KPIT Technologies Limited (KPITTECH) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to KPIT Q2 FY '24 Earnings Conference Call hosted by Dolat Capital. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Rahul Jain from Dolat Capital. Thank you, and over to you, sir.

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

Thank you, Rahul. A very warm welcome to everybody on the KPIT Q2 FY '24 Earnings Call. I also take this opportunity to wish all of you and your families a very happy, healthy and prosperous Diwali. On the call today, we have Mr. Kishor Patil, Co-Founder, CEO and MD; Mr. Sachin Tikekar, President and Joint MD; and Ms. Priya Hardikar, CFO; and Sunil from Investor Relations. As we always do, we will have the opening remarks by Mr. Kishor Patil on the performance and the way ahead, and then we will have it open for questions. Thank you once again for participating in this call. And I will now hand this over to Mr. Patil.

Good afternoon, everyone. I'm very happy to take you through the -- for the quarter -- second quarter for 84 -- 2024 for this year. Let me just first take you through where the industry is. The industry continues to do well on financially. If you look at all the results, they continue to look -- do well. However, of course, there are certain issues on their mind, if you look at the commentary, they're a bit worried about a few things, specifically about the electrification cells, which are happening; also UAW strike, which is there. They are also -- however, all of them are committed to a software-defined vehicle, new architecture, investments which is going to be very key for their future. While they are doing that as the companies are getting closer to the timelines, I think they are realizing a lot of problems they can see into their solutioning and areas in which they need to fix. Now KPIT being the company, which has worked with multiple OEMs, working -- having that experience and having a proactive solution in many of these areas, in a best -- is in a best position to really help the client realize their SDV programs. In that context, I think KPIT continues to do well and company can benefit from their spending into their SDV spend. So this quarter, KPIT's CC revenues grew 51.7% in terms of constant currency, 54.2% in reported currency as the growth quarter-on-quarter is 9% in constant currency and 8.4% in terms of reported currency. Now if you really look at, we continue to focus on our T25 strategy. 84% of revenue comes from real strategic clients. Pas car, of course, has grown higher. While we are very -- also the commercial revenues are -- revenues from commercial vehicles have also grown, but where we see a larger potential going forward. We also see our EBITDA margins to be 20%. The critical -- the most important part is this is after absorbing the increments, which have been higher single digit across the organization. Year-on-year, the profits have grown by 68.7%. Quarter-on-quarter, 5.1%, but actually, last quarter, there was a special other income, which was there. If we had to do like-for-like, it is about 19% increase into the net profit quarter-on-quarter. The cash realizations looks strong. DSO is at 47 days. The overall headcount is 11,971, more than 4% increase. The attrition is all-time low. It is really into lower double digit. In terms of our critical staff, which we capture, it is very low single digit, the attrition. KPIT has focused on KPIT Academy. We continue to invest heavily into training and people development. We must be probably the only company, as I know, which has done the 360-degree across the organization and created an individual development plan across the organization. We continue to focus on sustainability and culture of excellence, which really allows us to engage with our employees meaningfully. So based on all this, we actually -- looking at the macro environment, we do believe that our fundamentals -- our medium-term fundamentals are unchanged. KPIT's position has improved, if not unchanged. And while we see certain short-term uncertainties even there, based on what we can see, we have increased our revenue guidance to 37%-plus and EBITDA at 20%-plus. We do believe that there are many things which are happening in the industry. One is the technology spend. Second is the competition like China, et cetera, which is really challenging companies in Europe and U.S. and they have to really reduce cost substantially. I'm not talking about software costs, I'm talking about the overall cost of the vehicle. And the efficiency they need to bring in, the efficiency and the time to market they have to improve, I think we believe we are in one of the best positions. We are building our offerings in order to address these issues. On this context, we still feel very -- as I said, we feel good about medium-term prospects of the company. And the commentary we had given about the future is not changed at this point. Thank you.

Thank you. We can now open it for questions, please.

[Operator Instructions] The first question is from the line of Chandramouli Muthiah from Goldman Sachs.

