Budget should allow transfer of cos from STPIs to SEZs: Ravi Pandit, KPIT Cummins

Ravi Pandit, Chairman & Group CEO, KPIT Cummins talks to ET Now on the midcap IT company's budget wishlist as well as details on ongoing projects.

Are not you happy that you do not use crude as a raw material look at the data coming in...

Ravi Pandit: But I must tell you that we work a lot in that fear as you probably know we have recently innovated and introduced a hybrid car which significantly reduces the expenditure of an average percent on fuel. So yes we are closely connected to what is happening in the world of crude.

Couple of years down the line may be the research reports on KPIT Cummins would start factoring the gains from such a product as well if crude continues to do what it is doing. What's your expectation from the Union Budget the top of the line what I have heard a lot of midcap IT company speak about is the extension of the STPI clause for one more year probabilities you think?

Ravi Pandit: Well one is hoping but does not know what will happen but one is certainly hoping because I think an extension of the STPI would mean a lot especially to the small and up coming companies. Many companies even companies like us have now moved into a SEZs and so we can kind of may be we can glide over but I believe that if you were to look at software industry as such there are lot of growing small companies coming up and for them the continuation of STPI can make a big difference.

What if it does not happen?

Ravi Pandit: Well if it does not happen we have to figure our way out around it but I do not think it would be a very good thing to happen. I think what it would mean is that we will have to work on higher productivity, we will have to work on higher incomes but yes continuation of STPI will help especially the smaller members of our fraternity.

So your tax profile does not change significantly even?

Ravi Pandit: It does because not everything that we are currently doing can move to SEZ and there are two options either they can continue the STPI scheme or they can allow the transfer of the units from the STPI to SEZ which could kind of continue the current tax break but that would only help a certain size of companies. I think continuation of STPI would help the lot of the smaller members of the industry.

What would be the net impact if this were not to come in...?

Ravi Pandit: So it depends on how much of the business is already coming in from SEZ. It could be 5%-6% increase in the tax rates.

So for KPIT Cummins assuming that nothing positive comes about it would mean 6% more of your revenue coming to the tax bracket?

Ravi Pandit: Yes.

I believe that a lot of people would be sceptical about this not happening this time around is because it is being talked about in the past. The last two budget also it was supposed to end but it has been carried forward so which is I believe this comes about, what about aside of STPI anything else that IT as a space would be logically requiring the finance minister to speak about?

Ravi Pandit: I believe that there is much that needs to be done about the supply side constraints especially the investments in the soft as well as the hard side. I believe the shortage of qualified people is plaguing our industry. I believe that the increase in the demand with a lower supply of software professionals is pushing the cost especially the salary cost. So significant investments in infrastructure of education could help, opening up the education sector could help I think that can make a big difference to the software industry from a long term perspective.

Spending on e-governance?

Ravi Pandit: That would also substantially help because it would not just help the software industry I believe it could also help our country because we know what kind of problems we have in governance so any expenditure on egovernance would help any expenditure on IT in various governmental departments would help in improve the productivity. So the benefits that the world has enjoyed from the software industry can also be brought to India.

If that were to happen how would that help you, is that a business proposition that you are clearly exploring and evaluating?

Ravi Pandit: Yes, see if you were to talk about KPIT Cummins we are a very highly focused company and we are only in 3 verticals so we work in the area of automotive and transportation, we work in the area of defence and government and we work in the area of energy and utilities and any investment that the government does for improvement of its governance or reduction in the cost of defence expenditure does definitely help us because we are focused on making it happen.

Firstly your answers lead me to believe that attrition still continues to remain a very serious problem because you are clearly saying that you would expect the finance minister to address some of the supply side issues which also meant manpower. Does it stay a problem looking in with a naked eye does it stay a problem for the next 12 months you would say because I have been hearing?

Ravi Pandit: I would imagine see if you were to look at the fact that economy has to grow as a whole we will grow at 8%-9% which means all the sectors of the economy will need lot of resources. If you look at the fact that software as an industry will grow by 20%-255 at least obviously there going to be supply side issues so, so far any good graduate would want to walk towards a software industry now he has multiple options open. So I think over the long term improving the supply situation by investing a lot in education across the various layers will help not just a software industry but every industry in the country.

This is a bit of a hypothetical question I do not whether you will be able to answer this or no, what to your mind would be the biggest disappointment if the FM indeed announces it?

Ravi Pandit: Announces what?

Is there something that you fear that would come about may be non-extension of the STPI clause or something else I am just a hypothetical question to you?

Ravi Pandit: I would think we would be a disappointed if the STPI clause is not extended that would be a disappointment but I think the rest of the things are good for the economy as a whole and we are not saying anything specifically for the IT sector as such. We have a significant focus on clean technologies you probably know about Revolo what we have done for converting a normal car into a hybrid car and we are expecting that the hybrid cars could be put on the same footing as the electric vehicles in terms of excise duties that would be a major thing for cleaner environment and it would also help us as a company.

One final question. We have talked about budget so on so forth it has been about 2 months into the current quarter how were the client conversation shaping up because end of the December quarter people said that there may be a bit more circumspect than what they were at the beginning of the October to December quarter?

Ravi Pandit: I think the client conversations are going on well. Last month we revised our top line guidance instead of 25% top line growth that we were looking at we have said it would be around 30% to 40%, we have revised our bottom line guidance instead of 5%-7% improvement we are looking at around 10% improvement. The client conversations are going on well but that has also probably something to do with the an overall IT trend, it also has something to do with the sectors in which we deal. Now we work a lot in automotive, we work a lot in embedded software which makes the automotives better cars like more fuel efficient, more intelligent etc. and we are seeing good traction.