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2017 has been a year of recovery for the global economy. Global stock markets have roared high during the year with the MSCI index of bourses in 47 countries up by 22%. This was largely fueled by growth in developed nations. China managed to maintain its rate of expansion, dismissing fears over a potential slowdown and rising debt while the Eurozone surprisingly managed recovery after years of uncertainty. The global oil price also went up sharply in 2017, primarily due to increased demand from factories globally, mainly China.
However, the major highlight of the year was cryptocurrency.
Amidst fears of an upcoming crash, Bitcoins value has risen from $1,000 in the beginning of the year to almost $20,000 by the middle of December 2017.
On the tech-front, cutting-edge and disruptive technologies which dominated 2017 included Artificial Cloud, Machine Learning, Engineering R&D, Sophisticated
Security Solutions and Blockchain. These are only expected to grow bigger and better, next year.
With large volumes of available data and users trying to analyze that data to determine patterns and user behavior, there will be growing significance ofartificial intelligence, machine learning with data analytics and business intelligence. Digital twin will be a keyword as it indicates virtual replica integrated with its physical asset for seamless transition of data and analytics. Besides industrial Internet of Things (IoT), other industries are also expected to implement it to improve their asset management and operational
Chatbots are the automated, human-like chat responders and over the last few years their adoption has been more of an experiment. However, during 2018 it is expected to become more mainstream mainly for customer service and support activities. AI-powered chatbots are learning to respond to customer queries based on customers previous history in a chat session with executives. As per estimates, the market for robo advisor will be $ 255 billion by 2020 and $ 70 billion for AI analytics. Another source predicts, 75% of technology teams to use AI in one or more business applications or services by 2018.
Business users are working towards making natural language processing a reality to improve human-computer interface. It will facilitate the user to develop accurate results from computers based on their exact needs and requirements, thus eliminating any intermediate source.
Along with wide availability of data there is also the persistent threat of theft and data abuse. Therefore, to ensure privacy of data and its correct usage, data protection laws are being tightened and countries worldwide are designing data protection frameworks.
Governments and larger enterprises have been a bit slower in terms of cloud adoption. But it is an ongoing process, as they are analyzing all the aspects before adopting the cloud infrastructure, including the security aspects of the data being put up on cloud.
The move towards Edge Computing is driven by mobile computing, decreasing cost of computer components and the sheer number of networked devices in the IoT.
With Edge Computing on the rise, it makes cloud smarter with analytics, reduces response time drastically and helps conserve network resources.
Blockchain provides a distributed, secure and unique system of records, thus providing a strongly encrypted authentication mechanism that restricts breaking in. As per estimates, the aggregate valuation of blockchain token rose 4X, almost above $100 billion. While in 2016 and 2017 it has been mostly used by financial institutions and banks, in 2018 its market segment is likely to include other industries as well like automotive, healthcare and educational institutions.
INDUSTRY GROWTH ESTIMATES
Worldwide IT spending is projected to total $3.7 trillion in
2018, a 6.2% increase from 2017. .
The enterprise software spending is estimated to reach $391 billion in 2018 as compared to $352 billion in 2017, a growth of 11.1%.
The IT services spending is estimated to reach $1,003 billion in 2018 against $933 billion in 2017, a growth of 7.4%.
The global technology industry saw a growth of 4.3% in 2017 with global IT-BPM market (excl. hardware) at $1.3 trillion in
2017. The sub-segment with fastest growth was packaged software which grew by 7.7%.
FY18 Outlook for Indian IT-BPM Industry
The industry is expected to grow around 8% from $ 154 billion in FY2017 to $ 167 billion in 2018.
The Indian IT-BPM exports is expected to grow by 7.7% to reach $ 126 billion in FY2018.
The IT-BPM domestic market is likely to grow by 8% to $ 41 billion (excl. eCommerce).
