Ladies and gentlemen, good day and welcome to the KPIT Technologies Q4 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 call, please signal an operator with 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 Market Private Limited. Thank you. Over to you, sir. Thank you, Lizanne. Good evening, everyone. On behalf of Dolat Capital, I would like to thank KPIT Technologies Limited for giving us this opportunity to hold this earning call. 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 introductions. Over to you, Sunil. Thank you, Rahul. Good evening, a warm welcome to everyone for the KPIT FY 2023 post-earnings conference call of KPIT Technologies Limited. On the call today we have Mr. Ravi Pandit, Co-founder and Chairman, Mr. Kishor Patil, Co-founder, CEO and MD, Mr. Sachin Tikekar, President and Joint MD, Mr. Anup Sable, Whole-Time Director and CPO, Priya Hardikar, our CFO. As we do always, we'll have the opening remarks by Mr. Ravi Pandit on the year and the quarter gone by, the way we look at the immediate future, then we'll have it open for questions. Once again, a very warm welcome to all of you, I hand it over to Mr. Pandit. Good evening, welcome and thank you for being present 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 which have been raised in this context. After that, I think we can start looking at the question answers. I trust you have all received our investor release. As you would agree, it's, it gives plenty of information. You know, I believe that between that, the, between the notes that you have got and the initial comments, many of your questions will be addressed. I would invite you to ask any further questions that you may possibly have. As you would see that it has been a good quarter and a good year. The quarterly results show a year-on-year growth of 50% in constant currency. The quarter-on-quarter growth of 8.5% in the constant currency. The revenue has picked up well. EBITDA, we have a EBITDA of 19.1%, which is a 60% year-on-year growth. Net profit, which has grown 42% year-on-year. This is about 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 has been 18.9%. This shows a 45% growth from last year. The net profit at INR 3.8 billion shows a 39% growth over the last year. 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 through the outlook that we gave throughout the year. We have also given the outlook for the next year, where we believe that we could have a constant currency growth of between 27%-30%, and our EBITDA margins would be between 19%-21%. Questions have been asked about the genesis of this growth. 19%-20% EBITDA. 19.20%. 19%-20%, I'm sorry. EBITDA. 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. I think it is imperative to look at the underlying factors which I would look at as an intersection of two, 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 in the automotive sector. There is a change in the business model that our clients, namely the OEMs, are going through. The change is driven by multiple factors. There is a change in technology because of significant push towards electrification, that is really in response to the climate change requirements. That is a key initiative for our clients, and that's a matter of passion for us, to really come up with solutions which are green. The second factor, which is affecting is that there is a business model change that our clients are looking at. Till now, the source of income for the OEMs was the one-time sale, now our clients are looking at potentially a stream of revenues coming from the sale that is being made. They would like to give additional functionality over a period of time. They would like to stay in touch with the client through the life, therefore the requirement of being continuously in touch, and therefore need permitting 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 ECUs in the vehicles has increased, and now the OEMs are looking at consolidation of them. They are looking at domain controllers or centralized architecture, which will reduce the number of ECUs and make the overall software management far more easy. There have been multiple reports of industry analysts, which have talked about significant demand for software R&D work that the OEMs will do, and the anticipation is that the OEMs will spend almost $40, $40 billion every year over the next 5-7 years to make this transformation. That is really the condition of the industry that we face today. We have been trying for the last few years to get ourselves ready to meet this industry challenge. We look at ourselves as partners to this industry, and we want to be responsible and trusted partners to our clients. With that in mind, we have been working on three or four major initiatives, and we believe that it is best thinking that we have put in over the last few years that is beginning to show some results. Our thinking is actually based on four broad areas where we need to really excel in our performance year after year. The first is building into 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 a certain select clients within that industry. These are the clients which we call as strategic. To these clients, not only they are strategic to us, but we are also strategic to them. We are a part of their thinking process, we are a part of their architectural development, we are a part of their problem-solving, and we see that our responsibility to ensure that the trust that they, that they repose on us is well, well guarded and is well responded to. Our focus on a few clients and going deep into their requirements has been a main driver of work, of our work for the past few years. The second area is of course, in the area of technology. This is an area, industry in which technology is changing rapidly. Our client needs our help to get a good handle on the technology. Our motto is to be a software company which understand automotive better than any other company, and to be a company which understands software better than any OEM. With that in mind, we have been investing in understanding the technology, developing skills in that, developing tools, platforms, accelerators, which can help our clients do their work with speed, with low cost, and with absolute strong systems for legacy. Our second area of focus has