KPIT Tech confident about growth in H2 FY21, led by Europe: Co-founder and President

When COVID-19 broke out, the automotive industry was among one of the worst-affected. It also impacted firms that cater to this sector, such as automotive software engineering firm KPIT Technologies. The company counts major global car manufacturers among its clients.

The company's revenue was directly hit. For the quarter ending September 2020, it registered $65.21 million in revenue, 15 percent down, year-on-year.

This is in contrast to how the IT industry performed in Q2. Many IT firms reported a positive year-on-year revenue growth in the second quarter and expect similar momentum in the coming quarters as well.

However, KPIT Technologies is confident about growth in the coming quarters despite the pandemic. In an interaction with Moneycontrol, Sachin Tikekar, Co-founder and President, talks about the impact of the pandemic on the company, growth in H2 FY21 (October-March), and what will drive them.

Tikekar: It is a huge impact because they (clients) could not make cars. Later on, when they could make cars, there was no component supply. So it was a rough ride, especially between April and June, when most clients took a big beating. In Q1, their businesses went down by 30-50 percent year-on-year. In Q2, they have done slightly better.

They started making cars and trucks and sell. But it is nowhere close to the pre-pandemic levels. Overall, the impact is quite a bit but we are seeing a recovery.

You are talking about recovery. How has conversations with clients changed and what is the recovery you are seeing? Tikekar: During the first three months, conversations were all about taking cuts. Over the last couple of months, conversations were constructive. So they are saying, ‘Ok, we understand the pandemic and we know what the situation is’.

But we also know there is a future ahead of us. All our clients have started to spend money now. Maybe not as much before (pandemic) but compared to Q1, when everything was frozen. They are also talking about the plans for the next 6-12 months.

So it is very encouraging at this point in time.

In terms of recovery, we are likely to see a spike in demand for the first few months, which is likely to be pent-up demand. We are not sure how long that will last. I think it is going to be a slow recovery. Getting back to the highs of 2018, the peak period for passenger cars, will take a couple of years or more.

Having said that, the spend they (clients) do on areas where KPIT caters to will increase tremendously. (The company offers software solutions in the areas including connected vehicles, autonomous driving). That is why, as a company, we are going to be a lot more bullish on the industry itself in the next 2-3 years.

Tikekar: Autonomous Driver Assistance Systems (ADAS) have grown and will continue to grow gradually. In H2 FY21, we also see growth coming back to power trains, especially at the back of electric power trains. Especially in Europe, those programmes has been prioritised. All our key OEM clients are saying that they are going ahead with the electric power train programme. So that part should also grow as we get into the second half of the year.

In terms of geography, Europe actually grew and will continue to drive growth. We are seeing signs of recovery in the US. So we think that US will stabilise and start to grow, and I am confident about growth in Asia. In H2, we will see a little bit of growth coming from all three geographies, led by Europe.

Is that why you are rolling back salary cuts? Tikekar: We have rolled back salary cuts, starting October across the globe. That is something we had committed to. We were one of the first ones to announce salary cuts, and we promised our employees that as soon as we have little more comfort and visibility, the first thing we want to do is take care of our employees.

So that is something we have done. Some of the operational efficiencies that we have brought in and the expected growth in the volume should make up for the reinstatement of full salaries. As we have said that even when we are rolling back salary cuts, our margins will remain the same. It will not go down.