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Letter from the Chairman and Group CEO
Dear Fellow KPites,
We closed yet another successful year for KPIT Cummins with the Company once again registering industry leading growth. During the year, we further strengthened our positioning in the verticals that we focus on, by moving further on cutting edge technology and yielding better business solutions for our customers.
I am happy to bring to you glimpses of the year that we just closed and the drivers for our growth in the coming year.
"The year that went by"
Our Company, once again registered industry–leading performance in FY 2013.
In FY13, our top line grew by 49% in rupee terms and the bottom line grew by 37%. In dollar terms, revenue grew by 33% out of which 21% was organic. Even in an uncertain environment, we had good visibility for the year at the beginning of the year. Hence, we had issued a top line and bottom line guidance at the start of the year. We maintained our top line guidance, while upward revised our bottom line guidance during the year. The FY13 performance beat the lower end of both the top line as well as bottom line guidance. Our H1 performance was much better as compared to H2. We faced challenges in H2, in certain areas and are taking corrective steps to address the concerns. Our operational profitability improved during the year. The EBITDA margin for the year stood at 16.26% as compared to 14.44% for the last year. The exit rate for FY13 was EBITDA margin of 17.83%. The profitability across our three SBUs varies and we are directing our efforts towards pockets of low profitability. The net profit for the year also registered a healthy increase with EPS growth of 31%.
During the year, we generated INR 1.20 Billion as cash from operations against the net profit of INR 1.99 Billion. We are focused on generating higher cash flows and are keenly monitoring the DSO and Capex numbers. Over the years, due to our higher CQGR quarter on quarter, the blockage in working capital has been proportionately higher and we attribute this as Cost of Growth. If our growth had theoretically been half of the actual growth we achieved, the cash flow generation ratio to profits would have been substantially higher. Having said that we slipped on our DSO as of the year end and are realigning to correct the slippage. We have been actively following inorganic opportunities in our strategic focus areas and will continue to do so in the future. We raised equity during the year to strengthen our liquidity and will use the same to partly finance any inorganic growth in the near future. Additionally we will look at debt financing as an option if the need be.
Innovation has been a key thrust area for our Company for the last 3 years and entrepreneurship, which is an extension of innovation, has been a part of our CRICKET values for a long time. We have walked on the journey of innovation for a few years now. We recently spent some time re–looking at our journey. The senior management team of KPIT worked on this and made a presentation to the Board of Directors, putting forward ideas for strengthening some of our existing processes so that we can take innovation to the next orbit. We are calling our future course of action on innovation as innovation 2.0 covering the entire spectrum of innovation activities including Idea Generation, Incubation and Conversion of the idea into a business. At the Board Level we have initiated an Innovation Council, chaired by Dr. R. A. Mashelkar. The Council is scheduled to meet once in 6 months to discuss, debate and guide innovation ideas.
Mr. Kishor Patil, CEO & MD, was nominated as a finalist for the Ernst & Young Entrepreneur of the Year (EOY) – India 2012 award. The award, one of the world's most prestigious business awards for entrepreneurs, recognizes those who have made stellar contribution towards placing India on a solid growth path. Mr. Patil's nomination endorses KPIT's values of innovation, entrepreneurship and originality of thought & ideas.
We won the prestigious Mahesh Modi Environmental Excellence Award for Revolo. The award, given by the Automotive Research Association of India (ARAI) with the objective to foster technological innovation based on innovative science, recognizes our commitment towards building sustainable automotive solutions of tomorrow.
"The Year Ahead"
Our Company's philosophy has always been to concentrate on a few industry verticals viz. Automotive & Transportation, Manufacturing and Energy & Utilities, thereby becoming an integral part of the ecosystem of these verticals. We strive for leadership in the areas in which we operate. Leadership at KPIT means working with the industry leaders, having the maximum wallet–share of outsourced services and having scale and being recognized as a 'Thought–Leader' by the industry participants. To attain this leadership, we regularly invest in domain focused technology R&D thereby staying ahead on the technology curve. We also look to attain leadership through our people – domain experts from their respective verticals. We have been adding such experts across the globe and will continue to do so in the near future.
Each of the three core industry verticals on which we are focusing are in for a substantial change.
The Automotive industry has been witnessing tremendous usage of electronics and technology is at the forefront of innovation and differentiation. Some of the crucial areas of technology investments in the industry are driven by stringent regulations for emission reduction and fuel efficiency improvements, move towards alternate fuel technologies – electrification and hybridization, standardization of electronics (ECU) software platform, complexity in infotainment with consumer electronics having a much faster product development cycle, standardization of diagnostic tools, safety concerns and regulations regarding driver, occupant and pedestrian safety. In each of these areas, we have made significant progress in creating Best–in–class technology solutions.