been technology. The third area of focus has been talent. We have been investing a lot in building talent at all levels, not only at the technical talent at the bottom level, but also the managerial talent at the middle and the senior levels. That's an area of focus that we believe should help us over time to come. The last and not the least important is our delivery excellence, because the work that because of the engine that our clients deliver to their customers is so complex and the reliance on them is so high, it is important for us to deliver a software which is completely error-free. Therefore, how do we develop a system or a process which can develop error-free software in the right committed timeframe has been a key issue for us, and we have been working on that. We have been talking about this, these four key initiatives to you, with you for the last few quarters, and we think that this is something that can put us in good stead. That is what we believe has helped us our growth in the last year, that is what we have hope that should help us in our current year, in the coming year. We also think that our midterm prospects in this context should be good. We believe that in the current year, the growth may be a little front-ended. We think that our first two quarters may be better as a part of this total overall growth. In this investor note that we have presented, we have also talked about a collaboration, you know, formation of a new company called QORIX. 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 vehicle, the middleware, the core software is becoming a very important thing. We believe that there is a room for a very good, sturdy core software that can be delivered to our clients. For this, we have formed a partnership with a global well-known Tier 1 called Valeo. We believe that together we can develop a good solution and deliver it to our clients. The company, QORIX, will be focused exclusively on the development of the software product. We will continue to render services around it. To this company, we will be making an 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 authority in Germany. Once that is done, we will be able to speak more about what will be the contribution that will come, from Valeo over a period of time. We also think that it could be useful for us to add yet another partner to that. We are in the process of conversation regarding it. Whenever that happens, we will certainly come back to you. These are really some of the broad observations that I wanted to make. The normal observations regarding, you know, the stock and division, et cetera, have been covered in the notes that we have given. 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. Thank you. Ladies and gentlemen, we will now begin with the question and answer session. Anyone wishing to ask a question may please press star and one on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue settles. The first question is from the line of Chandramouli Muthiah from Goldman Sachs. Please go ahead. Hi, good evening, and thank you for taking my questions. 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 non-compliance burden for some of your customers if they are unable to comply. The European Union also last month has reiterated its commitment to ban ICE vehicle sales starting 2035. In your experience working with the OEMs, how many years do you think it could take to develop an affordable mass market EV in these developed markets? We're just trying to understand the length of the ongoing electric vehicle R&D cycle. Is this a short-term investment cycle that could sizzle away or is there a longer strategic focus at the OEMs at this point? Thank you for the question. I think, if you really look at, I mean, I'll give you the first the broad answer. I think, first is, European Union was the first one to really go for the proper regulations and compliance on this. Yeah, some of the companies in U.S. have adopted it, and many of them will be adopting it. Japanese companies first have gone for more hybrid and then also electric as a combined purpose. There have been stages. Overall the different markets will come up, maybe mature and will 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. There are many technologies which are coming up, you know, I mean, maturing, which will be fuel cell, hydrogen, of course, battery technologies. 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 basic engine technology and engines have been there for more than 100 years, and there is still new innovation happens every time. 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. We believe that it will be much longer cycle and at least I would say the technology will evolve at least for a decade, if not more, to say. 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 10-15 years. There is also a school of thought that R&D spending could be a discretionary spending item for these companies if they want to preserve margins in a down cycle. Could you share your thoughts on this as well, please? Yeah. There are basically two specific things in this area. First is, while it is called a R&D, largely what we are focusing on is development and engineering. This is actually a real production program, right? Just because 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. While it is classified as R&D, it is largely a development engineering for a specific production program or development program. As you know, all the one of the most important thing for the OEM is their brand and their market share in their respective key areas of focus. 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. This is not, you know, as much discretionary as people think. It is actually more a committed expenditure. There are different budgets which have been taken out. I don't think all the clients would like to introduce the product at the earliest to gain an early mover advantage or get more market share. That's helpful. Thank you very much, and all the best. Thank you. Thank you. The next question is in the line of Pratap Maliwal from Mount Intra Finance Private Limited. Please go ahead. Hi. Am I audible, please? Yes. Yeah. Congratulations on a good set of numbers, and thank you for taking my question. I just wanted to ask around our margin guidance of 20%. What margin levels do we have going ahead? Because with the mega deals that we've announced, we may initially have some kind of on-site presence that may be needed. Could you just help me understand some of the margin levels to get to that 20% mark going ahead now? I would first say that we have given a range between 19%-20%. If you look at last many years, I think we have improved our margins generally quarter-on-quarter but certainly year-on-year. 