My first question is on the Honda contract that was won earlier this year. It appears that there has been some amount of ramp-up from the Q-o-Q growth numbers on that contract. I think Honda has been presenting to investors on the sidelines of the Tokyo Motor Show and Honda senior leadership did call out KPIT and SCSK as partners. And I think from his public comments, it appears that he's talking about closer to sort of 3,000 employees to be engaged with KPIT. So I just wanted to understand if you see any updates and upside to your relationship with Honda? As I understand, I think earlier this year, KPIT had mentioned that the medium-term scope of that contract could be 2,000 employees. So I just wanted to understand your thoughts on specifically how the Honda contract might ramp up for KPIT over the medium term.

Thanks, Chandru, for your question. If you -- it's a 7-year partnership agreement that we signed last year. And we just completed year 1 of that, and we are on track for the year 1. Year 2, also we are on track as projected. Typically, what happens, Chandru, is when we get into a partnership, we take a long-term view and we start with something that is visible. And when the engagement -- when we get going with the engagement, there are other things that we uncover. And our hope is that, that could also happen in case of Honda and the partnership continues to go very well. So our hope is that we'll go beyond 2,000, but the agreement between the 2 organizations is that of 2,000 as of now.

Got it. That's helpful. Just one more clarification on the Honda ramp-up. So as I understand, I think there was a few employees that were working from KPIT for the Honda business even before this SDV contract was signed. So is there any rough estimate as to at this point at the end of 2Q what percentage of KPIT employees is being sort of deployed on Honda-related projects?

The way it works, Chandru, is that we started the work 5 or 6 years ago, and we've been working in bits and pieces. And that work has made progress over the last 5 years. However, last year, we decided to sort of -- Honda wanted to make -- a, both parties wanted to make a long-term partnership. That's why we came up with the partnership for the next 7 years. It's hard to go back and look at -- because the new projects gets started -- it gets started and some of the old ones get over. So it's hard to keep track of the changes that happen periodically. So what we feel comfortable sharing with you is whatever target that we had by the end of the year, we have achieved that target. And there is a clear target that we have set up for the calendar year 2024. And we're going to do everything possible to make or beat that target.

Got it. Got it. That's helpful. My second question is on the revenue per employee metric. I think we had a phase of offshoring through COVID, which supported margins but maybe on a revenue per employee basis, that wasn't so accretive. I think post the Technica acquisition, we've seen also Renault ramp-up and Honda ramp-up. We've seen revenue per employee, now I think this quarter was close to 5% better than the previous quarter. So I just want to understand if there are any other factors at play there and over the medium term, how we should think about your revenue per employee metrics going forward?

We are happy we could do that. Basically, if you look at overall utilization, I mean, the number of people, headcount, which we have added and our revenue, it is this -- we have added about 4% of headcount and our revenue has gone up by 9%. Basically, we have been in a position to really improve the utilization and basically, we have been adding freshers for a long time, as you know, because we are into specialized areas, it takes us more time for people to get productive. And we have been in a position to achieve that during this quarter. So barring some of these changes or barring some of the ramp-ups, I think it would be -- it is constant. But some of these things will change quarter-to-quarter.

The next question is from the line of Mr. Bhavik Mehta from JPMorgan.

Congratulation [indiscernible] strong quarter. I've 2 questions. Firstly, on the deal TCV, for whatever [indiscernible] over the past few quarters, can you talk about what is the average...

Mr. Bhavik, I'm sorry, you are not audible. There's a distortion in your voice, please.

Am I audible now?

There's still distortion at your end. Could you speak again?

Is this better?

Yes, sir. It's better. Please go ahead.

Yes. So 2 questions. Firstly, on the deal TCV. If you can just throw some color on what is the average duration of the deals you're signing? Is it more skewed towards shorter duration deals, which is giving you faster revenue conversion? Or is it more skewed towards medium to longer term deals? So that's one. And secondly, on the margins, you -- obviously, it's been a good execution over the past few quarters and you have achieved the 20% target. So now where do we go from here over the next 2, 3 years? Let's say, over the medium term, should we assume margins keep on expanding? Or do you intend to keep margins at 20% and reinvest all the gains back into the business?

