KPITTECH — earnings call

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Prepared remarks

Moderator · Conference Operator

So let's begin with our question and answer session.

Can we please begin with you, sir?

You can introduce yourself.

Chandramouli Muthiah

Hi, Chandra Malimutaya from Goldman Sachs.

Thank you very much for the detailed presentations to all the members of the management who presented Very useful insights to understand the journey going forward.

I have three questions.

The ﬁrst one is just on this pivot On your sort of slide on the industry that mostly incremental spend over the next few years might be in the AD/ADAS space.

And KPIT in the past has had a reasonably good share of its own revenue come from AD/ADASAt this stage, it looks like most of the spend on AD/ADAS, the big spend is happening with the new age OEMs.

VMO, Tesla Some of the Chinese OEMs, some of the Korean OEMs.

So just want to understand amongst the legacy players, which is your key focus, how AD/ADAS will progress in that context.

Majority of the spend be with some of the new age OEMs, and how KPIT can leverage itself for that opportunity.

Second one is just to understand the 4 to 5% sequential growth opportunity through FY27 if there was no ramp down in the two large programs you spoke about So at this stage, KPIT is close to a$ 750 million kind of revenue organization.

So just want to understand on an annual basis, what is the gap in revenue that has to be covered with these newly acquired accounts to do the growth aspiration that you might have for the year In FY27 And the third bit is just on the 22 to 24% EBITDA margin range What are the drivers of that transition from the current sort of mid-20%, 20.5% kind of range to a 22% to 24% range?

Is that more to do with products and solutions being a larger share What's the diƯerence between products and solutions versus what the legacy business is in terms of margin opportunity set and what role does AI play in that sort of transition?

So those are my three questions.

Thank you.

Kishor Patil

So, ﬁrst thing is on autonomous part I will take it from there.

So it's for every client.

For example, any legacy OEMs which they have built the solutions.

They have been in a person to go to level 2 or 2 plus level, and now they have to move towards that.

And there they have realized most of them, they have realized that they will have to source from… they will have a diƯerent partner Like, for example, if you talk about Chinese, or that part, there's a player called Momenta.

If you talk about other players, I mean, we talked about Helm, where we had them this, there are players in Europe, so You know, these are this.

I think we, as I mentioned earlier, the main opportunity for us ﬁrst, this is an opportunity across theOEM.

That's where the spent I said it will accelerate.

Last few years, if you know it had slowed oƯ the autonomous area.

So it will accelerate And our opportunity is in terms of validation and simulation and what we get today.

There are few things we have demonstrating how things will work also, how we will do it, but that will be the big area for us.

And also, of course, some of the areas we can add to that The second part is oƯ highway or commercial vehicles.

They are looking at also autonomy And, so that is another area which will be the area of growth.

And so I think these are some of the area.

In some new adjacencies we are talking about, there are also autonomy opportunities.

So, these are… this is, I hope I have answered the question whether it is this.

Just to tell you, we do work with all this company, including Momenta Now, we also sell our products to some of these companies.

We also work in their implementations for other clients.

So, we already have that experience and this kind That's the ﬁrst question.

The second question I will take, and I will come to this is the margin.

The margin growth will come through As we said, we believe that We will be in a position to increase our gross contribution signiﬁcantly through our approach of solutions and products Of course, you know the products typically the gross margins will be much higher.

The solutions, also the margins will be higher because we will have our own I would say we call it PTS.

We have the assets, reusable assets, along with the AI infused solutions.

We will be in a position to really improve our margins substantially.

And that is really the way we have built our organization within the practices we have.

So with that, we will be in a position to improve the margins.

So that's the ﬁrst part.

The second part is, of course, the business model change Which we will do and which is becoming more ﬁxed price, AI infused solutions.

So these are a couple of areas, which I can call out.

And there may be, I mean, of course, as, Sachin mentioned, we will be Using AI internally so we can have eƯiciency in terms of SG&A and all that.

But the key drivers are the ﬁrst two I talked about.

The third area you asked me about 4-5%, I just mentioned this about this year Because this was a big program, this is a big drop for us for the ﬁrst half of the year, and that will be a signiﬁcant part for us, so you know the calculations, right?

If it is a 4%, what, the 3 to 4% if you look at our quarter revenue.

So that's something kind of an impact we will have, and we will try to First cover that and then later on go beyond it.

Chandramouli Muthiah

That's helpful.

Just, just to clarify that, so 4-5% is 4Q to 1Q?

And once you sort of lap that, then that's sort of behind you for the rest of the year.

Kishor Patil

I mean, it will be, I mean, we are… so there are two things I want to say is these clients We already have more pipeline We are going for some more work.

The only thing is there is a gap.

It's not that this is stopped and then you will get that.

Also, at some point of time, they will look at the new architecture, new production programs, other parts.

