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00:00Sachin Tikkar, who is the President and Joint Managing Director of KPIT, spoke to us about
00:06the quarter going by the outlook ahead.
00:08The most important point about KPIT is that they have said that quarter three and quarter
00:13four, the performance may be slightly subpar.
00:16The question only is whether that can change after FY25 is over.
00:22So that is the key point that people will be watching out for.
00:25Listen into a slice of that conversation.
00:28I think this is a great conversation, Neeraj, and we see the automotive industry had a bumper
00:37year last year.
00:38I think 2023 was a great year and there were signs of slowdown.
00:41I think there were a whole bunch of pressures on the industry, one, the whole sociopolitical
00:48thing coupled by the macroeconomics playing out in some of the countries and pressure
00:54from the Chinese car makers on the OEMs, especially the European ones.
00:58I think it was being felt.
01:00It's just that the OEMs were still producing cars and making money last year.
01:07And I think from the beginning of this year, there is a realization that things have to
01:11change.
01:12And many OEMs are trying to figure out what this change means to them, hence what kind
01:18of strategies they need to adopt in terms of, you know, the consumer preferences, the
01:24markets that they want to target and so forth.
01:29And I think that's where we believe that.
01:34And now, you know, in the last quarter or the first quarter, when there were some unpleasant
01:39surprises in terms of the OEMs announcing results that were not so favorable.
01:46And I think this quarter is going to be a mixed bag, too, and it may continue for another
01:50quarter or so.
01:51But at the same time, they are able to sort of make the adjustments and make sure that
01:55they are all set from the mid to long term perspective.
01:58So in all of this, what it means is some are taking a pause to revisit their priorities
02:06and you know, some are going forward.
02:09So let me just give you a color in the sense that how we read the OEM behavior in different
02:14countries.
02:16In the U.S., because there is a 100 percent import duty on the Chinese vehicles, the U.S.
02:24OEMs are doing all right.
02:25They know they are under pressure, but you see GM announcing fantastic results yesterday
02:30and the Ford guidance is also pretty solid.
02:34Tesla is looking OK, too.
02:37So the U.S. OEMs are OK because they are sort of protected in the immediate future.
02:43So they will continue to make their investments.
02:47The most impacted are the European ones, especially the ones in France and Germany, where they
02:51are feeling the pressure.
02:52They had a large chunk of their business coming from China, and they're also facing competition
02:58from China in some of their markets.
03:00So you know, we've heard news about Stellantis and Volkswagen Group about trying to take
03:07a step back and figure out what kind of investments they want to make and in which markets.
03:14That's what we are going through at this point in time.
03:16And so there is sort of, from KPIT's perspective, I think we continue to see closure of large
03:31engagements and we continue to have meaningful conversations of some long term engagements.
03:39It's just that given their strategic priorities, some of these decisions are being pushed back
03:46a little bit.
03:48And that kind of, we thought that it's always prudent to sort of let everybody know that
03:56this is the reality.
03:59Having said that, the conversations are good, the pipeline is great.
04:04So to us, it's just a matter of time before things start to really pick up from KPIT's
04:10perspective.
04:11Sachin, is that predictable, if you will?
04:14I'm guessing it is not.
04:15But the point I'm trying to get to is that do you reckon this, quote unquote, for lack
04:21of a better word, pain or uncertainty, could this last for a couple of quarters, could
04:27it last for longer or is it difficult to predict that right now?
04:31Our guess is, Neeraj, the OEMs will have to make decisions very soon.
04:35They cannot sit on some of these critical decisions.
04:38So our guess is, it's a matter of one to two quarters.
04:42I think, and we hope that in January onwards, I think there will be a lot more action and
04:47the momentum will really gather from April of 2025.
04:52That's what we expect.
04:53Right.
04:54Okay.
04:55Thank you so much.
04:56Thank you for joining in.
04:57You mentioned in the conference call last evening, actually, that the US will now be
05:02a good opportunity for you because, you know, US OEMs have largely banned the Chinese software
05:08makers.
05:09So what kind of growth do you expect in this vertical and do you expect the growth to be
05:13driven by this vertical in the second half or still there's some time to go for this
05:17one to revive?
05:18We feel that the growth, if you look at our growth in the last two quarters, primarily
05:24has been driven by Asia, you know, and we think that the growth going forward would
05:31be a little more balanced.
05:33And I'll talk specifically about the US.
05:35US, we think that the growth will come from two areas.
05:38One is the passenger cars because the software has been banned and, you know, fortunately
05:44GM and Ford for now are reporting healthy profits and growth.
05:49So we believe that the growth will come from, you know, the OEMs who are in the US from
05:56Pascar.
05:57We started to make investments also in the off highway, especially in the agriculture
06:03and construction vehicle sectors a few quarters ago, and there are some meaningful conversations
06:10and then there are a couple of fairly large players in the US and we believe that in the
06:15midterm, those engagements will also get initiated and that will actually help our
06:22growth in the US.
06:25So US moderate growth is what you are expecting.
06:28And what about Europe?
06:29In Europe, you call out that certain OEMs are still struggling.
06:33So will that affect the company's performance?
06:37It will not affect the company's performance.
06:39So let me reiterate that we are sticking to our guidance and we remain bullish for
06:45the midterm, including the next financial year.
06:48It's to us from the European OEMs, specifically the ones from Germany, we believe there are
06:56really meaningful conversations that are going on and we believe it's a matter of another
07:02one or two quarters before we see a longer term sort of engagement coming from the European.
07:11And there are two parts in Europe as well, the passenger car OEMs across Germany, France
07:17and Sweden.
07:18I think we'll see growth coming from all three.
07:22And we've also started really good conversations with some of the truck makers there, the commercial
07:30vehicle companies.
07:31So we believe that these two sub-verticals will bring back a sort of more vibrant growth
07:40in Europe, both pass cars and commercial vehicles.
07:43Which I think reflected in your comment that your investments in trucks and off-highway
07:47sub-verticals are expanding market opportunities.
07:50So Sachin, just to dispel one of the notions this morning, and at least from my end, the
07:55last point on this growth piece, because it becomes important, the belief is that delays
08:02in deal ramp-ups or deal closures, what have you, will result in a softer second half,
08:09which is now evident if you do 18 percent, of course.
08:11But the weak exit rate impacts FY26 growth.
08:15Do you think that's a misnomer?
08:17FY26 is still out in the open for a strong year as things stand?
08:24I would say so, you know, because right now it's looking pretty solid.
08:31The pipeline is looking good, the conversations are really good.
08:34And we also believe that the OEMs have to make some of these important decisions.
08:41And I think they are looking to consolidate things and they're looking for a partner to
08:46take up, you know, larger chunks of business.
08:49So, you know, we remain fairly optimistic about FY26.