Dear Shareholders,
It's a pleasure for me to write to you through this annual letter.
I would like to use this occasion to reflect on our journey over the
past five years and to have a peek at the future, as we see it now.
A Bold Call
Five years ago, we took an extraordinary decision to restructure our
business, making us a sharply focused technology company as opposed to a generalist IT
company. In strategic terms, at that time, we were a mile-wide and inch-deep. We decided
that we would rather be an inch-wide and mile-deep. Earlier, we used to service
comprehensive IT needs providing a diverse set of information technology-related services
to a wide range of clients spread across multiple industrial segments. We were growing
fast, but we were not leaders in any of the services we were rendering. We were neither
the first port of call for our clients, nor were we highly profitable.
However, we had a deep passion for the manufacturing industry and
specifically for the automotive industry. Though the segment contributed to a small part
of our business, we possessed a good depth of knowledge and expertise in automotive
embedded software. Hence, we saw an opportunity to make an impact by focusing only on the
automotive industry, specifically on a few key players, and providing them with only the
embedded software development and integration services. This was the most unusual decision
for any information technology company. As a result, our business moved from an annual run
rate of $600 million to around $270 million, while our team shrank from 13,500 to about
6,600. Our number of clients came down from roughly 250 to about 60.
It was a tough decision - indeed, a risky decision - but it was a
decision which promised a great future. We decided on the strategy around 2019 and saw its
full execution by the end of 2020.
We redefined our vision and mission as follows.
Vision
Reimagining mobility with you for the creation of a cleaner, smarter
& safer world.
Mission
Become the leading "Software Integration Partner" in mobility
by knowing "Software" better than any mobility company in the world and knowing
"Mobility" better than any other software company in the world.
Where we stand today
That bold decision has had an extraordinary impact on the operations of
your Company. I am proud to say that we are now recognized as among the best in the world
in our niche. We work with global leaders in mobility, providing our clients with
cutting-edge solutions. Our clients, in turn, look to us as their trusted partner in this
volatile and uncertain world. We invest significantly in building new technologies and our
people are very proud of the work we do. It is an extraordinary professional satisfaction.
Our financial condition reflects the leadership position we have
gained, with a return to the size that we were at before our restructuring.
Our annual revenue run rate is $600 million, while operating profit
(EBITDA) margins have increased from 13% to 20%+. Our team has grown from 6,600 to 13,000+
dedicated Automobelievers. The financial community has recognized our performance, and our
market capitalization now tops $5 billion as compared to around $350 million when we got
relisted, post-demerger.
Our past year's performance was particularly creditable, coming on
top of four years of good performance. Our revenues grew by 40%+ in reported USD terms,
our net profit grew by 56% and in the period of one year, our market capitalization has
moved from around $3 billion to around $5 billion. Our EBITDA margins have moved from
18.9% to 20.3% while the EBIT margins have expanded from 14.5% to 16.3%. Our Strategic
Clients, which contributed 84.6% of the total revenues, grew by 44% during the year, while
our people strength progressed from 11,013 at the beginning of the year to 12,856 by the
end of the year.
The Mobility Industry
A question that gets asked to me often is whether we are planning to
stick only to the automotive industry. I believe there is a need to answer that question.
The mobility industry is in a period of once-in-a-century
transformation. Every aspect of the industry is changing- the product and services that it
sells, the business models that it follows, its lifecycle utility - everything is
transforming. The industry is truly trying to become greener, smarter and safer. There is
a change in the powertrain, driving systems, connectivity, software architecture, and the
way diagnostics is done. Everything is changing. The automotive was once an equipment with
multiple computers inside it. Now it is becoming a computer with equipment around it. At
one end of the spectrum, it is only a utility. At the other end of the spectrum, it is a
prized personalized possession. It's an industry in which every original equipment
manufacturer (OEM) is trying to provide higher value to its customer over the life of the
product. With so many changes happening, every auto company is trying to increase its
turnaround time and reduce costs simultaneously. This is an industry which - more than
ever before - needs a trusted partner who can guide and hold hands in these uncertain
times. The competition within auto companies is growing, as is the competition from new
age as well as Chinese OEMs.
