Public Company'A large number of clients has either aborted deals or postponed contracts'
Manufacturing and automobile solutions provider KPIT Cummins Infosystems remains hopeful of eventually crossing the $1-billion revenue mark. However, the global manufacturing and automobile industry, which accounts for a majority of its top line, is currently facing turbulent times, affecting the company"s revenues. In a chat with KAUSTUBH KULKARNI, the company"s Chairman, RAVI PANDIT, gives his view on the road ahead. Excerpts:
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The world"s largest car makers, such as General Motors and Toyota, have reported a sharp decline in sales. What does this mean for your business?
Once the revival of the automobile industry begins, we will see a paradigm shift in the market centres globally. Car makers, even in developed countries, are looking at small cars as their prime products. There would be more and more fuel-efficient cars coming up, along with hybrid and electric cars. Auto makers will also work hard on reducing the weight of the car. There would be increased use of electronics with software in cars. And more and more production will happen in low-cost economies like India, China and Brazil. With India"s core competence in embedded software development and low-cost manufacturing capabilities, it will have a major role to play during the post-revival period. Even KPIT will have excellent growth opportunities.
But, given the slowdown in the verticals your company caters to, is the $1-billion revenue mark appearing very distant now?
I believe there is enough scope for KPIT Cummins to become a $1-billion company in the future. However, at this time, I cannot say when that would happen. And it’s just not KPIT Cummins, many similar Indian IT companies can become $1-billion firms over a certain period. Since inception, we have focused on growth and continue to do excellent business in the manufacturing and automobile verticals, despite the slowdown.
Has the Troubled Assets Relief Programme (TARP) announced by the US government affected any deals?
Frankly speaking, a large number of clients have either aborted deals or postponed contracts, but not necessarily due to the TARP issue. I do not want to name any specific client here. Those (clients) who can afford to postpone projects have done that, while others have shifted onsite projects offshore. Even the business that we expect from the Cummins group is affected. During the last two quarters of the last financial year, Cummins has suffered in terms of revenues eventually affecting our business.
So, what are your expectations from the current financial year?
The economic slowdown affected our revenues in the third and fourth quarter of the last financial year. However, as against the year 2007-08, our sales increased by 36 per cent to Rs 793 crore during 2008-09, while profit jumped by 28 per cent to Rs 65.82 crore. Still, a number of our contracts have been aborted or postponed and cost-cutting pressures from clients are building up. During the year, we had estimated a sharp appreciation of the rupee and, hence, planned various measures to improve profit margins. Although that did not happen, the industry saw a downturn. However, we will have no mark-to-market losses this year. The hedges, too, are looking attractive this year. And we still believe we would be able to maintain profits during the current financial year, while our revenues might see a marginal decline.
What cost-cutting measures have you implemented?
Cost-cutting happens at various levels in various ways. We can cut costs between 5-15 per cent, depending on the situation and we have done that during the last year. Internally, we have increased utilisation of resources to cut costs. We have cut dividend and also the variable pay given to employees. All this has helped us improve the liquidity situation, which is reflected in our balance sheet.