KPIT Cummins (Q4 FY13)

India Infoline News Service | Mumbai |

KPIT Cummins’ Q4 FY13 dollar revenues grew 2% qoq to US$105.5 beating our expectation of 1% qoq growth. The better than expected revenue growth was on the back of strong volumes which grew 3.1% sequentially.

CMP Rs104, Target Rs135, Upside 29.8%

  • KPIT Cummins’ Q4 FY13 dollar revenues grew 2% qoq to US$105.5 beating our expectation of 1% qoq growth. The better than expected revenue growth was on the back of strong volumes which grew 3.1% sequentially. On the other hand, realisations corrected 1.1% on the back expected weakness in the SAP business and top client account.

  • Amongst the key SBUs, Auto&Engineering SBU posted a strong growth of 9.1% qoq. While the IES business grew above company average (+2.6% qoq), the SAP business continued its weak streak de-growing 5% (on expected lines).  Cummins account de-grew further (down 11.5% qoq) on the back of sustained weakness in its core business. Ex-Cummins, both the Top2-5/Top6-10 set of clients grew well at ~7% qoq.

  • Within verticals, manufacturing continued its strong momentum growing 6.1% sequentially. Other key verticals of E&U and auto transportation were laggards de-growing 3.2% and 2.7% on a qoq basis. Across geographies, growth was led by USA and Rest of the World (RoW) which grew 4.2% qoq and 10.7% qoq respectively. Europe de-grew materially by 16.9% on a qoq basis.

  • The operating margin performance was a material positive surprise, expanding 217bps qoq to 17.8% versus our expectation of 70bps correction. Strong growth in the high-margin auto engineering SBU, the resultant increase in utilization (+120bps), jump in Systime profitability and overall higher offshoring (+3.6% qoq growth) resulted in the better than expected margin. On the non-operational front, investment income jumped from 20mn last quarter to 64mn in current quarter. Due to strong robust growth and significant improvement in Systime profitability, the minority outgo was higher than expected at Rs43mn. Overall, on the back of commendable operational performance, the net profit remained flat sequentially as against our expectation of 10% correction. Employee base remained largely stable sequentially.

  • For FY14, company has guided for 14%-16% dollar revenue growth (US$465mn to US$475mn) – a strong guidance considering the ongoing weakness in its SAP SBU and Cummins account. An industry beating guidance in generally soft environment indicates a sustained demand environment for KPIT’s niche services in the area of Automotive and manufacturing. Company has also guided for an expansion of operating profitability (~50bps yoy) resulting in yoy earnings growth guidance of 16%-20% (net profit of Rs2.3bn to Rs2.39bn).

  • Q4 FY13 results for KPIT Cummins were commendable considering a credible revenue beat and material out–performance on the operating margin front. The dollar revenue guidance, though strong vis-à-vis consensus, was in-line with our expectation. Management commentary continues to remain constructive with expected revival both in SAP business and Cummins in H2 FY14. KPIT’s guidance as well as commentary remain more positive relative to peers as well as industry as a whole. We tweak our estimates to incorporate a better Q4 FY13 as well as increased tax rates.  We maintain our BUY recommendation with a 9-month TP of Rs135.

Result table
(Rs mn) Q4 FY13 Q3 FY13 % qoq Q4 FY12 % yoy
Net sales 5,699 5,633 1.2 4,800 18.7
Operating profit 1,013 879 15.2 751 34.9
OPM (%) 17.8 15.6 (217) bps 15.6 213 bps
Depreciation (126) (118) 7.1 (102) 23.9
Interest (39) (39) 1.7 (40) (1.9)
Other income (86) 77 - (103) -
Exceptional item - (94)   100  
PBT 762 799 (4.7) 507 50.4
Tax (207) (183) 13.3 (150) 38.0
Effective tax rate (%) (27.1) (22.8) - (29.6) -
Adjusted PAT 555 617 (10.0) 357 55.6
Adj. PAT margin (%) 9.7 11.0 (121) bps 7.4 231 bps
Minority interest (43.4) (18.2) 138.4 (22.0) 97.5
EPS (Rs) 2.9 2.8 1.5 2.5 17.1
Source: Company, India Infoline Research

Financial Summary
Y/e 31 Mar (Rs m) FY12 FY13 FY14E FY15E
Revenues (Rs m) 15,000 22,386 24,887 28,464
yoy growth (%) 49.0 49.2 11.2 14.4
Operating profit 2,171 3,641 4,142 4,619
OPM (%) 14.5 16.3 16.6 16.2
Reported PAT (Rs m) 1,453 1,990 2,231 2,935
yoy growth (%) 53.3 36.9 12.1 31.6
         
EPS (Rs) 8.2 10.4 11.7 15.4
P/E (x) 12.7 10.0 8.9 6.8
Price/Book (x) 2.6 1.9 1.5 1.3
EV/EBITDA (x) 8.9 5.8 4.5 3.7
RoE (%) 20.6
BSE 167.25 [2.35] ([1.39]%)
NSE 167.55 [1.90] ([1.12]%)

***Note: This is a NSE Chart

 

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