Ladies and gentlemen, good day and welcome to the KPIT Technologies Limited Q3 FY 2023 earnings conference call hosted by Dolat Capital Market Private Limited. As a reminder, all participant lines will be in the listen-only mode. There will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you. Over to you, sir. Thank you, Darwin. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies for giving us the opportunity to host this earning call. 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. Thank you, Rahul. Very warm welcome to everybody on the Q3 FY 2023 earnings conference call of KPIT. Today on the call, we have Mr. Kishor Patil, CEO and MD, Mr. Sachin Tikekar, President and Joint MD, Mr. Anup Sable, Full-time Director and CTO, Mrs. Priya Hardikar, CFO. As we do always, we'll have the opening comments on the performance of the quarter and the way we look ahead, by Mr. Kishor Patil, and then we can have the floor open for questions. Once again, a very warm welcome to all of you, and I will hand it over to Mr. Patil. Good evening, everyone. I'm very happy to take you through Q3 results. This year we started, as you know, a little cautiously, and we gave an outlook, a bit conservatively between 18% and 21% growth, which was based on that visibility we had. As the year progressed, I think, we got a better engagement, deeper engagement and many wins with our key clients. During the year, we also acquired SOMIT Solutions and Technica. Specifically on Technica, I think, basically, this really also accelerated our engagement with our clients. In the CES, recently, that is Consumer Electronics Show, where we had given the full story of, you know, KPIT plus Technica. It was very highly appreciated by the client. I think from where we started and during the year, we have seen a stronger engagement with the client, stronger proposition from the KPIT side. That has really started resulting into engagements with our clients. Coming back to the Q3 results. On the Q3 FY 2023, we had a year-on-year constant currency growth of 44.7% and 19.3% quarter-on-quarter. Organically, that is excluding Technica Engineering, it is 24.2% year-on-year and 4.9% quarter-on-quarter. In terms of profits, it's a 43.5% year-on-year and 20.4% quarter-on-quarter. Our profits first time, you know, crossed INR 100 crore mark for the quarter. Our EBITDA remained at 18.5%. During the overall, there has been a volatility in the currency. During the quarter, the other income increased by INR 9 crores, basically because of the rates EUR as well as GBP being stronger. The tax rate is 25% during the quarter, but on annual basis, we will remain at 23%. During the quarter, we have a deal expenses, roughly about INR 14 crores from Technica, which has been expended. Looking at the quality of the growth. First thing I also mentioned, would like to mention is the cross currency has also an impact in terms of reported versus constant currency growth numbers. We hope that the picture hopefully will change as the currency will stabilize henceforth. During the quarter, specifically, there has been a big change in the currency euro-rupee rate, and that has impacted really more in terms of the difference between the rupee and the dollar and rupee growth. We have a very consistent policy of how we do this, but because the variations are higher, we have put on the website of KPIT what is our policy or the accounting policy for, you know, checking into cross currency. It's constant currency calculation. I think that we have loaded for people to know better. In terms of growth, the feature development and integration revenues grew 20.6% year-on-year and 10% quarter-on-quarter. Architecture and middleware practice grew by 73% year-on-year and 50% quarter-on-quarter. Of course, quarter-on-quarter number include Technica numbers as well. Cloud-based connected services grew 49% year-on-year and 20% quarter-on-quarter. If you look at the geography, I would like to again mention that these are not the numbers we look at it, but this is how Argate reported. Because most of our clients are global. However, USA has grown 16.3% year-on-year and 1.7% quarter-on-quarter. Europe has grown 62% year-on-year and 38.6% quarter-on-quarter. Asia has been flat. However, on the if you take the year as a period, you will see it going forward, you will see a growth across all the three geographies. All our pipeline is strong across all the three geographies. Looking at the people side, there is a significant drop in the accretion, which we have experienced for last two quarters consistently. The drop, while we do not publish the number, I may say that the drop is about 3% quarter-on-quarter. We expect that to at least have that kind of accretion, lower accretion to continue over next quarter, if not drop further. We have added during the quarter, the numbers, we have 291 people from Technica. Hiring is pretty strong. Now our focus is, really take the benefit of the current environment and, really, improve the quality of hiring and, get the best talent possible. That's what we are focusing on. Strategic, if you look at the strategic engagements with our client, during the quarter we closed INR 272 million worth engagements with our client. Out of which, one is INR 100 million with Renault. The Renault engagement is bigger, but, some part of it was reported last quarter, which we had closed last quarter. The remaining we are, you know, accounting for here. The pipeline is pretty strong, includes one large engagement as well as I mentioned last time. I would like to mention that our growth is not really necessarily depending upon only the large deals as we call our engagements. Basically because our focus is on all OEMs and these are very significant client engagement. Wherever there is not, even though not a single one single engagement, we are growing quarter on quarter very strongly in all the accounts, in most of the accounts. We have this some, if I as I mentioned last time, the mega deals. Otherwise also our growth is really irrespective of such engagement, which will be very far and few basically because this is not how the client engages. As you know, many times they are not used to announcing such kind of engagement. at the sandbox which we have of our strategic client has a very large spend and opportunity in front of us. And we would like to bring a sharper focus on the clients which we have. And we believe the opportunity is much higher for us to grow going forward, without making any change, and actually having a sharper focus on our client. We can certainly grow at least double in most of our clients from where we are. So, you know, we continue to focus on the execution of execution of good quality deliverables with our client. So Technica has been a major development during the quarter. The integration has started. During the quarter, we have about a $14 million revenue from Technica with 20% plus profitability This is the best quarter for them. They have a bit of a seasonality, where the last quarter there is a higher growth. You know, quarter one is a weaker one, where it comes down by about 20% from this year. Overall, Technica will deliver 15%-20% growth in the year, just to make it clearer. In FY 2022-2023 overall, as a year, when we started, we had given, I mean, in spite of uncertain environment, microeconomic conditions, we started with 