KPIT Cummins’ Q3 FY13 revenues of US$103.5 were in-line with our estimates. The revenues remained flat qoq largely due to the traditional weakness of lower billing days and expected sluggishness in its SAP business, top client account. While volumes remained flat, realisation corrected 1.8% qoq offshore and improved 1.5% qoq onsite.
Among key SBUs, growth was driven by IES business (+6.1% qoq) which in-turn was driven by sustained traction in Systime (+7.2% qoq). On the back of demand shift and the consequent re-focussing in the SAP business it de-grew 5.8%qoq. Auto engineering SBU too corrected 4.2% qoq, as anticipated, on the back of lower billing days. Top client account Cummins de-grew 3% qoq on expected lines but is guided improve towards the end of CY13. On the other hand, Top-5/Top-10 clients (ex-cummins) grew impressively 14.2%/8.8% qoq in dollar tersms.
The key traditional verticals of manufacturing and auto continued their decent traction growing 4.8%/3.9% qoq in dollar terms. Energy and Utilities on the other hand de-grew materially by 7.2% qoq. Amongst geographies, US and ROW de-grew by 2.1% and 1.7% respectively supported on the flip-side by srobust growth in Europe (+15.2% qoq).
The operating margin too was as per expectation correcting 100bps qoq to 15.6% for the quarter. The correction was largely on the back of reduction in utilization (partly due to lower billing days and re-training in SAP business) and offshore realisation correction. As a prudent move, the company has written off its minority investments (Rs94mn) in a foreign company (GAIA) due to lack of performance and its increasing irrelelavance from strategic perspective . Overall, PAT grew 9.3% qoq to Rs504mn. Employee additions remained decent growing 2.2% qoq and attrition rate (quarterly annualised) was 19%.
Q3 FY13 operational results for KPIT Cummins were in-line with expectation. As anticipated,management commentary was a bit cautious for its top client and near term slowness in a small portion of its clientele. Nonetheless company expects the large part of its business to witness decent traction and also the Cummins account to pick up towards the end of CY13. We expect the demand momentum to improve and maintain 15% dollar revenue CAGR over FY13-15E. We continue to believe KPIT’s margin have decent headroom to expand (+100bps over FY13-15E) and subsequently expect earnings to witness 21.6% CAGR over the same period. Valuation at 8.5x one year forward remain attrative. We maintain our positive view and BUY recommendation.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|OPM (%)||15.6||16.6||(102) bps||15.3||30 bps|
|Effective tax rate (%)||(25.9)||(31.6)||-||(23.8)||-|
|Adj. PAT margin (%)||9.3||7.3||198 bps||10.8||(157) bps|
|Share of profits from asso.||-||5.0||(100.0)||5.1||-|
|Y/e 31 Mar (Rs m)||FY12||FY13E||FY14E||FY15E|
|Revenues (Rs m)||15,000||22,334||24,711||28,440|
|yoy growth (%)||49.0||48.9||10.6||15.1|
|Pre-exceptional PAT (Rs mn)||1,353||2,081||2,596||3,058|
|Reported PAT (Rs m)||1,453||2,068||2,596||3,058|
|yoy growth (%)||53.3||42.3||25.6||17.8|
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