So we have those kind of engagement.

They may not exactly be equal to the kind of a drop we may have, but even these clients, we have more business to cover.

So, ﬁrst is something we will make up by that, and the second we will make up by the newer clients which we

Chandramouli Muthiah

Got it, got it, and then just the other follow-up question I had is just on the current state of spending, so I think Sachin, you mentioned there's been challenge after challenge over the past four or ﬁve years, which you've sort of tried to manage through.

And in the current environment where there's higher oil prices globally, and then the automotive companies in certain geographies might have some shortfall in cash ﬂow.

What impact does that have on maybe the near term in terms of when they choose to reopen their purses broader futuristic R&D and spending.

Sachin Tikekar

We have not seen the impact on the OEMs yet because of the conﬂict that we are seeing at this point in time.

We'll see when it gets resolved.

I think if it continues beyond three to six months, it'll have repercussions, you That will be macro.

At that time, we may have to think about it, but today we are not in any of our conversation with any of our clients.

This is not coming up.I think they're solely focused on rationalizing their costs and creating funds.

You know, to invest into the future programs.

I think that's what they're solely focused on.

So, those conversations are not coming in.

It may impact the truck business faster than the Pass car business if this continues beyond a period of time.

So we are watchful about it.

All our clients are watchful about it, but nobody's taking any actions as of now.

Chandramouli Muthiah

Got it and just lastly, there was an interesting presentation on the India opportunity, global for India, India for India.

I think you've already announced an engagement with JSW Motors, which potentially comes out with their ﬁrst vehicle for India.

Later this year.

So I just want to understand today What is India as a percentage of your revenue and in your journey over the next three to ﬁve years, where do you envision this as a contributor, just given that a lot of the new EVs, new hybrids that are coming into the Indian market are pretty software intensive?

Kishor Patil

Right now, we are about 4% of our revenues are from India and they will increase substantially.

The share will go up and we do believe If it is going to be the third largest market.

That's why we are doubling down.

I mean, if it is going to be, in my view, 10 years, second largest market, we would like to really double down and play a very dominant role in this market.

All right, thank you very much and all the best.

Sachin Tikekar

Thank you.

Question 2

Vimal Gohil

Yeah, thank you for the opportunity, sir.

This is Vimal Gohil from Alchemy Capital.

Sir, my question is around, you mentioned reusable assets and solutions in the presentation.

I just wanted to ask, how are we compete… how are these solutions competing with the Chinese counterparts?

Because one, globally we've seen a massive ﬂip ﬂop.

So EVs took a backseat last year.

Now suddenly you're seeing the near term data on EVs growing 50% in some markets because of what we are seeing on the oil price.

So there could be another ﬂip on that.

And the OEMs will have to be very, very agile There are certain quick-to-use Chinese products or IPs available.

Plus, there is the Google and the Apple ecosystem also that's available on the front end.

So How are our products sort of working over there?

That's, that's point number one.

And lastly, on this R&D aggressive experimentation strategy that we've sort of capitalized over the last 3, 4, 5 years That is moving towards more disciplined capital eƯiciency, you know, by these OEMs.

So, how are we looking to maneuver that aspect?

That will be helpful.

Kishor Patil

I'll give you a personal answer you can add if you want to.

The second answer I will tell you is we talked about is improving our wallet share and coming out, going with a product and solution.

So, instead of, see, fundamentally the shift in the services business is having Doing a work with somebody else in terms of a TNM or then later on in terms of getting work done, then whether we can do it ourselves, whether we can do it in GCS versus Having a solution, full-ﬂedged solution, somebody ready to take the ownership and doing it faster and with innovation.

So that is the basically fundamental thing, and that's why we mentioned about how we will increase our wallet share, and that is something we measure every time.

So, I think that's how we would like to increase that.

The second thing is, we showed the McKinsey numbers also.

There is a shift in the spend But actually, the overall spend is increasing.

Somewhere else, it will get cut down, but the overall spend is… will increase.

So this is the answer for the second question.

About the Chinese OEM, I can tell you that there are Chinese has been very successful in China When you go outside China, their ecosystem does not work.

One of the best beneﬁt of Chinese OEM is in China, is because of their ecosystem And one of the reason this might favor with KPIT is also because of a very strong partner and a trusted partner to the OEM outside China.

So that's why they are ready to partner with us for going outside China.

Many of these we ﬁnd more traction than others.

To answer your question, we believe with AI-based and solutions, our solutions will be as good, if not better, because many of these solutions are localized also They need a localizer law, localize proven way of working.

China is a special market.

It works in a diƯerent way.

So, having that understanding of diƯerent market, working in that market will give us a unique advantage.

Vimal Gohil

So just one clariﬁcation or one question here, a fresh question is, some of these Chinese specialists, automotive ER&D specialists are working at are working with very high gross margins.

