KPIT Technologies Ltd

NSE:KPITTECH

Earnings Call Transcript 2023-Q4

[Operator]

[Operator instructions] Ladies and gentlemen, good day, and welcome to the KPIT Technologies Q4 FY '23 Earnings Conference Call hosted by Dolat Capital Markets Private Limited. As a reminder, all participant lines will be in a listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes. [Operator instructions] Please note, that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital Markets Private Limited. Thank you, and over to you, sir.

[Rahul Jain]

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

[Sunil Phansalkar, executive]

Thank you, Rahul. Good evening, and a warm welcome to everyone for the Q4 FY '23 Post-Earnings Conference Call of KPIT Technologies Limited. On the call today, we have Mr. Sashishekhar Pandit, Co-Founder and Chairman; Mr. Kishor Patil, Co-Founder, CEO and MD; Mr. Sachin Tikekar, President and Joint MD; Mr. Anup Sable, Full Time Director and CEO; and Priyamvada Hardikar, our CFO. As we do always, we'll have the opening remarks by Mr. Sashishekhar Pandit on the year and the quarter gone by and the way we look at the immediate future, and then we'll have it open for questions. So, once again, a very warm welcome to all of you, and I hand it over to Mr. Pandit.

[Sashishekhar Pandit, executive]

Good evening, and welcome, and thank you for being presented at our Investor Call. What I would like to do in my initial remarks is to give you a quick overview of the results. And maybe address a couple of questions which are normally raised or we have in this context. And after that, I think we can start looking at the question on this. I trust you have all received our --. As you would let it gives plenty of information. So I believe that between the notes that you have got in the initial parents, many of your questions would be addressed. And I would invite you to ask any further questions that you may possibly have. So, you would see that it has been a good quarter and the good year, the quarterly results show a year-on-year growth of 50% in constant currency. And quarter-on-quarter growth of 8.5% in the constant currency. So the revenue has picked up when EBITDA. We have EBITDA of 19.1%, which is 50% year-on-year growth and net profit, which has grown 42% year-on-year. This is above our quarterly results. When you turn to the yearly results, the year-on-year growth in constant currency has been 37%. The EBITDA for the year at 18.9%. This shows a 45% growth from last year, and a net profit at INR 3.8 billion shows a 39% growth over the last year. So, I trust you will agree that the top line, as well as the bottom line growth, has been healthy, and we have been able to meet the expectations that we set to the outlook that we gave to the Wood outlook for the next year, where we believe that we could have a constant currency growth of between 26% and 27%. And our EBITDA margins would be between 19% to 21%. Question Sabina asked about the genesis of this growth going to 19% to 20%. So, I think it is important for us to dwell a bit on the growth that we had in the last year and the outlook that we are giving. And I think it is imperative to look at the underlying factors, which I would look at as any detection of 2, which is the industry change that is happening. And secondly, our readiness to meet the needs of our clients in this period of change. As we have said time again, there is a basic transformation which is happening in the mobility industry, especially the automotive sector. There is a change in the business model that our clients, namely the OEMs are going through. Other changes driven by multiple factors, a change in technology because of significant push towards electrification and that is really in response to the climate change requirements. That is a key initiative for our clients, and that's an atop fashion for us to deal cometh solutions, which are.The second factor, which is affecting this is that there is a business model change that our clients are looking at now, the source of income for the OEMs was a onetime sand now, our clients are looking at potentially a stream of revenues coming from the state that has been made. And so, they would like to give additional functionality over a period of time. We would like to stay in fact the clients for the height and therefore, the requirement of being continuous in touch and therefore, need for making a change in the basic architecture. The third driver is also, of course, cost over the period as the degree of electrification has increased, the number of fuel in vehicles have increased. And now the OEMs are looking at consolidation of them. We are looking at doing controllers or centralized architecture, which will reduce the number of ECUs that make the overall software management far easier. There have been multiple reports of industry analysts, which have talked about significant demand of software R&D work that the OEMs will do. And the anticipation is that the VMP spend almost $40 of $1 billion every year over the next 5, 7 years to make this transformation. So that is really the condition of the industry that we finished with. We have been trying for the last few years to get ourselves ready and to lead this industry challenge. How we look at ourselves as partners to this industry, and we want to be responsible and trusted partners to our clients. And with that in mind, we have been working on Birlasoft major initiatives, and we believe that it is best thinking that we have to in over the last few years that we're beginning to show some rises. Our thinking is actually based on 4 broad areas where we need to pay excelling our performance year after year. The first is really in to our clients and our client relationships. As you all know, that we have been wanting to focus not just on a single industry, but also to focus on certain select clients within that industry. These are the clients, which we call a strategy. To these clients, not only they are strategic to us, but we are also strategic to them. So we are a part of the Q process. We are a part of their architectural development. We are a part of their problems and we have a responsibility to ensure that the repose on us is welded and is well responding to, so as we focus on a few clients and going deep into the requirements has been named as our book for the last few years. The second area is, of course, in the area of technology. This is an area of industry in which technology is changing rapidly. Our client needs our test to get a handle on the technology. Our Moto is to be a software company, which understands automotive better than any other company and to be a company which understands software better than any other and with that in mind, we have been investing in understanding these technologies. They're not being still in that developing tools, platform, accelerators, which can help our clients do their work with our speed with low cars and the absolute strong systems -- So, second area for our focus has been technology. The technology area of focus has been our talent, and we have been investing a lot in grading talent at all levels, not only in the technical talent at the bottom level, but also the managers like talent and the middle and the senior loan that one focus that we believe should help us over time to come. The last and not the least important, is our delivery excellence because of the engine that our clients deliver to their customers is so complex and the reliance sometime is so high, belies important for us to deliver a software, which is completely eruptive and therefore, how do we develop a section or a process, which can develop ARC software in the right commentate timeframe has been a key issue for us. And we have been working on that. So Andy, have been talking about this, the 4 key initiatives we do for the last few quarters. And we think that this is something that can put good step. That is what we believe has helped us our growth in the last year, and that is what we have for that should help us in our current year -- in the coming year. We also think that our midterm prospects in these projects should be good. We believe that in the current year, the growth may be a little front ended. And so, we think that our first 2 quarters may be better as a part of this total overall growth.In the investor note that we have presented, we have also talked about a collaboration, a formation of a new company called Corix. And I want to talk a bit about that in terms of the technology and in the rationale of that. As I mentioned in this new world of software defined vehicles, the middleware, the core software is becoming a very important thing. And we believe that there is a room for a very good story core software that can be delivered to our clients. For this, we have found a partnership with a global well-known Tier 1 call better. We believe that together we can develop a good solution and deliver it to our clients. The company, of course, will be focused excluded on the development of the software product. We will continue to render services around it. So this company, we will be render initial contribution of $5 million. And over the next 12 to 18 months, we will make an extra contribution of $5 million, we have done currently an MOU, and we are awaiting the final clearance from the regulatory authorities in Germany. Once that is done, we will be able to speak more about what the contribution that we got from there over a period of time. We also think that it will be useful for us and yet another partner to that, and we are in the process of conversation regarding it. And whenever that happens, we will certainly come back to you. So these are really some of the broad observations that I wanted to make. The normal observations regarding the staff and action, et cetera, have been covered in the notes that we have here. So with that initial comment, I would like to now open this session to your questions. Thank you very much again for being with us this evening.

