Dear Fellow KPites,
We completed another year of transformation for the Company amidst the fast-changing industry scenario and geo-political environment. I would like to use this letter to explain the industry and KPIT performance, the world as we see today and our actions and plans for the subsequent years.
"The year that went by"
Overall Financial Snapshot
In FY17, our revenues grew by 3.0% in '''' terms, whereas the bottom line declined by 15.1%. In US Dollar terms, the overall revenue was flatfish with a growth of 0.8%. The services revenue showed a modest growth of 0.5% in US Dollar terms while there was a growth of 10.2% in the products revenue, albeit on a smaller base.
Our operating profitability for FY17 was lower as compared with the previous year. I would like to detail here the specific reasons for the lower profitability. In subsequent section of this letter, I will also talk about the actions we have already taken to improve the same.
We continued our investment in global account management and strengthening of the front end with subject matter experts. Over the last 18 months, we have added almost 40 account managers globally, mostly in the US. As one would appreciate, these investments take some time to show actual, on-the-ground results. We also continued our fresher hiring policy and thus ended the year with a net headcount increase of more than 1,000 people, as compared with the last year. Most of these net additions were fresher’s and thus their absorption on revenue generating projects was limited, resulting in lower offshore utilization. Hence, higher market investments and lower utilization, coupled with additional one-time legal expenses, the operating profitability suffered during FY17.
In FY17, we had laid down 4 priority areas to focus on viz. Growth through Account Acquisition & Mining, Leadership in Offerings, People & Processes and Profitability & Predictability.
Growth through Account Acquisition & Mining: The focus on industry verticals has yielded us good results. Over 90% of our revenues come from our focus verticals and we are gaining more traction because of our specialization. We have made significant investments in account mining and we are confident of getting the right returns from these investments in the years to come, starting this year. Our new account acquisition strategy is also much focused on the right quality of enterprise customers for long term mutually benefitting relationships. Though the overall revenues were flattish, we had decent growth in our strategic accounts.
Leadership in offerings: We are a technology company and technology is at the heart of everything that we do. Our purpose is to provide the most appropriate technology solutions for direct business benefits to our customers and at the same time, create a positive impact on the world at large. It is therefore essential that we keep a sharp focus on achieving leadership in our offerings. We have done a decent job in this area as evident by the global leadership that we have in automotive engineering, JD Edwards, SAP HANA, Success Factors, Hybris, S4 HANA, Oracle MDM and OTM. We have strengthened our CTO organization with a mandate to scan the technological horizon continuously and to keep us up-to-date on the latest technology offerings. Equally importantly, we have fortified our PDFs (Product Development Forums) to ensure that every practice in every SBU reviews its technology roadmap and investments on a quarterly basis with a view to gain leadership position. We will continue to focus on Innovation through multiple activities coordinated by SBUs as well as the CTO function. We have seen good sustainable success in new offerings around Digital Transformation (especially IoT and IT / OT applications), Application / Infrastructure management services (revolving around AI and automation) and engineering beyond the automotive verticals (energy and life sciences). We have made significant progress in the Products and Platforms unit and expect a couple of new products to hit the market during the current year.
People & Processes: Over the last one and half years, we have invested in our training infrastructure, not only for fresher’s but across all levels in the organization. With the fast-changing industry requirements, training to and trainability of the people has become an even more significant factor in the Company operations. We realize the importance of this and are focusing even more sharply on imparting the right training to the right people, to ensure smooth flow of operations.
Profitability & Productivity: While the profitability was lower during the year due to reasons mentioned earlier, we have made significant progress on the productivity front. We have in-house developed best-in-class productivity improvement and automation platforms based on self-learning and artificial intelligence algorithms. These platforms are comparable, and in some cases, better than similar competitive platforms in the market. We have gained significant traction and new AMS wins with these platforms. We will continue to improve these further and deploy them in the market.
Technology and Innovation
Last year, we created a separate CTO function, targeted to have a consolidated view of technologies across the Company. The CTO function not only works with all the SBUs to create innovative leadership offerings but also works extensively outside the Company to nurture a culture of innovation within and outside the organization. This provides a platform for attracting innovative minds and bringing forward bright ideas to develop smart, safe and sustainable solutions.
We have successfully completed the third edition of KPIT Sparkle, an annual national design and development innovation contest. KPIT Sparkle 2017 aimed at fostering a culture of innovation and critical thinking among engineering and science students across colleges in India. The theme of the competition this year was ''''Smart Cities and centered around creating solutions for Smart Transportation and Smart Infrastructure using Technology''''. Sparkle received 1,500 innovative ideas from over 10,500 students across 300 colleges in India. The finalists were evaluated for novelty of their ideas, completeness of prototype, fulfillment of society''''s expectations / problem statement and technical knowledge at a grand exhibition held at Deccan College ground, Pune. Some of the projects were in areas like urban mobility, autonomous vehicles, alternate energy solutions and efficient waste management
The total number of patents filed by KPIT as at the end of FY17 stood at 57, including 50 patents with complete specifications.