So the first part, I will answer on the margin point. If you look at last 3 years, we talked about our margin between 18% to 20%. And we did say that we will protect 18% and we'll keep on investing into growth, anything beyond that. And slowly as we become comfortable, we will increase the margins. And that's how we have come to 20%. I think we would like to follow the same principle. We would like to invest anything beyond 20% for some time. As we become more comfortable, we will continue to increase. We believe, right now, the way the industry is in a flux, we need to be proactive in investing into certain solutions and new technology areas. But as we feel comfortable, I think the margins will improve from here in next 2, 3 years. But that -- at what speed, at what stage, we'll keep on giving you the visibility. The second part is about the length of the engagements. I think our basic business is on focusing on T25 clients. We are -- frankly, I would request you not to -- beyond a point, it is important, but beyond the point not to look at specific numbers in a quarter. It gives an indication, but as Sachin mentioned earlier, some of these are very long-term contracts and some of them are few years contracts. So it's a mix of both. So it's not -- it cannot be as straight as one can make it.

The next question is from the line of Ms. Anika Mittal from Nvest Analytics Advisory LLP.

Am I audible, sir?

Yes, you are. Please go ahead.

Yes. My first question is, we have several programs or deals under our pipeline. Can you put some light on our programs to our deals so far, to our deals like how we are moving as per the timeline? Or we are -- how we are going to -- are we going to execute the programs well before the expected timelines?

So sorry, if I get -- try to get your question, what you're asking is are we on track to execute the new engagement as per the decided timeline. Is that the question?

Yes, yes.

Okay. Yes, I think it's -- the way I understood the question. If you look at -- there are about a few hundred programs that we are running or projects that we are running at any point in time. The general sense, vast majority of them on -- are being executed on time. Some of them sometimes are slightly ahead of time and sometimes they are slightly delayed. But on an average, the big trend is they're all being delivered on time. And that's one of the key ways for us to build trust and long-term relationship with our partners. And that's something that we have done historically fairly well. And that's why the focus continues on T25 and we continue to go deeper and wider with them. Does that answer your question?

Yes, sir. Sir, my next question is currently, we are having around 20% revenue from commercial vehicle. What is our strategy to penetrate in this segment going ahead? Do we have any potential customers? For existing customers whom with the negotiations are going on, can we expect any deals in the coming quarters?

As Mr. Patil mentioned earlier on, vast majority of our business, 70%-plus comes from passenger cars. And the business in commercial vehicles, you can look at it with -- there are 2 buckets. One is the truck part and second -- from our perspective, second is the off-highway part that has mining and agriculture. As far as trucks are concerned, so the 20%-plus business that comes to us, vast majority of that comes from trucks. And there are existing relationships on the truck side. And we believe that the existing relationships can go further, plus there is headroom to add a few more global clients to the truck part of the commercial vehicle. The area that we have started to invest is the off-highway part. And we are trying to understand the industry in a much better manner so that we can provide technology solutions to solve their problems. And we believe that many of the technologies that we invest in KPIT can be tweaked to solve those problems. The growth from that segment we'll probably see over the next 2 or 3 years horizon that will complement the overall growth.

Okay. My last question, sir, is on any update on QORIX. Have we got regulatory approval or any business we've got in this bucket?

We are making very good progress. I think soon we should get all the regulatory approvals.

The next question is from the line of Mr. Nitin Padmanabhan from Investec Capital Services India Private Limited.

Congratulations on these consistent solid quarters. So my first question is on what we are hearing broadly. So there are a lot of these news reports around VW, GM and Ford halting production of EVs, citing low demand. Ford losing over $36,000 per car and GM-Honda having scrapped $5 billion JV, I mean, joint initiative to develop affordable EVs and so on and so forth, right? And there's some reports on shift in focus to hydrogen. So in this context, it will be great to have a sense of how you are reading what's actually happening on the ground? And basically, is there -- you did allude to this in some form, but is there any risk of any interim slowdown, and I am well aware that you are pretty spread across this technology stack. So either way this goes, you should be fine, but still good to get your thoughts on the same. And finally, some color on the order pipeline as well. Those are my questions.