[Operator]

Thank you. Ladies and gentlemen, we will now begin with the question-and-answer session.[Operator instructions] The first question is from the line of Chandramouli Muthiah from Goldman Sachs.

[Chandramouli Muthiah, analyst]

My first question is on the longer-term drivers around electric mobility. It appears that the European Union will implement Euro 7 norms in mid-2025 for cars, raising the CO2 noncompliance burden for some of your customers, they are unable to comply. And the European union also last month has reiterated its commitment to ban ICE vehicle sales starting in 2035. So, in your experience working with the OEMs, how many years do you think it could take to develop an affordable mass market R&D in these developed markets? So just trying to understand the length of the ongoing electric vehicle R&D cycle. Is this a short-term investment cycle that could fist away? Or is there a longer strategic focus at the OEMs at this point?

[Sunil Phansalkar, executive]

So thank you for the question. I think if you really look at -- I mean, I'll give you the first to answer. I think first is European Union was the first one to really go for the proper regulations and compliance on this. Some of the companies in the U.S. have adopted it, and many of them will be adopting it. Then Japanese companies first have gone for more hybrid and then also electric as a combined purpose. So there have been stages. So overall, the different markets will come up maybe mature and we'll invest differently. Important to that is, also you have to look at the commercial vehicle market, which is still in the early stages of electrification. And if there are NIM technologies which are coming up, I mean maturing, which will be fuel cell, Hydrogen, oppose battery technologies. So I think there will be continuously an investment into this area. Coming back to passenger cycle, what we see with our clients is typically these are, I mean if you just look at the basic engine technology and the engines have been there for more than 100 years and there is still new innovation happening in the time. So actually, in electrification also, there are many things which will happen. I mean it will be on different components and also in terms of charging and other infrastructure. So we believe that it will be a much longer cycle. And at least, I would say the technologies will evolve at least for a decade, if not more, to stem.

[Chandramouli Muthiah, analyst]

Got it. That's helpful. My second question is on the cyclicality of R&D spending at the OEMs. Historically, automakers have invested in R&D projects throughout macro cycles as is visible from their annual filings over the past sort of 10 to 15 years. There is also a school of thought that R&D spending could be discretionary spending items for these companies if they want to preserve margins in a down cycle. So could you share your thoughts on this as well, please?

[Sunil Phansalkar, executive]

Yes. So there are basically 2 specific things in this area. First is, while it is all R&D, largely what we are focusing on is development and engineering. And this is actually a real production program, right, just because all the net, it is all about new technology. And this is all about new architecture, many new technologies being introduced, and more importantly, integration of many of these domains. So while it is classified as R&D, it is largely a development engineering for a specific production program or development cover. As you know, one of the most important things for the OEM is their brand and their market share in their respective key areas of focus. And if the OEMs basically the current concern is if they do not come up with these architectures. As you know, there are already some companies who are quite -- have already introduced that, they will lose the market share. So this is not a discretionary as people think. It is actually more a committed expenditure. There are different budgets, which have been taken out. And I think all the clients would like to introduce the product at the earliest again early more advantage or get more market market share.

[Chandramouli Muthiah, analyst]

That's helpful. Thank you very much and all the best.

[Operator]

The next question is from the line of Pat Maia from Man Infra Finance Private Limited.

[Pat Maia, analyst]

I just wanted to ask about our margin guidance of 20%. So what margin level do we have going ahead? Because with the mega deals that we've announced, they may initially have some kind of on-site presence that may be needed. So could you just help me understand some of the margin levers to get to that 20% mark going ahead now?