On the one hand, the nature of the industry is changing, while on the
other, the way software is being written is also on the cusp of a major change with
Artificial General Intelligence looming large over the horizon. These new technologies
promise productivity benefits, but the industry is still evaluating to what extent such
autonomously developed software can be trusted for critical functions.
By all accounts, the next 10 years promise to be an extraordinary
period of transformation. At the end of this, we will see a new industry where the
product, the process of manufacturing, the value offered will be vastly different than
what it was just a decade ago. These changes, though challenging, are very exciting and we
look forward to being a gamechanger in these turbulent times.
Our strategy going forward
The question of whether we will stay focused on this industry or
whether we will broaden the scope of our work certainly remains at the top of our minds.
We see multiple concentric circles for the potential of our growth. Research reports
suggest the total spend on software by the automotive and mobility industry would be in
the range of around $46+ billion by 2030 and this will be led by OEMs investing in new
technologies.
We believe there is still a vast potential for us to grow within the
automotive industry. Our current focus is on the passenger cars segment, which currently
accounts for around 75% of our total revenues. We see significant growth potential in the
commercial vehicles segment as well, which currently accounts for only about 22% of
revenue. Very much closely linked, but beyond the commercial vehicles, lies the field of
Industrial and Farm Equipment, and beyond that, exist other mobility industries such as
marine, railways, aviation, and space. All these fields can draw on our current strength
in electronic and electrical architecture as well as our understanding of powertrain and
vision systems. Thus, our conviction is that there are still several areas which can
continue to provide tremendous headroom for our growth, including our current focus areas
of passenger cars and commercial vehicles.
I like to look at an automobile, or for that matter any equipment, as a
triangle with three sides - namely, intelligence, energy, and materials.
‘Intelligence' refers to the electronic hardware and software - an area of deep
expertise for us. We have started doing deep work on ‘energy' through our
innovations on alternate energy generation and storage systems. We have also been doing
some work on ‘materials' through our Vehicle Engineering Department but there is
much more that we can do, especially considering the coming revolution of synthetic
materials. We believe there is much that a technology company like KPIT can contribute to
each of the three sides of the triangle.
What changes and what doesn't changeRs.
While we have changed the nature of our business from a generalist to a
specialist and will continue to make changes in our business in the years to come, there
are certain things that will never change. Our value system will never change. Our
commitment to the four pillars of our operations on which our business rests - our
clients, our technologies, our delivery mechanism and our people - will also never change.
These commitments are etched into the way we work. We believe that we will continue to
demonstrate superior operational performance on account of our sharp focus on these four
pillars.
Sustainability, our commitment to the world
We have been committed to sustainability much before it became a
buzzword. Our initial mission, when we were a generalist company, was to contribute to a
better world through the use of technology. Since our focus became sharp, our mission has
been to re-imagine mobility for a more sustainable world. The work that we do in
powertrain, electronic architecture, connectivity, vision systems - all contribute to
making the automotive world more sustainable.
We are also very conscious about the way we run our operations. A large
part of the energy that we use is renewable. We hardly use any plastic in our operations.
We engage with all our staff to get them aligned to more a sustainable lifestyle.
Elsewhere in this report you will see more details about our work on sustainability.
Our commitments to you
We are committed to help our clients transform their business models
and bring out the most competitive products in a cost-efficient way. We will do this by
being a Trusted Independent Software Development and Integration Partner to them.
We are committed to providing employees with the best place to grow. We
provide them an opportunity to work on newer and exciting technologies with many of the
best mobility companies in the world, thereby helping them grow faster professionally and
at the same time offering them long-term incentivization for a secure future.
We are committed to our investors and other stakeholders by upholding
the highest standards of financial and governance sustainability, with relentless focus on
enhancing shareholder value and an emphasis on capital allocation and operational
excellence.
We are committed to the world at large with solid allegiance to
environmental and social sustainability and a pledge to be a responsible corporate citizen
in every country that we operate in - aided by our CSR focus on Education, Energy, and
Environment with maximum Employee participation.
Gratitude
The last 5 years have been really stimulating and I, along with my team
of 13,000+ Automobelievers, feel blessed to have your support throughout this period. We
hope to enjoy even more enthusiastic patronage from all of you in the coming years. We
believe we are on an exciting journey, filled with greater opportunities and opening
higher leadership peaks for us to scale together.
Warm regards,
S. B. (RAVI) PANDIT
Chairman of the Board