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KPIT Tech bets on strong demand; targets 18-20% margin in next 3 years

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KPIT Tech bets on strong demand; targets 18-20% margin in next 3 years

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To better understand what’s driving the auto industry at this point and also the demand environment, CNBC-TV18 spoke to Kishor Patil, Co-founder, MD & CEO of KPIT Technologies. Patil expects a strong demand environment for the company over the next 3-5 years. He also expects to reach margin of 18-20 percent in the next 3 years.

KPIT Technologies stock has been surging. It is up almost over 180 percent in the last six months. Goldman Sachs believes the stock has further upside potential from here. To better understand what’s driving the industry at this point and also the demand environment, CNBC-TV18 spoke to Kishor Patil, Co-founder, MD & CEO of the company.
On demand, Patil said that the environment will remain very good for the next 3-5 years. "Certainly in the next three to five years, we see a very good demand environment. That along with the fact that KPIT has 10 out of 15 top clients and the way we are positioned with them and the barrier to entry, I think we have a good demand environment and market environment for us over the next three to five years," he said.
Speaking about margin, Patil expects it to reach 18-20 percent in the next 3 years. He said, "We had talked about this, in three years, getting between 18-20 percent profitability numbers, and I think we are quite close there."
At present, Patil believes compliance, competition and business model changes are the three drivers that are driving the auto industry. He explained that all these three factors put together have resulted in accelerating spends in certain pockets. He said, "If you really look at the automotive world, there are fundamentally three things which are basically driving things- one, certainly the compliance obligations, which certain countries or certain regions are putting on the automakers to reduce emission."
"The second is the competition, which the traditional original equipment manufacturers (OEMs) are facing, based on certain consumer preferences. And the third is the changes in the business model. I think the OEMs are looking at multiple other areas of monetization rather than at the point of sale," he added.
"Now, all these three together, there is a spend, which is into different pockets and which has gone up. So typically the engineering spend is expected to grow at least 10 percent plus every year, over the next 8-10 years," he explained.
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On seeing acceleration in CASE (connected, autonomous , shared and Electric) spending post-COVID, he said, "Post COVID, the acceleration has come up specifically in the CASE area because most of the companies want to come up with new models. In next three to four years; we do see CASE spend going up and roughly it is at least 20 percent plus. There is certainly a significant increase in that area."
On the ongoing attrition problem, Patil hopes it will stabilize from January itself. He explained that the company has been noticing a bit of a dip in numbers.
"The environment remains robust but certainly on the skill side, there is a challenge and the overall industry is facing attrition. We have seen a little bit of a dip in the attrition numbers, but not as significant. So, we are hoping that from January to June, this should stabilize. That is what we are looking for," he said.
Watch the video for the full interview.
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