Likewise, technology innovations are also driving the manufacturing vertical. The key thrust is on operational efficiency through productivity improvement, quality management and cost reduction by automation of human tasks. Another important focus area for manufacturers around the globe is reduction in time to market. Rapid prototyping and actual manufacturing, using technologies like 3D printing are fast gaining momentum. Also embedded technologies have been playing a vital role, making machines more intelligent and efficient. For sub industries within manufacturing, like off highway equipment and farm equipment manufacturers, emission, fuel efficiency and even infotainment are becoming big technology spend areas. Along with ERP, BI & Analytics, CRM, Cloud and Enterprise Mobility Solutions are expected to be big spend areas globally. In these areas we are making our investments to come up with business focused technology solutions.
There has been a comparable technological transformation in the utilities industry with smart meters and smart grid technologies changing the way utilities serve their customers in developed markets. These technologies are slowly making their way into the emerging markets now. Simultaneously, a continuously evolving regulatory environment and a strong push towards renewable energy sources have brought forth a period of transition for the utilities industry. These changes have resulted in generation of volumes of data and the need for analytics concerning that data. These new technologies will also challenge the traditional business, operations and management structure that utilities have got accustomed to, over the years. It also implies the need for transformational deals in ERPs. Many utilities are also looking at cloud solutions to help them adopt the new business models and operational architectures.
We believe that there are immense opportunities for specialist, ambitious and dedicated players, like us, in the above mentioned focus verticals. Despite the macro uncertainties prevalent around us, we are confident of leading the growth path by building further on our leadership position in specified areas and being the partner of first choice for our customers.
To deliver on our objectives and stakeholders' expectations, our key thrust areas, as in the last year, will continue to be:
1. People – People are at the core of our business. Hence attraction, development, retention and growth of the right kind of people is one of our key focus areas. People who aspire to work in a technology company find themselves at home in our Company. We focus not only on hiring the right kind of people, but also on training and equipping them to deliver their best. Across the Company, at various levels, right from the fresh graduates to the senior management within the Company, we run training and certification programs. For leadership development and decision making empowerment for our senior management team, we completed part one of the Elevate Program and the second phase will be completed by Q2FY14 at Stanford University in the USA. For select leaders in the Company, we have also initiated an in–house mentoring and coaching program to improve individual productivity and effectiveness. These initiatives, not only help the people deliver better, but also give a sense of personal growth and satisfaction to each individual.
2. Innovation – Innovation has to be in the DNA of a technology company like ours and we have identified innovation as a strategic focus area that will provide us sustainable competitive advantage. Over the years, we have been investing in fostering a culture of innovation involving each individual, irrespective of the level, practice or function. We will continue to do the same in the coming year. During FY14, we will focus on monetization of patents that we have filed and work towards the creation of a global innovation ecosystem which will transcend beyond the boundaries of the Company. We would focus on productized solutions, which will bring us non–linear growth and help us improve our profitability as we grow rapidly. 3. Profitable Growth – Profitability improvement is an ongoing initiative at KPIT Cummins. As we have done this year, we will strive to further improve our profitability in the coming year by focusing on operational efficiency, productivity improvement, enhanced value based offerings to our customers, scaling up of strategic customer accounts and changing the business mix with more annuity based revenues. As stated earlier, we do have challenges in some areas and we are focusing on those areas where we need to do more work, without losing out on the investments required for future growth.
4. One KPIT Experience – We started working on this initiative during the year and will build further on the same during FY14. As we aim to now focus more on scaling our existing accounts with more coordinated account management practice, it is imperative that we present a single comprehensive face to the customer. We have initiated the common branding effort across the globe, where all our entities will fall under the KPIT brand. The focus will be on the identified strategic accounts where we are building industry specific solutions which are more business solutions than plain IT solutions. These solutions aim to transform the way our customers do business, not only in their internal operations but also affecting the customer's customer.
I believe these actions will deliver immense value to our customers and employees and support growth of the Company.
We continue to issue annual guidance to the market.
Based on the current visibility, we have guided for a top line of USD 465 Million to USD 475 Million and bottom line of INR 2,309 Million to INR 2,388 Million, i.e. a total growth of about 14% to 16% in top line and 16% to 20% in bottom line.
At the same time, our vision for the Company is broader and bigger. We aim to reach the goal of USD 1 Billion in revenue with 18% EBITDA Margin, by the end of 2017.
I believe the future holds immense opportunities for us and our global team has the proficiency and drive to convert these opportunities into success, for all of us.
Thank you for your continued patronage through the years.
Warm Regards, Sincerely yours,
S. B. (Ravi) Pandit
Chairman & Group CEO