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 of QL back that when we will exceed a 20% goal. In next, you know, in 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 in, like, once we get to it 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 plans. Whether we invest into people or we invest into infrastructure. That is how we make the decision. As we get more comfortable around that, looking at our investment, then, you know, the margins grow. It is a cycle. It is a combination of what we look at is the margin, plus the investment we make. As you may be knowing that, probably as a technology services company, we spend a fair amount of money into research and development, which we do report to. That is how we look at our margin and investments. Okay. Sure, sir. Thank you for that. Just another question. If I heard correctly that we believe that our growth in FY 2024 may be front-ended for the first two quarters. Could I just understand what would be driving this? Our Technica acquisition, Technica seems to have positive seasonality in Q3 and Q4, the second half. Why would our growth be front-ended now for FY 2024? If you could maybe help me with the Technica growth numbers, because I believe it overperformed some of our expectations. If you could just call that out, please. There are two points I would like to consider. I would like to mention. The first about Technica is, we do not give. Because it is a fully integrated entity, we would not give. The way it has performed better when we means is it's a seasonality, and we thought we were expecting the revenues to go down, but they did not go down, which was a factor. It is not that they have exceeded the performance from that quarter. They exceeded the performance from the expectation perspective. They maintained what it is there. From the seasonality perspective, what we mentioned is our quad H1 will be stronger, is what we mentioned, and it is on the back of the couple of large engagements we have won. What we would like to do as a company is we would like to ramp up as quickly as possible. That's why, and we would like to maximize that in the first part. That is what we meant and that doesn't mean what will be, you know, the H2. We will not have growth or anything. It is not that the point. We will have the normal growth. I think if you look at the significant growth we had for three quarters, I think what we are mentioning is H1 will be a stronger from that perspective. Okay. Sure, sir. Thank you for taking my questions. I'll get back in the queue. Thank you. Thank you. The next question is from the line of Vimal Gohil from Alchemy Capital Management Private Limited. Please go ahead. Yeah. My question is on EV. One of the questions on EV has been answered. I just wanted one bookkeeping question to be answered, which is the contribution that you 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 have, since we acquired it. Vis-a-vis our expectations, how has it performed? How have their top lines performed? If you could give us some details there. Thank you. There is no addition of FMS revenues into these quarters numbers. That will happen in Q1. There is no change in this ownership of FMS as of this quarter. Nothing has been added. The performance of that entity per se is in line with what we had expected when we had done the initial state acquisition. There is no revenue that is added this quarter from FMS. It will happen from next quarter. In this quarter, on a Q1, Q basis, the entire 12% is completely organic? That is correct. It is 100% organic. All right. Thank you so much. All the best. Thank you. Thank you. We'll move on to the next question. That is on the line of Nitin Padmanabhan from Investec. Please go ahead. Yeah. Hi, good evening. great quarter. Thank you. I had a couple of questions. One is, I think a few years ago, I think you mentioned that, you know, $500 million is the target over the next couple of years. You think you're already on that on that number. 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 competition? How many companies would have that kind of breadth? The second question was that, when you look forward in terms of the next leg of the journey, what is it that you'll really need to add in terms of capability? Or do you think a significant part of that capability build-out is already in there? Those are the two questions. Lastly, from, you mentioned that the initial half of the year will be stronger. As these deals ramp up, do you think that they'll be initially margin dilutive to start with or, it wouldn't be? Those are the three questions. Thank you. I will. Most of the questions I'll remember. I will start. First, I will answer your third question, which, let me put it that it will not be margin dilutive. The growth will not be margin dilutive. The first, your question was about the competition. We look at competition multiple ways. I have said it again, but more importantly, what we see that resonating with our clients is there are, we are in a very unique position currently, where because of three things. One is a very strong focus on automotive and mobility. The second is real focus on integration and software integration and the systems integration. The third part is the breadth of the domains across. In all these three things, I may say 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 curve, and we'll continue to invest and, you know, make that differentiation go further. That's how I see it. The other part, what we are trying to do as you say, that maybe six months, three months, six 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 productizing, which will create a lot of opportunity for KPIT by itself in terms of integration, but more in terms of standardization in the industry. I think, we believe very, very well. We feel very good about it. I think, the focus and the trusted partnerships we have with the client along with the capabilities which we have built puts us in a unique spot. What was your third question? Capabilities, it is 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, two months, we see few things which are coming up. The way we look at it is in two 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 CTO organization, and otherwise is work on technologies which will get adopted three years down the line. In both the parts, we do see sometimes new opportunities, I mean, new technologies coming up. There are areas where we will have to work on. Down the phrase "fuel cell electric vehicle" and how it's typically abbreviated. 