← Throughline · holding view Deep analysis ↗ Q4 FY25
KPITTECH KPIT Technologies Ltd · Auto SDV Q4 FY25 · concall
Pattern: visibility into fy26 mercedes

Honda cancellation and two SDV ramp-downs forced a reset.

1 deflection · 2 weak · 6 clean — pushback across 3 of 9 Q&A turns

Focused evidence 3 of 9

Abhishek Kumar · JM Financialweak

My first question is on the dichotomy between the deal momentum that we have seen building throughout the year and the decision to not give guidance. But if you could just help us understand, you know, how much -- how difficult it is, what kind of visibility we have right now getting into FY '26?

See, overall, as we have said that there are clear areas where we are engaging with the client. And we have seen traction. We have seen pretty reasonable results for Q4 also. At the same time, there are a lot of things which are changing currently, and we think it is in the process of settling down. I mean, for example, everybody is aware about tariffs. And I think many of these areas from that perspective, the speed at which the things will get executed is still not fully clear in the short term. While we believe it is a question of a quarter or 2 at the most. And that is the one reason why we do not know how the conversion of orders into revenue will happen.

Sandeep Shah · Equirus Securitiesdeflection

Sir, just wanted to understand your comments indicate some growth slowness in the first half with expectation of pickup in the second half. So just wanted to understand the first half growth on a Q-on-Q basis, you believe because of macro pressure, it could be even negative or you believe it could be marginally positive with growth momentum to pick up in the second half? And second, in terms of these kind of a difficult macro situation, maintaining margins could be a difficult task for the industry. So how do you see the FY 2026 EBITDA margin versus FY '25?

See, what we intend to do during this year first thing is you have seen that if you look at even last year, I mean, if I'm correct, most of the companies, their margins have dropped as long as I know almost all. And for surely for the last quarter, for sure. I think we have been in a position to maintain our margins through multiple ways. And we believe that we are in a good position to do that. We believe that many of these things will help us not only that we want to continue having the margins, same margins, but we would like to invest in terms of many areas for future and really making a transition to the new models, business models. And that's why we feel that there is a good possibility for us to manage the margins, while we are not giving any particular time.

Nitin Padmanabhan · Investecweak

I had a couple of questions actually. The first is this quarter, we saw a decline in pass-cars, but growth was primarily driven by the other segment. Could you give some context as to what kind of work actually drove growth there?

I mean we actually it was a marginal number. So we'll come out, we'll check it out. But it should be something to do with either the commercial and off-highway or semiconductor company. So we will check that. But I think that's what it is.

▸ Other Q&A (6)
Karan Uppal · PhillipCapital India

The first question is again on, let's say, FY '26. So assuming there is some certainty to tariffs in next 3 to 4 months, will that be a trigger for auto companies to start resuming the spend? And also will that have an impact on the growth trajectory through FY '26? Secondly, on Mercedes deal. So congratulations on that deal. So just wanted to understand the size of this engagement. Is it similar to our previously announced SDV deals like of Honda or of Renault?

Absolutely so. And we believe that it's not something which we will start from there. We have already started walking. We'll start running after that. So I just want to be very definitive in saying this. Yes. So absolutely, it is a similar scope we are doing, but I think we came a little bit late, but absolutely, it is the same contract. And it will be a longer-term deal. It's a multiyear deal, which we are looking at 3 to 4 years deal.

Bhavik Mehta · JPMorgan

So a couple of questions. Firstly, you did mention that there have been some delays in ramp-up of the projects. But have you seen any ramp down or cancellation since the tariff announcement on 2nd April. The second question is on the Mercedes deal. Firstly, a clarification, is it part of the 280 million TCV you announced for the quarter?

We have seen certain projects which we are expecting not coming up and some small way where the projects got closed, we did not continue with some of these. So that has happened, but nothing on a significant scale. So, I think two things I would say is, this was already factored in the last win for the last quarter, we were transitioning in this area. We are completing the transitioning and closing those formality. So, it is not a part of this quarter.

Chandramouli Muthiah · Goldman Sachs

My first question is just around passenger vehicle versus off-highway and commercial vehicles. So I think we have been trying to build up the business potential within commercial vehicles given that it is a little more intelligent driving and ADAS friendly.

So if you see the win -in some of this, I mean, we look at commercial vehicles as well as, I mean, off-highway commercial together as a segment. So we already have one win, a meaningful win and a more strategic win. And we believe that this is something which will take off during the year. We may not have a significant numbers to add, but reasonable growth. In this year, we would build a base. And from the next year, we will see meaningful growth is what we see as of now.

Ruchi Mukhija · ICICI Securities

Now most of questions have been answered. Just to double-click on China strategy. Do you think localization, partnership, ecosystem and special solutioning, will it have some implication on margin for KPIT?

I mean, it will be part of our TCV we talked about, right? We'll develop and invest in the market. So China will continue to. It's a little longer game and we believe that as in any market like including India, we have been in a position to have a reasonable margin.

