KPIT Technologies Ltd

India Infoline News Service | Mumbai |

KPIT Technologies through its consistent execution and niche capabilities has registered sustained revenue growth.

CMP Rs131, Target Rs148, Upside 12.9%

Momentum to continue driven by strong deal pipeline and focused client mining

KPIT Technologies through its consistent execution and niche capabilities has registered sustained revenue growth. This is evident in the 30%+ revenue growth in FY13 despite the weakness in its SAP business (~25% of revenues). This was on the back of strong demand traction in IES and Auto engineering business which grew at 5.5%/5% CQGR over the same period. More recently, the deal funnel has shown substantial improvement (+50% in last 6-9 months) with 6-7 large deals in the pipeline (US$10-30mn). SAP and Automotive business are also expected to pick-up in H2 FY14 further supporting the revenue traction. From a longer term perspective, KPIT’s increased focus on mining its marquee client base through its Business transformation services is expected help maintain the decent business traction.


Operating margin to expand supported by SAP business, rupee and operational leverage

KPIT’s operating profitability suffered over FY11-12 on the back of integration of low margin acquisitions, higher onsite growth and continued investments. In FY13 too, margin had to bear the brunt due to the impact of technological reset in the SAP business. Going forward, owing to the improving offshoring (especially in the SAP business), weak rupee and operational leverage due to strong volume led traction (due to deal ramp-ups) in key SBUs, we expect margin performance to improve. Improving client mining as seen in the 9%/7% revenue CQGR for Top5/Top 10 clients (ex Cummins) should also bode well from the margin perspective. Additionally, higher locals /green card owners amongst KPIT’s US employee base may result in relatively lower impact of protectionist moves.


Valuations at 8x FY15E earnings are attractive; Maintain BUY

Consistent execution and continued traction which has been a hallmark of KPIT’s business performance over past two years, should continue going forward too. Our expectation is supported by the improving overall demand environment in the US, better management commentary and green shoots in discretionary services spending. Consequently, we expect company to witness 15%/27% dollar revenue/INR EPS CAGR over FY13-15E. P/E valuations at 8x FY15E earnings are attractive.


Financial summary

Y/e 31 Mar (Rs m)
FY12
FY13
FY14E
FY15E
Revenues
15,000
22,386
26,654
31,232
yoy growth (%)
49.0
49.2
19.1
17.2
Operating profit
2,171
3,641
4,467
5,167
OPM (%)
14.5
16.3
16.8
16.5
Reported PAT
1,453
1,990
2,657
3,209
yoy growth (%)
53.3
36.9
33.6
20.8

 
 
 
 
EPS (Rs)
8.2
10.4
13.9
16.8
P/E (x)
16.5
13.0
9.7
8.0
Price/Book (x)
3.4
2.5
1.9
1.6
EV/EBITDA (x)
11.4
7.4
5.5
4.4
RoE (%)
20.6
22.9
22.3
21.5
RoCE (%)
22.4
25.6
26.2
26.2

Source: Company, India Infoline Research

BSE 171.40 5.70 (3.44%)
NSE 172.40 5.65 (3.39%)

***Note: This is a NSE Chart

 

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