That is, their revenue per employee is Signiﬁcantly higher, but Their investments into R&D are far, far above the industry average.

And they're working on negative EBITDA margins.

In that context, and plus we are, you know, sort of… and they're going global as well.

They are working with some of these larger OEMs.

We are sort of… we will be encountering them when we sit across the table for most of these OEMs that we work with And To that extent, we are talking of expansion of EBITDA margins from the current 20-odd levels to 22 to 24.

If you can just maybe reconcile the math here, that we are competing with them, plus we are talking about expanding EBITDA margins.

Kishor Patil

So, I mean, you are, I don't know whether you have a speciﬁc example, but we know all the Chinese players.

I mean, there's some places we have come across some of these, but we can compete with them favorably outside China.

In China, we are building our capacity to basically We talked about in the certain products and solutions, like, I mean, just to give you the validation of the products which we have, we are selling it to all the all the top OEMs in China.

Where also if you look at some solutions like after sales, these are, we are selling, there is a very good interest in China to do that.

So, I don’t see anything.

I'm sure they will be good at some places.

I'm not saying, you know, everywhere will be the.Sachin Tikekar: So, let me add to what Kishore is saying.

If you look at China, number one, it's their EV platform or their batteries.

That's their biggest export as of now.

The second part, their hope is they will also sell the software platform, right, on top of that So, to us, the EV platform and the batteries complement.

This is where we can play the integration, validation, production, because they don't have that experience, they don't have the local capability.

So for some of our OEMs, we are already working with Chinese tier ones or tier twos for that matter, to help them go into production Right?

So that is very complementary to what we are doing.

As far as the software stack is concerned, that's where the exposure could be Yes, potential threat, but I think we're going to take them head on.

And that's why, you know, Anup presented the V-Cycle and the solutions that we are building.

We think that they are a lot more robust, and they are actually localized in diƯerent markets where Chinese have not don't have the same kind of experience.

So yes, there are going to be complementary in some areas.

There will be some competition, but I think, you know, I think we are on.

Vimal Gohil

Thank you.

Sir, one percentage of revenue is coming from China that will help.

You've given the number on India.

That is 4%.

Kishor Patil

We would not like to talk about that, but it is similar to India

Vimal Gohil

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

Thank you.

Question 3

Hiren Ved

Hiren here.

I just want a sense of, you know, when I just see the automotive landscape, at least also in India, is that somehow over the last few years, the Japanese seem to have lost their way Right?

I mean, there used to be a lot of new products The Japanese OEMs were looked at very favorably in a country like India for reliability of their cars, fuel eƯiciency, etc. Last few years, they seem to have lost their mojo.

It so happens that also your ramp down seems to be from a Japanese OEM, right?

And I think When there was a wave, early wave of electriﬁcation and EV, I think they were still batting and rooting for hybrids, maybe hybrids will also, all three will coexist But even… what are you seeing?

What are these Japanese OEMs thinking?

Because they are very large players globally Right and not just in India, but I somehow feel that there seem to be losing their way even globally What is the thinking?

I mean, do you think that… I mean, usually they take a lot of time to decide, and then they move, and hopefully that will help us get more business from the Japanese OEMs?

Sachin Tikekar

You know, let's talk about three speciﬁc ones, the biggest one, if you look at them, they've done reasonably well as compared to anybody else.

The big Japanese OEM, right?

Toyota.

They're still the biggest, the drop in their proﬁtability was comparatively lower.

Sales actually went up Compared to everybody else.

So, they are fairly resilient because they are… they have global footprint, and they have been able to localize their products everywhere, right?

So, they do have a lead of… and they are the ones, if you look at on the SDV journey.

They are the most backward Right?

So that says something about it.

So they do have a little bit of a runway.

You know, before they start to lose market share in the bigger markets.

I'm talking about globally, it's about India, generally speaking.

So, now, I think there is an opportunity For us to help someone like Toyota rapidly get on to the SDV journey, and also get into multiple powertrains, right?

They're still number one when it comes to hybrid, right?

They were the ﬁrst ones, and they continue to dominate, and I think in some markets, it makes perfect sense.

For instance, U.S, right, which is the most proﬁtable market for them So, yes, they have taken a little bit longer.

They decided to double down on hybrid as opposed to web.

But if you look at what they have done in China, Toyota launched a battery electric vehicle with level two plus autonomy stack from from momenta actually, and they're actually gaining slight bit of market share in China, right?

So, I think they are taking some steps to get there, and to us, it's an opportunity.

Nissan has gone through a diƯicult period, but they are coming back slowly, right?

I think they're cutting costs dramatically, and they're trying to ﬁgure out which are the markets that are really important to them, and where they'll remain relevant.

For Honda, US is the market right now.

That's where they make money and that's where really well and people believe in Honda cars in the US.