18%-20% growth. We increased it to 31%-32%, last quarter, with organic growth of 23% from there. We believe as we have made, we will beat this, and our overall growth will be certainly in excess of 33% and more than 24% on a organic level. EBITDA will be between 18.5%-19% and will remain in that range. The Q4, just some specific things I would like to bring out. The Technica revenue will drop, as I mentioned, and hence the margins. However, our organic growth will remain strong and the profitability, which will more than make up for that to have our normal growth and profitability. That will be after also taking into consideration certain intangible customer intangibles, which we may start spending writing off. Overall, we are very happy with the quarter, and overall, we are very happy with where we are. Specifically the positioning which we have, the specifically the confidence, the client, we have in our client engagements, in spite of the economic environment. We believe that the next year, also, while we will give more outlook, et cetera, at the end of the Q4, we see that this trend continuing into next year, and we feel very confident about growth continuing into next year. Thank you. Thank you. We will now begin with the question-and-answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead. Hi. Good evening. Thank you for taking my questions. First question is on one of the comments on the outlook. In your presentation, you've called out that there's some degree of confidence that you can beat your organic revenue growth guidance. Now you, I think, have upgraded that to 24%+ in constant currency terms. Could you clarify what is the 9M organic constant currency growth so far, and any drivers that give us comfort around, you know, why we see upside to these targets? We come back to the numbers. Overall, I think these closures which I mentioned to you about the deal closures, which I mentioned to you during the quarter as well as our engagements. I think that gives us the confidence. Sachin. Yeah, the YTD growth, in CC terms is 24%, nine months over the nine months of last year. Got it. Got it. That's helpful. Second question is around the integration cost for Technica. I think you called out about INR 14 crore this quarter, and you also mentioned that this is a 20% plus margin business long term. While we see that across KPIT's accounts this quarter, wages as a percentage of revenue have declined meaningfully QOQ, we don't necessarily see the margin benefits of the acquisition yet because of the integration costs involved. Could you quantify sort of what the other costs are? I think INR 14 crore you've quantified as deal costs, but even over and above that, there seems to be a pretty big spike in other expenses quarter-on-quarter. Just trying to understand what should be an appropriate run rate for other expenses going forward. I think you've mentioned that even the next couple of quarters you might have some amount of integration costs. Just any color here would be very helpful. If you look, sequentially, the other expenses also this quarter include the costs in Technica. Apart from the deal expenses, I think the consolidation of Technica is the reason. There is no other specific cost that has gone up disproportionately or that is a one-time element. That has a one-time element in the other expenses. The expenses which may to some extent will be there in quarter. Nothing too significant as compared to this quarter, but some expenses will be mainly, we are taking some services from a consulting organization to ensure that the integration plan as well as the review of our integration plan is proper because this is very critical for us. Got it. I think just as a follow-up, I was just trying to understand. I think the previous quarter we had about INR 110 crores of other expenses, and if I add maybe INR 14 crores to that for the deals, deal expenses, that takes us to maybe INR 124. This quarter, I think we've been at close to INR 166 crores. Just trying to understand what that delta is. Any color there would be very helpful. What I said is that delta is we have consolidated Technica during the quarter, and if Technica margins are at around 20%, the delta between that goes to other expenses as well as the personal expenses. That change in other expenses only because of the expenses of Technica, which have also got added because we have consolidated it. When we are looking at an absolute increase, the absolute increase will have the increase because of Technica. It will have the increase because of the growth that we had during the quarter and the increase because of the deal expenses that we had in the quarter. Got it. That's very clear. Thanks for that. Just lastly, we've been talking about the 10 large middleware mega deals that are under discussion globally and how KPIT, as of last quarter, was active in seven of them. You had guided to one more potential $100 million-plus deal opportunity in the first half of this calendar year. Any updates on the broader middleware deal pipeline and how we should think about timing for the second opportunity? No, I think I would like to clarify it. I think maybe there is some miscommunication in this area. What we said is this is our engagement with the client. It doesn't mean that there will be seven mega deals. What we said is these are the programs in which we are engaged. I again explained just now is our basic business model is to grow with the clients and engage with them and grow quarter on quarter. We have very strong growth where we do not have one single large, big deal with the client. What I had mentioned last time is there are two deals which I had mentioned about, one of which we announced, Renault Group, and there will be one more which we will come in some time. That is what I had mentioned in the last quarter. Sachin, you want to add anything? No, there is nothing more to add. That's exactly what we said last time. You know, the first half of the year, we still have five months. Hopefully, you know, we'll have the announcement of the second one, too, in times to come. Nothing additional, Chanda, is that, does this answer your question? Yeah, that's very helpful. Thank you very much, and all the best. Thank you. Thank you. The next question is from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go ahead. Yes, sir. Thank you very much for the opportunity. My question is firstly on the calculation that you gave about. You said that $14 million is what you've recorded this quarter from Technica. If I were to sort of adjust that with the current revenue, you come to around $96 million, $96.5 million, which is about 2.5%, close to 2.5% kind of organic reported USD growth. That, and if you're going to surpass the 24% of growth for the full year, that implies a very sharp improvement in the next quarter, even after, you know, 20% sort of reduction from Technica. Just wanted to get a sense on, I mean, where is this confidence sort of coming from? I mean, I understand the deal wins have been very strong, but the growth rate is materially higher than what we've delivered in the very recent past. One correction, just, the comparison of, 2.5%, reported growth and the 24% growth is not correct. If you look at the organic CC growth this quarter, that has been 4.9%. I think that is what, needs to be compared, because 24%+ is also the CC