Outsourcing: Ravi Pandit, Chairman And Group CEO, KPIT Cummins (Part 3)

Sramana Mitra: Who is your first customer through which you learned the business?

Ravi Pandit: On the power train side, we started working with companies that are our partners, and then we bought a company in Bangalore called CJ Smith. CJ Smith has been a focused player on embedded software largely outside of the power train area. Between these two, we have been able to grow our business quite well.

SM: I see. So, you do fair bit of acquisitions then?

RP: We have been doing small acquisitions, but not a fair bit. They have been targeted acquisitions to help us strengthen our position in the automotive domain.

SM: Would you talk a bit about that? What kind of acquisitions do you do? When you are looking for acquisition targets, what are you looking for?

RP: It is essentially to strengthen our service portfolio for our defined vertical. To illustrate, last year we bought a motor company in Germany that is in diagnostic software for the automotive application. It’s a very small company but very sharply focused on part leaders in the diagnostic area. The company, which was working primarily with the three big German auto OEMs, we believe provided services that are relevant to OEMs all over the world. We are now able to take this company to the customers all across the world.

SM: How did you find this company?

RP: When you work closely with customers, they also tell you things they know. I know this company, but they have a potential to become big, but they are far away from it. If you go acquire them, things will go well for both of you. We also work through investment bankers.

SM: Are there other such companies in your radar? Small, targeted . . .?

RP: They always are.

SM: OK. What is the geographical spread of these kinds of companies? Are they necessarily in traditional automotive regions like Germany, Michigan, in the U.S. Midwest, perhaps in Japan?

RP: Yes, they are.

SM: Now, aside from those companies that are point products, let’s say niche point products, that are in these automotive hotspots, are there other Indian companies that have specialized expertise in your domain?

RP: Actually, not many.

SM: Not many. Now my next question – and this is one I want you to give some careful thought to –as you are putting together this portfolio of specialized expertise in the domain of automotives, where are the gaps? Where would you like to make an acquisition, or you are seeing an opportunity for a certain niche problem to be solved and you don’t see a solution?

RP: We recently made a 50% investment in a company based here on the West Coast, which is a JD Edward Business IT provider. It’s a fairly large company, about $60 million. I don’t think we will be doing any immediate acquisitions just now, apart from company. Otherwise, we are growing 30% or 35% a year on our own. So, the focus may not be on additional acquisitions at this point.

SM: Well, I guess the question I am asking is, What are problems that you see out there? The context of this blog is to support the One Million by One Million initiative. So, I would like you to provide direction for entrepreneurs who may be interested in working in automotives. I would like you, given your depth of knowledge in the industry, to help some of these entrepreneurs understand what are the blue-sky opportunities, what are the open problems, what are the gaps in your industry.

RP: The automotive industry is in a paradigm shift, a shift that has not happened in the past 100 years. When Henry Ford came out with the Model T, he began a major paradigm shift in the automotive industry. At this point, the auto industry is in a similar paradigm shift. Let me explain the dimensions of this shift. There is significant work being done in the electrification of automotives. The electrification of automotives throws enormous opportunities for software in areas such as vacuum management systems, in hybridization of systems, and so on. Major changes are happening in the automotive industry, especially in the developed world where people don’t want to necessarily buy cars, but they want to share cars or use other cars.  This pulls up substantial opportunities for web-based solutions for car sharing. People are also now looking at the automobile not as an item by itself but as a whole transportation framework. Like, I want to go from place A to place B. Part of that I will sit in a car; part of that I will sit maybe on a bicycle or maybe will take some train from there. Journey planning and fixing the gap in the rural journey planning is, again, a major web application where there is going to be a substantial opportunity .

There is significant investment which is being done now in safety in cars. How can you make cars somehow intelligent by giving them vision at low cost or making them more autonomous at a low cost, and which is a combined application for both embedded software and GPS systems plus cloud-based systems. Again, it’s a major opportunity. You see the car models change every few years, and production takes some seven or eight years. The typical life of a car is 10 years. The typical life of an infotainment system is six months. So, how do you come out with the products, where even though you may own the car for 10 years, you will have 20 generations of infotainment systems inside your car? There are opportunities in that area. This could be a paradise for –

SM: A company like yours?

RP: Innovative solutions, companies with innovative solutions.

This segment is part 3 in the series : Outsourcing: Ravi Pandit, Chairman And Group CEO, KPIT Cummins
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