline and there is a certain discussions expenses that very high growth environment from our existing clients.

[Amit Agrawal, analyst]

And has this further improved sequentially?

[Sunil Phansalkar, executive]

I think -- as Mr. Patil said, I think the demand continues to grow every quarter. It's just that we have to be very mindful about creating long-term value for our clients. So the business that we want to engage that will actually consider in the pipeline is going to be constrained by the supply that we have.

[Operator]

The next question is from the line Dhanshree from Anvil Share& Stock Broking.

[Dhanshree Jadhav, analyst]

Hello. Yes. Am I audible?

[Sashishekhar Pandit, executive]

Yes. Yes.

[Dhanshree Jadhav, analyst]

Congrats for the good set of numbers for the management. Yes. My question is again on the demand side. I would like to understand how do we feel like growth for KPI from medium to long term, considering the long-term projects that we are seeing currently in automotive. I wish to understand how the spends are happening.

If you give some color on how that would happen in -- on Y-o-Y terms in next couple of years? And some color on the nature the kind of trends that are happening in automotive. That would be helpful.

[Sashishekhar Pandit, executive]

Yes, I spent some time in my earlier comments about what is changing in the world of automotive. We believe that the changes in the automotive are driven by software. We believe that the industry is changing. The structure of the industry is changing, and there is a huge role for us typically in that.

The reports that have come about the overall software demand from multiple external agencies talk about multibillion dollar market. Not all of that belongs to us, but a large part of that is accessible to us. So on a long-term demand basis, we really see no issue on demand.

Our concern as my colleagues have been talking about is how do we deliver on our promise to our customers so that he succeeds in its marketplace. So our concerns really are on the supply side. And I also spoke about what is it that we are doing to ensure that we deliver value to our clients.

[Sunil Phansalkar, executive]

So I think we have already overshot on the timing. We'll just take one more question. And please if you have any more questions, please feel free to write to me, and I'll be happy to get back to you.

[Operator]

Sir, should we take the last question?

[Sunil Phansalkar, executive]

Yes, we can take one more question and then I think we should stop.

[Operator]

The next question is from the line of Pankaj Kumar, Individual Investor.

[Unknown Attendee]

Are you able to hear me?

[Sashishekhar Pandit, executive]

Yes.

[Unknown Attendee]

So my question is regarding the guidance. You have given a guidance revenue growth guidance of 18% to 21% and a volume growth guidance of 25%.

Sir, my question is with increased offshoring the guided margin is still fill in the same 18% to 19% band. Are you being conservative over here? Because in the last year, with 19.5% revenue growth and 28% volume growth, the margin has improved by 300 bps.

So that is my question. Are you being conservative what we see in the guidance -- margin guidance?

[Kishor Patil, executive]

So we are -- and we talked about and actually many people asked about the questions in the increasing costs, how we will maintain the margin. So I think this is one of the levers we have. I think -- so we have considered different costs, which we may have to incur. Apart from the fact, I think there are 3 areas in which we continue to invest much more than our increase in the revenues.

One is the technology where new practice areas, we continue to invest consistently. And that is higher -- is basically looking at data formation which is happening, which is higher than our revenue growth generally. So that is one area. The second is the infrastructure and technology areas. I think that is, again, an area where we invest.

And the third is, of course, a cost on the people side. So looking at all this, I think we have -- based on that, we have factored this in when we are given the margin guidance.

[Unknown Attendee]

Okay, sure. Just one more question. What is the offshore on-site ratio in quarter 4?

[Kishor Patil, executive]

We do not give these numbers. As we have said that the way our programs happen and at different points of time, it happens differently. So I think we have not -- never given these numbers.

[Operator]

Thank you. Ladies and gentlemen, we will take that as the question. I would now like to hand the conference over to the management for closing comments.

[Sunil Phansalkar, executive]

So thank you very much for your active participation on the call. And again, I was requesting that if you still have any more questions, please feel free to write to me, and I'll be happy to answer all of them. Thank you once again.

[Operator]

Thank you.

[Sashishekhar Pandit, executive]

Thank you, everyone.

[Operator]

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