1. **Fuel Cell Electric Vehicle (FCEV):** This is the full, correct term for a vehicle that uses a fuel cell to generate electricity, which then powers an electric motor. 2. **Electric Vehicle (EV):** This is a broader term for any vehicle that uses an electric motor for propulsion. It encompasses: * **Battery Electric Vehicles (BEVs):** These run solely on batteries. (e.g., Tesla, most current EVs) * **Plug-in Hybrid Electric Vehicles (PHEVs):** These have both an electric motor/battery and a gasoline engine, and can be plugged in to charge. * **Hybrid Electric Vehicles (HEVs):** These have both an electric motor/battery and a gasoline engine, but cannot be plugged in. * **Fuel Cell Electric Vehicles (FCEVs):** These use a fuel cell (typically hydrogen) to produce electricity for the motor. **Why FCEV is the most accurate abbreviation:** While an FCEV *is* an electric vehicle, simply calling it an "EV" loses the crucial distinction of its power source (a fuel cell, not just a battery charged from the grid). * If you say "EV," most people will immediately think of a battery-powered car that plugs into an outlet. * "FCEV" clearly communicates that it's an electric vehicle powered by a fuel cel Sure. That helpful. Thank you so much, and all the best. Thank you. Thank you. The next question is from the line of Mohit Jain from Anand Rathi. Please go ahead. Sir, two questions. One was on the deals pipeline. Like we obviously had one, two large deals last year, but how are things there at the end of fourth quarter versus, say, last year or last quarter? The second one related to the sharp increase on the PNL side. Is it fair to say that some of these large deals and the ramp-ups that we have witnessed, they're more on time and material side, and incrementally we should see less of fixed price, therefore, despite having more PNL, we should still expect significant margin expansion, right? Hi, hi Mohit Jain. This is Sachin Tikekar. In terms of the engagements and the pipeline, you have noticed that over the last quarter we have consistently shown growth. You know, we believe that the trend will continue in the new year. Specifically, there are three types. You heard of two 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. From that perspective, I think there were unique situations when we specifically came out and talked specifically about Honda and Renault. The point that I'm trying to make is, our focus continues to be on these T25 clients. 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. One point is that, you know, earlier we were, it was about one practice, getting into it. Now there are collective practices, going into it and so forth. 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. If you could please add something on U.S. side, like we have been doing large deals across Europe, say, or Japan in this case, but what is happening on the U.S. OEM side? Maybe pipeline, maybe something expected in 2024. Anything will help. Absolutely. 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. They continue to go through transformation, as you know, electrification goals. U.S. companies, also OEMs have also set up electrification goals. They also have their roadmap in terms of level of autonomy that they want to build. Most importantly, in order to sort of change their model and engagement with their consumers, they're also trying to build some models. Along these lines, we see more and more engagements with the existing clients that we have in the U.S. On the West Coast, as you know, there are certain new OEMs that are coming up. We are working with two or three of them. These are early days, and we'll see how things unfold with them. That's the additional part in the U.S. that we thought we should sort of bring to your notice. Overall, net-net, we are gonna see fairly balanced growth across the three geographies. Some geographies will do slightly better than the others, but you know, we see fairly robust growth across the three geographies. About your specific questions on the T&M side, you're right that it has actually gone up. The reason is there are three or four transformation programs that we have started, especially what we may call software-defined vehicles or software-defined mobility programs. As you know, these are the programs that everybody is doing for the first time, so there is no precedent to it. 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. This process can take up to one year. 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? We are accountable for the work that we are doing for them in the software-defined vehicle. It's just that things are not defined. It's more on T&M. As they get more defined, we can move some of that into fixed price. The nature of the engagement doesn't change, Mohit. Understood. Sir, T&M also grows in sync with higher onsite, or it could be like T&M goes up, but my offshore also remains stable- Not necessarily. It's fairly balanced. Even if it's not very noticeable. You know, as I mentioned, it takes about a year. During the course of the year, it's about the same at the end of the day. Understood, sir. Thank you very much, Sachin. Thank you, Mohit. Thank you. The next question is on the line of Deepak Rao from Qber Asset Advisors. Please go ahead. Yeah, hi. Congratulations, Ravi, Kishor, Sachin, Anup and the family. Awesome results. Thank you very much. Yeah. My first question is, I think you've done on the CTO organization's work, but my specific question is, in the areas of semiconductors, in the area of hydrogen fuel vehicles, in the area of transportation domains adjacent to your present subverticals, what's been the competency development? What is the business development actions? Essentially, what is the market saying, and what are you doing to address those things? Hi. 