So overall, we think the trend towards electrification will be there in some way or the other. If not pure electric, it may be hybrid, right? It could be, of course, fuel cells and multiple technologies. But of course, EV will remain dominant. And timelines can shift a bit here and there. But as we always mention, our basically spent is more for the future programs. So largely, those should be intact. But of course, there could be some minor changes here and there. But to just tell you, there are many companies we have already started working on fuel cell. We are working in hybrid technology. So we are otherwise ready for any alternate changes for powertrain from that perspective. But the bigger opportunity we see in this, because any problem for our client is always an opportunity here, is bring the efficiency in terms of technology and cost efficiency, which is for them to favorably compete with Chinese and other players. And that is something we will double down on that and we are engaged, off course, with some OEMs on that. Those will be our opportunities. Now some -- you gain somewhere, you have to figure it out some other parts. So that is there. But this is -- overall, we see good about it because of our understanding of the overall space, our different skills, which we have. Also on the charging and other infrastructure, we have seen a very significant traction. So all in all, I think from that perspective, we feel comfortable about the space. So about the pipeline, Sachin?

Yes. About the pipeline, as Mr. Patil mentioned earlier on, pipeline from our perspective remains robust and it has been robust for quite some time. We have not seen any kind of noticeable change in terms of creation of the pipeline or the closure of actual engagement. So the trend continues, Nitin, in our case.

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

Heartiest congratulations on a strong quarter again. Sir, my question was on vehicular architecture and its evolution. We have seen vehicles going from dispersed architecture, going to domain-specific architecture and now probably we're moving towards a centralized architecture and you highlighted efficiencies as well and this could be a part of the centralized architecture that OEMs want to adopt. I just wanted to get a sense as to what will -- how will the software intensity increase over here and the role of third-party service providers like us? What role can we play here?

No, I think the complexity goes multiple-fold times. It is not only about the software going up content, but the complexity goes multiple times. And I think that is where exactly we are bringing out solution, both from integration perspective as well as architecture, blueprinting, et cetera. So I think it's becoming very complex. And just to give you some idea, the overall testing and validation is going to go up by 3x-plus than what it was being done earlier. So I think there are multiple opportunities in this area. At the same time, I must bring out, it is not a simple straightforward software and neither is including testing or this. It is all performance-based and the complexity of architecture is very high. So that really requires you understanding of architecture even to do any kind of activity downstream.

Understood. Sir, and just one, you alluded to some short-term uncertainties that you're facing, although may not be very serious, but if you can just highlight something more on that?

Short-term uncertainty alluded to. We are not facing it. The industry is facing it. That's why I mentioned that, for example, UAW strike surface. We just wanted to call it out that there are these uncertainty industries are facing right now.

The next question is from the line of Mr. Mohit Jain from Anand Rathi Financial Services Limited.

Congrats, first of all, for good quarter on all fronts. One is related to the deal pipeline. It is a follow-up to the previous one also. So from a large-deal standpoint, that we had very good FY '23, say, last 4 quarters. So how is your large-deal pipeline looking like after the Honda deal? And should we expect the deal momentum of TCV that we announced to be maintained broadly at a similar level?

What is happening is there are certain companies who like to go out and make an announcement of a large engagement and then there are certain that just happen, correct, where there is no announcement. Having said that, more and more -- as we work more closely with -- as I mentioned earlier on, with this T25, we have had long-standing relationships with many of them. The business continues to grow. So there is not necessarily one large engagement per se all the time. But there are several projects and programs that we start as we go deep and wide with them. And we are seeing more and more of that with our existing clients, across pas car and commercial vehicles. That's what I would say in response to your question.