(Data Source: Gartner, NASSCOM, Industry Reports)
The Manufacturing Industry is undergoing transformation as manufacturers are converging digital technology with physical assets. They are combining sophisticated hardware with innovative software, sensors and massive amount of data and analytics to produce smarter products, efficient processes and connected network of customers, suppliers and manufacturers. Some of the key exponential technologies that will shape up better during 2018 include blockchain, which is predicted to grow at 61.5% CAGR between 2016-21 growing from $0.2 billion to $2.3 billion in 2021. Currently it is being used to generate accurate and transparent information, improve just-in-time logistics, reduce erroneous orders and improve inventory turnover. It can also contribute to improve supply chain and procurement. Artificial Intelligence (AI) market is predicted to grow from $8 billion in 2016 to $72 billion in 2021, thus growing at 55.1% CAGR. Manufacturers are using AI to enable collaborative robotics, automated workflows based on predictive analytics, optimize equipment and plant effectiveness and for better recruitment and retention of manufacturing experts. Going forward it could be amalgamated into other technologies like robotics and drones to improve overall efficiency. It is expected that by 2020, 75% of global manufacturing operations could use 3D-printed tools, jigs and fixtures for production of finishedgoods. The
3D printing market is expected to rise from $13 billion in 2016 to $36 billion in 2021, thus attaining CAGR of 22.3%. This technology is being used for prototype tooling and functional end-use parts manufacturing in various manufacturing industries. Advanced Robotics spending is predicted to grow from $92 billion in 2016 to $225 billion in 2021, growing at a
CAGR of 19.7%. Discrete and process manufacturing industries use robotics technology for assembly, welding, painting and mixing as part of manufacturing process. Collaborative robots are being used for tasks such as metal fabrication, packaging, testing and inspection, parts assembly and loading-unloading activity. The future definitely is in automation, using robotics and cognitive technologies, combined with advances in data and analytics.
IoT has been part of the manufacturing revolution for some time now, mainly in areas such as real-time production monitoring, improving overall equipment effectiveness, production yield rates and efficiency. Investment in IoT is expected to grow from $737 billion in 2016 to $1,521 billion in 2021 at a CAGR of
15.6%. It has helped manufacturers add visibility on the shop floor and reduce time-to-market for products and solutions.
However, coupled with big data, its potential could be leveraged further in managing material costs, products price and demand fluctuations and developing smart connected assets and operations, thus enabling an autonomous production environment. The Digital Design, Simulation and Integration
(DDSI) market is expected to grow at a CAGR of 12.4% from $25 billion in 2016 to $45 billion in 2021. 3D CAD modelling is used to design, test and validate designs prior to tool manufacturing. It fosters design collaboration and provides the environment to share best practices in digital manufacturing. It could also enable digital integration and access to digital data across manufacturing life cycle. IoT along with additive manufacturing and advanced analytics could fasten the design cycle and further reduce time-to-market. The spending in advanced analytics is expected to grow from $136 billion in
2016 to $232 billion in 2021, a CAGR of 11.3%. Manufacturers are accelerating their pace for adopting advanced analytics to bring in higher efficiency in their plants and processes. The cybersecurity market is predicted to grow at a CAGR of
7.7% from $81 billion in 2016 to $117 billion in 2021. With the emergence of connected and smart manufacturing and digital supply networks, there is higher emphasis on cybersecurity due to intersection of cyber and physical infrastructure. The fastest growing segments within cybersecurity are security testing, security services including IT outsourcing and identity access management. These technologies are fast changing the who, what and where of work across manufacturing organizations and companies need to quickly adapt to this transformation to evolve, grow and thrive in the future.
Over the past few years, Automotive and Transportation Industry has witnessed major technological shift through convergence of various technologies and industries with automobiles, thus developing intelligent and smarter automobiles. 2018 is going to be no different. Market researchers predict that a high-end car will contain more than $6,000 worth of electronics in the next five years, driving a $160 billion automotive electronics market in 2022. The car of the future will be Electrified, Autonomous, Safe, Connected, Customizable and Shared. To enable this, the engineering R&D budgets of auto manufacturers will be constantly on the rise in the coming years. Findings of the 2017 scoreboard reveal that the automobile industry is the worlds third largest industry in terms of R&D and the largest one in European Union and Japan.