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. We are basically making sure that we are aware of the roadmap, we are aware of all the new developments that are happening in this space relevant to our industry, and especially our strategic customers. That is from a semiconductor perspective. From a hydrogen fuel perspective, I think it is. There are two elements of hydrogen fuel. Hydrogen fuel being used in combustion engines and hydrogen fuel being used in fuel cells. In both of these areas, we are in, you know, very much, in the technology. We understand the elements of, what goes inside. We've experimented a lot with that. As this, activity shape up with our customers, we are in a very good position to handle them. As far as transformations into adjacent fields, I presume you are talking more about, other, relevant areas like, electric vehicle. Railways or something, yeah. Something. Pardon? Railways or off-roading or whatever. Railways, absolutely. Railways, aerotaxis, vertical takeoff. We believe that in the current industry that we are operating and the current circumstances that we have, that means 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. We will focus on what our customer, strategic customer requirements are, what are the technology gaps that they have, what are the problems that they have, and focus on the solutions for that. I'll just add to what Anup mentioned. In all these three areas we have already seen even the initial technologies, like even in case of hydrogen, obviously, we are seeing early signs of integration business coming up at a vehicle level, et cetera. Even in semicon, basically it is about the integration of the middlewares, and, you know, at a lower level integration of the software and semicon. We see those opportunity. Coming back to your question on adjacencies, as we see a longer term, you know, demand in with 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. That we may not take it up as soon, but we'll start maybe seeding certain technologies or maybe some efforts next year in next couple of years. Yeah, got it. Yeah, its focus is good. The second question I have is, KPIT data products and where KPIT does the services part, obviously you thought of it, but what is the thought behind if it's a standardized product, how will your client, say, European client or Honda or, you know, be able to differentiate between other car manufacturers if they're using a standardized product? You know. Yes. Let me define what a middleware is from a definition perspective, right? Middleware is the essential component of software that sits between the application and the hardware. You know, two 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. That means that the middleware is the most complex piece of software, and it is like a fundamental infrastructure for, you know, the application software to run in. When we basically talk about standardization in this piece of software, does not mean that it deprives the OEM to create a differentiation through the application software. 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 the application software. That has really nothing to do with how the middleware is standardized. In fact, the standardization of middleware would make their life easier in terms of launching their application software faster into the vehicle. Yeah. Thanks very much. It's been a pleasure following your story and your journey, you know. Thanks, congratulations once again. Thank you. Thank you. Thank you. The next question is on the line of Nitin Sharma from MC Pro Research. Please go ahead. Thanks for taking my question. Congratulations on good set of numbers. Thank you. Two questions. What kind of employee addition you're looking for given the guidance of 27%-30% in FY 2024? How do you see utilization levels to reach there? The first thing is at a high level, we do not really report on these parameters, basically because we give 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. Overall at a company level, and just to give you a historical reference, last year we were about 8,200. This year we are 11,000+, so addition of about 35% or so. We, what we do is, you know, running two quarters, we do a very detailed, we have our revenue visibility, and we do a detailed planning, based on that. That's, that's how we planning. Coming back to your question, I think we see a very strong requirement for the what the talent, we basically address it through a couple of means. One is, freshers we take, and we have to improve, we keep on improving the quality in terms of different places in India and outside India. That, of course, is something which we try to increase, we were looking at the complexity of our programs. We are not in a position to we cannot absorb as much as some of our, you know, IT companies can do. 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. I think that also is a very important factor when we look at how many people we'll hire and how we can, what we can do. Based on these two, we plan the thing, and we actually feel the environment is much better than the last year for us to hire and have enough talent to deliver to our commitments. Understood. One bookkeeping question. Your employee costs went up significantly in this quarter. Is there a one-time item or there is some shift towards higher wage costs going ahead? It is purely based on headcount addition for running the group, the employee cost. quarter-on-quarter cost is what you referred, right? Even if I look at per employee basis cost as well, it seems to have gone up around 8% QMP. Just trying to understand if something abnormal one-time item is there or if new additions are at higher cost. Some color would be helpful. Sid there is, of course there is a growth in the employee number and per employee. I understand your question is more about per employee cost. We have promotions which are there every quarter, and it more or less depends on that and also on the mix of hiring. There is nothing which is one time or abnormal in this quarter. It