As at the year end, we have 30 granted patents across different geographies. Most of these patents are in the domain of hybrid technology, along with other areas of VLSI and High Performance computing
Digital @ KPIT
Over the last couple of years, we have been investing in digital technologies to create business solutions for our customers. With expertise and leadership in engineering, IoT is the leading area of digital for the Company. Our digital approach to market hovers around four major areas viz. Smart Factory, Asset Optimization, Supply Chain Management and Digital Customer Experience. Business driven digital solutions are focused on connected manufacturing, digital supply chain and digital marketing. The technology driven digital solutions mainly involve big data & analytics, middleware and integration services, cloud deployment, mobility solutions and testing & validation.
While we take these services to our customers, it is important that we change our own organization and help transform the way 12,000 employees perform their work. To spearhead our fast evolution as a digital organization, we have created a new role of the Chief Digital Officer (CDO). Tasked with the goal of building ''''intelligence everywhere'''', the CDO function will aim at simplifying & automating business processes, build digital infrastructure and fuel continuous innovation. The capabilities that will get built under the CDO will supplement the digital efforts of various units across the organization. Another key objective is to create ''''#Think Digital Culture'''' amongst employees across all levels. A digitally enabled workforce will thus set the tone towards improving people productivity. We will also co-innovate with startups and boutique firms and form a conducive business ecosystem that fosters new relationships with customers.
"The Year Ahead"
Our growth over the last 3 years has been at the lower end of the industry. As a Company, we have a DNA of growth and thus we target to get back on the growth path, this year. We have guided for a constant currency revenue growth of 6% to 8% during FY18 as compared to the last year. This growth will be more balanced throughout the year and thus we will experience quarter-on-quarter growth, starting from the first quarter itself.
In the coming year, we have specific focus on Growth and Delivery Excellence, while we continue to deliver on People and Profitability. I would like to spend some time explaining the thought process and the 4 initiatives we would pursue.
Growth: As stated earlier, over the last 2 years, we have invested in growth, both for account mining as well as new account acquisition. Our growth for FY18 will be driven by:
1. Engineering, Digital and SAP
2. Improved alignment of practice and pre-sales
3. Focus on large enterprise customers (revenue in excess of $ 5Bn)
4. Best in class offerings through practice development forums and CTO Office
5. Growth in Product Business
Profitability: Our profitability improvement actions will start showing results from H2FY18. The majority of the actions areas for profitability improvement are:
1. Revenue and headcount alignment
2. Automation led productivity improvement
3. Increase in realized onsite billing rate
4. More offshore revenues
5. Continued rigor in cash flow
Delivery Excellence: We have created a centralized delivery excellence function to ensure on-time and zero defect delivery. Delivery excellence goals will be achieved through:
1. Increased customer experience / satisfaction through delivery excellence
2. Rigor on Multi Level Reviews, weekly cadence with customers
3. Delivery led growth in large accounts
4. Improved program management skills and governance
5. Clear documentation and communication for effective risk management
People & Processes: We will continue to improve our processes and focus on people development and retention through emphasis on:
1. Cross skilling of selected people on new technologies
2. Creation of Chief Digital Officer (CDO) for increasing digital awareness
3. Clear, simple and nimble processes across the organization
4. Reduction in top block attrition, especially in growth areas
5. Becoming a H1 independent company.
KPIT Mission & Purpose
At KPIT, our mission and purpose is clear. We envision a cleaner, greener, intelligent world, a world that is self-sufficient, sustainable and efficient. We provide technologies that help our customers make high quality, less costly products that use less energy or fewer materials. We strive to improve the state of the industries we serve, by making customer operations efficient using technology and thus create value for both the customer and KPIT. It is our mission to provide Technologies for a Better World.
More about KPIT''''s Mission & Purpose: (http://www.kpit.com/ company/about-us/mission-purpose).
We have gone through tough times before and we have always come out stronger and better. I am certain we will do this again because of a core, committed team within KPIT and continued support from stakeholders like yourself, over the years. I regard this highly and appreciate it thoroughly.
I know, with your continued support, we will return to sustainable profitability and growth and together, build a more robust KPIT.
Warm Regards, Sincerely yours,
S. B. (Ravi) Pandit
Chairman & Group CEO