[Sunil Phansalkar, executive]

So that, I would first say that we have given a range between 19% to 20%. And if you look at last many years, I think we have improved our margins generally quarter-on-quarter, but certainly year-on-year. And it has been a very sustainable growth in the margin. What we have been saying specifically is we would, of course, like to keep on improving the margin, and we had given about a 3-year window PL back. That's when we will exceed a 20% goal. So in the next couple of years, we should be over 20%. The main thing what we are saying is the way we operate is we have a certain margin like once we get to 19% now or 20%, the additional investment we reinvest into the growth area, whether it is into new technologies that there are so many technologies coming up proactively to focus on that. So we continue to grow and remain at the forefront of our technology roadmap of the plants or whether we invest into people or we invest into infrastructure. So that is how we make the decision. And as we get more comfortable around that, looking at our investment, then the margins go. So it is a cycle, which is a combination of what we look at is the margin plus the investments we make. As you may be knowing that probably as a technology services company, we spent a fair amount of money into research and development, which we do report to. So that is how we look at our margin and investments.

[Pat Maia, analyst]

Okay. Thank you for that. Now, just another question, if I heard correctly, that we believe that our growth in FY '24 may be front-ended for the first 2 quarters. So could I just understand what would be driving this our technical acquisition, Technical seems to have positive seasonality in Q3 and Q4, the second half. So why would our growth is count ended now for FY '24? And if you could maybe help me with the technical growth numbers because I believe that overperformed some of our expectations, if you could just call that out, please?

[Sunil Phansalkar, executive]

So there are 2 points I would like to consider. I would like to mention the first about Technica is, we do not give a -- because it is a fully integrated NTT we would not give. The way it has performed better than the means it's a seasonality, and we thought we were expecting the revenues to go down, but they did not go down, which was impacted. So it is not that they have expedite the performance from that further, they accelerate the performance from the expectation perspective. So they maintain what it is there. From the seasonality perspective, what we mentioned is our H1 will be stronger is what we mentioned. And it is on the back of the couple of large engagements we have on. And what we would like to do as a company is we would like to ramp up as quickly as possible. And that's what -- and we would like to maximize that in the first part. That is what we meant. And that doesn't mean what will be the -- we will not have growth or anything. It is not at the point. We will have the normal growth. But I think if you look at the significant growth we had for 3 quarters, I think what we are mentioning is that H1 will be stronger from that person.

[Operator]

The next question from the line of Vimal Gohil from Alchemy Capital Management Private Limited.

[Vimal Gohil, analyst]

Yes. So my question is on -- one of the questions on EV has been answered. I just wanted one bookkeeping question to be answered, which is the contribution that you've had from FMS this quarter. I believe that we started integrating the same. Just wanted to get a sense on how has it performed? Because it's been quite some time since we acquired it. So vis-a-vis our expectations, how has that performed? How have their top lines performed if you can give us some details there. Thank you.

[Sunil Phansalkar, executive]

So there is no addition of SMS revenues into these sort of numbers. That will happen in Q1. So there is no change in the ownership of as of this quarter, nothing has been added. The performance of that entity process is in line with what we have expected when we have done the initial passioned but there is no revenue that is added this quarter from FMS, it will happen from next quarter.

[Vimal Gohil, analyst]

So in this quarter, so on a Q1-on-Q basis, the entire 12% is completely organic?

[Sunil Phansalkar, executive]

That is correctly 100% organic.

[Vimal Gohil, analyst]

Thank you so much, all the best. Thank you.

[Operator]

Thank you. We'll move on to the next question that is from the line of Nitin Padmanabhan from Investec.

[Nitin Padmanabhan, analyst]

I had a couple of questions. So one is, I think a few years ago, I think you mentioned that $500 million is a target over the next couple of years, you seem to have already on that number. And you have possibly added capability through those years through acquisitions or partnerships. I just wanted your thoughts on -- in terms of capability set, when you look at the broad set of competition that is out there, how would you compare in terms of the breadth of capabilities that you have with the competition? And how many companies would have that kind of bridge. The second question was that when you look forward in terms of the next leg of the journey, what is it that you really need to add in terms of capability? And how do you think a significant part of that capability build-out is already in there right? So those are the 2 questions. And lastly, from -- you mentioned that the initial half of the year will be stronger. As these deals ramp up, do you think that there will be initially margin dilutive to start with or it wouldn't be? So those are the 3 questions. Thank you.

[Sunil Phansalkar, executive]

