"We have accomplished revival in terms of revenue growth"

Priya Hardikar
Senior Vice President and Head of Corporate
Finance and Governance,
KPIT Technologies Limited

What are the top priorities that you give most meaning to as the CFO of KPIT Technologies?

We have completed two years of the new KPIT – a KPIT with a grander vision, laser-sharp focus on automotive and mobility, and a very competent team on this journey of reimagining mobility with you. Amidst some challenging situations and ever-changing external business dynamics, my top priorities are aligned with our company’s strategic vision. And those pertaining to focussing on driving with business stakeholders KPIT’s all-around sustainable financial performance and managing financial risks. I would classify them into two key categories.

1. Management of Financial Risk: Financial risks include utilisation of financial resources and risks in the areas of liquidity, funding and capital management. My focus was on driving and improving internal processes and leverage to use best financial solutions in supply chain management to fast-track recovery process and thereby improve net cash balance to further strengthen our balance-sheet. This contributed significantly for providing the right impetus to our executive management for growth and confidence to endure dynamic business scenarios.

With our rigorous efforts on collection and conservation of cash, our balance-sheet grew robustly at 70 per cent net worth in cash of `8.7 billion; zero debt and DSO at 50 days. Now, we continue to see a favourable business environment for this year and beyond. With a strong financial base, we are now confidently positioned to deal with minor disruptions, if any, and make strategic investments that will assert our growth trajectory.

2. Implementation of Best Business and Financial Practices: We experienced a revenue decline only in Q1FY21; the second quarter was stable and we registered a steep recovery in revenue growth and margin expansion during the second half of FY21. We delivered 6.5+ per cent sequential growth in Q3FY21 as well as Q4FY21. Thus, we ended the year with a strong growth momentum. This growth, coupled with operational efficiencies, also led to operating margin expansion with operating margins (EBITDA) moving from around 13.4 per cent in Q1FY21 to 17 per cent+ in Q4FY21.

The finance team worked together with the operations team to drive the process of monitoring continuous improvement in profitability at each business unit level that paved the way for sustainable EBITDA improvement over the last 4-5 quarters. We believe that focus on profitability and control on capex shall directly improve our return on equity. Surely, this will lead to confidence and positivity for our shareholders.

What is your outlook on the IT sector, particularly the automotive software solutions space? Can you shed some light on the global trends and opportunities?

A vehicle is the most complex, software-driven gadget that we own today. Electronics in the form of electronic control units (ECUs), sensors and advanced chipsets work with millions of lines of code and play a differentiating role in the mobility industry. They enable newer business models and disrupt technology across CASE (connected, autonomous, shared, electric) domains. However, as the role of software and data grows, so does its complexity, thus making it necessary for the mobility industry to build deep software competence.

The key challenge is to develop the requisite software on one hand and make it ready for production in the minimum possible time on the other. These are the challenges our company solves for leaders in mobility. The emergence of an independent software integration partner for OEMs and Tier Is is gaining more prominence. This is where KPIT has its core strength and positioning. Defect-free software will undoubtedly play a much more important role than before. Time-to-market needs to be reduced; at the same time we need to ensure software works in production the same way it did in the prototype stage – the quality of software and software-hardware integration is the key.

All these inherently require time and experience and hence the need for a software accelerators, platforms and an integration partner. Our core offerings will continue around new-age technology in CASE which accounts for 90+ per cent+ of KPIT’s revenue and investments. We will continue to go deeper in our understanding of the mobility domain and strong knowledge of the CASE realm. Our thrust will remain on creating platforms, tools and accelerators to enhance the value delivered to clients. We will work on and invest in new relevant competency development.

KPIT Technology’s Q1FY22 net profit grew by 2.5 times on a YoY basis to `60.2 crore. What factors have contributed the most to help you outperform?

As I mentioned earlier, our continual rigour on driving operational efficiency and control on cost enabled us to drive EBTIDA improvement. We responded with continued focus on our T25 clients’ engagement strategy to create more value via strategic deals and increase wallet share with them. Also, we took tough decisions to curtail every corner of costs while continuously improving operational efficiency. Moreover, we concentrated on strengthening cash balance as part of our business continuity plan.

Consequently, our margins have gone up from 13.7 per cent in Q1 FY21 to 15.2 per cent FY20-21 to 17.3 per cent for Q1FY22. And, the quarterly performance of Q1 FY22 stood at EBITDA margin of 17.3 per cent and PAT at 10.6 per cent, which demonstrated growth in profitability when compared with Q4 of previous year. On a positive side, we have accomplished revival in terms of revenue growth and continued improvement in profitability. Particularly, in Q1FY22, we delivered a growth of 14.6 per cent in net profit and 3.7 per cent in revenues, recording strong growth for two consecutive quarters.

What are your growth levers?

We see a much favourable business environment for this year and beyond. Our clients are dealing with certain challenges like chip shortages apart from the pandemic-induced challenges while they are adjusting to meet pent-up demand. There is a strong investment re-orientation towards electrification, autonomous and digital cockpit. With a strong financial base, investments in platform tool accelerators and right positioning, we are now confidently positioned to deal with growth environment and make strategic investments that will assert our growth trajectory. We are at the cusp of a transformative journey internally and an extraordinary opportunity externally.

And so for us the growth levers means to continue with what we are doing the best such as:

• We will continue to invest in the right technology areas to further strengthen our positioning as an independent software integration partner for our clients.
• Zero defect delivery is more of a culture, and we are working towards imbibing that culture in every KPITtian. Improvement in engineering productivity and client CSAT, leading to increased wallet share within our strategic clients, is the desired outcome of sustained zero defect delivery.
• Our strategy to focus on select clients and ensure long term, mutually rewarding partnerships with them has yielded good results over the years. We will continue to build further on the same. We aim to grow these relationships through strategic, long-term engagements. We are positive about continuing the growth momentum in FY22. We have demonstrated positive improvement in operating margins in the last three to four quarters.

What is the single most challenging aspect of being a CFO? In my first financial management role, I found that making decisions about process changes or change management to institute rigour on driving efficiency at all levels to be the most challenging for me. This is mainly because the level of detail involved as you dig deeper is immense. It meant that I was reaching out to some of our stakeholders across the globe across all levels. Bringing everyone together to ensure we all understood what new profitability improvement and higher liquidity initiatives entail, and then to establish those as a way of life was part of that challenge, but we did it and successfully.