In 2018, the sale of electric cars is expected to cross 5% in the U.K. and reach close to 12% in the US market. By 2030,
55% of all new car sales could be electric cars. With decline in the battery prices for EVs, it is becoming more affordable contributing to improvement in sales. In a study conducted by Nissan in 2017, it was found that there has been a 75% drop in the number of gas stations in the U.K. over the last 40 years.
It was also projected that by summer 2020, the number of gas stations will drop to 7,870, while EV charging stations will grow to around 7,900, a growth of more than 90%. In US, there are 23 plug-in electric car variants and 36 hybrid car variants available today and nearly every car maker has announced significant investment for an electric future.
After Google and UBER, the industry may also witness many other automotive players launching their own version of autonomous vehicles during this year. The global autonomous vehicles market is expected to grow at a CAGR of 41.61% during the period 2018-2022 and major OEMs are expected to launch vehicles with level 3 capabilities during this year. 40% of the mileage driven in Europe could be covered by autonomous vehicles in 2030. Last year saw emergence of AI in autonomous drive testing and development and this year may witness car manufacturers and Tier I suppliers turn towards ethernet as such vehicles require greater degree of data fusion. Due to safety benefits and cost-effective nature of 3D printed cars, automakers are expected to make big investments in this technology during the year. Currently cars are devised to endure 3-5 crashes and last for around 7-10 years. But 3D printing can help in developing a vehicle on a solid chassis with the exterior body devised for single crash and replace just the outer body cost effectively, while retaining the chassis of the vehicle. Another technology which is catching pace in the automotive industry is blockchain as it helps to eliminate counterfeiting in the industry and enable transparency and fair pricing strategies. As per an industry estimate, 10%-15% of connected vehicle transactions are expected to be on blockchain by 2025. This technology ensures secure transactions which can be processed faster and it is already adopted in initial stages by car makers like Porsche and Renault. OEMs could use this technology to enhance their overall cybersecurity for vehicles, validate software bills of materials, enable secure micro payments, strengthen identity management and improve data validation.
The concept of car sharing has become quite common even in emerging economies like APAC and EMEA regions. It is expected that by 2030, one out of every 10 cars sold will be a shared vehicle. Car leasing is becoming a viable option for consumers who like to change their cars often. Technologies such as telematics, equipped in leased vans to monitor car usage to in-car navigation which acknowledge the vehicle location and eco-driving training for better on-road performance, are fast emerging. With IoT and connected devices, the adoption rate of connected vehicles is expected to rise steadily over the next
5 years. There will be growing significance of big data in the industry during the year as governments have mandated all new cars to digitally communicate, starting 2020. More car makers are adopting interconnected features which will allow app developers to adapt their offerings to cross platform users on mobile, tablet and the web. With digitization and connectivity, there are large volumes of data which is enabling innovative revenue streams such as data monetization for the industry. The use of cloud technology has impacted the automobile production from design and operation to the servicing of physical systems, thereby reducing costs and wastage. Gartner predicts a quarter billion cloud connected cars on the road by 2020. This technology is offering a car user everything from next-level navigation systems to V2V communication and infotainment features, while also supporting the evolution of autonomous vehicles. During this year, the industry will take further steps to integrate their engineering and design activities with the cloud and they also need to pay greater attention to security features in the cloud environment. The Oil & Gas Industry has been lagging in exploiting the full potential of new technologies, but now it is on the cusp of a transformation. These emerging technologies along with push for reduced environmental impact is altering the industry. Through reengineering technology, oil & gas companies need to transform their IT delivery models from the top down and bottom up to gain more speed and flexibility. Companies have started using cloud computing, automation and similar technologies to transform their back-office systems, operations and product offerings. With digitization, humans and machines have become co-workers, thus complementing each others efforts in the workplace. Thus, companies need to redesign their legacy practices around automation. Companies need to provide enterprise data sovereignty to convert the available data into accessible, understandable and actionable information. They need to make relevant investments in data architecture, integration, governance and its security. These companies need to implement digital capabilities like cloud, cognitive, AI, blockchain, IoT, machine learning in their core functional areas to transform their businesses and unlock the value. With digital reality, there is a change in the way individuals and organizations interact with the data. Such technical innovations like Augmented Reality (AR), Virtual Reality (VR),
