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KELLTON TECH SOLUTIONS LTDResult Update (CONSOLIDATED BASIS): (Q1 FY18)

CMP: 93.85 OCT 12th, 2017

Overweight ISIN:INE164B01022

Index Details SYNOPSIS

Kellton Tech Solutions Limited is a CMMi Level 5and ISO 9001:2008 certified global IT servicesorganization.

Kellton upgraded to CMMI Level 5 CertifiedCompany, thus scaling the pinnacle of global qualityand process standards.

Total revenue was Rs 1753.07 mn during the quarteras compared to Rs 1404.34 mn during thecorresponding period of previous year reflecting agrowth of 24.8% on Y-o-Y basis.

The company reported an EBITDA of Rs 254.21 mnfor the quarter as compared to Rs 190.92 mn duringthe corresponding period of previous year,registering an increase of 33.16% on Y-o-Y basis.

The EBITDA margin for the quarter stood at 14.5%as compared to 13.6% in Q1FY17.

Net profit stood at Rs 144.82 mn for Q1 FY18 ascompared to Rs 120.29 mn in corresponding periodof previous year, up by 20.39% on Y-o-Y basis.

EPS stood at Rs 3.10 for the quarter under review ascompared to Rs 2.57 in the corresponding period ofprevious year.

Net Sales and PAT of the company are expected togrow at a CAGR of 39% and 36% over 2016 to2019E, respectively.

During Q1 FY18, the company has won theprestigious ‘Early Digital Learning Program(EDLP)’ project of the Republic of Mauritius fromEdCIL, a Government of India Mini RatnaEnterprise.

The company has acquired a total of nine newclients during the quarter.

Stock DataSector IT Software ProductsBSE Code 519602Face Value 5.0052wk. High / Low (Rs.) 149.45/79.00Volume (2wk. Avg.) 11000Market Cap (Rs. in mn.) 4425.61

Annual Estimated Results(A*: Actual / E*: Estimated)Years(Rs. In mn) FY17A FY18E FY19ENet Sales 6147.70 7561.67 8922.77EBITDA 867.53 1082.17 1280.45Net Profit 537.54 641.87 766.09EPS 11.40 13.61 16.25P/E 8.23 6.89 5.78

Shareholding Pattern (%)

As on June 2017 As on March 2017

Promoter 62 62

Public 34 34

Others (FIIs& FPIs) 4 4

1 Year Comparative Graph

KELLTON TECH SOLUTIONS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDENDCompany Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)Kellton Tech Solutions Ltd 93.85 4425.61 11.88 7.90 3.51 0.00Trigyn Technologies Ltd 102.00 3053.00 12.37 8.25 0.93 0.00Intense Technologies Ltd 81.80 1809.70 2.91 28.11 2.51 0.00Datamatics Global Services Ltd 107.55 6337.10 15.18 7.08 1.19 15.00


INVESTMENT HIGHLIGHTS

Consistent revenue and profitable growth over the years

Continue to focus on fast growing and cutting edge technologies – mobile application development, content

management systems (CMS), analytics and cloud computing

Acquisition philosophy guided by twin objectives - deepening Kellton’s technical expertise & acquiring customers

Kellton Tech powers 30% of $21 billion eCommerce Market in India

Experienced Management team with 1400+ employees

Served +300 clients ranging from start-ups and early stage enterprises to Fortune 500 companies.

Brand consolidation of all group companies under umbrella brand Kellton Tech.

Credit Rating of A- by ICRA

Executing marquee projects including

World’s largest mobile based eGovernment health Project (msehat) in U.P

World’s first successful deployment of iBeacon powered conference app supporting indoor location, gamification

& real time analytics

India’s first Security and Surveillance project for Kandla Port.

COMPANY PROFILE

Kellton Tech Solutions Limited is a CMMi Level 5 and ISO 9001:2008 certified global IT company with a portfolio

comprising an exhaustive list of IT services in the web, mobile, security, ERP, Cloud Computing and IOT space.

Founded in 1993; the company has accelerated its growth after the new management led by Mr. Niranjan

Chintam and Mr. Krishna Chintam took over the company in the year 2009. The company is committed to

providing end-to-end IT solutions, strategic technology consulting, and offshore product development services. It has

forayed into newer technologies like Big Data, Cloud Computing and Internet of Things.