Okay. So let me try it once more. So we had like almost $990 million TCV in FY '23, right? And FY '24, do you think like given whatever we have done so far or whatever is the pipeline, you need to deliver growth on that? Or do you think it's once -- in multiple years, you get one such year where you touch almost $1 billion in TCV?

So Mohit, I think as Sachin was trying to explain, what we have been saying is that not every large engagement we would be able to announce, talk about upfront when we work on it. So there would be some of such engagements where we will work on them, execute them and over a period, they will actually turn out to the mega engagements. So it might not reflect as we were able to do it for the large deals that we announced, but if you ask about the conversion rates and about the win rates, there is no reason why it should be different going forward.

Okay. And second follow-up was like you guys are doing so well in Europe, but U.S. seems to be more or less flattish over the last 2, 3 quarters. So how is your outlook changing in the U.S., plus or minus? And when should we see U.S. maybe getting back to growth? Or do you expect it to remain steady?

If you look at the year-on-year growth, it's still quite robust. And what happens is more and more programs are actually becoming global, so the recognition of revenue can actually shift from one geography to the other. Now that is true. And we are seeing more and more of that. Again, that's one of the outcomes of having a T25 strategy. Essentially, we are growing with the clients where their footprint exists and it exists across the globe. So just looking at geography, may not be the most accurate measure of the broad-based growth. Having said that, if you look at purely from U.S. OEM perspective, there has been a reasonable amount of growth, and we believe that the geography will continue to grow on its own.

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

Again, a question related to previous participant. So I think we have done extremely well, and congratulations for the same. Even in this year, if I strip out the inorganic growth, the organic growth would be in the high 20s. But it looks like it has been supported through some mega deal wins as well. So your growth outlook on an organic basis with the target and the vision to grow at 20% CAGR on an organic basis still continues with whatever macro uncertainty remains? And will that be dependent in terms of 1 or 2 mega deals, large deals to be signed each year? Or that is independent of that because the kind of program we are getting involved, even the current TCV quarterly basis would be enough for us to post 20% kind of organic growth?

I think, Sandeep, we have answered this question multiple times. But at a high level, first, even this year, our organic growth has been more than 30%, not 20%. So that is one point. The second, I did mention in the beginning of this that our medium term, whatever we mentioned about, outlook remains same. We are not changing any commentary for the long term. Now whatever we have been talking about it, it is there. Naturally, for a specific year, we will come back and talk about it in the month of April, what we feel about the next year. But overall, in the medium term, the -- all the fundamentals are unchanged. KPIT's position is unchanged and we see actually, as we said, multiple areas in which we can go out and help our clients and there are areas such as commercial and other areas, which have seen a lot of potential, which we have not captured yet. So overall, we believe in the medium term, the market potential is unchanged.

Okay. And just the last question. Earlier, we were seeing KPIT is involved in many strategic engagement related to SDV with 7 out of 10 OEMs. Any update on that, whether that number from 7 has gone up and the potential for the same to go up?

So first of all, I think there is, of course, potential to go up. There will be more and more OEMs in the future who will embark on SDV journey. And there are different parts of the journey. And we will be part of more and more such journeys going forward. Not all of our T25 clients have fully embarked on the journey. So we see headroom over the next year or 2 to have more SDV programs.

The next question is from the line of Mr. Abhishek Pathak from HSBC.

Congrats on a great quarter again. My question was despite the strong H1, the implied CQGR seems to be meaningfully lower, maybe at around 2% to 2.5%. So just some clarity, has there been some -- I mean some ramp-up which has been front-loaded, which won't happen in second half? Or are there some short-term factors at play in the second half? And I mean, I do see the irony in saying a 37% guidance as cautious, but for want of a better word, what's driving the outlook? And is there any upside to this guidance?