Drones and 3D printing are helping oil & gas companies to use the technology and create business opportunities. Blockchain technology is a keyword across all major industries and oil
& gas is no exception. Its usage lies in areas such as land administration, supply chain, finance, inventory, operations and marketing. Companies need to begin standardizing on the technology to drive future blockchain opportunities viz. integrating multiple blockchains within a single value chain. Over the years, Application Programming Interfaces (APIs) have enabled seamless interaction between solutions and systems. They also bring forth technology assets which can be reused to drive greater ROI in IT investments and offer its consumers a medium to use existing data more creatively. Going forward, it could help in areas such as contracting, pricing, servicing and even marketing a venerable but still valuable technology. During last year, the Utility Industry witnessed trends like changing fuel mix, declining power prices, increasing customer demand for renewables, the proliferation of Distributed Energy Resources (DERs) and strengthened commitment to boost resilience and cybersecurity. This year, digitization will further move into the spotlight as utilities will rapidly deploy advanced technologies to create growth opportunities. The global smart utilities management market is expected to register a CAGR of 18.46%, during the forecast period (20182023). With growth in renewables energy, the technology will become more smart and scalable with lower construction, operating and maintenance costs and produced energy will also become more cheap. In 2009, it cost just under $300 to generate 1 MW of electricity using solar panels. In 2016, the cost was down to $100. The capacity of renewables will double between 2016-2026 and Asian countries are leading this development. This will urge energy providers to adapt their business model, create new business partnerships and new charging models.
Many utilities are currently setting up Advanced Metering Infrastructure (AMI) for meeting administrative requirements, green power initiatives and additional business benefits. These AMI meters have contributed towards collecting large volumes of data, but utilities have not yet well leveraged the value of that data. The primary interface for any large-scale AMI system is the Meter Data Management Systems (MDMS) and increased investments in smart grid systems are driving the growth for these systems globally. There is higher adoption of intelligent and smart solutions driven by the expanding population living in urban areas (58% by 2025) and the overall growth of urban population (81% of total population that are living in cities). It is estimated that the smart home market may be worth $138 billion by 2023. Smart meters enable consumers to keep a track of their real-time energy consumption and limit their energy costs. Thus, smart meters will constitute a major share in this smart home market. It also empowers consumers to drive more flexible service and billing systems. The ease of managing, monitoring and controlling home appliances and devices at any time and location is increasing consumer acceptance for smart homes. The emergence of the IoT, technologies like near field communications, wearables and smartphones, WiFi, Bluetooth and ZigBee protocols has further increased the demand for the smart cities market.
(Data Source: Industry Reports)
We have been focusing on key industry verticals and it is our mission to improve the state of the industries we serve by using our expertise in technology and processes. Businesses leverage technology to drive meaningful innovation for staying ahead of the competition. Our clients, globally, trust us as a partner in innovation because we understand their industry and unique needs and help them differentiate their businesses with our innovation-led products and solutions in which, we invest or co-invest. Our knowledge ecosystem of advanced technologies, purpose-driven engineering and co-innovation network is built to engineer breakthrough technologies and bring simplicity to complex environments. We focus on envisioning and enabling a cleaner, greener, intelligent world-a world that is self-sufficient, sustainable and efficient. We provide technologies that help our clients succeed, such that the products and solutions they offer to their end-customers are of high quality, targeted, affordable, energy efficient and use less material and improve the state of industries they operate in. KPIT, in collaboration with its clients and its suppliers, works toward improving the world through technology and engineering innovations.