Kellton Tech is a global leader in digital transformation, propelling businesses into their future by transforming the way

they operate. The company enables the execution of the digital vision, strategy and roadmap, thus driving the digital

journey of enterprises. It infuses unprecedented levels of business agility and synergy into organizations through the

power of disruptive technologies like I-SMAC (Internet of Things (IoT), Social, Mobility, Analytics, Cloud), Artificial

Intelligence, Big Data, Chatbots & Blockchain among others. Its sharp focus on I-SMAC has enabled it to consolidate its

hold in this market.

For two innovative decades, Kellton Tech has put into practice the vision upon which it was founded viz. "to offer infinite

possibilities with technology".


Headquartered in Hyderabad, India, Kellton Tech’s global footprint is strengthened by offices in US and Europe. It

employs over 1,400+ people catering to 300+ clients ranging from startups to Fortune 100 companies, spread across

verticals such as BFSI, travel, e-commerce, manufacturing, logistics, healthcare and others. Kellton Tech powers 30% of

the $21 billion eCommerce market in India through its clients.

Kellton Tech has expanded its business portfolio following an organic and inorganic path by making acquisitions in

United States (US) and India. It has an impeccable track record in integrating and assimilating acquisitions. The

acquisitions are an integral part of company’s strategy which has enabled Kellton Tech to acquire capabilities and become

a trusted digital partner of customers.

Kellton Tech foresaw the rise of digital technologies ahead of the curve and invested significantly in building the requisite

expertise in various technologies well before they appeared on the horizon. Its heightened sensitivity to the emerging

market trends and evolving customer expectations has enabled it to tap into niche markets in vogue while retaining its

strong focus on its key traditional areas.

Kellton Tech could successfully pursue cross-selling opportunities and leverage its enhanced capabilities to full potential

during this period. The enhanced capabilities were derived from organic efforts to strengthen and expand its offerings

portfolio, and through acquired companies. Kellton Tech has achieved the right mix of traditional and IP-based Digital

capabilities, which would help it maintain a high-growth rate hereon organically.

SERVICES:

1. Digital Transformation Solutions/ ISMAC

Digital Commerce

eCommerce Portal Development, mCommerce Application Development, Web and Mobile Applications Maintenance

and Support

Enterprise Mobility

Strategic mobility consulting, User Experience (UI/UX) Design, Mobile Application development, maintenance and

support, mobile device management

Digital Governance

mHealth applications development, security and surveillance applications development, RFID Solutions

IoT, Big Data and Analytics

IoT applications development, location based services (LBS) application development, analytics and reporting

Software R&D Labs

Proof of concept, minimum viable product, application development, maintenance and support


Outsourced Product Development

Application Development, Maintenance and Support

Digital Marketing

Internet Marketing, SEO, SEM/PPC, SMM, Analytics and Reporting

ISMAC

ISMAC – Future is here

(* Courtesy: Kellton’s Investor Presentation)


2. Enterprise Solutions

Business Enterprise Solutions

ERP Implementation, Maintenance and Support

Business Integration

Enterprise Application Integration, Service Oriented Architecture Strategy, Maintenance and Support

Business Process Management

Business Process Analysis and Optimization, Process Design and Integration, Process Management, Activity

Monitoring and Analytics

Business Segments

Digital Transformation Business

In FY17, Digital transformation contributed ~55% of revenue. Digital revenue has grown at a CAGR of 33.14% fromFY14 to FY17 with growth being higher at 50% in FY17. The growth was led by capability edge in digital transformationand acquisitions.

Digitization is disrupting business as never seen before. According to Gartner, 75% of the business will be a digitalbusiness or will be preparing to become digital by 2020. Management is expecting large opportunities with companieslooking for enterprise digital transformation deals, given its expectation of mass adoption in the near future. It hastechnology partners such as Mulesoft, Software AG, Microsoft Azure, SAP, IBM and IBM Watson, Kellton Tech is verywell positioned to grasp this opportunity

Digital Transformation is Disrupting


Industries currently Adopting Digital Disruption

The annual survey conducted by Russell Reynolds Associates studies above 2000 C-level enterprises about the impact,structure, enablers, and barriers of digital transformation across 15 major industries. The graphic above shows thepercentage of executives surveyed who responded that their business would be moderately or massively disrupted bydigital in the next 12-18 months, industry-wise.

Digital disruption is difficult to navigate for traditional enterprises. Embracing a technology shift makes it difficult forenterprises to change their business processes. Kellton Tech provides assistance, guidance and thought leadershipthroughout the client’s digital transformation journey. Its core services include defining initial strategy, providingcustomer research analytics, integrated marketing support, and agile innovation for the enterprise.