I will -- most of the questions I remember, I'll start. First, I will answer your third question -- let me put it that it will not be margin dilutive. The growth will not be margin dilutive. Then the first, question was about the competition. We look at competition in multiple ways. And I have said it again. But more importantly, what we see that resonates with our clients is they are in a very unique position currently, where, because of 3 things. One is a very strong focus on automotive and mobility. The second is a real focus on integration and software integration and the systems integration. And the third part is the breadth of the domains across. In all these 3 things, MSA, we are reasonably uniquely positioned on that. While we do expect that the competition will always be there. But we believe we are, if I would say, ahead in the car, and we'll continue to invest and make that differentiation go for them. That's how I see it. And the other part, what we are trying to do, as you would say, that every 6 months, 3 months, 6 months, you will see that we are making some moves and which are again, uniquely in the industry, maybe you can look at what we are doing right now, creating an independent company for product typing, which will create a lot of opportunity for KPIT by itself in terms of integration, but more in terms of standardization in the industry. So, I think we believe we feel very good about it. And I think the focus and the trusted partnerships we have with the client, along with the capabilities which we have built put us in a unique spot. What was your third question? So capabilities, it is a very interesting question because I think the markets are moving very fast in terms of technology adoption, I think we have to be on our feet and every month, 2 months, we see a few things which are coming up. So the way we look at it is in 2 buckets. One is we keep on looking at technologies, which will be here and now, which will get adopted into the vehicles. The second, what we do as a part of the CPO organization and otherwise is work on technologies which will get adopted 3 years down the line. In both the parts, we do see sometimes the new opportunities at new technologies coming up. There are areas where we will have to work on. Of course, while we have capabilities, as you know, autonomous or other areas are very important part and various areas of strength for us but we do believe some of the areas in terms of cloud AI analytics for this specific domain, not a generic case, for this acting domain will be an area which we are investing internally very significantly and maybe may be scaled more in the future.

[Nitin Padmanabhan, analyst]

Sure. That's helpful. Thank you so much and all the best. Thank you.

[Operator]

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

[Mohit Jain, analyst]

First, 2 questions. One was on the deal pipeline, like we obviously have on 2 large deals last year, but how are things here at the end of fourth quarter versus, say, last year or last quarter. And the second one is related to the sharp increase on the T&M side. So is it fair to say that some of these large deals and the ramp-ups that we have witnessed, they are more on time and medical side. And incrementally, we should see less of fixed price. And therefore, despite having more TNS, we should still expect significant margin expansion ahead Moise?

[Sachin Tikekar, executive]

Hi, Mohit. This is Sachin Tikekar. In terms of the engagements and the pipeline, you may have noticed that over the last quarters, we have consistently shown growth. And we believe that trend will continue in the new year. Specifically, there are 2 types. So you heard of 2 specific announcements about Renault as well as Honda, similar kinds of things have been happening with many of our other OEM T25 clients over the years. It's just that some of them have been happening incrementally and some of them have happened, and we didn't announce them or the client didn't want us to announce them. So from that perspective, I think there were unique situations that we specifically came out and talked specifically about Andina. The point that I'm trying to make is our focus continues to be on these T25 clients. And as Mr. Patil explained earlier on, the focus is to go deep and wide as they go through the transformation. As we engage with them deeper and wider, we are seeing more and more areas where they need help, and we are actually building capabilities to sort of provide help in different areas. So one point is earlier we were -- it was about one practice getting into it. Now there are collective practices going into it and so forth. And the third part is we are also -- in order to solve some of their larger problems, we are also counting on some of our ecosystem alliances to provide larger solutions. I know it's kind of a long answer to your short question, but I do hope that it throws some light on it.

[Mohit Jain, analyst]

And if you could please add something on U.S. side, like we have been doing large deals across sales or an anti-case, but what is happening with the U.S. OEM, right? -- maybe maybe something expected in 24 anything will help.

[Sachin Tikekar, executive]

Absolutely. And then we'll come back to your T&M question. Specifically, U.S., we had a reasonable growth in U.S. during last year. This year also, we expect robust growth from our existing clients, especially the OEMs, and they continue to go through transformation. As you know, electrification goals, U.S. companies or OEMs have also set up electrification goals. They also have their road map in terms of level of autonomy that they want to build. And most importantly, in order to sort of change their model and engagement with their consumers, they're also trying to build some models. So along these lines, we see more and more engagements with the existing clients that we have in the U.S. And on the West Coast, as you know, there are certain new OEMs that are coming up. we are working with 2 or 3 of them. These are early days, and we'll see how things unfold with them. But that's the additional part in the U.S. that we thought we should sort of bring to your notice. But overall, net-net, we're going to see fairly balanced growth across the 3 geographies. Some geographies will do slightly better than the others, but we see a fairly robust growth across the key geographies. Now about your specific questions on the T&M side, you're right that it has actually gone up. And the reason is there are 3 or 4 transformation programs that we have started and especially what you may call software-defined vehicles or software-defined mobility program. As you know, these are the programs that everybody is doing for the first time. So there is no precedence to it. And in order to define what needs to be done, we have to work very closely with the client in terms of what needs to get done. And this process can take up to a year. And during the course, so to us, T&M or fixed price is just a commercial understanding. Please know that the type of engagement remains the same, which is we are taking accountability for the work that we are doing, right? So we are accountable for the work that we are doing for them in the software-defined vehicle. It's just that these are not defined. It's more on T&M. As they get more defined, we can move some of that into fixed price. But the nature of the engagement doesn't change.

[Mohit Jain, analyst]

Understood. And sir, T&M also goes in things with higher on-site or it could be like TDM goes up, but my offshore also in --

[Sachin Tikekar, executive]

Not necessarily, it's fairly balanced. And even if it's not very noticeable. As I mentioned, it takes about a year. So during the course of the year, it's about the same at the end of the day is Rofe,

[Mohit Jain, analyst]

Thank you very much.

[Sachin Tikekar, executive]

Thank you, Mohit.

[Operator]

Thank you. The next question is from the line of Deepak from Cuba -- as Advisors.

[Deepak, analyst]

So my first question is, I think you drilled on the CTO organizations fall, but the specific question is what -- in the areas of semiconductor, the area of origin fuel vehicles in the area of transportation domains adjacent to your present sub verticals. What's been the competency development? What is the business development actions? And essentially, what is the market saying what are you doing to address those things?