organic growth. Okay, understood. And sir, I just wanted to understand the seasonality, difference in Technica. Typically, you know, companies based out of Europe or U.S. typically have a weakish kind of a quarter in December, whereas Technica is completely opposite. What drives this unusual seasonality? It is, I mean, frankly, I think it is more to do with a lot of European clients also have a lot of spend, and they have certain products and infrastructure which they actually they provide to the clients. I think that is what some mostly has resulted into this growth, additional revenues, during the last quarter. Anup, you have anything to add? Yes. Vimal? No, I thought I was waiting for. Sir, just another point was on attrition. You mentioned that attrition has dropped off by almost 3 percentage points. In that backdrop, would it be fair to say that, you know, this year you will probably be ending at about 10,700, 10,800 employees, adding about 2,500 odd employees. Will the hiring intensity continue to remain the same? Or do you think that in the backdrop of reducing attrition, you might not require as strong a hiring addition as you did in the last two years? Yeah. I mean, we are planning for a strong hiring. Naturally we have a clear, what you can say, a process by which every two quarters, running two quarters, we plan, based on the revenue visibility, attrition, because you get to know about attrition three months in advance, roughly. This we make those numbers. In spite of that, we believe that we will have to hire, continue a strong hiring for next year. Understood, sir. I'll join back in the queue, but, thank you very much for taking my questions. All the best. Thank you. Thank you. The next question is from the line of Karan Uppal from PhillipCapital India. Please go ahead. Yeah. Thanks for the opportunity and congratulations on a very strong set of numbers yet again. First question is on, the deal wins which we have announced. The TCV trend continues to be very strong for last three quarters. Just wanted to understand what are the major components of it, be it in terms of ADAS or connected or SDV opportunity. Also if you can quantify what is our share in the overall SDV related deals. The question is the TCV has been stronger in the last three quarters. Any sense that we can give on the type of work engagements, practice, right? Then he asked what is SDV role that we play. I think, the, in terms of, the, there are three parts that we typically report. One is the feature development, of, and integration part, then the architecture and middleware and the cloud-based. We're seeing growth which is fairly balanced across the three. With more and more middleware engagement that we start at the beginning, it also sort of creates opportunities for the other two practices to grow. Something takes the lead and then it follows, you know, it also benefit the other two practices. That's the trend that we have seen over the last three or four quarters, and we believe that's the trend that will continue in the immediate future, which is, you know, the early part of next year. We've had a fairly balanced growth across. If you take the year-over-year, you know, quarter-over-quarter things may change, but the growth looks fairly balanced going forward. Was there anything else that you wanted me to address, or you just wanted me to specifically talk about whether it was balanced growth or not? Yeah, sir. just wanted to ask on the software-defined vehicles, related opportunity. can you quantify in terms of the overall, deal wins which you have won, how much was related to that, and what is the pipeline looking like? There are, as we mentioned last time, there are six engagements. We are already engaged in six of them. Those are, as you would imagine, everybody's trying to do these kinds of engagements for the first time. We have our hands full with software-defined vehicle kind of programs. They are very critical to the clients. The, the focus is to now make sure that we are on track and we are, you know, we are able to deliver them successfully. That will be the number one focus. As we create more bandwidth, we'll look at more SDV kind of engagements. Some of our other clients would also want us to engage. For instance, you know, commercial vehicles, they may take up some of these in a year or two. It's good for all of us that we sort of stagger them out over a period of time rather than trying to do too many all at the same time. You know, the earlier point, when we talk about SDV kind of engagements, it touch all three buckets that we talked about. You know, initially it starts with consulting, then it leads to bulk of the work that is getting started on the middleware, and then it leads to feature development and also going into the cloud piece, right. That cycle will continue in the foreseeable future. I mean, just to add to that, I think most of our new wins, a large part of it, I would say, I don't have exact number, but maybe around 60%-70% are related to SDV programs. Yes. Yes. The six engagements that we already started. Okay. Okay. That's really great. Thanks. Thanks for that clarity. The next question was on margins. How should we think about the margin trajectory from here, given that, you know, Technica operates at a higher margin, but also has a seasonality to it, and organically also we are growing very well, so there will be some support from the organic growth. From here on, from next four quarters, how should we think about the margin trajectory for KPIT? I think, the way I would put it is we have given a very, I mean, probably we have given a guidance or outlook which has been pretty consistent. We initially we gave 18 to 19, then we have given 18.5 - 19. We, we will be in that, you know, range. We will give our outlook for the next year at the end of the next quarter. Overall, our strategy has been to really have EBITDA margin within this range and invest into any future growth. However, if we see that there is additional opportunity to improve it, we will let you know when we give outlook for the next year. Okay. Thanks for that answer. All the best for FY 2024. Thank you. Thank you. We have the next question from Mohit Jain from Anand Rathi. Please go ahead. Sir, first was, you spoke in the opening remarks about intangible write-off, that you're anticipating. I could not get the context of that. Is there any such thing which you're planning for full Q or for FY 2022? No. The context there is the Technica acquisition. When we do the acquisition, we actually have a period of one year to recognize any to recognize the intangible assets that we can have, which will reduce the goodwill on the books. That exercise we are currently doing, and there is a possibility that we might be able to account for those assets for Technica that we have acquired, and then start the amortization of those assets. We are not. I mean, it could happen in Q4 or it could start from Q1, but that is something that will happen when we do the purchase price allocation of Technica. That's what we were talking about. Understood. Second, if you could comment a little bit on the deal pipeline, like, because we have very strong bookings this quarter. Has it moved up? How, how much has it moved up? Anything that will help us understand next 12 months view will be great. Overall, if you look at the trend, for the