Q3CY24 Concall Summary

Business Updates

• Q2 and Q3 have registered lower production numbers for CV and the passenger vehicle production too seems to have slowed down and is expected to continue at a slow pace in the coming months as well
• While the export business continues to remain lower than expectations but on a yoy basis at an annualized level it still remains decent
• In terms of capex the company has invested Rs 206 crores for localization and enhancing the manufacturing base
• The cumulative capex for 9 month period of 2024 is around Rs 550 crores which is higher than last year

Participants

Avendus SPARK

Equirus Securities

Nirmal Bang

Kotak Bank

LIC Mutual Fund

AM Investments

UTI AMC

Unique PMS

QnA

• The homologation and validation process is done by customer and a number of vehicles are under testing currently with the e axle product of the company and the launch of these vehicles is expected in Q1 of CY 25
• For exports the drop was witnessed only in European region and bearings and industrial solutions business in Europe have seen challenges
• The export business continues to do well in South East Asia, China and America
• The after market business and exports bring in much better margins than the rest of the business
• The Greenfield plant in Hosur is on track and it will start production as per earlier plan. Earlier It will produce products for the transmission system and eventually new products will be added
• The festival season in October and November sees better vehicle sales but this year that does not seem to be the case, the inventory level with dealers is as high as 80 days but even with better sales number that would mean liquidation of the inventory and might not lead to production figures at automobile companies picking up
• The wind energy business, railways business, infrastructure division have done better during the quarter
• The industrial automation and power transmission sector have not done as well as was expected
• Bearings is about 60% of the business currently and non bearings are at 40% of the product mix
• The efforts continue behind localization of products in India and with the new plant at Hosur this process will continue. Since the older plant cannot add any more machinery this will be done at the new plant in Hosur
• A large part of wind equipment manufacturing happens in Europe and in spite of the wars that are continuing it seems the inventory has liquidated there and companies have found a way of executing the projects due to which demand from wind equipment and gearbox manufacturers continue to be quite good
• Chinese competitors in the wind equipment space have started to come in but are currently quite small
• Koovers was a strategic acquisition in the ecommerce space, which is quite different from the traditional business that the company has been doing. It being a startup it needs to be run differently and focus is on scaling up the operations and expanding the footprint of that business. When it was acquired it was present in two cities and now within one year it is now present in 12-13 cities
• The investments in the new plant at Hosur are to the tune of Rs 300 crores

@Mudit.Kushalvardhan I have been investing for more than 20 years now. Previously, it was never following any system. It was random buys. Therefore, most of it is legacy buys.

Right now, it is systematic and more focussed.

KPIT and FY26 Guidance

Market has concern on FY 26, below note is taken from yesterday’s concall and Four TV interview management has today morning.

Kpit is reluctant to provide specific guidance for FY26 revenue growth at this time. They typically give guidance at the end of the fiscal year.

However, they expresses optimism about FY26, citing a strong pipeline and deep conversations with clients. They believe the growth will come from existing T25 clients as well as new clients.

They believe they can at least double their revenue with their current client base and areas of focus.

Management believes that the delays in projects and the reconfiguration of client priorities will last only 1-2 quarters. They do not think clients can afford to delay programs for much longer.

Growth in the commercial vehicle sector is expected to come back in 2026. The number of vehicles being sold will increase in 2026 compared to 2025, meaning OEM build volume will increase. This should translate into increased business for Kpit Tech.

Overall, Kpit remains optimistic about its long-term growth prospects, including FY26. While there is some short-term uncertainty, the company believes its strong pipeline, deep client relationships, and focus on cost reduction will lead to continued success.