is just a part of the regular promotion cycles and the lateral hirings that we have done during the quarter. Understood. Thanks a lot. Thank you. Thank you. The next question is from the line of Deval Shah from RBSA Investment Managers. Please go ahead. Hello. Can you hear me? Yes, we hear. Yes. Good evening, everyone. My question pertains to more on the competition. I was just trying to understand where this industry competitive landscape is going. While I completely understand that next six, seven years we have a debt which probably is unique in the industry. There could be a chance where the OEM might, you know, developing their own in-house capability. Like, I read somewhere that Volkswagen has created a company also for vehicle OS by the name of CARIAD also. They already have a 6,000 employees working under that. Is there a chance where the technology company could emerge from the OEM circle only? At the same time, the follow-on question on that is that, probably, like what Microsoft OS is very dominant in the PCs. Could there be a chance in future where there is, would be a one vehicle OS product which will be used by many of the OEMs, in order to have a standardization and on that, on top of that the software will be built? Just wanted to understand your thought on this. Deval, your, 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. Now everybody is trying to get that little piece of software in there. It's an evolving trend and everybody's trying to figure out where they can create value and how they can make money. Having said that, we are a software company and our, as you said, we do have a head start, and you're saying 5-7 years, we appreciate that. We do believe that there is a head start and we need to continue to hone our skills and get close to the OEMs as much as possible. That's exactly what we've been doing. If you look at how OEMs perceive us, they see us as their software integrator. We are closer to them so that we can help them define their roadmap towards HGV and beyond and sort of help them not only define it but also execute it, where the bulk of the business actually comes. It's an evolving landscape. To your point, in some ways, to us, other than the OEM, everybody's a competitor or an alliance. Correct? It's... 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. Your second question was on the OEMs building their own software capabilities. If you look at OEM till about three years ago did not have software capabilities. They actually got hardware and software bundled together from some of the last Tier 1s. They didn't keep as much software with them. If some of it is gonna be their differentiator as they desegregate software from hardware, it's important that they build core capabilities of their own in future. You're seeing that, I mean, CARIAD is one example. If you look at most of the large OEM, that's the case with some of them. Some of them are actually software companies that became automotive companies on top. You know, a company like Mm-hmm. This is like any other business. If that's gonna be a differentiator, you need to build core capabilities. It's just that the work of software is gonna be so much that they may not be able to do everything on their own, you know, not now, not in future, because it may not make sense. What they will do is what's gonna be core to them, and everything else, our guess is they're gonna trust, their key partners to do for them. That's, that's not just the trend for today, but that will continue to be the trend in future. That's about your question on the OEMs. The last part was about whether there is gonna be. You gave an example of Microsoft operating system. It is, so essentially whether anything is going to get commoditized, right? In some ways that's what you're referring to. Not exactly commoditized. Sorry. Not exactly commoditized. It's more about having the central server system which will have, you know, cornered the entire market and upon which the entire PC industry was evolved. In that sense I was coming. Okay. It's an interesting question. The automotive OEM is a small world, in some areas that can happen. Mr. Sable, who's our CTO, who talked about QORIX in that regard, you know, when we talk about the middleware and architecture, some of the OEMs will go in that way. Having said that may happen. However, the application feature which continues to be the differentiator, that's gonna be the core amount, core work that OEMs will have to continue to do in future, and they may have to depend on, you know, partners like us to get that done. Okay. That is the reason even I am excited to know more about your QORIX. Quarters, probably after two, three quarters, you want to give us some more insight on your QORIX. Just one thing on the employee. Just a very basic question. When I look at your employee cost, I understand it's slightly quite higher than the, whatever the other industry player may not be your competitor. Is it because of the we are paying a higher amount for our niche tech talent? Or it's more of a front loading kind of, we are building up the capability and probably in future we'll have that operating leverage kicking in. What is the scenario here? Is there? I think there are two, three points in that. One is, naturally, we had to, we had to be a net talent creator because of the, you know, the size and the scale we have in this domain, and the growth we are having. From that perspective, really for talent, or other competition, we looked at it more from Tier 1 and some of the OEMs and some technology companies. To some extent, we had to provide a very quick growth for our deserving candidates. That is point number one. The, the important point is, as I mentioned, the, freshers, which, we can induct into the overall ecosystem is, probably, lesser than, many companies go like 75%-80%, while, we are, more towards 35%-40%. Maybe we have to do a better job on that. Over the period we will do that. That, also increases our cost. Our realization, our, contribution per person and those ratios are better than that, I guess. Okay. Thank you, and all the best. Thank you. Thank you. The next question is from the line of Saurabh Sadhwani from Sahasrar Capital. Please go ahead. Hello, good evening. Our revenue per development employee for this quarter has jumped significantly. If I look at it historically, we have been at $50,000, and now it went down to around $41,000, and now we are at $48,000. I wanted to understand what happened in this quarter. Was it high volumes or was it a better pricing? What other factors do affect this number? If you look at the movement of the per employee revenue, yes, it has moved in the range that you mentioned. 