last seven, eight quarters now, it's grown substantially quarter-on-quarter. The last quarter wasn't an exception. It improved substantially from the previous quarter to that, almost a 70%-80% growth in that. We do see strong demand coming our way, and we believe that as we enter the next year, we should start the next year on a strong pipeline. Again, as Mr. Patil mentioned earlier on, bulk of it is actually coming from our existing strategic accounts. If they, you know, it's not gonna be something that is gonna be separately carved out or called as a large engagement. It's just that because the way in which we engage with them, there is just so much more that we can do with the client. That will pass through your TCV numbers that you report, right? Irrespective of the size. That is correct. That is correct. Okay. A follow-up was, you said 70%, 80%, 3Q 2023 versus 3Q 2022. Is that the right number? Yes. Over the last three. Okay. coming to margins, we had this INR 14 crore integration cost, which practically takes margins above 20% for third quarter itself. Assuming there are cross-currency tailwinds for next quarter and supply side is easing up, should we, shouldn't we expect that margins would eventually head towards or in that direction for 2024? I think I explained that. Basically, right now the way we are focusing on, I think one biggest focus for the company, the biggest focus for our company is best execution for our clients. That's why we have given a certain range, and we will remain range bound. Every quarter is different and something else comes like foreign during this quarter we got other income which we may or may not get next quarter. It really depends. As a company, what we are doing is keeping it into that range and the rest, we try to meaningfully, if we can allocate for better execution or growth, we do that. I mean, naturally, that allows us to continue with the strong growth and better execution with the client, which is very critical to our success. For the next year as a whole, how it will pan out, we'll give you some indication end of the Q4. Correct, sir. That's all from my side. Thank you very much. Thank you. Thank you. Thank you. The next question is from the line of Akshay Ramnani from Axis Capital. Please go ahead. Hi. Congrats on good set of numbers. First question was on client metrics. When I look at the client metrics, active clients are flat QOQ, while client concentration has reduced despite acquiring Technica. Is it fair to assume that we were already working with all of the Technica's clients? Does Technica integration change our thought on the strategic T25 customers bucket, which we have? Let me address the first part. The strategic intent doesn't change. In fact, Technica fits in really well with what we are trying to do with our T25 clients. There was a really good validation, as Mr. Patil mentioned during CES, that many such clients were excited about having, you know, Technica being part of KPIT. Technica allows us to go deeper and wider within the existing clients. That's something that we will continue going forward as well. Now on to your second question. Of course, the point is not here to add clients quarter on quarter. We are very selective about adding clients, and that's something that we decide at the beginning of the year. You know, when we plan for next year, we'll have clarity in terms of which clients we'll really focus on, adding for the next year. The question about the concentration, I think there are certain revenues in Technica that are not related to our T25 clients that came in. Organically, we have had growth, which has been very sound. With Technica coming in, there is some, there are certain clients that are both aligned with our T25 as of now. That's why you see a little bit of. You will see that, over the few, next few quarters, it will come back to the same. The number of clients are every quarter. We are also disengaging... There is some noise on the call. Somebody, can you mute, please? Hello. Can you mute, please? We are also disengaging with certain clients which are not in line with our focus. I mean, in all it works, worked out the same number, but it is may not be the exactly the same. Got that. Another question was to understand the cost structure of Technica better. We added about 290 employees from Technica, about $14 million of revenue, which translates to a fairly high revenue per employee. Is it fair to assume that Technica would also have high subcontracting cost in their cost structure, which might be sitting in the other expenses? If that is the case, how do we plan to, do we expect to continue with the similar cost structure, or is there a change we think about that? If you remember when we announced the deal, there is an entity in Tunisia which works exclusively for Technica. Those employees are not a part of KPIT today. We will acquire that entity going forward. Right now those employees are not a part of the total employees of Technica. They provide services for Technica, and hence, you will see that it is appearing to be a little bit higher right now. Which is essentially the subcontracting costs. Okay. Thank you. Thank you. Thank you. The next question is from the line of Nitin Padmanabhan from Investec. Please go ahead. Yeah. Hi, good evening. Congrats on the strong quarter. My question was on margins. This quarter, excluding the integration costs, obviously margins would have been higher by maybe 140 basis points or 150. Now, what has sort of driven this delta on margins during the quarter? Is it anything related to realizations, or is it the positive seasonality or what of Technica? Or, or do you think this is these margins are in some way the gains that were made in these margins are some way defensible? I just wanted to understand the drivers of this margin improvement for the quarter. That's the first one. The second one, if I missed during the call, was about, I think in the last quarter you spoke about two mega deals, and I think one has come through. I just wanted your thoughts on the second, and also if there are any more in the pipeline of this size and structure. Lastly, I just wanted to understand, these deals are basically for, you know, model launches in 2025, 2026. I'd presume companies, OEMs who are looking to launch these models would be in a hurry to sort of for the deals to really come out. So should we sort of, is it the right way to think that a lot of these deals will be up-fronted in terms of the way they accrue to you? Do you think the deal structures for the other clients are a little more broken down and not as integrated? These were the three questions. Let me address the second question, first. Yes, we did talk about two, very long-term large engagements. One which we announced, you know, during the last quarter. Second one, as I mentioned earlier on, we said it'll be in the first half of this calendar year, so you know, we still have four or five months to go, and our hope is that we'll conclude that, in the next few months to come. That's the first part of your question. The second part is about, you're right. Some of these engagements that we have signed up for, some in nature of what you'll call mega sort of engagements. Other are just projects and programs being carved out and coming our way, but all heading towards the 2025, 2026 model year. That will