Kellton Tech’s experts helps customers define the strategy for how to undertake this digital transformation by providingthe capabilities for organizations to align this transformation with their business strategy, manage risk and compliance andfind efficiencies within their application portfolio to drive cost savings. Its solutions help clients achieve higher customervalue and market differentiation.

Key Clients under Digital Transformation Business


The recent Transformational project executed by Kellton Tech was for India’s Leading Digital payments and walletprovider, India’s largest airline, and a multinational insurance giant, helping them usher a revolution in digital paymentsscenario.

Enterprise Applications Business

In FY17, Enterprise applications accounted for ~26% of revenues. In the Enterprise Application business, Managementexpects a movement from traditional SAP, ERP towards Cloud solutions such as Hybris and S/4 Hana as big opportunitygoing forward

Kellton Tech provides an end-to-end analytics platform using technologies like Big Data, IoT to improve businessperformance and operational efficiency. An in-depth analysis of structured as well as unstructured data is done throughthe following process:

Collect data from multiple sources. Store data in servers using Hadoop MapReduce, Cloudera, HortonWorks etc. Process the collected data to gain insights using technologies like Hive. Utilize trending data visualization technologies like Tableau, Splunk etc. to improve business reporting and

monitoring activities. [ this part appears to be out of place in a report of this nature]

Example of Transforming Retail Industry

Taking the example of the retail industry, big data technologies can be used to reduce license cost and integrate hugevolumes of data, with a minimal impact on client’s reporting structure. Hadoop Map Reduce is used to leverage data fromterradata. Enterprises can transform and aggregate huge volumes of data into relevant customer insights with the help oftechnologies like Hive. Kellton Tech’s solution recommends the integration of MongoDB and Hive to integrate theseinsights and improve the efficiency of client’s reporting and monitoring systems thereby impacting the overall businessgrowth. Solutions provided by Kellton Tech help clients to achieve efficient data migration and quicker aggregation oflarge datasets at an affordable cost.


Kellton Tech’s clients are transcending and extending into customer engagement models driven by employees intoworkforce engagement along with suppliers transcending and extending into business networks which is disrupting the ITindustry.

Kellton Tech builds a connected world. Customized IT solutions, digital transformation strategy, strategic mobilityconsulting, Governance, risk and compliance, etc. using technologies like IBM, Software AG, and efficient tools of digitalcommerce and marketing are few of the services that Kellton Tech excels in.

Key Clients under Enterprise Applications Business Segment

Hybris Omni-Commerce Platform


Kellton Tech provides omni-channel commerce solutions—developed on industry-leading commerce platforms—to helporganizations achieve top-line growth. Kellton Tech works with best-in-class platform partners to deliver comprehensivee-commerce and omni-channel solutions to address the unique needs of clients. Kellton Tech continuously invests inpartner solutions and technologies for faster time to market in its clients’ omni-channel transformation journey.

PRODUCTS:

Kellton Tech has built several IPs that push the envelope of technology further, redefining the way in which business

processes operate. These push enterprises in advanced world to unprecedented levels of digitization, even as they are

primed to function in the heat and dust of developing economies through cutting-edge, cost-efficient innovations.

Following are select IP-based Products from Kellton Tech:

KLGAME: Kellton Tech Location based Gamification, Analytics and rich Messaging Engine

Kellton Tech IoT: A scalable enterprise standard based platform for connected devices, sensors, beacons which coversdata acquisition, device provisioning and management, data processing and analysis, dashboards, alerts.

Kellton Tech Mobility Framework: An end-to-end mobility solution provisioned with data collection, data integration,analytics and enterprise dashboards. It’s a cross-platform framework with online-offline mode and intuitive UI andUX.

Kellton Tech SehatSense: A raspberry-PI based healthcare cloud-enabled device with health sensors for elderly care,mother and child care etc.

Kellton Tech Chatbot Solution Framework: A chatbot middleware solution which can connect to any conversationbackend and any business tools like HRMS, ERP etc. With its high-impact Conversation Design and transformation,it gives the users near human-like conversation quality for business scenarios.

Kellton Tech Media Solution Framework: A highly scalable world-class solution for media industry designed toimprove user digital experience and workforce productivity.

Kellton Tech DevOps Solution Framework: A solution which provides complete application and infrastructure healthdashboard, thorough application performance analysis, bottleneck analysis and detection, early warnings, system onautopilot for capacity, disaster recovery etc.