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 employee 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 at the first two, three quarters, the hiring was very strong as compared to the growth. Now we are looking at improving what we call as utilization. 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. I think it's a combination of these factors that has resulted in the increase in per person revenue. Okay. Just a clarification, when you talked about the middleware. The middleware is like a Linux kernel on which people build Ubuntu and Fedora desktop. That way OEMs will build their Fedoras and Ubuntu on that, right? Is that what you are trying to build? That's like slightly, maybe a little bit of technically deficient comparison. Ubuntu and Fedora 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. You know? Windows is actually like a middleware, and the Office that you see on top or any application, additional application on the top is what we call as application, the OEM application. Did I answer your question? Yeah, yeah. Yeah. Thank you. Okay. I think, sir, just one more question. I wanted to understand, right now, what is the situation on middleware? Is it not standardized much, or how are OEMs doing that right now? See, the in the past, there was no concept of middleware for the reason that the architecture was a distributed architecture. The way that the OEM sourced electronics or software was primarily through sourcing an electronic control unit or a hardware, including software from a Tier 1. In the in the future, what is going to happen is, the OEM, because it wants an integrated software, or 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. In the previous case, it was difficult because the boot controller used to come from a different Tier 1 and the voice recognition device used to come from a different Tier 1. There is a lot of money, that was money and team that was being spent on integrating these two together. In the new scheme of things, most of these application software that will open the boot as well as which will recognize the voice will be an application developed by the OEM themselves. It'll be easier for them to integrate this together to create a great experience for the user. That is where the new architectures are moving, and that's the main change that is happening in the industry. Okay. Okay. Thank you. Thank you. That's very helpful. Thank you very much. Thank you. Thank you. Since Anup's time is very valuable, and he's given a very valuable comment, we'll be sending the bill to you. Sorry. Sorry. Just a lighter note. Thank you. The next question is from the line of Akshay Ramnani from Axis Capital. Please go ahead. Hi. Congratulations on a good quarter. My first question is on the guidance. If I look at your guidance and try to tie it up with your commentary of a stronger front-ended growth led by the mega deal 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. Wanted to understand that. Is the guidance conservative or is there an offshore shift which is anticipated in H2, which is keeping that low? Is there anything else to understand here? The first thing is, if you think that 30%, 26, 7%-30% is a conservative guidance, I will be surprised. I mean, hopefully you appreciate what we have been always giving. Our philosophy is, we are giving the guidance which certainly we can live by. It is based on the current pipeline that which is pretty visible as well as, of course, the current engagements we have. We do also factor any risk at all, 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, you know, on table. I think we are just ensuring that our focus is sharper. And, of course, to your valid point, we will make some more shift towards offshore for sure. With all the combination, this is what we get, I think, which is something pretty reasonable. I would not say it's a very conservative versus it's very aggressive. It's something a middle path, I would say. Got that. Got that. Second one was on the acquisitions. Over the past 18 months, you've done multiple acquisitions which were supposed to be acquired in tranches. It would be good if you can share an update on that. How much of stake for these acquisitions you have acquired till now? What is the type of payouts which we are expecting in FY 2023, FY 2024? If you look at the acquisitions that we have done, it is Technica, Path Partner, SOMIT and FMS that we intend to do. As we have said, when we have done this, there would be payments that will happen basis performance. For Technica, for example, the total maximum payout can go to about EUR 100+ million, EUR 110 million. We have a fixed payment that will come up in this quarter, which will be roughly about EUR 20 million. Earn-outs over the next two years, which can go up to EUR 30 million at the max. That's the payouts that will happen for Technica. For FMS, the payouts for all 100% acquisition, will happen this year, and they would be in the range of about EUR 15 million. For PathPartner, it could be in the range of about INR 50-60 crores for the balance stake that we need to acquire, which will also happen in this year. Got that. That's helpful. Those were my two questions. Thank you. Best regards. Thank you, Akshay. Thank you. The next question is from the line of Anika Mittal from Nvest Research. Please go ahead. Anika, your line has been muted. Please go ahead. Hello. Am I audible now? Yes, ma'am. Please go ahead. Yes. Okay. My first question is on the new company which will be incorporated with ZF Group. How is the structure being planned and how the revenues will be shared? Is it based on equity stakes then? Structuring. It will be basically, currently it's a 100% subsidiary of KPIT. Okay. Priyamvada, you can come. Yes. Currently, right now, it is set up as a 100% subsidiary of KPIT. As Mr. Patil and Pandit explained that the regulatory approval process in Germany will take few months. After that, additional share capital will be issued to ZF and independent company will be formed. Few more partners are also expected to join in later, but at present it is our subsidiary. My next question is, can you provide some guidance reasons why the CFO divided by EBITDA ratio, which remained consistently above 100% in earlier years, has decreased to 73% in financial 2023? If I understood your question correctly, you're asking for some guidance on the conversion, cash conversion. Yes. CFO as a percentage of EBITDA. As you rightly said, that has been on the higher side, we would not like to give, put any number. All we can say is that we'll continue to have focus on cash conversion, that would be one of our important parameters to look at. Mr. can you provide why, reasons why it has decreased in this year? 