continue. There will be, you know, as, as we mentioned, there'll be one, we hope that there is one more that we'll announce in the near future. You know, maybe one or two going forward. They are not gonna be, not all of them are gonna come in that kind of form. To your point, many of them will also come as part of an extension of the work that we are doing or just programs coming our way, but not quite structured in a mega engagement kind of. It's gonna be a mixed bag across. Sure. Understood. Yeah. On the margin part, so if you look at it, the major contribution obviously is the revenue growth. When we have revenue growth, also the pressures that we had added earlier, they have got absorbed onto projects. That process is continuing. There is a net realization improvement, that which we focus every quarter, which is a combination of rate increases plus productivity improvement, that we focus on. I think all of these things have played their part in the margins, that we have shown, after the deal expenses. These margins are defensible. It's just a choice that you would make on a going forward basis as to how much you would want to retain and what you want to reinvest for growth. Absolutely. Absolutely. I mean, it's a consistent basis, these are the margins. This has been the case for last, more than a year. Correct. Just one thing is that I think what we have demonstrated over the past few years is that margins have been on a consistent upward trajectory. It's never maximized on margins in any particular year. You always use some of that for growth. When we think out as investors, is it fair to assume that, you know, directionally it would because of the kind of structures you're in, there will always be room to improve margins. At the same time, it will be very calibrated over longer periods of time. Is that a fair- That is true. That is true. Perfect. Perfect. Thank you so much. All the very best. Thank you. Thank you. The next question is from the line of Dipesh Mehta from Emkay Global. Please go ahead. Yeah, thanks for the opportunity. A couple of questions. Entering into next year, what do you find more challenging in terms of demand side situation or supply side? Because we are growing at a fairly rapid growth trajectory. Do you think which one would be more challenging for one look at calendar 2023? Second question is about the deal TCV number, what we report. Can you help us understand it include only new portion or it include new plus renewal, what happened during the quarter? Sorry, I'll just answer that question. The TCV number includes both renewals as well as new. Sorry. Understood. Thanks. Yeah. Hi. This is Anup here. Going forward, I think definitely it's an issue of supply side. If you look at the SDV programs which Mr. Patil talked about in terms of being the largest contributor to current as well as the future growth, there are certain elements in the SDV where which requires a reasonably good understanding of what competencies are required. There is a shift in the competency. From a supply perspective, you know, getting the right people, making sure that they have the right competencies and of course then delivering and focusing on the execution of that, is the biggest challenge. Particularly on hire. I mean, we are in a position to hire number of people. I think the quality is something which we are looking to improve here for the corporation. If I may just add a further nuance to what Mr. Sable and Mr. Patil said, you know, in our opinion, the supply side will also get in terms of quantity, it'll get easier. It is already getting easier. It's gonna be quality. More importantly, I think the execution of very complex programs, that is gonna be the number one challenge. The programs that nobody else has done before, right? That will be our number one challenge. Understand. If I can ask two more questions. First, about the commercial vehicle. If I look, it is showing some kind of moderation for last three, four quarter. If you can provide some outlook on the demand trend, what we are seeing. Last is about the Telefonica. You indicated some kind of subcontracting arrangement with some company, and we may potentially acquire. If you can give some detail, what is that, what we are looking at here? Thanks. Let me address the commercial vehicle part. Commercial vehicle, I think, you know, looking at anything with just one quarter is not a fair way of looking at it. It's like looking at our growth across geographies, where we believe that the growth will be balanced across geographies. It may change from quarter to quarter, from one to the other. It's the same thing with commercial vehicles. Our business over the last two years has grown consistently in commercial vehicles, and we believe that it'll continue to grow in the next one. It's just that passenger cars business, the growth has been significant, driven by software-defined vehicles. We are still quite bullish on commercial vehicles when it comes to immediate to mid sort of. If you look at the numbers, I think YOY growth is about 15% in CV. Even if you look at last quarter, the sequential growth was very strong at 6%. The growth has been stronger. It is just this quarter that it is flattish. I mean, if you look at the YOY trend or even a YTD trend, you will see that growth is there. On the last, I think, let me explain this. It may not been clear. When we acquired Technica, they have multiple centers, and one of the centers is Tunisia, which is their own company, but little differently structured. We decided to acquire it after fulfilling some changes in their structure, et cetera. We don't have to pay anything additional for it. It is just our choice to get few things done before we acquire it, and that's why it is appearing as a subcontracting. There is no. Otherwise, there is no difference. Did I answer your question? Understand. Thank you. Thank you. Thank you. We have the next question from the line of Sandeep Shah from ICICI Securities. Please go ahead. Yeah. Thanks for the opportunity and congrats for a very strong execution. Just the first question after Technica coming into your bag or umbrella, is it fair to say now we have addressed all the gaps to be addressed in terms of in the software-defined vehicle or ADAS strength, or do we still have gaps? If not, in that scenario, getting position in terms of a larger size deals would be much stronger going forward versus what it used to be around one quarter back. We have addressed some of the gaps, especially on the upper left-hand side of the software development V and the upper right-hand side of the software development V. System networking, system, proof of concept and system validation part, and it's a very strong fit in terms of what we have. The pursuit of what the customer wants, and what are the white spaces that are available is an ongoing thing. As we speak, we are continuously finding out new white spaces in the SDV space as the customer is also finding out some of the new white spaces in the SDV space. We will keep on discovering them and focusing on them. So far so good, but, I think going forward, you'll see many more white spaces coming up, which we'll capture. If you look at the last two years, some of these gaps have been bridged. You know, we use the strategy of build, buy and partner. Some of these we have actually built internally, through acquisition