However, they've sort of all three of them, except for Toyota in the recent past.

They have dramatically lost their market share in China, right?

So that's where they lost the game.

And because Chinese presence is also expanding in Southeast Asia and Latin America, that's where they're facing competition on the battery electric vehicle.

However, these markets, it's only 10-15% battery electric vehicle penetration.

As far as the remaining 80-85%, it's still Toyota, largely, and maybe a bit of Honda and Nissan in those.

So, to your point, yes, there is a challenge.

All three of them are dealing with it a little diƯerently But I think in the recent past, there has been a bigger wake-up call, and you have started to see actions from Nissan in the last one year, and you'll see similar actions from Honda in the next month or two.

Right?

To really ﬁnd out which market are going to deﬁne them in future and what's going to be their diƯerentiator.

They're betting big, they've been betting big on hydrogen, on sodium cells as well So, I think they're trying to now disrupt the China.

They probably given up on the pure battery electric part, right?

They are saying now how to disrupt China Beyond battery electric.

That's the thinking.

So we'll see how this unfolds, but I think you're spot on.

Nissan has been in trouble now, Honda is getting in trouble, and if Toyota doesn't change their ways, they can potentially get in trouble in a couple of years.

Moderator · Conference Operator

Thank you so much, sir, for the answers.

Our next question is by Mr. Arun.

I'd like to request Arun to kindly introduce himself.

Along with his organization's name.

Arun: Hi, my name is Arun, and I am a qualiﬁed chartered accountant.

I'm from Syrian Alpha.

Just having one question.

You mentioned about the middleware and the Qorixpart, right?

When do we expect these things to get normalized, and we can expect some incremental contribution on the Qorixpart?

Kishor Patil

I think I mentioned a bit that when the new architecture programs will start coming in, I think that's when that will come.

But in oƯ-highway commercial, there is already an opportunity for us to introduce.

So There are Both on Pass car as well as OƯ Highway Commercial, it will take some time, because we're typically With multiple changes, there is a one to two years delay in these programs.

So, that's when it would come up.

Anup, you have any quick.

Sachin Tikekar

And, you know, just one clariﬁcation, not all Middleware from KPIT perspective equals to Qorix is a platform, so Qorix platform, wherever it goes, KPIT will go in terms of its implementation partner.

However, the middleware demand will, to Kishor's point, will sort of start to pick up for us in trucks and oƯ-highway as we do more and more of their software-deﬁned machine programs.

Arun

Understood.

Just one more thing, these TCV's been this quarter, there is a signiﬁcant jump, and, coincidentally, it is at the same time when we are seeing these two big SDVs are coming to an end Just trying to understand, like, how we manage the signiﬁcant jump in this TCV region this particular quarter, and not in the earlier quarters.

And secondly, how do you think, like, what can be the, new base for this TCV wins for us, maybe in the, in the upcoming quarters.

Kishor Patil

The ﬁrst thing is, we are happy that I hope you are also happy that it has come in time.

It has come on the back of oƯ highway commercial and few other strong wins we had and also other our traditional clients also So it's not it's a process, I think it just worked out during this quarter.

I can't say speciﬁcally what it is, but typically, I think I would say that, I mean, I cannot say what is the minimum we will earn every quarter in terms of wins, but I think I… looking at the market, I think we see that much stronger wins as compared to the last year required.

Sachin Tikekar

I think quarter or quarter, there will be variability because they are very diƯerent.

But if you take a six monthly yearly view, you'll see change year on year quite a bit in a positive direction.

Kishor Patil

And please understand some of these are multi-year, so that's why what Sachin mentioned, if you win one largest, it may not happen every quarter, but Typically, we see a stronger traction as compared to the last.

Arun

Got it, sir.

That's it from my side.

Thank you.

Moez Chandani

Hi, good evening.

This is Mohe Chandani from Ambit.

So my ﬁrst question was, in your conversations with European and North American OEMs, how are they responding to all the challenges that they're facing?

They saw EVs decline signiﬁcantly at two write-oƯ, now they're facing competition with China Is the focus right now very ﬁrmly on cost consolidation, where they just want to preserve their market share?

Or do you see any change in terms of appetite for them to maybe even increase or improve their SDV spends?

That's the ﬁrst question.

Sachin Tikekar

Sure.

So, two separate markets, diƯerent strategies, right?

If you look at generalizing, ﬁrst let's take Europe because that's where the pressure is the highest.

You know, there are tariƯs and then there is more intense Chinese competition, not only in Europe, but also in China for the European OEMs, right?

So they are under a lot more pressure than the American ones at this point in time.

So their strategy is, essentially, they have to dramatically reduce their costs.

So two things.

A, cost of the product and cost of production.

That's really their focus.

If you look at it, there are still, when we look at them, there are still a lot of ineƯiciencies.