So first thing is, I think at the beginning of the year, we had said that as the environment was little, if I had to say, soft during that time, we said that we will maximize our opportunity in the first quarter -- the first half year. We had said that earlier so that we could maximize it and ramp it up ahead of time. And we are very happy we could do that. That is number two. Third thing is, I think, I don't know how you did the calculation, but I think the calculations are a little better than that to what you've mentioned. I think it is still reasonable numbers even to get to 37% and we have said 37%-plus because, frankly, we do not want to say something -- as I said, there are some smaller nuances here and there. I guess some of these strikes can get closed tomorrow. But we had to be cautious in saying what we say. So with all that, I think 37% is not a bad number. I think -- and the profit number in our opinion is still pretty good what we have mentioned. So I think this is what we see it today. But I think, fundamentally -- I said the fundamentals are unchanged and KPIT's position remains unchanged.

The next question is from the line of Mr. [ Rajit ], an individual investor.

I'm sorry for the disturbance.

No problem, we can hear you.

All right, sir. So the question is related to the JV. So I missed the initial update, but my question is more related to how the JV will pan out in terms of client ownership, client serviceability and revenue distribution. And the reason I'm asking is, I'm assuming that the certain IP is moving to the JV from our side, there will be certain revenue which might move to the JV as well. And going forward, I mean, do you see KPIT as we stand -- as it stands now, foregoing some revenue to the JV? And in turn, will there be something accruing to the KPIT as of today? So basically, I mean, how would it pan out 6 months down the line and maybe 5 years down the line in terms of our own turnover?

See, the first thing, the reason we did the JV, as we mentioned, in the genesis of the JV was from pure AUTOSAR, classic AUTOSAR, the whole thing moved towards a middleware, which includes adaptive AUTOSAR plus safety plus, plus, plus, so [ OTA plus OTA ] as well as other things. So it is much more than that. So the investments required were very significant in excess of about 100 million, what was the investments required to realize the product. So that was point number one. Point number two, if it has to become an industry standard, we wanted to catch up and leverage partners. And we did say that we have one partner today, but we may look at additional partners. So that was the idea. So first idea was to really reduce the investment, the second is to get the better market share. And KPIT, the way it will really benefit from is all the integration will come to KPIT revenue and so revenues will come to KPIT. So from that perspective, it's a win-win because that's how KPIT will benefit from this. Plus, it will, of course, get the share of profits in due course from the JV as well. So that is the genesis of the JV.

Right, sir. So I mean -- all right. So my second question is related to the finance cost. There is an item which has been there for the last couple of quarters at least, which is unwinding of certain contracts. And that number is although small, but over a period of time, I think it's more than INR 10 crores. So I just wanted to understand a little bit more in detail what are those contracts? And how are we accounting for the unwinding costs? And are these actually cash costs?

No, no. So if you look at finance cost per se in a particular quarter, that does not include the unwinding cost of hedges that you mentioned. If you look at the published results, we give a table of what it is the actual working capital borrowing costs and what is the Ind AS accounting treatment on various leases or other items. So the finance cost is not the one that you're referring. If you look at the note in the published results, you will get the answer.

Okay. I'm sorry. I might be referring to the other income or the other cost, but anyhow, I'll come back to you off-line on that.

If you look at the other income, then yes, other income, we've had a profit this time because of the -- some of the hedges that have turned profitable to us, yes.

And these are actual cash income?

Yes, yes. That is correct. Yes.

And these hedges are -- I mean, are these derivatives or are these plain simple forward contracts?

Our hedging policy, we have said, it is plain forward contracts. And in our investor update, you will find the details of the hedge quantity and the average hedge rate that we have at end of every quarter.

Right, sir, I've seen that. If I may, just last follow-up. So we cancel those forward contracts in an event when we don't have an incoming receipt against those forward contracts and then book the profit. Is it? Is my understanding correct?

So there is a particular treatment in accounting under Ind AS 30. So you may connect subsequently with Sunil and he'll explain to you, but the accounting standards mandates the accounting treatment. So...

And these are one-for-one underlying for our former contracts. If you look at the quantum of hedges that we have done and the incoming -- the inflow of the foreign exchange, we typically are in the range of about 75% to 90% of our net exposure, not the gross exposure, but the net exposure in foreign currency. So it is never that there is -- all forward contracts have a strong underlying associated with them. We don't cancel any forward contracts.

