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DOLAT CAPITAL
October 22, 2014
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KPIT Technologies
CMP: ` `` `` 168 TP: ` `` `` 210 BUY
High Points
Operating results ahead of
estimates
Volumes growth up 5%,
pricing up about by 1%
overall
Deal momentum strong
across SBUs
EBIT Margin up by 40bps
QQ
Maintain BUY with a target
of ` `` `` 210
Financials
Year Net Sales growth(%) EBIT OPM(%) PAT PAT Mg EPS(`) growth(%) PER(x) ROANW(%) ROACE(%)
FY14 26,940 20.3 3,643 13.5 2,489 9.2 13.4 28.7 12.5 21.1 24.9
FY15E 30,267 12.3 3,432 11.3 2,671 8.8 14.4 7.3 11.7 19.1 20.1
FY16E 35,420 17.0 4,345 12.3 3,015 8.5 16.3 12.9 10.3 18.1 22.0
FY17E 40,057 13.1 4,981 12.4 3,462 8.6 18.7 14.8 9.0 17.5 22.4
Figures in ` mn
Q2FY15 Result (` mn)
Parti cul ars Q2FY15 Q1FY15 Q-O-Q (%) Q2FY14 Y-O-Y (%) FY14 FY13 % chg.
USD Revenues 125.0 115.2 8.5 112.2 11.4 444 411 8.2
Net Sales 7574 6897 9.8 7028 8 26940 22386 20
COR 4425 4032 10 3430 29 13830 11408 21
Gross Profit 3149 2865 10 3598 -12 13111 10978 19
Other expenses 2146 2038 5 2517 -15 8928 7337 22
EBITDA 1003 827 21 1081 -7 4183 3641 15
Depreciation 245 162 51 148 65 540 472 14
EBIT 759 665 14 932 -19 3643 3170 15
Interest 33 42 -22 66 -50 258 140 84
Other Income 42 108 -61 23 82 -78 -170 -54
Profit before Tax 768 730 5 889 -14 3308 2860 16
Exceptional items 0 0 0 0 0 122 -13
Tax 63 222 -72 222 -72 941 766 23
Net Profit bfr MI 706 508 38.9 667 6 2490 2082 20
Minority Interest 0 0 0 0 86
Profit Share from Associate 0 0 0 - 0 -5
NPAT 706 508 38.9 667 6 2490 1990 25
Equity Capital 401 400 198 386 386
Diluted EPS 3.5 2.5 38.6 3.4 4.5 13.0 10.6 23
EBIT Margin (%) 10.0 9.6 13.3 13.5 14.2
Net Profit Margin (%) 9.3 7.4 9.5 9.2 8.9
Tax Rate (%) 8.1 30.4 24.9 28.4 26.8
Scrip Details
Equity ` 371mn
Face Value ` 2/-
Market Cap ` 33bn
USD 538mn
52 week High / Low ` 191 / 140
Avg. Volume (no) 666,699
BSE Sensex 26,768
NSE Nifty 7,980
Bloomberg Code KPIT IN
Reuters Code KPIT.BO
Sr. Analyst: Rahul Jain
Tel : +9122 4096 9754
E-mail: rahul@dolatcapital.com
Resul t s ahead of est i mat es, Management conf i dent t o i mpr ove
momentum further, Maintain BUY
View: We believe the strong revenues in the quarter raise loads of confidence
on the business momentum as also supported by strong deal addition across
SBU. The management expects strong momentum Q4FY15 onwards and
improved OPM profile, which we believe is possible given its focused approach
on its niche strength (Automotive, Enterprise services), aggressive/successful
inorganic strategy, monetization of its frugal solutions for Auto segment and
strong deal win momentum. We maintain our positive view on the stock with a
TP of ` 210 valued at 13x FY16E earnings.
Results ahead of estimates: Revenues grew by 8.5% QQ at $125mn up 9.8%
in reported terms at 7.6bn ahead of our estimates of $121mn). Volumes
were up by 5% during the quarter driven by one large SI deal in the Telematic
space. The momentum is likely to continue going forward across the vertical
baring Q3 (that may be affected due to holidays). EBIT grew by 14% QQ tad
below our estimate of 18% growth as it witnessed recovery in the SAP business
along with strong operating leverage.