[Anup Sable, executive]

So I will take one by one. I think from a semicon perspective, we believe that our relationship with the semiconductor companies and our ability to interact with them, discuss with them and create solutions with them are very critical for our strategic customers, which are largely OEMs. So we are basically making sure that we are aware of the road map. We are aware of all the new developments that are happening in this space relevant to our industry and especially our strategic customers. So that is from a salient perspective. From a hydrogen fuel perspective, I think it is -- there are 2 elements of hydrogen sell. Hydrogen fuel being used in combustion engines and hydrogen fuel being used and fuels. In both of these areas, we are in very much in the technology. We understand the elements of what goes inside -- you've experimented a lot with that. And as this activity shape up with our customers, we are in a very good position to hand in term. As far as transformation into adjacent fees, I presume you are talking more about other relevant areas like electric...  We believe that in the current industry that we are operating and the current circumstances that we have, that means a huge amount of changes happening, multiple dimensions of changes happening in the automotive space, the passenger car, and the commercial vehicle space that there is enough on the plate for next couple of years. So we will focus on what our strategy customer requirement are, what are the technology gaps that they have, what are the problems that there and focus on the solutions for that.

[Sunil Phansalkar, executive]

So I'll just add to what Anup mentioned is that, so in all these 3 areas, we have already seen the initial technologies like even maintain office. We are seeing early signs of integration business coming up at a vehicle level, et cetera. So even in Semicon, basically, it is about the integration of the middleware and at a lower level, integration of the software in Sincan. So we see those opportunities. But coming back to your question on adjacencies, as we see a longer-term demand within our clients and our area of focus. We will initiate something during the year -- end of the year or early next year, where we will start exploring adjacencies. But that we may not take it up as soon, but we'll start maybe seeing certain technologies or maybe some efforts next year in the next couple of years.

[Deepak, analyst]

Yes. Got it. Yes. Focus is good. The second question I have is the KPIT data product and the KPIT does the services part, obviously, you thought of it, but what is the thought behind if it's a standardized product, how is your client European client of Honda be able to differentiate between other car manufacturers, if they're using a standardized product.

[Anup Sable, executive]

Yes. So let me define what middleware is from a definition perspective, right? So the middle is the essential component of software that fits between the application and the hardware to a very simple definition for it. This part of what software we are talking about the Middleware has to make the life of the application development easier. But that means that the middleware is the most complex piece of software. And it is like a fundamental infrastructure for the application software to run. Now, when we basically talk about standardization in this piece of software, it does not mean that it deprived to OEM to create a differentiation through the application software. So if you look at how each OEM will derive their strategy or drive their strategy in terms of differentiation will be through application software and the calibration of application software and that has really nothing to do with how the middle vari standardizes. In fact, the standardization of middleware would make their life easier in terms of launching their application software faster into the build.

[Deepak, analyst]

Thanks very much. It's been a pleasure following your story and your journey and congratulations.

[Operator]

The next question is from the line of Nitin Sharma from MC Pro search.

[Nitin Sharma, analyst]

Congratulations on this set of numbers. I get 2 questions. What kind of employer addition you're looking for, given the guidance of 27% to 30% in FY '24. And how do you see utilization levels to each year?

[Sunil Phansalkar, executive]

So, the first thing is that, at a high level, we do not really report on these parameters, basically because we gave a very clear outlook for the revenue. We talked about the programs, we talked about the flexibility in that. As long as we manage the revenues and the margins, I think that's how we would like you to look at it. But overall, at a company level, I mean just to give you a historical reference, last year, we were about INR 8,200, this year, we have 11,000 plus or addition of about 35% also. For the -- and what we do is running 2 quarters, we do a very detailed -- we have our revenue visibility, and we do a detailed planning based on that. And that's how we're planning. But coming back to your question, so I think we see a very strong requirement for the -- what's the talent. And we basically address it to a couple of news. One is the pressures we take and we have to improve -- we keep on improving the quality in terms of different places in India and outside India. And that, of course, is something which we try to increase, but we were looking at the complexity of our programs, we are not in a part we cannot absorb as much as some of the IT companies can do. So I think that is one point. The second point is the attrition, which has come down significantly for last many quarters, we are at mid-teens and we expect that to continue, if not go down. So I think that also is a very important factor when we look at how many people will hire and how we can -- what we can do. So based on these 2, we planned thing. And we actually feel the environment is much better than the last year for is to higher and have the enough talent to deliver to our commitments.

[Nitin Sharma, analyst]

Understood. And one bookkeeping question. So your employee cost went up significantly in this quarter. So is there a onetime item or there is some shift towards higher wage costs going right?

[Priyamvada Hardikar, executive]

It is purely based on headcount additions in the group, the employee cost. So quarter-on-quarter cost is not a record, right?

[Nitin Sharma, analyst]

Yes. So even if I look at per employee basis costs as well, it seems to have gone up around 8% Q&T. So we are trying to understand something abnormal onetime item in there or new additions are at higher -- some color would be of help.

[Sunil Phansalkar, executive]

So see, there is, of course, there is a growth in the employee number. And per I understand your question is more about core employee cost. So we have promotions which are there every quarter. And it more or less depends on that and also on the mix of hiring. So there is nothing which is onetime or abnormal in this quarter. It is just a part of the regular promotion cycles and the natural hirings that we have done during the quarter.

[Nitin Sharma, analyst]

Understood. Thank you.