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

Congrats on a good set of numbers again. So you've talked about Chinese OEMs becoming aggressive in the market and your role to help the developed market OEMs for cost efficiencies. So if you can just elaborate on that point, what did you exactly gain by those cost efficiencies? Were you're talking about offshoring or was there something else as well which you are trying to convey?

So if you look at -- Akshay, if you look at -- typically, there is a cost difference of -- in a normal vehicle, there's a cost difference of 20% between the like-to-like Chinese electric vehicle versus the ones that are available in the western part of the world. So the key here is how to reduce the overall vehicle cost. And from KPIT's perspective, if you're -- what we are doing is we are actually looking at their entire architecture and the new architecture along with the blueprint and execution of it will provide substantial cost benefit to the OEMs per vehicle. So that's one area where we are creating efficiencies for the OEMs from the software and our -- architecture and software perspective. And that's our way of helping them. Of course, there are multiple other ways that they can actually reduce the cost, but this is really going to be our role in helping them. So that is one part. And secondly -- one is the cost competitiveness. And secondly, just making the overall vehicle more attractive and there are other aspects to it. So some of the Chinese OEMs, if you look at their offboard experience, they are taking the lead. So it also creates an opportunity for KPIT to create, whether it's the in-cabin experience or offboard data and services, there are certain learnings that we have from some of the Chinese OEMs that we can take to the global OEMs outside of China. So it's both ways, right? The first part is to actually reduce the cost of their vehicle and second part is to make the vehicles more attractive and competitive.

Got that, got that. But just thinking out loud, these things typically have been done in-house historically. So what drives your confidence of -- for these engagements a company like KPIT been chosen for these kind of engagements?

So one is the evidence. We have already engaged with some of the OEMs, and there are ongoing conversations with some of the others. So that gives us the confidence that, a, we can actually do it and we are doing it. And secondly, if you look at the expertise, the deep expertise that are needed, very few OEMs actually have that at scale, correct, if any. And that's why they need a proven scalable partner with the deep expertise to help them make that journey. So it's a 2-way street.

That's clear. Sir, another question was on the revenue per development employees, which you report. So that has been steadily increasing every quarter for the past 4 quarters. So I wanted to get some color around that. I know you touched upon utilization. But it would be good to -- if you could break that move to what factors -- other factors what have contributed, like utilization, on-site mix, price hikes, if you would have seen anything of that sort? So I know nothing quantitative, but qualitatively, which are the factors which are more predominant in helping that number go up?

So Akshay, what we have said and we have been focusing upon is improving the net rate realization and that has got multiple components. So it includes the actual rate that we bill to a client and we have been focusing on taking that up steadily in every new engagement that we do. The second part of it is related to your efficiency, which is utilization. So we have -- when we were in the ramp-up stage for the large engagements, we are ahead -- hired ahead of time. And of course, there were also freshers hired who are getting utilized and hence, the utilization has gone up. And the third factor is the productivity. And productivity is -- I mean, one is we talked about our platforms, tools, accelerators that we can use. The more fixed projects we do, the better it helps for net rate realization and also for personal productivity. So these are some of the components of rate realizations, which have been improving across quarters. If you look in the last 4, 5 quarters, they have been continuously improving, and I think that has resulted into improvement in the net revenue per employee.

Got it. And the last one from my side would be -- so you talked about this JV with ZF. So I wanted to understand who would be the competitors who would be developing similar middleware platform similar to what this JV tries to achieve? Any color around that?

There are the traditional Tier 1s who are trying to build a platform. Some of the large traditional Tier 1s, they are in the play. And then some of the OEMs may also want to take the platform that a company like KPIT is building for them to their siblings or cousins, so to speak, correct? So that's another option that they have. And there are other system integrators who are also thinking about getting into this. So it's an evolving field at this point in time. Yes, so it's an evolving -- it's new in some ways, and that's why it will continue to evolve. And we are certain that we'll face new competition as the years go by.

[Operator Instructions] The next question is from the line of Mr. Puranik from Enam Holdings Private Limited.

