28-Oct-2026 23:01:40
KPIT TECHNOLOGIES LTD Q2 CONCALL: H2 FY27 RECOVERY EXPECTED, Q4 REVENUE GROWTH OUTLOOK POSITIVE, EBITDA MARGIN IMPROVEMENT & STRONG COMMERCIAL VEHICLE, PRODUCT AND AI-LED GROWTH
• Management reiterated that H2 FY27 performance is expected to improve compared with H1 FY27, supported by customer diversification, product revenue growth and commercial vehicle demand. • Management expects revenue growth to resume in Q4 FY27, although no specific quarterly growth percentage was provided. • Management expects gradual sequential EBITDA margin improvement, supported by a higher product contribution, AI-led productivity and operating efficiencies. • Management did not commit to a timeline for returning to its historical EBITDA margin range of approximately 20–21%. • Management expects revenue from two major automotive OEM customers to continue declining over the next couple of quarters before stabilizing. • Management indicated that programme cancellations and spending reductions at these two OEM customers have created a revenue impact equivalent to approximately 13% of total company revenue. • Management expects growth from commercial vehicles, off-highway equipment, products and other passenger-car customers to gradually offset the revenue decline from the affected OEM accounts. • Management expects commercial vehicle and off-highway engineering to remain important medium-term growth drivers. • Management expects increasing adoption of software-defined machines in construction, mining and industrial equipment to create additional engineering opportunities. • Management is expanding its off-highway customer base from three significant customers by adding two more customers. • Management reported two additional software-defined machine consulting engagements that could develop into larger implementation programmes. • Management expects product-led revenue to remain an important growth driver as the company shifts toward software products, platforms and integrated solutions. • Management expects product revenue growth to support EBITDA margins through a higher-value business mix and improved operating leverage. • Management plans to provide more detailed product revenue reporting and operating metrics during the next financial year. • Management expects AI-first revenue to increase significantly as customers adopt AI-native engineering solutions and automated software development. • Management clarified that AI-first revenue refers to projects where AI forms a core part of the customer solution, rather than projects merely using AI tools internally. • Management expects the Beacon AI platform to improve software engineering productivity, development efficiency and solution differentiation. • Management expects AI-enabled delivery and fixed-price contracts to create operating leverage and potentially improve revenue per employee. • Management expects fixed-price projects to remain strategically important as automation and AI improve delivery productivity. • Management expects European automotive OEM cost-reduction programmes and vendor consolidation to create opportunities for efficient, AI-enabled engineering providers. • Management indicated that European supplier consolidation could become meaningful by Q1 of the next financial year, with potential business benefits visible during H1 FY28. • Management expects European passenger-car demand to remain under near-term pressure because of profitability challenges and reduced engineering spending. • Management expects broader customer diversification across Japanese OEMs and Tier-1 suppliers to reduce dependence on the two affected large accounts. • Management expects the Americas to remain a positive growth market across passenger cars, trucks and off-highway equipment. • Management expects India to remain an important medium-term growth market, supported by domestic and global automotive engineering programmes. • Management is expanding customer relationships in Korea and China, including software-defined vehicle and product-related opportunities. • Management is developing Vietnam as a strategic Southeast Asian engineering and delivery hub. • Management is collaborating with a large Chinese Tier-1 supplier to support global automotive programmes outside China through its Vietnam operations. • Management expects Vietnam to provide engineering talent, delivery capabilities and new business development opportunities. • Management identified Southeast Asia, India and the Middle East as important regions for future customer expansion. • Management expects early successes from new Energy Tech and Deep Tech adjacencies within approximately 2–3 quarters. • Management clarified that meaningful revenue contributions from these new adjacencies may take longer than the initial customer wins. • Management expects Energy Tech opportunities to leverage existing automotive customer relationships, software capabilities and engineering expertise. • Management plans to apply existing technology platforms and domain expertise to advanced engineering markets beyond traditional automotive software. • Management indicated that major next-generation automotive programmes relevant to CORIX have shifted from around 2028 toward 2029–2030. • Management expects the postponement of these programmes to delay monetization opportunities for CORIX middleware-related products. • Management is exploring alternative CORIX applications in robotics and adjacent industries, alongside potential strategic partnerships. • Management did not provide a specific CORIX break-even timeline or guidance for when its operating losses may stabilize. • Management intends to protect strategic R&D investment rather than reduce technology spending solely to improve near-term EBITDA margins. • Management expects employee attrition to decline in subsequent quarters from the mid-teens level reported during Q2. • Management plans to introduce more detailed strategic KPIs around Q4 FY27 or during the next financial year. • Management did not provide specific FY27 consolidated revenue growth, EBITDA growth or PAT guidance. • Q2 FY27 revenue increased 6.5% YoY and 1.0% QoQ in INR terms, reflecting modest reported growth. • Q2 constant currency revenue growth stood at approximately 0.2% YoY and 0.5% QoQ, indicating subdued underlying business momentum. • Q2 EBITDA margin improved to 17.8% from 17.2% in Q1 FY27, representing a sequential increase of 60 basis points. • Management attributed the EBITDA margin improvement primarily to a higher contribution from product-led business. • Commercial vehicle and off-highway revenue increased 27% YoY and 17.6% QoQ, making it the strongest-performing business segment. • Product business revenue increased 25% YoY and 5% QoQ, reflecting growing adoption of software products and solutions. • Passenger-car revenue declined 7% YoY and 4% QoQ because of programme cancellations and spending reductions at major OEM customers. • Services revenue remained broadly flat sequentially, reflecting continued weakness in traditional automotive engineering spending. • AI-first projects contributed approximately 9% of total revenue, highlighting the growing contribution of AI-native customer solutions. • The Beacon AI platform had more than 9,000 users and processed over 5 million AI transactions during Q2. • The company reported development of approximately 12,000 engineering agents, supporting automation across software engineering workflows. • Fixed-price projects accounted for approximately 70–71% of the project portfolio, providing opportunities for productivity-led margin improvement. • R&D expenditure increased by approximately $2 million during Q2, reflecting continued investment in technology platforms and product development. • Days sales outstanding increased to 53 days from 51 days, indicating higher working capital requirements. • H1 pre-tax operating cash flow to EBITDA was approximately 57%, compared with around 75–80% in earlier periods, according to the analyst's observation during the call. • Management attributed operating cash conversion pressure primarily to the increase in receivable days. • Cash balance stood at approximately ₹620 Cr at the end of Q2 FY27. • The company made dividend payments of approximately ₹140 Cr and an initial acquisition payment of around ₹100 Cr, contributing to the reduction in cash balances. • Management distinguished these dividend and acquisition payments from the underlying decline in operating cash flow conversion. • Key risks include continued revenue pressure from two large OEM accounts, European automotive weakness, customer concentration and delayed programme recovery. • Additional risks include CORIX monetization delays, higher R&D spending, increased receivable days, weaker cash conversion and uncertainty around AI-led margin improvement. • Overall outlook remains cautiously positive, with strong commercial vehicle growth, rising product revenue and AI-led transformation supporting medium-term recovery despite near-term passenger-car weakness. • Key monitorables for H2 FY27 include stabilization of the two affected OEM accounts, Q4 revenue growth, sequential EBITDA margin improvement, sustained product revenue growth and recovery in operating cash conversion.
KPIT TECHNOLOGIES LIMITED