KPIT Technologies Analysis: It is leading the EV revolution with its experience in software-defined vehicles, electrification, and self-driving cars. As a significant partner to global automotive leaders, KPIT is influencing the future of clean, smart, and safe mobility.
- About the company
- History of the company
- Board Members
- Shareholding Pattern
- Business Segments
- Revenue Segments
- Cost Structure
- Financial Parameters
- Management Key Highlights
- Strengths & Weaknesses
(A) About
KPIT Technologies is a global automotive and mobility ecosystem partner that makes software-defined vehicles. It is a leading independent software development and integration partner helping the auto industry to move towards a clean, smart, and safe future.
It has over 13000+ employees across the globe specializing in embedded software, AI, and digital solutions. KPIT assists its clients’ implementation of next-generation technologies for future mobility products such as EV passenger and commercial. It has engineering centres in Europe, the USA, Japan, China, Thailand, and India. KPIT has worked with leaders in automotive and is associated with most of the leading names in the auto industry.
(B) History | KPIT Technologies Analysis
In 2018, KPIT Technologies underwent a strategic transformation, de-merging to become a purely mobility-focused company.
Birlasoft (India) Limited was merged into KPIT Technologies Limited (which is now renamed as Birlasoft Limited) and engineering business was demerged into the Company (formerly KPIT Engineering Limited). As a result of the demerger, the employees were transferred from KPIT Technologies Limited (renamed as Birlasoft Limited).
(C) Board of Directors | KPIT Technologies Analysis
(D) Shareholding Pattern | KPIT Technologies Analysis
(E) Business Segments
(i) Feature Development & Integration
It focuses on core automotive functionalities such as:
- Electrification in which it offers pre-built solutions for electric vehicle components like Battery Management Systems (BMS) to speed up development.
- Autonomous Driving & ADAS (Advanced Driver-Assistance Systems) in which it acts as a system integrator, providing engineering expertise and software components for autonomous vehicle development.
- Body Electronics in which the company Handles software development as well integration for in-vehicle electronics systems.
- Vehicle Engineering & Design in which the company provides engineering consultancy services for overall vehicle design and development.
(ii) Architecture & Middleware Consulting
It designs the software foundation for vehicle functionalities such as:
- Middleware in which it creates the software layer that connects different applications within a vehicle.
- AUTOSAR (Automotive Open System Architecture) in which the company integrates an open-source, standardized platform for automotive software development.
(iii) Cloud Based Connected Services
It focuses on software solutions that connect vehicles to the cloud which include:
- Intelligent Cockpit in which it develops software for in-vehicle information and entertainment systems.
- Digital Connected Solutions in which it Provides software solutions for data management and analytics between vehicles and the cloud.
- Diagnostics in which it offers cloud-based diagnostic tools like KPIT’s KGRIP solution for remote vehicle health monitoring.
(F) Revenue Segments
(i) Service wise Revenue
(ii) Vertical Wise Revenue
(iii) Geography Wise Revenue
(G) Cost Structure | KPIT Technologies Analysis
(H) Financials | KPIT Technologies Analysis
The company’s revenue has grown at a CAGR of 40.21% over the past 6 years, increasing from Rs 641.26 Cr. in FY19 to Rs 4,871.54 Cr. in FY24. Subsequently, the company’s PAT has also shown growth, rising from Rs 55.02 Cr. in FY19 to Rs 598.52 Cr. in FY24 at a CAGR of 48.85%. Furthermore, the company’s ROE has seen an increase from 5.73% in FY19 to 27.89% in FY24.
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(I) Management Discussion | KPIT Technologies Analysis
Future Outlook:
- The company’s revenue has grown by 44% to 4872 Crores in FY24 while its profit after tax has grown by 54% to 598 Crores. The growth was broad-based led by Middleware, Connected, Powertrain and Autonomous Driving Practices. Geographically, The growth was led by European and Asian markets.
- The company reported its constant currency revenue growth of 39% and EBITDA Margins at 20.9% for FY24 exceeding its previous revised guidance of 37% growth and EBITDA margins of 20%.
- The Strategic accounts of KPIT Technologies contributed 85% to the total revenue in FY24.
- The company has provided Constant currency growth guidance of 18% to 22% while EBITDA Margins will be 20.5% in FY25.
- The company plans to invest in its cross-practice offerings, and AI adoption and intends to focus on the Asian market in FY25.
- The company plans to introduce a new ESOP scheme for Employees. It will cost around 100 Crores in FY25, which is around 60% of the total costs. The company expects these offerings to provide returns in the long term. The company expects a minimum dilution of 20 bps in its margins over the 3-year vesting period.
- While diamond clients have been the main engine of growth for the last 24 months, the company anticipates significant opportunities in the platinum and gold segments over the next few quarters.
- The company had deal wins of $261 million during the Q4FY24.
- The Automobile Industry has been moving towards complete ownership or control of its products’ software and hardware and is looking for after-sales monetization which will provide a huge opportunity for software integration companies such as KPIT Technologies.