of Technica and past partners. We have actually acquired, you know, bridged the gaps through acquisition. You know, not in the, in the entire ecosystem, one company cannot do it all. We also have to partner with some other key players to provide a more comprehensive solution to the clients. Okay. Okay. Helpful. Just looking at the macro scenario in Europe, is there any instances, despite the projects which we work are critical for the models to be launched in the future, clients are slightly behaving conservative in terms of their decision-making or in terms of awarding deals or after awarding start of the projects or after start ramping up the projects? Any instances are you witnessing? you know, I think there are two answers. Overall, given the macro scenario, all clients are gonna be very cautious. Some clients are, they've taken some proactive steps to cut costs. Fortunately for us, they're cutting costs in other areas, and they're prioritizing things like Software-Defined Vehicles and so forth. Overall, yes, clients are becoming more and more cautious about the spend. As far as KPIT and our pipeline and our programs are concerned, we have not seen anything, you know, that is likely to impact us in the immediate future. Okay. Okay. Just last few, bookkeeping questions. I think this quarter in the PNL, we had a cost of goods sold related to material consumption and the finished good inventory. Is it largely related to Technica, and will it continue in future quarters, or it is more specific to third quarter being seasonally a strong quarter, as a whole? It is completely related to Technica. It will go up and down. It will be there going forward also. Okay. Okay. In the initial remarks, we said the effective tax rate on a going forward basis would be 23%, right? On an annual basis, it will be 23%. Yes. On an annual basis, it will be around 23+. Okay. Okay. Okay. With amortization of intangibles, for the Technica, do you believe the depreciation amortization as a% to revenue may go up or may actually come down with some of the other assets which are organic, becoming older and their depreciation may come down? I think we'll have to really decide on the quantum that we will arrive at for doing this. Obviously, when we do it initially, it will have some marginal impact. Of course, as the revenue grows, that percentage will come down. Okay. Obviously we have not yet decided what is that quantum. We'll have to work on it and then come up with a number which we will share with you once it has been done. Okay. Okay. In the presentation, we said M&A related cost is still pending. Will it come largely in Q4 or it may come still 1 Q of next financial year? What could be the quantum? No, no. It is what, as Mr. Patil said in the initial remarks, that some costs, that we will do for integration will come in the next two quarters. No, no. INR 14 crores has happened. Yeah, yeah. It has happened. Yeah, it has. Okay. Okay. The quantum may decline in the Q4 and Q1 related to some of the consultant costs? Yes. Okay. Okay. In terms of factors. I think you have asked many questions. I think it is enough. Okay. No issue. I will come in a follow-up. Thank you, Sandeep. Thank you. The next question is from the line of Saurabh Kapadia from Sahasraa Capital. Please go ahead. Hi. Thanks for the opportunity. In this quarter, our employee expenses have not grown as much as our revenue, and they have also decreased as a percent of our revenue. How did this happen, and is it sustainable? I think if you look at it, as we have said, with growth and with improved productivity, we intend to have that number to be in this range or slightly lower as we move ahead. That's what this number is. It is also a factor of fraction of the freshers that we have recruited over the last three, four quarters, and that has improved the overall cost structure. Okay. We have better utilization now, yes? Yes. We will have it as we move forward. Okay. Okay. Also we, you commented that we could grow double from our current position with most of our clients. Is it an aspiration or are you aiming for that? How long, what would be the timeline for that? I think it's a great question. When we say that we'll focus on handful of clients, that means we have no choice but to double the revenues there. Jokes apart, what we've realized is as we engage with them deeper, we are also getting the broader insights into the areas in which they need help. As Anup Sable, Mr. Sable pointed out earlier, we are also responding to their needs and creating offerings that are relevant to them. This goes back to, you know, becoming a truly trusted partner to them. Given that model, we think that over the next three to four years, we'll be able to double our growth within the same clients. Okay. Okay. Thank you. Thank you. That answered my questions. Thank you. Thank you. We have the next question from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go ahead. Yes, sir. Thank you for the opportunity again. My questions on the, some of the hardware costs have been answered. Just one, if you can help us revise, you had done this acquisition sometime back, for, of FMS, in which was into ADAS, et cetera. If your current quarterly numbers on the share of associates is anything to go by, there has been some slowdown there. If you could just highlight what is an, what is the update there? How is the company performing? Is it in line with our estimate or is it in line with our expectations or not? What is the current revenue run rate that it is clocking? I think it is in line with what we discussed. I think the company is doing well. We are still a minority company in that. I think the trigger for acquisitions will come in next quarter also. We will give the details once we conclude that. Right now, it may not be appropriate to share the details, but the company is doing well, and there is on the profit activity front, they are in line with other company profit activity. Right. The decline in the... While the number is not significant as of now, but this share of associates decline, sharp decline is not related to FMS. Do we have any other entity there or how is it? No, there is no correlation there. Okay. the share of associates, ma'am is regarding which entity right now? It is for FMS. No, no. The answer is that it is just a quarterly phenomenon, and we don't see that as a trend in FMS. What we are saying, if you take the year as a whole, they are on track to do the targets that we had in mind in terms of revenue and profits. Though quarter on quarter it has gone down, we will see that going up. There is no issue as such in terms of the targeted revenues or the targeted profits that we had in mind. Understood, sir. Understood. Thank you so much, sir. Thank you. Thank you once again. Thank you. Thank you. Thank you. The next question is from the line of Vinit Jethalal from Jetha Global. Please go ahead. Yeah. Hi, management team. Can you hear me? Hi. Yes. Okay, great. I had a few questions. The first just being on, whether there's any integration risk with this Technica acquisition. I mean, I know it's a different country and not really kind of combining workforces in any way. Is it fair to say there's very limited integration risk? Integration risk. Yeah. Every company that is acquired, carries some kind of a risk. We have done a very detailed risk assessment, and, we