Business Highlights of Q1 FY18

Won the prestigious ‘Early Digital Learning Program (EDLP)’ project of the Republic of Mauritius from EdCIL, a

Government of India Mini Ratna Enterprise. The project involves Supply, Commissioning, and Maintenance of Tablet

based Learning programs in Mauritius. The order value is estimated to be around Rs 62 crore.

Upgraded to CMMI Level 5 Certified company, thus scaling the pinnacle of global quality and process standards.

Featured in the Forbes Asia’s latest 'Best under a Billion' list of the top 200 publicly traded companies in the Asia-

Pacific region.

New Client Wins during Q1 FY18:

The company has acquired 9 new clients, prominent of them are:

A cutting edge solution utilizing analytics, cloud and SaaS to provide leasing clients with a complete digital lending

experience; gaining real-time insights and actionable intelligence to increase operational efficiency for a leading land

services provider

A Digital Transformation solution, leveraging real-time analytics and technologies like smartwatch to increase sales

efficiency of a leading global biotechnology company

A mobile first health care solution to enhance the quality of healthcare services for a leading online healthcare

platform

A content rich online portal for students, enhancing user experience and catering to all the information needs of a

leading educational institution.

People:

Net addition of 15 in the Current Quarter

Total Headcount ~1415

Historical Acquisitions:

The Company has expanded its reach globally via acquisitions. Kellton Tech is steadily expanding its offerings portfolio

through organic growth and synergistic acquisitions. It has strengthened its foothold in technology and through its

expanded workforce it is capable of offering a diverse range of IT services and solutions.

2017:


Acquired Lenmar Consulting, US-based global IT services & solutions company with strong presence in banking and

financial services (BFSI sector).

2016:

Acquired Bokanyi Group, leading US-based cloud and analytics service provider

2015:

Acquired ProSoft Technology Group Inc., a US-based ERP, EAI Solutions company

2014:

Acquired eVantage Solutions Inc., a US-based IT consulting company. eVantage Technologies is a leading IT

solutions provider and VIVOS is focused in offerings related to IT and life-sciences space.

Acquired Vivos Professional Services LLC, a USA based focusing on life-sciences & healthcare space

2013:

Acquired Supremesoft Global Inc., a US-based IT consulting company

2012:

Acquired SKAN DbyDx Software Pvt. Ltd, a mobility solutions company. SKAN Dbydx was competent in mobility

while supremesoft, a Software Development and IT Services company will substantially strengthen their expertise in

cloud computing and data analytics.

2011:

Acquired Tekriti Software Pvt. Ltd., a software services company focusing on web/open source

Acquired MCS Global, Inc., a US based IT consulting company

Acquisitions Detail (step down subsidiaries of Kellton Tech Inc.)

Date of Acquisition Acquired Entity Region Description

March 2017 Lenmar Consulting USA

Offers IT services & solutions inBFSI space; Has 100 employeesserving 20 clients

January2016 Bokanyi Consulting

USA

(Texas) Provides Enterprise, Analytics &Cloud services; Specializes in SAP


HANA implementation

May 2015 Prosoft Technology Group USA (Illinois) ERP-EAI provider

April 2014 eVantage Technologies US (New Jersey) Implementation of ERP solution

October 2014Vivos Professional Services,LLC USA (Virginia)

Focus on healthcare & Life sciencesindustry

October 2013 Supremesoft Global Inc. US IT consulting company

December 2012 DbyDX software US Mobility solutions company

December 2011 MCS global USA IT consulting company

August 2011 Tekriti Software US Enterprise Software Solutions

Awards / Accolades:

Kellton Tech Solutions has won ‘Best e-Governance Initiative of the Year' award at Digital India Summit organized

by BW Businessworld.

mSehat, a Kellton Tech project which earlier in the year was featured as a case study in a WHO report, won the Skoch

Award for Best Health Initiative in India.

Kellton has ranked 19th and 193rd in the 2016 Deloitte Technology Fast 50 India and Fast 500 Asia-Pacific

respectively.

The company has won the prestigious Digitizing India Award, a Cisco initiative in collaboration with CNBC.