Management confident of sustained momentum: Company has indicated
strong performance going forward given sustained deal momentum in the A&E/
IES, monetization of several solutions such as Telematics/Revolo and its growing
strength in SAP cloud solutions (HANA, Successfactor and upcoming cloud-
ERP). We believe the company should achieve 14%+revenue growth over
FY14-17E and should see gradual pickup in the OPM over Q4FY15-Q4FY16
on better operating leverage.
2
DOLAT CAPITAL
India Research
KPIT Technologies October 22, 2014
Key Highlights
Revenues grew 8.5% QQ at $125mn (up 9.8% in reported terms at 7.5bn for the
quarter) ahead of our estimates of DE $121mn. The growth was skewed to
Auto & Enggineering vertical that witnessed strong growth of 24% QQ (80% of
incremental revenues) driven by deal in the Telematics.
Rev in SAP SBU were up 9% QQ and with positive OPM of about 4-5% for the
quarter (operating losses at -5% during FY14) on account of declined
subcontracting deployment and other cost efficiencies. Traction in the IES
(Enterprise) SBU is intact with a 2% QQ growth (strong 17% growth performance
for FY14) with strong deal win momentum in J DE and IMS service offerings. It
expect sustained better performance from Auto & Engg going forward given
likely ramp-up in past deals and sustained new deal traction.
It has acquired and integrated balance 50% of I-Cubed (US based PLM services
company acquired during Apr14 with revenue size of $10mn and OPM of 13%+
in CY13) during the quarter with fresh investment of about INR 108mn.
Cummins (top account) grew by 2% QQ for the quarter. Other key accounts
also witnessed traction during the quarter.
EBIT grew by 14% QQ - OPM improved by 40bps QQ to 10% as benefits from
SAP segment margin recovery covered up for other cost headwinds such as
strong hiring (400+), incremental SG&A (provided higher than normal charges in
the quarter) and depreciation on SI. We believe the company would see further
uptick in profitability by Q4 as it would gain on SAP recovery and operating
leverage.
PAT grew by 39% QQ at INR 706mn well ahead of DE estimate at INR 610mn
on higher than expected other income and lower taxation due to past provision
reversal. ETR for the quarter was just 8% as against annual run rate of 28%+.
The company has guided $ 500mn in revenues (implies 13% YY growth) in $
terms for FY15 and sub 10% PAT growth due to weak Q1 profitability (PAT
guidance curtailed on weak Q1 performance, slower than anticipated SAP
recovery and other unexpected investments for the year). We have built in
similar top line/ bottom line growth and expect growth/OPM performance to
gain traction in Q4FY15 onwards.
Valuation: We believe the stock would continue its financial outperformance on
sustained deal flow momentum (order book strong across SBU), recovery in SAP
(OPM turned positive) and benefits of incremental role of IT in Automobiles. We
have built in Revenue/EPS CAGR of 14%/11% over FY14-17E and continue to
remain positive in our view on the stock. We maintain our BUY rating (Preferred
pick in the Mid Tier IT segment) on the stock with a Target Price of ` 210, valued at
13x of its FY16E earnings.
3
DOLAT CAPITAL
India Research
KPIT Technologies October 22, 2014
IMPORTANT RATIOS
Parti cul ars Mar 14 Mar15E Mar16E Mar17E
(A) Measures of Performance (%)
Contri buti on Margi n
EBIDTA Margin 15.6 16.4 16.9 16.7
EBIT Margin 13.5 11.3 12.3 12.4
Interest / Sales 1.0 0.7 0.9 0.7
Tax/PBT 27.4 23.8 28.2 29.4