have a regular meeting, a fortnightly meeting to mitigate and plan in terms of what needs to be done. So far so good. We don't see any major risks right now. Actually, they are very excited looking at the opportunity they see in with our marquee client. I think, I mean, from their point of view, they would have never got that kind of exposure to this client globally. We have a overall excitement at the moment in terms of the opportunities that we see and what real value add we could do to the clients, you know, together. Okay, got it. I guess one other question relating to, you know, how you think about this Renault deal. I'm curious what the offshore and onshore ratio for that deal is. Even if you look at kind of revenue and EBIT per head, is that accretive to the current business? I'm curious, you know, what 'cause it's sort of a new deal, so you might have a better view on it. We do not provide the breakup in terms of onsite and offshore revenues. Our engagements swing basically depending upon their stage, location, where we are engaged. We keep away. Overall, as I, as we mentioned that, if you look at a year back, the onsite had gone up, overall our people onsite have gone up a bit, and that is for multiple reasons, but including our engagements we need to do in some of these deals in the first part. Most of this work will be largely delivered out of offshore locations, not necessarily India. Okay. Got it. Just a last one. You know, I think your TCV based on the last four quarters, I think you only re-started reporting it four quarters ago, is about $700 million. Maybe the overall TCV is even higher than that. How do we think about conversion and visibility? I mean, does that mean that if, you know, you have a three-year average deal life, I mean, you're looking at 40% of the revenues being visible into the coming fiscal? What's the right way to think about that? This, many of these deals are anywhere between three to five years, you know, kind of, duration. It changes. Sorry. Yeah. It's hard to sort of put a formula and tell you, depending on... I think there are different flavors to it. As Mr. Patil said earlier on, we are in a good position at this point in time. We've given the guidance, we've revised the guidance, by end of next quarter, we'll give you the guidance for the next year. It's kind of hard to translate that into, you know. Okay. Got it. Thank you. Thank you. Thank you. The next question is from the line of Dhanshree Jadhav from Anvil Share and Stock Broking. Please go ahead. Hello. Dhanshree Jadhav, you may unmute your mic, please, and ask your question. Your line has been unmuted from our end. There is no response from the current participant in the queue, we will move to the next questioner. The next question is from the line of Deval Shah from RBSA Investment Managers. Please go ahead. Hello. Am I audible? Yes, you are audible, sir. Please go ahead. Yeah. My question is related with the business units. I just wanted to understand our three business units. How are they different in terms of? Client engagement and as well as on the margin profile and what as KPIT we are strategizing. Is it we are going to more focus on the middleware or we are going to focus more on the cloud-based? I'm talking about more on the five to 10 years. I think, as we mentioned, these are the three important parts of for the OEMs. Even in SDV program, all the three parts are relevant. The reason we have made it, because this is how the buying centers at the client side are. We have mapped our organization to the client side. That's. The second thing is earlier we used to, you know, give a practice-wise, but that's not how the organizations work at the client side. That's why we change the structure to map with the client organization. To your point, our focus is across, but some of the areas like architecture, middleware and cloud-based connected services, these are in somewhere recent in last couple of years, and size is relatively modest as compared to the one which where it is electrification autonomous, which we have built over last five, six years. That's why they have, they are growing faster. At the same time, as Mr. Tikekar mentioned, I think one leads to another. It's a kind of a combined story, and that's why actually with Technica and other acquisitions, we are in a position to give a blueprint to the execution, full story from KPIT. Okay. Just on the margin profile also, are these three have a similar kind of margin profile or, and, term of contract or they varies on those, similar-? At a gross contribution or this level, there are some changes. I think there are some are little more profitable than the others, but volume is higher in some cases versus some the scale is different. It changes, but, I mean, it's the mix is not going to impact significantly anything what we have mentioned. Okay. Got it. My another question is on more on the margin. I understand that we have given the guidance of 18.5%-19% as of now. Looking at the kind of services we aspire to provide, what is our long-term aspirational margins even after three to five years? If we are providing more value-added services and more integrated services to our clients, then what would be our aspirational EBITDA margin we are looking at? It is, it is not, basically what we have mentioned always is, we will show consistent growth in the margins, and we will invest anything over and above if we can meaningfully, you know, meaningfully invest into anything else in the growth or, delivery. We have said that we will cross 20% in next couple of years. That's what we mentioned. That's, that's what we have said. Anything above, I mean, as I always said, there is always a margin to grow. It is our choice to invest into growth and, you know, new technology investments, which we will continue to do because I think that is important for us, and that's how we are managing the margin. Okay. Understood. That's it from my side. All the best. Thank you. Thank you. Thank you. Ladies and gentlemen, in order to ensure that the management is able to address questions from all participants, please limit your questions to two per participant. The next question is from the line of Chirag Kachhadiya from Ashika Institutional Equities. Please go ahead. Yeah. Congratulations on a good set of numbers. Thank you. I have a broadly, question with respect to the rest of the world, geography. Which are the countries where we have presence other than U.S. and Europe, and what, current environment there, which, you know, supporting to us, and, what are the possibility we look into these geographies other than US and Europe, I'm talking? Uh, in Asia, bulk of our revenues actually come from Japan. Um, and, uh, there are some revenues from Korea and China, and we have one client in Vietnam. Um, and of course, there is some business that is in India, which is, uh, where we service some of our global clients. So those are the one. Bulk of the revenues come from, uh, Japan. And, uh, we, we think that we'll continue to grow in, uh, Japan, uh, also in Korea. Uh, China, we are just, uh, you know, the situation has been, in China has been very difficult over the last three years. Now that things are opening up finally, uh, you know, we'll have to see how to, uh, sort of, uh, put rigor into China over mid to long. Uh, Japan will continue to be the, the, the