KPIT Technologies Ltd

Rating:

Target price:

EPS:

How does our one year outlook change?

Though KPITs 2QFY16 US$ revenues were better than expected led
by growth in SAP SBU & Engineering services. Top client also showed
some robust growth this quarter. IES came in weak this quarter & is
expected to be tepid in H2FY16E as well. We believe Engineering
services growth would come in better in the coming quarters led by
increased traction in Auto PES. However, we would still be cautious
about calling out SAP revival given the strong structural issues in that
SBU and wait out for at least two quarters of sustainable growth. It is
too early to believe the restructuring efforts have been successful.
With ~40% of revenues earned from SAP and Oracle implementation
KPIT would continue to run the risk of losing revenues from on premise
implementation. Recent efforts of monetarising platforms and SAP
HANA implementation are in the right direction, but are too small, to
mitigate revenue loss.
KPIT margins would improve significantly yoy led by restructuring
efforts but would not reach the FY14 levels. We are modelling EBITDA
margins of 13.1% & 13.4% in FY16E & FY17E respectively.
The management has taken commendable efforts to plug in revenue
loss. However, given the structural issues in On premise
implementation and KPITs portfolio, Revenue growth would continue to
be tepid. Retain Reduce with TP of Rs.144.
How does our 3 year Outlook change?
KPIT Auto SBU, investments in platforms, products and cloud
implementation & newer offerings such as PLM, BTU and RIM would
determine its revenue growth. Growth expansion in these areas would
be crucial to fill the revenue loss in Enterprise Application services.
KPITs metrics are below peers in aspects such as offshore, margins
and cash generation. We believe focussed efforts to improve these
metrics would determine multiple re rating.
KPIT has option value due to Revolo. Multiple press articles indicate
Government is keen in promoting adoption of hybrid technology and
has conducted new trails. If the required regulatory changes are
brought in, Revolo would open a new horizon of opportunities.

CMP

Target

Rating

Rs.138

Rs.144

REDUCE

2QFY16 Update

27 July, 2015

Promoters

22.3

Bloomberg

KPIT IN

Institutions

35.7

Shares o/s

197mn

Public

42.0

Market Cap

Rs. 27bn

52-wk High-Low

Rs. 233-85

3m Avg. Daily Vol

Rs. 158mn

Index

1m

3m

12m

KPIT

25

21

-18

Sensex

-3

CNXIT

-3

Key estimate revision

FY16E

FY17E

Old

New

Change

Old

New

Change

US$ Revenues

481

492

2.4%

518

535

3.4%

USD/INR rate

61

64

4.6%

58

60

3.4%

INR Revenues

29,344

31,429

7.1%

30,040

32,123

6.9%

EBITDA

3,287

4,120

25.3%

3,759

4,306

14.5%

Margin %

11.2%

13.1%

12.5%

13.4%

9.9

13.0

11.9

13.2

EPS

30.6%

10.9%

All figures in Rs. mn, except EPS, which is in Rs.

Financial summary

Revenues
(Rs. mn)

EBITDA
(Rs. mn)

EPS (Rs.)

P/E (x)

FY15P

29,899

3,244

11.9

11.6

8.4

11.9

FY16E

31,429

4,120

13.0

10.7

6.5

13.0

FY17E

32,123

4,306

13.2

10.5

6.2

13.2

FY18E

35,024

4,903

15.9

8.7

4.9

15.9

FY19E

38,841

5,630

19.2

7.2

3.8

19.2

Year

SRIVATHSAN RAMACHANDRAN, CFA srivathsan@sparkcapital.in +91 44 4344 0039

AISHWARIYA KPL aishwariya@sparkcapital.in +91 44 4344 0040

EV/EBITDA(x) ROE (%)

Page 32

KPIT Technologies Ltd

CMP

Target

Rating

Rs.138

Rs.144

REDUCE

Quarterly financial results

Rs. mn\Period
Revenues (US$)

Sep-15

852

219

-74.3%

4,768

1.6%

17,420

18,986

-14.2%

944

-2.7%

4,125

3,711

1,075

10.3%

1,097

8.1%

4,259

4,394

3.2%

20,877

38,300

-45.5%

5,744

263.4%

26,656

27,310

2.5%

1,132

1,003

12.9%

721

57.1%

3,244

4,120

27.0%

Depreciation

167

245

164

2.1%

851

731

-14.1%

EBIT

965

759

27.2%

557

73.3%

2,392

3,389

41.7%

Int. & finance expense

44

33

34.7%

47

-6.5%

260

172

-33.6%

Other income

86

42

105.2%

106

-18.7%

352

342

-2.9%

1,007.2

768.0

31.1%

615.7

63.6%

2,484.2

3,557.8

43.2%

Minority int.