[Operator]

Thank you. The next question is from the line of Dhaval Shah from RBSE Investment Manager.

[Dhaval Shah, analyst]

So my question pertains to more on the competition. So I was just trying to understand where this industry in competitive lentis going. So while I completely understand that 67 is we have debt which probably unit in the industry. That could be a chance that the OEM might developing their own in-house capability, like I went to as new retail company also for vehicle by the name of carry it out. So and they already have a 6,000 employees working in the back. So what -- how is this -- so is there a chance that the the technology company would emerge from the OEM circle only. And at the same time, the follow-up question on that is that probably like what mattresses very dominant in the prices, would there be a chance in the future where there will be a one vehicle product, which will be used by many of the OEMs in order to have a standardization and on top of that, the set.So just wanted to understand your thought on this.

[Sunil Phansalkar, executive]

They will absolutely your observation is on the money, the competition landscape is changing. If you look at the ecosystem of the industry from chip to cloud and everybody in between, everybody is trying to figure out what their role is, given the disruption brought in by software. And now everybody is trying to get that little piece of software in there. So it's an evolving trend and everybody is trying to figure out where they can create value and how they can make money. Having said that, we are a software company. And as you said, we do have a head start. And you're saying 5 to 7 years, we appreciate that. But we do believe that there is a head start, and we need to continue to honour our skills and get close to the OE and as much as possible. And that's exactly what we've been doing. If you look at how OEMs perceives they see us as their software integrator. So we are closer to them so that we can help them define their road map towards SBB and beyond and sort of help them not only define it but also executed where the bulk of the business actually comes. So, it's an evolving landscape. And to your point, in some ways, to us, other than the OEM, everybody is a competitor or an alliance, correct? So it will keep on evolving over a period of time. And that's why we made a very conscious decision to really focus more and more on the OEMs and work with them in a trusted partnership manner. The second question was on the OEMs building their own software capabilities. And if you look at OEMs till about a few years ago, did not have software capabilities. They actually got hardware and software bundles together from some of the large Tier 1. So they didn't keep as much software with them. And if some of it is going to be the differentiator as they aggregate software from hardware, it's important that they build core capabilities of their own in the future. And you are seeing that, I mean, Karriaris one example. But if you look at most of the large OEMs, that's the case with some of them. And some of these are actually software companies that became automotive companies on top. And this is like any other business. If that's going to be a differentiator, you need to build core capabilities. It's just that the work of software is going to be so much that they may not be able to do everything on their own, not now, not in future because it may not make sense. What they will do is what's going to be core to them. And everything else, I guess is they're going to trust their key partners to do for them. So that's not just the prince today, but that will continue to be the trend in future. So that's about your question on the OEMs. And the last part was about well, there is going to be -- you gave an example of Microsoft operating system is -- so essentially, whether anything is going to get commoditized, right? In some ways, that's what you're referring to. Not a commoditized... Sorry, sorry, not exactly it. It's more about having the central power system, which will have cornered the entire market and on which the investing world. So in backend about coming -- so it's an interesting question. The automotive OEM is a small world. And in some areas, that can happen. And Mr. Sable was our CTO, who talked about Harris in that regard when we talk about the middleware and architecture and some of the OEMs will go in that way. And having said that, that may happen. However, the application, the feature, which continues to be a differentiator, that's going to be the poor amount for work that OEMs will have to continue to do in the future, and they may have to depend on partners like us to get that done.

[Dhaval Shah, analyst]

Okay. And there is the reason even I am excited to know more about your products? So quarters probably after 2, 3 quarters, a you want to give us some more insight on the. And just one thing on the employee. So just a very basic question. So when I look at your employee cost, I understand it's slightly quite higher than the -- whatever the other industry per may not be your intercompetitor. So is it because of the -- we are paying a higher amount for our niche talent or it is more of a sand-loading kind of we are in building up the capability and for that we usually have that operating leverage TTB. So what is the scenario there?

[Sunil Phansalkar, executive]

Yes, I think there are 2, 3 points in that. One is, naturally, we had to -- there has to be a net talent creator because of the size and the scale we have in this domain. And the growth we are having. So from a PAT perspective, really for talent or other competition, we looked at it more from Tier 1 and some of the OEMs and some technology companies. So to some extent, they have to provide a very quick growth for deserving candidates. So that is point number one. But the important point is, as I mentioned, the freshers, which we can invest into the overall ecosystem is probably lesser than many companies go like 75%, 80%, while we are more towards 35%, 30%. And maybe we have to do a better job on that over the period, we will do that, but that also increases our cost but our realization, our contribution of person and those ratios in that as...

[Dhaval Shah, analyst]

Okay. And all the best. Thank you.

[Operator]

The next question is from the line of Saurabh Sadhwani from Suhas Capital.

[Saurabh Sadhwani, analyst]

Hello, good evening. Our revenue per development employee for this quarter has jumped significantly. And if I look at it historically, we have been at $50,000 and now it we went down to around 41,000 and now we are at 48,000. So I wanted to understand what happened in this quarter? Was it high volumes? Or was it a better pricing? And what other factors do affect this number?

[Sunil Phansalkar, executive]

So if you look at the movement of the core employee revenue, yes, it has moved in the range that you mentioned. So we had said last year, if you look at it, there was a shift from on-site to offshore for some of the large engagements we had earlier started, and that was the reason why the revenue per employer went down. If you look at now this quarter and of course, last quarter also I think it was up from the earlier quarter. See the hiring, if you look at the last year, at least the first 2, 3 quarters, the hiring was very strong as compared to the growth. And now we are looking at improving what I we call is utilization, but really the net realization that we have per person, which is a mix of our rates, our utilization ratios and also the amount of used assets that we can use in delivery and all of those things. So I think it's a combination of these factors. -- that has resulted in the increasing purpose in Gavle.