We are a Company that cares for:
1. Customer Relationships
2. Our Employees
3. Knowledge Pursuit and
4. The World that we live in.
Our personality as a Company can be best defined as follows:
1. Customer Focused
We understand our customers and their challenges better and deliver solutions that meet their business purposes.
We use technology to drive meaningful innovation and sustainability
We encourage people in our ecosystem to connect and collaborate to share ideas and work together towards meeting customer purposes.
We anticipate, adapt and respond to new possibilities and changing technologies
We are passionate about our work and it drives us to become the best at what we do.
Our colleagues, customers and other members in our ecosystem know us as honest, reliable and responsible partners.
7. Socially Responsible
We are environmentally conscious, both in our personal and professional lives.
Currently the revenue profile of KPIT includes two streams of revenues. One is Business IT which mainly includes ERP, Digital, PLM, IMS and AMS. The second stream is Engineering which is predominantly automotive embedded electronics, digital, IoT and a little bit of mechanical design. In the first stream we are more of a IT Services Company and in the second we are more of a technology led ER&D Company focused on the automotive vertical. The total number of customers that receive both these services from us can be counted on the fingers of a single hand. This mix of revenues sometimes confuses our identity and does notsignificantbenefits give to our customers.any
This also negatively affects the valuation. Therefore, after prolonged thought, discussions with relevant advisors, debates within the management and board, we thought it is important for all the stakeholders to separate the two businesses. We also believe that if we segregate the two, we can give adequate management attention to each of the two streams and then we can have two separate entities, each . which can grow substantially and be known well in their respective domains. Thus, with this thought process, in January this year, we announced a transaction of merger and demerger involving
KPIT Technologies Limited ("KPIT") and Birlasoft (India) Limited ("Birlasoft"). Birlasoft is a part of the $ 1.6 billion diversified CK
The merger of KPIT and Birlasoft will create a $ 700+ million entity which will immediately demerge into two separate companies;
KPIT ($ 220+ million revenue Company, post-merger), a global leader in Automotive Engineering and Mobility Solutions, which will evolve from the existing Engineering business of KPIT;
Birlasoft (a $ 500+ million revenue Company, post-merger), a new Digital Business IT Services Company, focusing on the mid-tier IT space formed by combining Birlasoft with the KPITs IT business.
Thus, as per the sequencing of the proposed merger and demerger, Birlasoft will first merge into KPIT and then the engineering business of KPIT will be demerged into a separate entity. Every shareholder of the combined KPIT+Birlasoft entity will get one share of the newly demerged engineering entity, which also will be listed. The merged IT Company will be known as Birlasoft and the demerged engineering entity will be named KPIT Technologies Limited.
We believe once the proposed merger and demerger is effected, subject to all required regulatory affairs, we will have two focused companies with a potential to succeed in their respective domains. We believesignificantpotential there is for value creation in both these companies.
The IT Company, Birlasoft will become amongst the largest midcap IT companies with core focus on digital. We believe that it will have a proper mix of ERP and digital revenues. We believe that it will be able to service customers both in BFSI as well as the manufacturing verticals, it would have a balanced portfolio and a starting revenue of $500 million, which puts in the possibility of bidding for decent sized contracts in the IT domain.
The Engineering Company, KPIT, will be sharply focused on automotive engineering and as you know we have been speaking about the automotive world being up for a major change and almost all these changes are driven by software. We are very well known in that domain. We work in practically every cutting-edge area on automotive electronics and hence havegoodpotential growthand
FINANCIAL PERFORMANCE REVENUES
During this year, our $ revenue crossed the 500 million mark and stood at $567.64 million, a Y-o-Y growth of 14.8% against $494.39 million in FY17. In Rs terms, revenue for the year grew by 10.30% to Rs 36,655.82 million against Rs 33,233.61 million in FY17. We saw well balanced growth during the year across business units, geographies and industry verticals. Our engineering business led the growth well followed by digital business, products and platforms and PLM business.