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. I think these are some reasons. There is nothing apart from these reasons that were mentioned every quarter. We mentioned the CapEx numbers and the payouts that we have done for acquisition. Also, there were some long-term employee incentives, which. Okay. Would have spent during this quarter. Thank you. Thank you. The next question is from the line of Niket Shah from Motilal Oswal AMC. Please go ahead. Yeah, thanks for the opportunity and congrats on a very good set of numbers. I just have one question on the KPIT-ZF thing. Just wanted to understand what is the scope of work that KPIT and ZF? What are each of these companies gonna bring on table? The second question was if you can just highlight us the size of opportunity which can get created from here over the longer term. I do understand you don't wanna give near-term numbers or guidances, but maybe a little more medium term view would be really helpful. Thank you. Basically, first it is a KPIT subsidiary, so we will have some of the IPs which we have in this domain. We'll move it to the subsidiary or as long also. We are also, you know, we signed an agreement with ZF for a common development, last year, I mean 18 months back also. We have been developing certain software with a common roadmap. I think that will get moved. In addition to that, as Mr. Pandit mentioned, we will invest about INR 5 million in cash during the next three to six months, three months, and rest another INR 5 million in 18 months. That's what we will do. How much the others will do, we will announce once we have a firmer kind of once we have the announcement made by ZF and agreement is signed from their end. The second part of the question on the size of opportunity to. Yeah. As I mentioned, it's a new startup, kind of a condition. We are very, very excited about it because, I mean, we have sensed this opportunity from working with many clients. We along with ZF 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 KPIT has been in the, as a software integration partner and services space. Though we continues to have ITs as well as accelerators, as we call them. So that we do continue to have. 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 potential conflict in certain cases. We do believe that the way we have set this up will be very to capture the maximum share from the market and could be a potential leader. That's what we believe. The KPIT will remain a systems software integrator 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 roll up their own. That becomes a very clearer model to KPIT. Apart, 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. Second, it puts us very significantly in a good place where the integrations could be easily between 3x to 4x of the revenue of the of the independent company. Got the points sir. Perfect. Thank you so much. I'll come back. Thank you. Thank you. Thank you. Ladies and gentlemen, we'll be taking the last question. That is on the line of Bhavik Mehta from JP Morgan. Please go ahead. Thank you, and congratulations for a very firm quarter. Just one question. On the large deals, I understand that maybe over the life of the deal, the margins remain the same. How does it evolve over the course of the deal when it's ramping up? Because my understanding is that you might have some initial investments which will be concluded when the deal starts to ramp up, which might hurt margins in the short term, you know, maybe for a couple of quarters before the deal fully ramps up. Can you just throw some light on that? You know, how should we look about margins, you know, in large deals, you know, over the course of the deal when it ramps up? Bhavik, good to have you on the call, and thanks for the question. Typically, these are all longer term engagements, and they are different in nature, so there is no specific model where investments are all up front or so forth. In certain cases, we do have to invest, make some investment. Usually that happens for the first one or two quarters. After that, it pretty much evens out. That's how it works. That's, 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, you know, over the last few years. 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. Okay, got it. Just a follow-up on that. In the large deals, do you typically start initially with higher on-site, billing and then gradually move it offshore over the course of the deal? You can, you know, start it directly from the offshore location right from the beginning? In some of the recent. See, these some of these clients, the 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. It can happen during the course of the different cycles of the project. It's nothing, as I had mentioned earlier on, it's negligible, if any, during the course of the entire program. Okay. Okay, got it. This is very useful. Thanks. Yes. Thank you. Thank you. Thank you. Ladies and gentlemen, that was the last question. I now hand the conference over to the management for the closing comments. Thank you all for your participation in the call, and you have a great evening ahead. Thank you, and take care. Bye. Thank you. Thank you. Thank you. Thank you, members of the management team. Ladies and gentlemen, on behalf of Dolat Capital Market Private Limited, that concludes this conference call. We thank you for joining us, and you may now disconnect your lines. Thank you.