Concall Highlights- Q2FY25
- Revenue increased 20.1% YoY in constant currency terms (19.3% in dollars), owing to strong performance in Asia (Japan, Korea, and India). Despite increasing expenditures from ESOPs and employee increments, the EBITDA margin expanded by 27.7% YoY, to 20.8%.
- The profit after tax was ₹203 crores, which included ₹29.3 crores from a one-time insurance claim. Electric powertrain, middleware, and compliance-related services are all significant development areas.
- The prohibition on Chinese software has led to new prospects from US OEMs. Off-highway and commercial vehicles are among the fastest-growing segments and the company sees chances for expansion in Europe through industry consolidation and strong client relationships. Also, Asia’s key markets, including Japan, Korea, and India, are driving growth.
- The company has a strong deal pipeline, with $207 million in deals signed this quarter. Strategic discussions with OEMs are ongoing to address changing needs, such as cost reduction, improved consumer experience, and faster time-to-market while its clients are progressively shifting work overseas for cost savings.
- KPIT is focusing on fixed-price contracts, which saw considerable growth and contributed to profit improvements and the company achieved its lowest-ever attrition rate.
- Geopolitical and economic uncertainty, notably in the United States and Europe, are delaying project start-ups. OEMs in Europe are wary due to financial issues and reliance on Chinese markets, whilst US OEMs face intense worldwide competition.
- According to KPIT, OEMs are reconsidering hybrid vehicle programs as well as battery electric vehicles(BEVs) in response to market needs and cost concerns. The switch to hybrids is viewed as a stopgap measure, notably in Europe and Asia, which presents prospects for KPIT in propulsion technology.
- Issues such as US prohibitions on Chinese software provide chances for KPIT to gain market dominance in the US automotive software business. European OEMs face stiff competition from Chinese manufacturers, necessitating cost-effective solutions and technological collaborations.
- Asia is driving immediate growth, with Japan, Korea, and India all contributing steadily. While US and European OEMs face budget constraints, KPIT is in strategic conversations for significant, long-term partnerships.
Acquisitions
- KPIT’s Board passed a resolution to fund ₹2.88 billion through a Qualified Institutional Placement (QIP), which may dilute ownership by 6%. This funding will be utilized to finance acquisitions and infrastructure developments.
- KPIT’s acquisition strategy includes focusing on adjacencies in cost reduction, compliance, and innovative technologies.
- The company’s recent investments include QORIX, a software platform linked with the Eclipse and Covesa Foundation(Existing offerings) and N-Dream (Gaming Investments) in which it increased its stake to 26%, focusing on developing future cockpit solutions for automobiles.
- KPIT stressed rigorous deal selection, ensuring that acquisitions do not dilute EBITDA and EPS within 12-18 months. The company pursues acquisitions that address client-critical criteria (cost, compliance, and innovation) while also strengthening KPIT’s position among the top 2-3 players in a market or technology category.
FY25 Guidance
- Revenue growth in fiscal year 25 is estimated to be in the lower half of the 18%-22% range, owing mostly to project delays and increased offshoring. Cost savings and offshore benefits are expected to help boost EBITDA margins above 20.5%.
- While recent deals have included numerous big engagements, project kick-off delays are limiting near-term growth.
- Focus areas for growth include electric powertrains, connected vehicles, and digital transformation initiatives for OEMs.
- While passenger-car growth remains the primary revenue generator, KPIT is shifting its focus to commercial vehicles and off-highway markets. Consequently, These programs are likely to scale up in 2025, with higher vehicle volumes and investments beginning in 2026, signalling a new boom phase.
(J) Strengths & Weaknesses | KPIT Technologies Analysis
Strengths
(i) Specialized Offerings and Strong Relationships:
- Focuses on power trains, autonomous driving, and connectivity in the mobility industry.
- Strong ties with top global automotive OEMs and Tier-I suppliers drive revenue growth.
(ii) Robust Financial Profile:
- Significant revenue growth: 38.3% in FY2023 and 60.6% in H1 FY2024.
- Healthy operating profit margin: 19.9% in H1 FY2024.
- Net-debt free with strong cash reserves and sizeable net worth of Rs. 1,857.2 crore.
(iii) Growth Opportunities from Increased R&D Spending:
- Rising global demand for EVs and government incentives for electric mobility.
- Increased R&D spending on emerging technologies like autonomous vehicles and software-defined vehicles (SDVs).
Weaknesses
(i) Client and Segment Concentration Risks:
- Entire revenue from the automotive sector, with over 80% from top 25 clients.
- Vulnerable to slowdowns in the auto sector or reduced technology spending by key clients.
(iii) Vulnerability to Wage Inflation and Forex Fluctuations:
- Profit margins susceptible to wage cost inflation and high attrition rates.
- Exposure to forex risk due to revenues in foreign currencies, despite hedging mechanisms.
- Subject to hiring regulations in operational countries.
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References: Annual Reports, News Publications, Investor Presentations, Corporate Announcements, Management Discussions, Analyst Meets and Management Interviews, Industry Publications.
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