[Saurabh Sadhwani, analyst]

Okay. And just a clarification, when you talked about the middle there, so the middleware is like a Linux panel on which people build open to [ nora ], so that the OEMs will build et cetera and who will do on that, right? Is that what you're trying to build.

[Anup Sable, executive]

Slightly maybe a little bit of technically efficient comparison. Ubuntu and Sadara are somewhat like a distribution of Linux. That means they are very specifically supported as Linux versions. Whereas you could think about this as a Microsoft Word or a PowerPoint on top of windows. So Windows is actively like a middleware and the office that you see on top of any application, additional application on the top is what we call as application, application. Did I answer your question?

[Saurabh Sadhwani, analyst]

Yes, yes. Sir, just one more question. So I wanted to understand, right now, what is the situation on middle... Is it not standardized much? Or how are OEMs doing that right now? -- set in the past, there is no concept of middleware for the reason that the architecture was a distributed architecture.

[Anup Sable, executive]

And the way that the OEM sourced electronics or software was primarily through sourcing an electronic control unit or a hardware, including software from. In the future, what is going to happen is the OEM because it once an integrated software or an integrated user experience inside the vehicle. And I can give you an example is, for example, if you use a voice assist feature and you want to open your boot based on a voice command. So in the previous case, it was difficult because the boot controller used to come from a different Tier 1 and voice recognition devices to come from a different Tier 1. So there is a lot of money that was money and pain that was being spent on integrating these 2 together. Now in the new few of things, most of this application software that will open the book as well as -- which will recognize the voice will be an application developed by the OEM themselves. So it will be easier for them to integrate this together to create a great experience for the user. And that is where the new architectures are moving. And that's the main change that is happening in the industry.

[Saurabh Sadhwani, analyst]

Okay. Thank you. Thank you. And since Anup's time is very valuable and he's given a very valuable comment, we'll be sending a bill to you. Sorry. Lighter... Thank you.

[Operator]

The next question is from the line of Akshay Ramnani from Axis Capital.

[Akshay Ramnani, analyst]

Congratulations on a good quarter. So my first question is on the guidance. So if I look at your guidance and try to tie it up to your commentary of a stronger front INR 100 crores led by the mega deals ramp up, it looks like even at the top end of the guidance, there is a significant slowdown, which the guidance is building in H2. So I wanted to understand that is the guidance conservative? Or is there an offshore shift which is anticipated in H2 just keeping that low? Or is there anything else to understand you.

[Anup Sable, executive]

So the first thing is if you think 30%, 26%, 7% to 30% is a conservative guidance when I win surprised I mean, hopefully, you appreciate what we have been always giving -- so our philosophy is we are giving the guidance, which certainly we can live by. And it is based on the current pipeline, the, which is pretty visible as well as, of course, the current engagements we have. We do also factor any risk at or in the at all if they may come in during the year. More importantly, I think in last couple of calls, we also mentioned that we are also leaving some of the long-tail accounts on table, I think we are just ensuring that our focus is sharper and offers to your valid point, we will make some more shift towards offshore for sure. So with all the combination, this is what we get, I think, which is, we believe, something pretty reasonable. I would not say it's a very conservative versus it's very aggressive. So it's something a middle path, I would put.

[Akshay Ramnani, analyst]

And second one was on the acquisitions. Over the past 18 months and then multiple acquisitions, which are supposed to be acquired in tranches. So it only be sold if you can share an operate on that, how much of stake for these acquisitions, we have acquired PilasAnd what is the type of payouts, which we are expecting in FY '23 and FY '24.

[Anup Sable, executive]

So if you look at the acquisitions that we have done, it is technical, a partner, omit, and SMS that we intend to do. As we have said, when we have done this, there would be payments that will happen basis performance. For technical, for example, the total maximum payout can go to about 10-plus million, EUR 110 million. We have a fixed payment that will come up in this quarter, which will be roughly about EUR 20 million. And then earnouts over the next 2 years, which can go up to EUR 30 million at the MAX. So that's the payout that will happen for Tecnica. For FMS, the payouts for all 100% acquisition will happen this year, and they would be in the range of about EUR 15 million. And for part partner, it could be in the range of about INR 50 crores to INR 60 crores for the balance stake that we need to acquire, which will also happen in this year.

[Akshay Ramnani, analyst]

Got it. Thank you. Those were my 3 questions. Tanner. Thank you.

[Operator]

The next question is from the line of Ania Meta from Investor Search.

[Ania Meta, analyst]

My first question is on the new company, which will be incorporated with a Europe or is the structuring plan and how the revenue will be suede... Catarina,

[Anup Sable, executive]

It will be basically it's -- currently, it's a 100% subsidiary of KPIT. -- you can a...

[Priyamvada Hardikar, executive]

Yes. So Chris, right now, if you set up as a 100% subsidiary of KPIT. As Mr. Patil and Pandit explained that the regulatory approval process in Germany will take a few months. And after that, additional share capital will be issued to Versand independent company will be formed a few more partners are also expected to join in later. But at present, it is our subsidiary.