|Sales in $ million||494.39||567.64||14.82%|
|Sales in Rs million||33,233.61||36,655.82||10.30%|
Amongst the geographies, growth was primarily led by Europe with 31% Y-o-Y growth followed by APAC with 23.6% Y-o-Y growth. In US geography there was a marginal growth of
2.3% during the year. The growth in Europe was driven by our engineering business mainly segments like ePowertrain, ADAS and diagnostics. APAC geography has been consistently growing and the key growth areas are engineering, products & platforms and digital business. US is our largest geography and the growth drivers for this region are Infor, Oracle Cloud, engineering and digital technologies.
|Geography (Rs million)|
Amongst the SBUs, Products & Platforms SBU led the growth with 47.7% Y-o-Y growth while PES SBU grew by 27.05% and DT SBU grew by 10.76% on a Y-o-Y basis. In IES SBU there was a marginal growth of 1.75% while SAP SBU saw a Y-o-Y decline of 4.66%. As mentioned earlier, Engineering, Products and
Platforms and digital business units were the leading growth drivers for the Company during this year and we expect this momentum to continue. We also witnessed steady momentum in the Oracle ERP business.
|Revenues by Business||FY2017||FY2018||Growth|
|Segment (Rs million)|
The above mentioned tables of Revenues by Geography and business segment has been prepared as per segment revenues of consolidated financials.
Our EBITDA margin for the year stood at 10.2% against 11.28% in FY17, a dip of 108 bps. The PAT for the year stood at Rs 2,528.54 million, a Y-o-Y growth of 6.02% against Rs 2,385.05 million in FY17. The realized rate for the year was Rs 64.58/$ against Rs
67.22/$ in FY17. There were wage hikes given during the year effective April 1, 2017. We incurred around Rs 169 million as expenses towards the merger-demerger transaction during the year, of which Rs 129 million were incurred during last quarter of the year. Also during last year FY17, we had an exceptional gain on account of sale of our functional safety business to the tune of Rs 260.9 million. Excluding this one-time gain, the profit for
FY18 grew by 19% over FY17. The tax expense for the year was
Rs 697.54 million against Rs 605.73 million in FY17.
Profitability improvement is our constant objective and therefore measures like improving people utilization, productivity and revenue mix will continue going into next year to ensure steady operating margins for the year.
|Profits (Rs million)||FY2017||FY2018||Growth|
Our shareholders include promoters, renowned domestic and financial institutional investors and individuals. As on March
31, 2018 our shareholding structure was as follows:
Institutional Holding of More than 1% as on March 31, 2018
|Foreign Institutional Investors|
|Ruane Cunniff & Goldfarb Inc. (Acacia Partners)|
|New Horizon Funds|
|Blackrock Institutional Trust Company|
|LSV Emerging Markets|
|Government Pension Fund Global|
|Dimensional Fund Advisors|
The cash balance as at March 31, 2018 stood at Rs 6,266 million while total debt was Rs 3,088 million comprising of Rs 970 million of term loan and Rs 2,188 million of working capital loan. Thus, the net cash balance as at March 31, 2018 stood at Rs 3,178 million. Our DSO stood at 71 days. We continuously focused on cash generation during the year which led to improvement in our overall cash position.
Internal control systems and their adequacy
The CEO & CFO certificationprovided elsewhere in this Annual Report discusses the adequacy of internal control systems and procedures in place.
Material developments in human resources/industrial relations front, including number of people employed
The above mentioned headcount does not include interns on stipend.
Risk and Concerns
A separate report on Enterprise Risk Management is provided elsewhere in this Annual Report.
Certain statements under Management Discussion & Analysis describing the Companys objectives, projections, expectations may be forward looking statement within the applicable securities laws and regulations. Although the expectations are based on reasonable assumptions, the actual results could differ materially from those expressed or implied, since the
Companys operations are influenced by external and internal factors beyond the Companys control. The Company assumes no responsibility to publicly amend, modify or revise any forward looking statements, on the basis of any subsequent developments, information or events.