Kishor and Sachin, fantastic quarter. Nice to see you on the 20% margin bracket and 30% growth -- 30%-plus growth bracket. I have a question on the vehicle architecture, you're developing, it's amongst the highest in the value chain. How design and architecture intensive it is in terms of people, process and all? And also, you also mentioned about the testing and validation intensity of this. How intensive it is this in terms of people, process and opportunity? And this, in turn, gives you a lot more fixed price contract and better margin.

Absolutely. Absolutely. And I think what actually we have realized is specifically the way the vehicle change to the central architecture, the most critical part is the architecture. And I think it really defines the cost, quality and time one will take to deliver on the contract. So we have really doubled down on that. As you know, we did some very good acquisitions like Technica. We, of course, had a lot of expertise earlier. So we actually put all this together. And then now we are developing future areas where we can really create what we call is less shifting of the quality where the whole -- the quality is driven by architecture. And basically, subsequently, that validation and virtualization is also done as early in the stage as possible and through software rather than the hardware. So that is where our focus is, and I think that's where we see tremendous opportunity.

And the intensity in terms of effort spent on both architecture and testing and validation?

Yes. The complexity is very high. So we would like to automate as much as we can and make it into what we call blueprinting. And basically, bring all the knowledge into either the architecture or what platform we are building for this and de-skill the efforts which people have to do on a project.

So when you say a platform -- vehicle architecture platform, can you explain what the elements that this platform has both in terms of domain, technology, process and regulation?

Yes. I mean there are 2 points I mentioned about. One is it's talked about the architecture. When you talk about the architecture, it talks about vehicle architecture, it talkies about software architecture, basically it talks about network architecture. And there is basically -- all these need to be, if I have to say, in harmony. And that's where -- and the last but not the least is the data architecture, which is also this. So this has to be in harmony and that is the most critical part and that's where most of the clients which have made mistakes have made in that part. Now the other part of this is when you do this, along with the semicon and the hardware part, then the performance can be very different. And you can see that what you have envisaged into architecture, into software or network architecture cannot be realized in a physically -- physical form. So we have created certain tools on this. So this can be virtualized ahead of time. And the performance as well as the issues which can come can be picked up earlier. That is what really brings our uniqueness.

And these tools, components and subsystems, they get used up in project development?

Is what we -- I mean, their own dais. So we use it as a part of our components.

When you say vehicle architecture, so let's say you're doing it for another client, so how do you leverage these tools?

No, I think these are not -- these are basically blueprints kind of a thing, if I have to say, in some ways. So that we give. And in case of network architecture, these are tools which are sold to them.

And you also have productivity tools?

Productivity tools are internal, software productivity tools. Of course, we have many and there are many.

So Kishor, where do you make your 20%, 30% margin? Is it an architecture or in validation testing?

Actually, we would do both ways because if we just do it at a very high end, it is difficult, as you know, so we have to do it at both sides. So we have to have downstream revenues to realize the margin and volume.

Very interesting. So the -- and fixed price component is what of the revenue?

So if you look at during this quarter, it has gone up by almost 5%, right, during this quarter. So it is going up. And as we feel -- as our SDV programs go in forward, I think we'll see that increasing.

As you rightly said, cost, quality, time is very important. That is important for fixed price projects also and for the margin also, isn't it?

Yes, yes, yes.

So that's where you make your 20%, 30% margin. That's great. I don't think you need to do more than 20%. Keep reinvest in the business. 20% is really great. That's fantastic. Excellent. So when will you get your next $100 million account?

No, no. I think we spoke about it. I think we look at every account big OEMs as our opportunity to be there. In some cases, we upfront announce it. In the other cases, we do it over the period.

In the interest of time, that would be the last question. I would now like to hand over the conference to the management for closing comments.

Thank you. Thank you for your participation. And if you still have some questions, please feel free to write to us, and we'll be happy to get back to you and have a great evening. Thank you, and bye-bye.

Thank you, sir. On behalf of Dolat Capital, that concludes this conference. Thank you for joining us and you may now disconnect your lines.