They've been working with… their ecosystem is also it's very localized to Germany and Western Europe, sometimes in Eastern Europe.

So they're taking a very hard look What was working in their favor is going against them now, right?

This is what helped them build Through engineering excellence, right, and the kind of vehicles that they have built, but now that is getting disrupted because of the Chinese OEM.

So, A, they have to let go, of that, and then they have to look at New set of partners.

You know some will come from China, some will come from India.

And that's exactly what they are going through.

And The net-net of that is, A, there is a lot of costs that they can save, both on the product side as well as in the production side, by just re-looking at how they do this work, right, and with whom they do this work, right?

So there is tremendous headroom for them To reduce the cost, there.

So that's what we are seeing in Europe at this point in time, with all the three OEMs.

Now, one of them speciﬁcally is already thinking about the future Right?

And the other two will start to think in pockets they are already thinking about it, but they'll think about it, you know, maybe once they get their cost Little bit lot more aligned to the future business, right?

So that's some color to what we are seeing at… and I'm generalizing this for all of Europe.

When I say this, it's mostly about Germany.

Of course, there is… there are other nuances in UK and France In North America, there are two now besides Tesla.

And for them, they are in a protected market.

If you see 80% of their GM and Ford are actually in North America.

And that's where they don't have Chinese competition Right?

And their hope is that they will not have Chinese competition in the immediate future.

So, their view is very diƯerent.

They are actually investing in the future, and when it comes to General Motors, they're actually working on the second generation of SDV as we speak, correct?

The other one has scrapped their next generation, but they're working on an intermediate kind of a, so, I think the approaches are very diƯerent.

They are remaining focused on the vehicles that make money for them in the US, which are largely the SUVs And they're doubling down on that, right?

If you look at it, there is very little demand for electric vehicles in the US, especially now that the beneﬁts have gone away, right?

The government support has gone away.

So, you know, they're scrapping electric programs and doubling down on ice as well as hybrid, right?

One of them has created a separate company in California that they think can compete with the Chinese Right?

So, what does that mean, right?

In Europe, it creates a tremendous opportunity for us to be part of their new ecosystem in a more strategic manner.

And in the US, we are already part of their future programs that are necessary for them to remain relevant and competitive in the US.

Now, in the US, for these two OEMs, even though they don't have competition from China, but guess who they have competition from?

It's the other OEMs from Japan, Korea and Europe, correct?

Because for them, China is not their number one market anymore, it's the US, right?

So they still have to remain competitive in their own way, and that creates an opportunity forKPIT.

Moez Chandani

Got it.

Thank you for that very detailed response.

Secondly, if I'm just looking at the oƯ-highway segment, right, and that's something that you've talked about will be a big growth driver.

Now, I understand the size of these automotive software market for Pass car, but how big do you think is the market for oƯ highway?

And is adoption or requirement for software really as high to compensate for any decline that you're seeing in the pass car segments?

Sachin Tikekar

So, number one, just to get this out of the way, there is no decline that we are seeing, you know, if you remember our second slide, we do believe that the spend will go up.

There is a reset of that spend, but the spend will go up in Pass car.

So we are not giving up on passenger cars.

It's our bread and butter will continue to remain our bread and butter going forward.

However, as the size of our company grows, we need to also expand our horizon in a very strategic manner.

That's exactly what we are doing by looking at trucks and oƯ-highway.

The spend is very diƯerent.

A, the number OEMs that exist in trucks outside of China are very limited.

There are ﬁve that dominate probably 80% of the market share globally right outside of China.

So the spend is limited to them.

OƯ-highway is a diƯerent thing, right?

I think there are specialists in diƯerent countries.

There are ﬁve big ones globally, but then there are a lot of local ones in Europe, in India, Southeast Asia, and so forth, right?

And in the US as well.

Their spend is not quite as much as passenger car.

I mean, number of vehicles sold, right?

We are talking about 90 million versus Less than a million, right?

So it's not the same.

However, their applications are very diƯerent And They are 15 years behind when it comes to making investments in software So that creates headroom for us to grow for the next several years, along with that If that answers your question.

Moez Chandani

Thanks for that.

And just lastly, trying to understand these ramp downs that you're talking about a little bit better.

Was it that this was a planned ramp down, where, you know, a project basically naturally ended its life cycle, or was there a change in strategy that caused this decline, and you also see some of your other large projects also ramping down, say, at the end of FY27 or in FY28?

Sachin Tikekar

No, very good question, and I'm glad you asked that question, because it's one was a plan, and we are very proud to say that it'll be an SDV hitting the ground running in a more eƯicient manner in the next 3 to 6 months.

So that's the program that we'll get over.

We are already signing up for serial life programs with them.

The Quantum will not be same as the The large one-time SDV program that we did, but it's, you know, it's the future work that we'll continue to do with this OEM.