Expectional items

256.3

62.5

171.5

114.8

969.6

PAT

751

706

6.4%

444

69.1%

2,369

2,588

9.2%

Diluted EPS

3.8

3.5

6.8%

2.2

69.4%

11.9

13.0

9.2%

13.9%

13.2%

10.8%

13.1%

4,264

4,267

4,228

3,438

EBITDA

PBT

Tax

EBITDA Margin
Cash & cash equivalents

118

5.3%

7,574

7.2%

7,583

7.1%

40

291

-86.3%

53

4,846

4,134

17.2%

919

1,070

1,186

9.5%
-0.1%

3,387

25.9%

489

yoy Growth

-25.1%

Total operating expenses

8,123

FY16E

5.1%

Others

-0.3%

FY15P

31,429

Sub contracting costs

125

qoq Growth

29,899

Employee costs

Jun-15

0.8%

Cost of raw materials

125

yoy Growth

492

Revenues

Sep-14

-1.5%

Page 33

KPIT Technologies Ltd

CMP

Target

Rating

Financial Summary

Rs.138

Rs.144

REDUCE

Financial sum m ary

Rs.m n.

FY14

FY15P

FY16E

FY17E

FY14

FY15P

FY16E

FY17E

1,030
-1,908

2,894
-1,120

1,828
-1,146

3,840
-649

Profit & Loss

Revenues

26,940

29,899

31,429

32,123

Cash from operating

Employee costs

13,804

17,420

18,986

19,469

Cash from investing

Sub contracting costs

4,626

4,125

3,711

3,694

Cash from financing

Other expenses

4,302

5,155

8,051

7,997

Free cash flow

EBITDA

4,183

3,244

4,120

4,306

Key ratios (%)

540

851

731

836

3,643

2,392

3,389

3,469

Interest costs

258

260

172

144

Other income

-78

352

342

331

3,308

2,484

3,558

3,657

941

115

970

1,024

2,489

2,369

2,588

2,633

12.9

11.9

13.0

13.2

371

376

374

374

12,751

12,961

15,331

17,573

1,301

780

311

111

Market cap (Rs. mn)

EV (Rs.mn)

233

423

500

500

EV/Sales (x)

0.9

0.9

0.8

14,285

14,165

16,142

18,183

EV/EBITDA (x)

6.0

8.4

6.5

6.2

Fixed assets

2,161

2,328

2,833

2,797

P/E (x)

10.7

11.6

10.7

10.5

Other long term assets

Cash

7,176

7,224

7,907

8,087

EPS(E) / Current market price

0.1

0.1

0.1

0.1

1,908

3,638

2,803

5,059

Per share data (Rs.)

Total current assets

11,897

13,149

12,626

15,095

Short term borrow ings

3,089

3,677

3,440

3,240

Cash
Operating cash flow

Depreciation and amortisation

EBIT

PBT
Minority int.
Tax
PAT
EPS - Diluted

Cash flow s

Balance Sheet
Share capital
Total shareholder's equity
Long term borrow ings
Other liabilities
Total liabilities

Total current liabilities

Total Assets

6,949

8,536

7,225

7,796

14,285

14,165

16,142

18,183

791

-403

-1,224

-935

-1,126

791

340

2,860

Revenue grow th

20.3%

11.0%

5.1%

2.2%

EBITDA grow th

14.7%

-22.5%

27.0%

4.5%

PAT Grow th
EBITDA margin

25.1%
15.5%

-4.8%
10.8%

9.2%
13.1%

1.7%
13.4%

EBIT margin

13.5%

8.0%

10.8%

10.8%

PAT margins

9.2%

7.9%

8.2%

8.2%

ROE

21.5%

18.4%

18.3%

16.0%

ROCE

22.6%

21.7%

19.8%

18.1%

Shares o/s (mn)

187.2

190.9

190.9

191.1

Fully diluted shares (mn)

192.3

199.8

199.8

199.7

25,833

26,351

26,351

26,366

25,089

27,092

26,580

26,679

Valuation m etrics

Book value

Free cash flow

66.3
19.0

64.9
21.2

76.7
17.2

0.8

88.0
28.5

5.4

14.5

9.2

19.2

-5.9

4.0

1.7

14.3

Page 34