Net Profit Margin 9.2 8.8 8.5 8.7
(B) As Percentage of Net Sales
Employee Expenses 51.2 54.8 54.5 54.5
Other Expenses 33.1 28.7 28.4 28.0
(C) Measures of Financial Status
Net Debt / Equity (x) 0.2 0.1 -0.1 -0.2
Interest Coverage (x) 14.2 19.6 16.8 19.6
Average Cost Of Debt (%) 5.9 5.5 8.4 8.7
Debtors Period (days) 100 97 93 89
Fixed Assets Turnover (x) 2.9 3.0 3.2 3.5
Working Capital Turnover (x) 4.4 4.3 4.1 3.7
Non Cash Working Capital (` Mn) 4,155 4,204 3,918 3,632
(D) Measures of Investment
EPS (`) 13.4 14.4 16.3 18.7
CEPS (`) 16.3 18.6 20.8 24.2
DPS (`) 0.8 0.8 0.8 0.8
Dividend Payout (%) 6.0 5.6 4.9 4.3
Book Value (`) 68.7 82.2 97.5 115.3
RoANW (%) 21.4 19.1 18.1 17.5
RoACE (%) 24.8 23.1 25.1 24.5
RoAIC (%) (Excl Cash & Invest.) 33.4 30.1 35.1 37.9
(E) Valuation Ratios
CMP (`) 168 168 168 168
P/E (x) 12.5 11.7 10.3 9.0
Market Cap. (` Mn.) 31,163 31,163 31,163 31,163
MCap/ Sales (x) 1.2 1.0 0.9 0.8
EV (` Mn.) 31,904 30,298 27,901 24,885
EV/Sales (x) 1.2 1.0 0.8 0.6
EV/EBDITA (x) 7.6 6.1 4.7 3.7
P/BV (x) 2.4 2.0 1.7 1.5
Dividend Yield (%) 0.5 0.5 0.5 0.5
E-estimates
CASH FLOW
Parti cul ars Mar 14 Mar15E Mar16E Mar17E
Profi t before tax 3,430 3,507 4,200 4,903
Depreciation & w.o. 540 782 847 1,019
Direct taxes paid -941 -836 -1,185 -1,441
Chg in W.Cap -865 -49 286 286
Other -269 0 0 0
(A) CF from Operating Act 1,895 3,404 4,148 4,767
Capex {Incl WIP} -1,415 -1,625 -1,578 -1,578
Inc./ (Dec.) in Investments 0 -135 -222 -222
(B) CF from Investing Actv -1,415 -1,760 -1,800 -1,800
Inc./(Dec.) in Debt 0 -490 -290 -290
Dividend Paid (Incl. Tax) -173 -173 -173 -173
Fx change on translation -320 0 0 0
(C) CF from Financing Act -493 -663 -463 -463
Net Change in Cash -13 981 1,886 2,504
Openi ng Cash bal ances 1,921 1,908 2,889 4,774
Cl osi ng Cash bal ances 1,908 2,889 4,774 7,278
E-estimates
INCOME STATEMENT ` `` `` mn
Parti cul ars Mar 14 Mar15E Mar16E Mar17E
Net Sales 26,940 30,267 35,305 39,942
Other Operational income 0 0 115 115
Total Income 26,940 30,267 35,420 40,057
Total Expendi ture 22,732 25,291 29,441 33,362
Employee Expenses 13,804 16,594 19,311 21,841
Other COR 8,928 8,697 10,053 11,212
Revolo Expenses 0 0 78 310
EBIDTA 4,208 4,976 5,979 6,695
Depreciation 540 782 847 1,019
EBIT 3,669 4,194 5,132 5,676
Int erest pai d 258 214 305 290
Other Income 45 214 150 212
Profit Before Tax & EO Items 3,456 4,194 4,977 5,598
Tax Expenses 941 836 1,185 1,441
Net Profit 2,489 2,671 3,015 3,462
Net Profit 2,489 2,671 3,015 3,462
BALANCE SHEET
Parti cul ars Mar 14 Mar15E Mar16E Mar17E
Sources of Funds
Equity Capital 371 371 371 371
Other Reserves 12,380 14,878 17,720 21,009
Net Worth 12,751 15,249 18,091 21,380
Secured Loans 3,089 3,089 3,089 3,089
Unsecured Loans 1,301 811 521 231
Loan Funds 4,390 3,900 3,610 3,320
Total Capital Employed 17,141 19,149 21,701 24,700
Applications of Funds
Net Block 8,155 8,998 9,851 10,532
Capital Work in Progress 1,182 1,182 1,060 938
Invest ment s 1,741 1,876 2,098 2,320
Current Assets, Loans & Advances
Sundry Debtors 6,743 7,636 8,413 9,190
Cash and Bank Balance 1,908 2,889 4,774 7,278
Loans and Advances 1,471 1,668 1,703 1,738
sub total 10,156 12,227 14,924 18,240
Less : Current Li abi l i ti es & Provi si ons
Current Liabilities 1,021 1,177 1,399 1,621
Provisions 3,072 3,957 4,833 5,709
sub total 4,093 5,134 6,232 7,330
Net Current Assets 6,063 7,093 8,692 10,910
Tot al Assets 17,141 19,149 21,701 24,700
E-estimates
Shareholding Pattern as on Sep'14 (%)
DOLAT CAPITAL
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