The other one was a surprise, not only to us, but to the rest of the world, when that OEM decided to stop their EV programs The launch of this, and they decided to take a$ 15 billion hit, one-time hit right on their balance sheet.

So that was Surprise and You know, very unpleasant one for us But that's life The other question is A, in the foreseeable future, we don't see any other programs coming to an abrupt end Right?

I'm just quickly scanning all our OEM engagement as you asked that question.

Not likely at this point in time.

We don't see it.

Deﬁnitely to not deﬁnitely To the tune of what we saw with this particular OEM Right?

So So that's really the second part.

But the reason we talked about building resilience growth is we have to be ready for these kinds of surprises.

Some are pleasant, some are not so pleasant So irrespective of that, we need to learn to grow

Moez Chandani

Okay, great.

Thank you so much.

Abhishek Gupta

So Abhishek Gupta from Access Mutual Fund.

So, just to start it on this quarter, there was a decline in the strategic clients, revenue from the strategic clients.

So, there's SDV programs which has got stopped in the, like, it really stopped in the next two quarters.

Does it have an incremental impact on the, like Was they our strategic client ﬁrst of all, and that had the impact incremental impact in this quarter in that account First on that and second is Yes.

And on the Japan markets, so basically Honda is declining for us, right?

And despite of that, we are seeing growth in the Japan market.

So is an incrementally, we are seeing is the SDV program for them is stopping and that might impact our incoming quarters But the growth which we saw in this Japan market in this quarter, is it a more of a one-time thing or it's gonna be like incremental opportunities there over there, but it won't be able to backﬁll the Hyundai yet?

Sachin Tikekar

The ﬁrst question is, the plan rap-down of one OEM that has been happening, as it gets to the production.

So, some of the strategic business that has gone down with one planned OEM, it actually started to impact Not only in Q4, but in Q3 as well, right?

So, little bit happened in Q3, a little bit happened in Q4, will feel more impact in Q1 now, of that, which has been planned, right?

No surprises to us, in that The second one was a surprise, which It was a program, unfortunately very close to the production, right?

Unfortunately.

So it was there was a little bit of a reduction in Q4 But the dramatic reduction actually happens in Q1. Right?

As far as the Japan is concerned, yes, it, you know, we've had tremendous growth.

What we are going to do in future is not have one pony story in Japan, right?

You saw a partnership with the Tier 1 now In Japan, there are 3 truck and oƯ-highway OEMs that we are targeting, and the remaining two pass car OEMs that we talked about earlier on, especially the big one Right?

So, hopefully it'll take time, but the thing is, you know in the midterm, we'll have lot more You know broader base growth coming out of Japan

Abhishek Gupta

Got it, sir.

And secondly, sir, in your second slide on the passenger vehicle spends like from 26 to FY30, we saw increases happening over there.

But so if I look at the European OEMs and their recent commentary as well as presentation, everybody till FY29 seems to be cutting down their budgets And if I compare on the Japanese market, we are still very young over there, and we are just still growing.

So the spends increase which we are seeing over there, is it more traction from the Indian market, that is what getting reﬂected over there?

And why is that spend increasing if the biggest market of our European Europe, all the OEMs are starting to cut down on their R&D spends, and they have been very blunt about that in the market.

Sachin Tikekar

All right.

So, the overall people are cutting costs, right, especially in Europe, and you know there are it's not necessarily R&D spend.

The cost is going down so that they can continue to spend money where it matters to them from future perspective.

And fortunately for us, it is also software.

Now, within that, there are ineƯiciencies in which they spend money Right?

Working with the local ecosystem, you know, where the costs are very high, and the lock-in is a lot longer, right?

KPIT can provide ﬂexibility, you know, especially given our products and solutions, we can do all of this a lot more eƯiciently for them, right?

So that's really our opportunity.

So overall, I think In markets like India, the west coast of the US, China, in parts of Korea and Japan, the spend will continue to go up.

And that's the reﬂection that you see.

It's also true in North America, for that matter, right?

All the OEMs I talked about West Coast, but I'm also talking about Detroit Right?

The spend will go up There is a reset that everybody is trying to do in the last couple of years.

I think Some of it is behind them, so now there is a clear roadmap.

If you look at the reports from McKinsey earlier on The spend percentage went up even more signiﬁcantly, so it's already come down to some extent, and this is the latest one that we have.

And, you know, we have our own ways of validating this, by having real conversations with the clients So we believe that this is roughly what it's going to be.

We just have to ﬁgure out how much of that we can capture going forward.

Got it.

Abhishek Gupta

And so lastly, from my side, like, for beyond FY27, we have been very… seems to be very conﬁdent on our solutions and product side of the business Like it will be 50% and more so the new products which you are taking to our clients, it will be, like, more of a replacement products, like, which will be a competitor over there, or it will be a fully net new or more, what do you say?

