KPIT Cummins confident of hitting guidance despite slowdown

Despite catering mostly to the struggling auto and manufacturing sector, Ravi Pandit, Chairman & Group CEO, KPIT Cummins Infosystems is confident of achieving the 14-15 growth guidance put out by the company for FY14.

"We are fortunately working in those spaces, which are in the midst of changes driven by electronics and software. We believe that our ability to meet our guidance should not be hampered," he told CNBC-TV18 in an interview. Below is the verbatim transcript of his interview to CNBC-TV18 Q1: What is your sense? You as well have indicated that growth in SAP as well as in your top client Cummins is likely to see some slower growth and given the noises that we have heard from couple of these overseas players from Oracle and Accenture etc. Do you get a sense that revenue growth is going to be a little less than what you had earlier anticipated? A: We had given a guidance of something like 14-15 percent growth on our revenues. We don’t see any reason to revisit that guidance at this point in time. We believe that we should be able to meet those numbers. I think there is a bit of a difference between what a general scenario is and what a specific scenario for a company like ours could be. We are a very industry-focused company and I believe that the focus in industry brings a lot more deft. This in turn helps us with good traction and we have been growing quite rapidly over the last five years. Q: Would your revenues be at the lower end or upper end, if you could just tell us what is it likely to be? A: I think we will meet the guidance alright. We should not have problem. Q: Are you saying therefore that in the industry segments or verticals that you operate you are not seeing too much of pressure that things are as it was when you gave your guidance? A: Yes, the reason I am saying this is that the industries in which we operate are in the midst of some major paradigm shift. For example, the auto industry is changing more now than it had changed in the last 100 years and a lot of those changes are driven by say for example automation software. Manufacturing industry is also changing very substantially on account of automation and energy industry as you know is changing again in a very big way because of the smart meters etc. So, we are fortunately working in those spaces, which are in the midst of changes driven by electronics and software. We believe that our ability to meet our guidance should not be hampered. Q: There if you industry scenario is actually friendly to software developers. Should you not be upping your guidance because you have an expected advantage from the rupee? A: Our guidance is typically in dollars terms. Q: So in rupee terms this would be better than what people would have factored in, in many companies it is getting chewed away by the pressures from the verticals they operate. In your case since you say the vertical is not giving you any sleepless nights, the dollar advantage should hit home in your rupee balance sheet? A: It should help, that is true. _PAGEBREAK_ Q: Will life get a lot tougher if the house were to pass the Immigration Bill in the version in which the senate has passed, how would that scenario build for you in particular? A: There are basically two legs of the provision. One is like what percentage of your total employees are on what kind of visa, that 30-50 percent and more, that is one leg. The second leg is regarding the outplacement thing. Obviously the outplacement thing is far more venomous than the first one and I believe that what the senate has done is not what necessarily the house will do. So, hopefully things will change. If we were to look at this basic composition of 30-50 percent, we believe that for a couple of years atleast we should have no impact. As you know in the last two-three years we have also invested in companies in the US, which are more front-ended, who have quite a few employees who are local nationals. So, we believe that we will be a little safeguarded by those measures that we have taken in the past. Q: You had some pressure on your free cash flows because of your acquisition. We understand that you have to payout another USD 25 million this year as well for your past acquisition. So, are you cash flow positive now or will the pressure continue this year and ease next year? A: One need to look at cash flows from the perspective of what is operating cash flow and what is really the investment. So, from an operating cash flow perspective we have always been very positive. We are a profitable company and despite our high growth which actually consumes higher working capital even if you were to have the same daily Days Sales Outstanding (DSO) or same level of outstanding. Your sale grows so rapidly obviously or total amount goes up and it consumes some cash. However, despite that operational cash flow wise we have been quite sound. Now when you go out and buy a company obviously you are buying a long-term asset, it is like investing in a building. Obviously, it consumes cash, but our normal working has been that in all the acquisitions that we have done over the years, our normal working has been that whatever investments that we make, in 2.5-3 years. We get the payback in cash. So, we should be fine. Q: What will be the quantum of forex losses because we understand you have taken a hedge at 52? Hedge losses? A: The issue is this, what do you call as a loss and what is basically your forex policy? Our policy is to look at a certainty of income rather than the high income or the low income that can come up because of rupee depreciation or rupee appreciation. So, the way we look at forex is that we would hedge at a certain rate and look at from a perspective of saying that can we manage our cost below the hedge rate, reverse the profit. So, if one were to look at supposing it was Rs 60 on June 30 then you would have incomes of this year and next quarter if it goes down then you will have losses on that account. So, these ups and downs in our opinion are not relevant to look at. What is really relevant is what your hedge and cost structure is.