Spark Research 27 Oct 2015
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Page 32 KPIT Technologies Ltd CMP Rs.138 Target Rs.144 Rating REDUCE SRIVATHSAN RAMACHANDRAN, CFA [email protected] +91 44 4344 0039 AISHWARIYA KPL [email protected] +91 44 4344 0040 How does our one year outlook change? Though KPIT’s 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 KPIT’s portfolio, Revenue growth would continue to be tepid. Retain Reduce with TP of Rs.144. Financial summary Year Revenues (Rs. mn) EBITDA (Rs. mn) EPS (Rs.) P/E (x) EV/EBITDA(x) ROE (%) 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 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% EPS 9.9 13.0 30.6% 11.9 13.2 10.9% All figures in Rs. mn, except EPS, which is in Rs. 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. KPIT’s 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. 27 July, 2015 Bloomberg KPIT IN Shares o/s 197mn Market Cap Rs. 27bn 52-wk High-Low Rs. 233-85 3m Avg. Daily Vol Rs. 158mn Index - 2QFY16 Update Promoters 22.3 Institutions 35.7 Public 42.0 % 1m 3m 12m KPIT 25 21 -18 Sensex 6 -3 2 CNXIT -3 1 8 Rating: ◄► Target price: ▲ EPS: ▲
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Spark report on KPIT
Transcript of Spark Research 27 Oct 2015
Page 32
KPIT Technologies Ltd CMP
Rs.138
Target
Rs.144
Rating
REDUCE
SRIVATHSAN RAMACHANDRAN, CFA [email protected] +91 44 4344 0039
AISHWARIYA KPL [email protected] +91 44 4344 0040
How does our one year outlook change?
Though KPIT’s 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 KPIT’s portfolio, Revenue growth would continue to
be tepid. Retain Reduce with TP of Rs.144.
Financial summary
Year Revenues
(Rs. mn)
EBITDA
(Rs. mn) EPS (Rs.) P/E (x) EV/EBITDA(x) ROE (%)
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
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%
EPS 9.9 13.0 30.6% 11.9 13.2 10.9%
All figures in Rs. mn, except EPS, which is in Rs.
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.
KPIT’s 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.
27 July, 2015
Bloomberg KPIT IN
Shares o/s 197mn
Market Cap Rs. 27bn
52-wk High-Low Rs. 233-85
3m Avg. Daily Vol Rs. 158mn
Index -
2QFY16 Update
Promoters 22.3
Institutions 35.7
Public 42.0
% 1m 3m 12m
KPIT 25 21 -18
Sensex 6 -3 2
CNXIT -3 1 8
Rating: ◄► Target price: ▲ EPS: ▲
Page 33
KPIT Technologies Ltd CMP
Rs.138
Target
Rs.144
Rating
REDUCE
Rs. mn\Period Sep-15 Sep-14 yoy Growth Jun-15 qoq Growth FY15P FY16E yoy Growth
Revenues (US$) $ 125 $ 125 -0.3% $ 118 5.3% $ 489 $ 492 0.8%
Revenues 8,123 7,574 7.2% 7,583 7.1% 29,899 31,429 5.1%
Cost of raw materials 40 291 -86.3% 53 -25.1% 852 219 -74.3%
Employee costs 4,846 4,134 17.2% 4,768 1.6% 17,420 18,986
Sub contracting costs 919 1,070 -14.2% 944 -2.7% 4,125 3,711
Others 1,186 1,075 10.3% 1,097 8.1% 4,259 4,394 3.2%
Total operating expenses 20,877 38,300 -45.5% 5,744 263.4% 26,656 27,310 2.5%
EBITDA 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%
PBT 1,007.2 768.0 31.1% 615.7 63.6% 2,484.2 3,557.8 43.2%
Minority int. - - - - -
Expectional items 0 0 0 0 0
Tax 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%
EBITDA Margin 13.9% 13.2% 9.5% 10.8% 13.1%
Cash & cash equivalents 4,264 4,267 -0.1% 3,387 25.9% 4,228 3,438 -1.5%
Quarterly financial results
Page 34
KPIT Technologies Ltd CMP
Rs.138
Target
Rs.144
Rating
REDUCE Financial Summary
Rs.mn. FY14 FY15P FY16E FY17E FY14 FY15P FY16E FY17E
Profit & Loss Cash flows
Revenues 26,940 29,899 31,429 32,123 Cash from operating 1,030 2,894 1,828 3,840
Employee costs 13,804 17,420 18,986 19,469 Cash from investing -1,908 -1,120 -1,146 -649
Sub contracting costs 4,626 4,125 3,711 3,694 Cash from financing 791 -403 -1,224 -935
Other expenses 4,302 5,155 8,051 7,997 Free cash flow -1,126 791 340 2,860
EBITDA 4,183 3,244 4,120 4,306 Key ratios (%)
Depreciation and amortisation 540 851 731 836 Revenue grow th 20.3% 11.0% 5.1% 2.2%
EBIT 3,643 2,392 3,389 3,469 EBITDA grow th 14.7% -22.5% 27.0% 4.5%
Interest costs 258 260 172 144 PAT Grow th 25.1% -4.8% 9.2% 1.7%
Other income -78 352 342 331 EBITDA margin 15.5% 10.8% 13.1% 13.4%
PBT 3,308 2,484 3,558 3,657 EBIT margin 13.5% 8.0% 10.8% 10.8%
Minority int. 0 0 0 0 PAT margins 9.2% 7.9% 8.2% 8.2%
Tax 941 115 970 1,024 ROE 21.5% 18.4% 18.3% 16.0%
PAT 2,489 2,369 2,588 2,633 ROCE 22.6% 21.7% 19.8% 18.1%
EPS - Diluted 12.9 11.9 13.0 13.2 Valuation metrics
Balance Sheet Shares o/s (mn) 187.2 190.9 190.9 191.1
Share capital 371 376 374 374 Fully diluted shares (mn) 192.3 199.8 199.8 199.7
Total shareholder's equity 12,751 12,961 15,331 17,573 Market cap (Rs. mn) 25,833 26,351 26,351 26,366
Long term borrow ings 1,301 780 311 111 EV (Rs.mn) 25,089 27,092 26,580 26,679
Other liabilities 233 423 500 500 EV/Sales (x) 0.9 0.9 0.8 0.8
Total liabilities 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 7,176 7,224 7,907 8,087 EPS(E) / Current market price 0.1 0.1 0.1 0.1
Cash 1,908 3,638 2,803 5,059 Per share data (Rs.)
Total current assets 11,897 13,149 12,626 15,095 Book value 66.3 64.9 76.7 88.0
Short term borrow ings 3,089 3,677 3,440 3,240 Cash 19.0 21.2 17.2 28.5
Total current liabilities 6,949 8,536 7,225 7,796 Operating cash flow 5.4 14.5 9.2 19.2
Total Assets 14,285 14,165 16,142 18,183 Free cash flow -5.9 4.0 1.7 14.3
Financial summary