This, clients which we have, they don't have that Tech adoption yet in their system, and this will make them more eƯicient, more operationally eƯective.

Like, what is our, like, target client doing?

Anup Sable

Yeah, so it's a mix, no No black and white answer on this.

It's a mix of it.

But even for the replacement category, there is obviously new things that we are bringing to the table.

And that is why the replacement is important.

The end-to-end part of it is there There is a AI introduced into that and there are a few things that are really the new problems that we are addressing and we've been working on this for quite some time.

So these are not really new.

I mean, the early market tests have been done already

Sachin Tikekar

Another way to answer that question is, if you look at products, our products, they're actually replacing something that has been provided by somebody else, right?

So it's completely a replacement.

When it comes to our solution, it's a little more disruptive.

It's not replacing like-to-like, but it's replacing an ecosystem to some extent of the OEM, right?

So, there is a subtle, not subtle, obvious diƯerence between the two

Soumitra Chatterjee

Hi, Kishor, this is Soumitra from Aventus.

Just continuing the question that Abhishek just asked Roughly, we are around 727, 730 million in revenues.

In three years' time, even if we were to reach roughly 950 million to$ 1 billion in revenues We are targeting around 550 to 600 million from the solutions and products.

And we are currently at about 110 odd million.

Roughly, we will grow 30% this year, but for the next two years or next three years, in that case, the number will have to grow up 3 to 4X is the understanding correct?

I just wanted to understand the back of the envelope calculation.

Kishor Patil

Yeah, absolutely.

I think there are two things to it.

One is Most of the current business, as we said, ﬁxed price was the ﬁrst step, but then that will get converted into AI-infused solution.

So that is the ﬁrst step.

So many of these will get converted into AI-infused solution.

Which will give us better productivity and margins and more ownership, and that's why the scale will grow.

That's the ﬁrst part.

And the second is the product.

So I think from that perspective, that number would be ﬁne.

We believe, actually.

That's a nonlinear growth.

We just want to 100%, we cannot say, but we believe that's a very reasonable number.

Soumitra Chatterjee

And second question is on this market share thing.

When you look yourself with your competitors in any deal, especially given the fact that Infosys acquired Intech, SCL acquired ASAP When you do a volume-based market share calculation In the last 12 to 18 months of all the deals that have happened in the market, has there been any market share loss?

I mean, you would have ended up winning six deals in a normal scenario Has the competition increased, which resulted in 6, maybe coming down to 5 or so

Kishor Patil

You can look at the revenues of the acquired some entities which you talked about or this all what has happened to their revenues, actually.

So to answer very quickly, we are not seeing any loss to this.

Actually.

In Europe, speciﬁcally, we are looking, our biggest opportunity is consolidation, which is happening and KPIT is certainly a major beneﬁciary of that.

Soumitra Chatterjee

Okay, thank you.

Kawaljeet Saluja

Hi, this is Kawljeet from Kotak Institutional Equities.

Can you hear me?

Yeah, hi, it's Kawaljeet from Kotak Institutional Equities.

My question is that in Europe, there are plenty of assets available for sale.

There's Bertrand, EDAG.

Maybe there are a lot of players attached to the carrier ecosystem I don't do any of those assets interest you?

And second is that in mechanical engineering.

Are there any parts of the mechanical engineering ecosystem which should be of interest to KPIT, or would the focus continue to be on embedded and software?

Kishor Patil

So coming to your ﬁrst question, I think You look at their performance, most of these companies are struggling both in terms of revenue and this, having so many employees in that part of the world with the less than 35 hours a week With that kind of a cost is a liability in some sense, and even the companies who own it, just to… most of these companies you are talking about, some of the OEMs have a stake in these companies, but they are preferring to move away, because from their perspective, the value is actually reducing their cost Bringing yeah bringing innovation, bringing the best practices from the other organizations, so they are moving.

So from that, so shortly, we have seen all these assets, and, I think as Anup said, some of the disruptions which are coming and the kind of products and solutions we are bringing, they're far superior to what these companies have.

So that is the ﬁrst question.

And of course, they are not cost competitive, which is Biggest concern for the OEMs.

So that is the ﬁrst.

On the mechanical side, I think the Caresoft acquisition, when we did, I think there are two things.

First is is very important in oƯ highwaycommercial, because there is overall mechanical content is high, so in some of these areas, you know, it's important.

In the pass car cost reduction is a very important part, so we are focusing on the cost reduction part, wherever there we can bring the cost reduction.

And third part Which we are focusing is the manufacturing part, manufacturing eƯiciency, because that's where they are trying to reduce the cost of manufacturing, as Sachin mentioned earlier, like Europe or other parts.