Ankur Pant · IIFL

I have a few questions. First is Asia has been a key growth driver for us over the last several quarters. Post the tariff announcements, have you seen more caution in your clients in Asia as well which might lead to some tapering in growth in 1H? Like how are the conversations changed there?

Asia is a fairly broad market. So we look at Asia as Japan, Korea, one bucket China, one bucket, and India, one bucket. And what we are trying to do is we want to have more broad-based growth in Asia from pass cars as well as trucks. And I think the efforts are on. And as Mr. Patil mentioned earlier on, I think quarter-on-quarter, there will be fluctuations. But year-on-year, we'll continue to see growth coming from Asia.

Bharat Shah · ASK Investment Managers Limited

Yes. This is less on KPIT, but broadly in the -- what is happening in the world in the automobile arena. So it is the impression I get is when I look at what is happening in China, especially on the passenger vehicle side, it is explosion of innovation at a scale.

You are right in your observations about how China has significantly changed in the last years. And I agree that it has taken all other OEMs by complete surprise. And it is also true that the rest of the countries are putting up kind of temporary trade barriers. Europe has done that, America is talking that, etcetera. But I mean, that cannot be a long-term solution because the customers would like to have good products. And of course, the Chinese OEMs can open their operations in multiple locations and, so to say, get around these legal barriers. But the fact of the matter is that now that these extraordinary new offerings, which have come from China are now being seen by the European and American OEMs, they are in a rush to make sure that they catch up.

▸ Prepared remarks (3 blocks)
Good evening, and welcome to our fourth quarter investor call. So coming to the financials first. If you look on a quarter basis, if you look at the top line, the year-on-year growth in constant currency has been 15% and quarter-on-quarter growth has been 3%. The EBITDA this quarter was 21.1%, where the year-on-year growth on this quarter has been 18.5% and quarter-on-quarter has been 3.5%. For net profit, we have given 2 numbers this time. The year-on-year growth in net profit for this quarter has been 48.9%, but includes some one-time income, which we have detailed in our investor presentation. If you exclude that, then the growth has been 34.9%. We had during this quarter total closures of $280 million. We ended the year with a healthy cash conversion with a cash on hand of INR 15.8 billion. If one were to look at the year part, on a constant currency basis, the top line growth has been 18.7%. EBITDA is 21%. Growth in that has been 24%. We talked about 3 basic drivers. One was geographical adjacency. The second is offering expansion and the third one was vertical adjacency. And we have talked time and again about the work that we are doing in China. As things are becoming more and more clear, we see 4 buckets of opportunities for us. There are some significant learnings from China. And we believe that those learnings are going to be extremely relevant to the global OEMs. And those include new features, they include cost reduction, and we believe that we have an opportunity of taking these learnings from China and take them to our global OEMs, which should help them to become better in their products and cheaper too and also help in the faster delivery. Secondly, we are also working with our existing OEM clients to remain relevant in China. Third thing is that and we all know what the current political conditions are, but we see a possibility that we can take the offerings of the China OEMs to go global. And lastly and not the least, we believe that we can help China in China, the Chinese OEMs. The second area has been the work on the offerings.
The extraordinary work that has been done in China by the Chinese OEMs have actually gotten all the OEMs to think about some serious work on cost reduction. We are also seeing opportunity -- and this is a global opportunity in the area of cybersecurity. The third dimension has been the area of vertical adjacency. We talked earlier that we want to look at both commercial vehicles as well as off-highway equipment. And last time in our last presentation, we talked about 8 new clients with whom we have been having positive conversations. And out of them, we have started already working with 4, which includes 2 truck OEMs as well as 1 off-highway. We have also started working with 1 pass-car OEM. So we see that increasing potential for growth in the vertical adjacencies. We are also seeing some broad trends in the customers with whom we are working, and especially those customers whose business model has been disrupted by the current experience in China. And we see this largely, we see this especially with the European OEMs. We see that they are doing more and more consolidation of their vendors. And so obviously, they are going to lead us in this area, and we see that there is a possibility for us through this consolidation. And of course, there are many OEMs now who are looking at best-cost-country initiatives. If you recollect, in the first quarter, we had a deal closure of <strong>USD 202 million</strong>. The second quarter, it went to 207. The third quarter, it went to 236. And the fourth quarter, it went to 280. While the OEMs are reconfiguring the way in which they are giving out the work, they are restructuring that, and that is taking some time, and which is why the deal closures are not getting immediately reflected in the revenues.
On a quarter basis, the year-on-year growth in constant currency has been 15% and quarter-on-quarter growth has been 3%. The EBITDA this quarter was 21.1%. We had during this quarter total closures of $280 million. We ended the year with a healthy cash conversion with a cash on hand of INR 15.8 billion. On a constant currency basis, the top line growth has been 18.7%. EBITDA is 21%. The net profit has seen a 41.2% rise. And without considering the one-time, it is 29.8%. We are proposing a dividend for the AGM at INR6 per share.
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