[Ania Meta, analyst]

Okay. Sir, my next question is, can you provide some guidance. Reasons by the CFO divided by EBITDA ratio, which may consist in about 10% earlier year has least in finance.

[Anup Sable, executive]

If I use your question correctly, you're asking for some guidance on the conversion, cash conversion and CFO as a percentage of EBITDA. As you rightly said, that has been on the higher side, but we would not like to give any number. All we can say is that we'll continue to have focus on cash conversion, and that would be one of our important parameters to look at.

[Ania Meta, analyst]

Sir, can you provide the reasons why it has decreased in this yes? So if you look at this year, I think we have said there were some payouts that we have done already for the acquisitions that we have made, and there are dividend payouts and the CapEx.

[Anup Sable, executive]

So I think these are some reasons. There is a thing apart from these reasons that were mentioned every quarter, we mentioned the CapEx numbers and the payout that we have done for acquisition. So there was some long-term employment which would have during this quarter.

[Operator]

The next question is from the line of Niki Cha from Motilal Oswal AMC.

[Niki Cha, analyst]

Congrats on a very good set of numbers. I just have one question on the KPIT that thing. I just wanted to understand what is the scope of the KPI is there -- so what are each of these companies going to be on table? And the second question was if you can just highlight us the size of opportunity, which can get created from year over the longer term. I do understand you don't want to give near-term numbers or guidance, but maybe a little more medium term, we would be really helpful.

[Anup Sable, executive]

I think basically, both KPI, basically, first, it is a KPI subsidiary. So we will have some of the IPs, which we have in this domain, we'll move it to the subsidiary or along also -- we are also -- we signed an agreement with there for a common development as last year, I mean, 18 months back also. So we have been developing certain software with a common road map. I think that will get moved. And in addition to that, as Mr. Pandit mentioned, we will invest about $5 million in cash during the next 3 to 6 months, 3 months and at another 5 million in 18 months. That's what we will do. So how much the others will do, we will announce once we have a firm end of once we have the announcement made by the reagreement is signed on there. The second part of the question on the size of opportunity... Yes, -- so as I mentioned, it's a new startup kind of condition, we are very, very excited about it because I mean, we have since this opportunity from working with many clients and be along with deep along with some potential partners. We do believe this is an opportunity as the earlier discussion in terms of creating another industry leader in this domain. That's what we think. The opportunity, it's very important because, as you know, the PPIP has been in the -- as a software integration partner and services place though we continue to have IPs as well as accelerators as we call. So that we do continue to have. But it's very hard to have a product company and a services company, both in terms of culture and it's also, to some extent, it's also a potential conflict in certain cases. So we believe that the way we have set this up will be very -- to capture the magnum share from the market and could be a potential leader. That's what we believe. And the KPIT will remain a system software integrators. And for these areas, and of course, we would have a natural advantage apart from the fact that it also gives us opportunity to work -- which we continue to work in any alternative products, if at all they come or if the OEM chooses to develop their -- so that becomes a very clearer model to KPIT. So part -- so the first thing is it really makes it a clearer separation between the product and the services business. It protects and potentially increases our opportunity in services significantly. And second, it puts us very significantly in a good phase where the integrations could be easily between 3 to 4x of revenue of the independent company... Got the Puneet. -- come back... Thank you.

[Operator]

Thank you. Ladies and gentlemen, we'll be taking the last question. That is from the line of Ravi Mehta from JP Morgan. Nation...

[Ravi Mehta, analyst]

Just one question. On the large yes, I understand that maybe over the life of the deal, the margins remain the same. But how will it evolve over the course of the vans stamping up because my understanding is that you might have some initial investment which we concluded when they do start to ramp up [indiscernible] in the short term, maybe for a couple of quarters before the rutile. So can you just throw some light on that? How should we look about margins in large deals over the course of the dents... Ravi, good to have you on the call, and thanks for the question.

[Anup Sable, executive]

Typically, these are all longer-term engagement, and they are different in nature. So there is no specific model where investments are all upfront or so forth. But in certain cases, we do have to invest, make some investment. Usually, that happens for the first 1 or 2 quarters. After that, it pretty much evens out. That's how it works. And that's been the case with some of the larger engagements that we have announced in the recent past and some of the ones that we've been doing for the last few years. But just to add on this, what Mr. Tikekar mentioned, I think these are not very significant investments. These are relatively smaller investment mainly to initially set it up and some related infrastructure relatively not so significant... Okay.

[Ravi Mehta, analyst]

Okay. Got it. And just a follow-up on that. The large do typically start initially with higher on-site billings and then largely move with offshore over the course of the big you can start it directly from the oral location right on the big...

[Anup Sable, executive]

In some of the recent -- see, these -- some of these clients to OEMs, many of them, we've been working with them for quite some time. And we've been engaged with them, and we have had some business with them for a long period of time. Given all of that, in most cases, there is no real difference that we see, and it can happen during the course of the different cycles of the project. So it's nothing -- as I had mentioned earlier on, it's negligible, if any, during the course of the entire program.

[Ravi Mehta, analyst]

Okay. Okay. Got it. This is very helpful. Yes. Thank you.

[Operator]

Ladies and gentlemen, that is the last question. I now hand the conference over to the management for the closing comments.

[Kishor Patil, executive]

So thank you all for your participation in the call, and you have a great evening here. Thank you, and take care. Bye. Thank you.

[Operator]

Thank you. Thank you, members of the management team. Ladies and gentlemen, on behalf of Dolat Capital Markets Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.