So we are, so we have got some of these capabilities ourselves as well as through the acquisition of Caresoft, so that's what we are

Kawaljeet Saluja

Just a follow-up question, if you look at the German car manufacturers, they have, you know, especially the one whose name starts with V, they have found out multiple contracts away from the likes of EDAG and etc to oƯshore players, but there have been massive delays, and in some cases, not even ramp-ups.

What explains the reluctance for Actually, those ramp up in contracts which have been deleted for a really long time

Kishor Patil

Okay, okay.

I think I cannot go into details about every OEM, but in this case, if you can check their biggest success or the largest part of their success, whatever they have got is with KPIT.

So they're seeing the success.

They have seen the success.

Rahul

Hello Yeah, hi.

This is Rahul from Dolat Capital.

So Sachin, you talked about that wallet share expansion thought process From, 10% plus now to eventually going to 20 20%.

So, is this going to come, because of our cost eƯectiveness, solutioning Or some of that AI harness thing that you talked about in that Anup's chart.

So what are the key drivers for that?

Sachin Tikekar

All of the above.

In all honesty, it's all of the above.

Essentially, we just have to help them So, what we are trying to do is, we have to help them create eƯiciency Within their own system, correct?

I think that's the part, and that's why, you know, our solutions are going to be helpful.

You know use of AI in the programs that we deliver is going to be very useful.

And that's what is really… that's what is creating diƯerentiators.

When we are working on any kind of engagements in a competitive scenario, we end up winning not because we oƯer the lowest cost, but we oƯer the highest reliability and the greatest return on their investment.

Right?

So that has been sort of the the diƯerentiator for us and we believe that all three things that you mentioned are going to help us to go from Let me correct myself.

The 10% wallet share, it will increase by 20%.

In the immediate future, right?

It will not move from 10% to 20% of their wallet share.

It will increase by 20% this year.

That's really the goal that we are taking in every cell.

And we believe that this is how we are going to do AI is going to be a big part of that.

Our products are going to be a good part of that.

That's all that I can say.

Rahul

Yeah, just last one for Kishor, you talked about that 30% kind of a growth is a possibility on the product solution side.

And the the other maths of it is like some part of our existing services pool would Kind of be converted into the product solution bucket, so in that process, do we see some kind of shrinkage that might happen to our existing scope of work, or it will not harm that in a short term?

Kishor Patil

No, it won't harm, in that way.

In one or two cases, it can happen, smaller projects, but largely the idea is to take a larger responsibility and take the ownership.

So, there will be an eƯiciency, but you are doing more work.

So that's how it will compensate.

Rahul

Sure, thank you.

All right

Moderator · Conference Operator

Thank you so much for all the answers and for the questions.

We still have time for one last question, and after that, we will be ending the session.

Do we have any one ﬁnal question to be asked?

You can raise your hands in case.

Moez Chandani

Good evening and thanks for taking the follow-up.

Just want to understand the Cymotive acquisition and also some of the work that it does.

So, if I look at the historical revenues, there's a sharp gain for the company in the last two years.

So, what drove that?

And also, can I get a sense of, other than Volkswagen, does the company work with some other clients as well?

And what's the strategy for the company?

Moderator · Conference Operator

So before you answer the question, can we just request him to also introduce himself?

Could you please also tell your name and organization

Anup Sable

Thank you.

Hello, can you hear me?

Yeah, if you look at almost all the acquisitions that we have done, or all the partnerships that we have done We are taking a look at an expertise which is probably constrained by something, but we know that it is great expertise.

And then we basically try to look at how to take that expertise to the rest of the customers that we have In Cymotive, if you look at it from a cybersecurity perspective, there are, like, loads of oƯerings.

I mean, we didn't talk about Most of them, but if you look at in-vehicle and outside the vehicle, so there is a good portfolio of work that is way ahead of everything else that has been done.

And then you look at the competency of the people there, what they are capable of doing, especially in the context of what is going to happen in the future AI is going to create more cybersecurity challenges.

Quantum has been advanced, so 2035 has come down to 2029.

So if you look at these two potential threats that will happen in the future The competency of the people and the solutions that they have are extremely relevant, and now we basically would like to take them to other customers

Kishor Patil

I think on the Cariad side, I think it is the same cost issue.

They've moved their strategies to move to India most of the work.

They're already into multi-million vehicles, they ﬁnd it a great Win-win because KPIT is their trusted partner.

You can see the quote from Cariad .

And, then the consolidation and that is how the revenue came down because of that, and also of the cycle of the Cariad during that time, because Cariad overall business also went was a bit impacted during that time.

But I think there is a bigger opportunity there, but more importantly, as Anup said, I think we can take it to other.

The biggest advantage to that is it is in many millions of vehicles already Which gives us a conﬁdence or other OEMs will get there.

Moderator · Conference Operator

Thank you so much for all the answers, and with this, we would like to conclude today's session.

Thank you so much for being with us