key growth driver for Asia. Okay. In the immediate future. Okay. sir, just one more clarification I want. Like, there were a news a year back that some shortage of chip in automobile sector is there due to disturbances in China. Does any of our clients facing such issue still or, the issue has been resolved? It, yeah, it has been a huge challenge for the last couple of years for most of the OEMs. Not just in the automotive industry, but in other industries. It's getting better by the day. It's still not behind us, but I think the supply has increased, a little bit. As things have opened up globally, things are actually getting better by the day. Okay, sir. Thank you so much, and all the best. Thank you. Thank you. Thank you. The next question is from the line of Abhimanyu Kasliwal from Choice India Limited. Please go ahead. Thank you so much for taking my question. Am I audible? Yes, you are. Okay, thank you so much. Congratulations on a good set of numbers and good organic growth. Thank you. Besides the inorganic. My point, sir, is that you see the, we are working on a revenue per employee trying to expand as much as we can and trying to decrease our cost per employee as much as we can so that we can get a good employee yield. I wanted to ask, what is your trajectory? What is your outlook on that, the employee yield, so to speak? We are increasing our employees on a slightly lower rate than what could have been expected. Does that mean that now we are on a sustainable improvement in employee yield, that we're hoping to have more revenue per employee as opposed to cost per employee, so that'll lead to a better yield? If you could provide any guidance, I would be very grateful. See, we have talked about the margins, which is, I mean, all of these metrics that you talked about, whether it is revenue per employee, profit per employee or utilization, all of that will materialize into the operating margins that we have talked about, and that is the increase that we have seen. I don't think we'll be able to say that what will be the trajectory there. If you look at the last 4 quarters, actually our hiring has been higher for the future than our revenue growth. If you see as a trend in the medium term, obviously the aim is to improve that number as revenue per employee and also the profit per employee to go up, which will result into the steady improvement in operating margins. Sir, have you seen any trajectory like that in terms of the contracts? Now we are seeing perhaps higher value contracts, which are more technical in nature, hence we are able to, you know, generate more revenue per employee as such. Is it the same kind of contracts right now? What's happening, sir? At a high level, I can say that our realizations are improving with the new contracts. Wonderful. Wonderful. Thank you so much, sir. Yeah. That was very helpful. Thank you. Thank you. We have the next question from the line of Sandeep Shah from Equirus Securities. Please go ahead. Yeah. Thanks for the opportunity. Just last two things. In terms of the practice revenues, it looks like the Technica has been added across service lines, because the incremental revenue across service lines. That is true. That is true. Okay. Okay. The 20% Technica margins are at EBITA or EBIT level as of now? The 20% margins are at EBIT level. EBIT level. Okay. Okay. Thanks. All the best. For this quarter. Huh? What? Yeah, for this quarter. Yes. EBIT level. Okay. Thanks. All the best and congrats once again. Thank you. Thank you. I think we'll have to take a stop now. We are already 15 minutes past the call, so, one last question and we should. Sure. We have Ms. Dhanshree Jadhav from Anvil Share and Stock Broking with the next question. Please go ahead. Am I audible? Yes. Yeah. Congrats on great set of numbers. Thank you. was on, the growth that we have witnessed in architecture and middleware consulting. The growth is quite strong at 50% quarter-on-quarter, and as you said, it includes Technica. I just want to know, excluding Technica, what would be the growth there? What is driving this growth, and what will drive this growth in near term and in, long run is what I want to gauge from the management. It's, I mean, I don't have a quick number, but roughly I can say that it will be about double-digit growth quarter-on-quarter for this practice organically. The if you look at what middleware is, it is the most critical part of the software-defined vehicle. When software needs to basically define the vehicle, middleware becomes a very important component on that. It is the first and the earliest change that will happen. I think when you see all these SDV programs being kicked in, this is the first and foremost development that starts kicking in. That is why there is a growth. Okay. On that, if I just want to add on to it, like any particular client or deal, has, you know, led this growth, if you can, call out something there. Also in context with Europe. You know, Europe was, KPIT has been witnessing very strong growth last couple of quarters. This quarter it was obviously including Technica. Somewhere, if you can, in that context or whatever, separately, if you can call out for the growth organic basis is what I would like to know. It is true. Yeah, I'm sorry. Can you repeat the first question? I remember the second part. What was the first part? The middleware, the growth in the middleware on organic. Yes. Any particular client deal that is d riving that organically? If that can be in contact with the kind of growth we are seeing in Europe, because that was quite strong for KPIT. This year, obviously, it was including Technica. Something, if you can call out in terms of any particular trend you are looking, that would be helpful. Yeah. Okay, understood. Thank you, for remind, reminding. Yeah. The, as we mentioned earlier in the call, there are about six SBB programs that we are working on. You know, as one would expect, bulk of them are in Europe. That's why, the growth is driven by the six SBB programs in the middleware and overall SBB. Some of the key clients have been in Europe. That has also driven the growth organically in Europe. Now the Technica acquisition has, you know, even made it stronger. Does that answer your question? Yeah, that's helpful. One last question. Management had conveyed that we would see on sustainable basis the growth to be like 20%, you know, like, annual. Is this, is that maintained or there could be some challenges to it? How do you see? I mean, I'm asking for the long term. I think, we have given, that, you know, overview overall, last year when we gave, and, we feel reasonably confident about. You have seen what we have performed this year, and we have, there is nothing which warrants any change in our view. Yeah. Great. Thanks. I think those, that answered my most of the questions. Thank you very much. Thank you. Thanks. Thank you. Thank you. Ladies and gentlemen, that was the last question for today. I now hand the conference over to the management for closing comments. Over to you, sir. Thank you very much for your interest and participation. If you still have any more queries, please feel free to write to me and I will be happy to address those. Thank you and have a good evening. Thank you. On behalf of Dolat Capital, that concludes the conference call. Thank you for joining us. You may now disconnect your lines.