Featured in ‘Best Places to Work’ by ‘The CEO Magazine’

KLGAME was nominated in the finals of HYSEA Annual Summit and Awards 2015

Ranked 21st in Deloitte Technology fast 50 India 2014

Selected among the ’20 Most Promising Travel & Hospitality Solution Providers’ and ‘Top 20 Enterprise Mobility

Companies in India by CIO Review


QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results update (Q1 FY18):

Rs. In Million Jun-17 Jun-16 % Change

Revenue 1747.78 1400.94 24.76%

Net Profit 144.82 120.29 20.39%

EPS 3.07 2.57 19.55%

EBIDTA 254.21 190.92 33.15%

Kellton Tech Solutions Ltd has achieved a consolidated turnover of Rs. 1747.78 million for the quarter ended of 30th June,

2017 as against Rs. 1400.94 million in the quarter ended of 30th June, 2016, an increase of 24.76%. During the quarter, net

profit increased by 20.39% to Rs. 144.82 million from Rs. 120.29 million in the corresponding quarter ending of previous

year. Reported earnings per share of the company stood at Rs. 3.07 in Q1 FY18 as against Rs. 2.57 in the corresponding

quarter of the previous year. Profit before interest, depreciation and tax stood at Rs. 254.21 million as against Rs. 190.92

million in the corresponding period of the previous year, up by 33.15%.

Break up of Expenditure

Break up ofExpenditure

Value in Rs. Million

Jun-17 Jun-16 %Change

Cost of MaterialsConsumed 24.81 4.55 446%

Employee BenefitsExpenses 859.24 731.60 17%

Depreciation &AmortisationExpenses

10.54 8.35 26%

Other Expenses 614.80 477.28 29%


Operating Metrics

Revenue by Industry

Revenue By Industry Q1 FY17 Q4 FY17 Q1 FY18BFSI 6.0% 6.9% 7.1%Education 0.0% 0.0% 0.0%Energy & Utilities 6.6% 6.7% 6.8%Healthcare & Life Sciences 13.6% 13.9% 14.0%Information Services & Technology 31.9% 27.4% 27.1%Manufacturing 7.5% 7.5% 7.7%Media & Entertainment 2.2% 2.5% 2.0%Others, Aviation & NGO 5.2% 6.0% 6.0%Professional Services/ Business Services 14.7% 14.9% 14.4%Retail 12.2% 14.0% 14.2%


Clients

The company has 344 number of clients and the breakup of the same is given hereunder:

USA - 276

Europe - 6

India - 57

Others - 5

Key Management

Name Designation Independent / Non-Independent

Krishna Reddy Chintam (Promoter) Managing Director Executive

Niranjan Reddy Chintam (Promoter) Chairman & Wholetime Director Executive

Rajendra Vithal Naniwadekar Director Independent

Srinivas Potluri Non Executive Director Non-Independent, Non Executive Director

Brij Mohan Venkata Mandala Director Independent

Karanjit Singh CEO & Whole Time Director Executive Director

PVV Srinivasa Rao Additional Director Independent

N Kalpana Reddy Additional Director Independent

The company is managed by handpicked professionals from a cross-section of the industry.

Abhishek Vinod Singh (IIT Kanpur) - Sr. Vice President, Americas & Europe

Brian Bokanyi - VP, Operations

Nitin Verma (IIT Kanpur) - Sr. Vice President, India & APAC

Jim Burton (America Strayer University, Maryland) - VP, Healthcare & Life Sciences

Gerard John - GM, EMEA

Key Risks

Risks include appreciation of the Indian Rupee versus other currencies, breach in the data confidentiality that could lead to

loss of contract or penalties, shortage of skilled manpower that could put upward pressure on the employee expenses and

new innovation or technology introduction by rivals could pose further risk to the business.


Technology Obsolesces: There is a tendency to rush towards latest fads in technology, and by the time a company equips

itself with the necessary specific expertise, the fad may be no longer be in vogue.

Highly Competitive Market that may impact pricing power: The volatility in the technology space and the changing fads

in the industry that requires companies to constantly innovate to remain competitive and thus put pressure on margins.

Technology being highly volatile, there is a need to cater to newly developed markets in quick notice and capitalise on the

opportunities they offer. However, companies risk being caught off-guard if after all the efforts they put in, the market

need has evolved or moved on.


FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2016 -2019E

FY16A FY17A FY18E FY19E

SOURCES OF FUNDSShareholder's Funds

Share Capital 234.13 235.72 235.78 235.78Reserves and Surplus 1023.08 1532.48 2176.12 2937.76

1. Sub Total - Net worth 1257.21 1768.20 2411.90 3173.542. Share application money pending allotment 0.33 0.00 0.00 0.00Non Current Liabilities

Long term Borrowings 321.47 437.81 519.25 581.56Deferred Tax Liabilities 14.27 13.94 13.38 12.71Other Long term Liabilities 78.42 55.46 59.89 63.49Long term Provisions 4.67 12.23 14.67 17.31

3. Sub Total - Non Current Liabilities 418.83 519.44 607.19 675.07Current Liabilities

Short term Borrowings 428.01 538.19 608.15 662.89Trade Payables 176.09 205.18 227.75 250.52Other Current Liabilities 206.49 314.53 361.71 408.73Short Term Provisions 603.52 605.74 623.92 642.63

4. Sub Total - Current Liabilities 1414.11 1663.64 1821.52 1964.77Total Liabilities (1+2+3+4) 3090.48 3951.27 4840.62 5813.38APPLICATION OF FUNDSNon-Current AssetsFixed Assets

Tangible assets 69.40 89.00 108.58 129.21Intangible assets 1115.23 1530.18 1913.73 2336.10Capital Work in Progress 7.21 10.21 11.75 13.16a) Sub Total - Fixed Assets 1191.85 1629.40 2034.06 2478.47b) Long Term Loans and Advances 16.06 24.47 31.08 37.30c) Other non-current assets 0.69 0.41 0.48 0.59

1. Sub Total - Non Current Assets 1208.60 1654.28 2065.63 2516.35Current Assets

Inventories 33.22 23.92 27.75 31.91Trade receivables 1222.93 1467.73 1731.92 2043.66Cash and Bank Balances 78.84 161.31 203.25 247.96Short-terms loans & advances 405.76 564.69 712.10 854.52Other current assets 141.14 79.35 99.98 118.97

2. Sub Total - Current Assets 1881.88 2296.99 2774.99 3297.03Total Assets (1+2) 3090.48 3951.27 4840.62 5813.38


Annual Profit & Loss Statement for the period of 2016 to 2019E

Value(Rs.in.mn) FY16A FY17A FY18E FY19E

Description 9m 12m 12m 12mNet Sales 3589.90 6147.70 7561.67 8922.77

Other Income 6.70 9.75 12.19 13.41

Total Income 3596.60 6157.45 7573.86 8936.18

Expenditure -3092.91 -5289.92 -6491.69 -7655.74

Operating Profit 503.69 867.53 1082.17 1280.45

Interest -87.67 -102.87 -121.38 -138.38

Gross profit 416.03 764.66 960.79 1142.07

Depreciation -25.10 -42.28 -49.04 -55.42

Profit Before Tax 390.93 722.39 911.75 1086.65

Tax -81.20 -184.85 -269.88 -320.56

Net Profit 309.73 537.54 641.87 766.09

Equity capital 234.13 235.72 235.78 235.78

Reserves 435.34 1023.08 1664.95 2431.04

Face value 5.00 5.00 5.00 5.00

EPS 6.61 11.40 13.61 16.25

Quarterly Profit & Loss Statement for the period of 31st Dec, 2016 to 30th Sep, 2017E

Value(Rs.in.mn) 31-Dec-16 31-Mar-17 30-Jun-17 30-Sep-17E

Description 3m 3m 3m 3mNet sales 1582.42 1653.61 1747.78 1870.13

Other income 0.40 4.35 5.28 5.55

Total Income 1582.82 1657.96 1753.07 1875.67

Expenditure -1361.50 -1417.60 -1498.85 -1603.63

Operating profit 221.32 240.36 254.21 272.04

Interest -21.26 -32.07 -31.05 -32.61

Gross profit 200.06 208.29 223.16 239.44

Depreciation -9.66 -16.36 -10.54 -11.49

Profit Before Tax 190.40 191.93 212.62 227.95

Tax -50.74 -48.82 -67.80 -71.80

Net Profit 139.66 143.11 144.82 156.15

Equity capital 235.32 235.72 235.78 235.78

Face value 5.00 5.00 5.00 5.00

EPS 2.97 3.04 3.07 3.31


Ratio Analysis

Particulars FY16A FY17A FY18E FY19E

EPS (Rs.) 6.61 11.40 13.61 16.25

EBITDA Margin (%) 14.03% 14.11% 14.31% 14.35%

PBT Margin (%) 10.89% 11.75% 12.06% 12.18%

PAT Margin (%) 8.63% 8.74% 8.49% 8.59%

P/E Ratio (x) 14.19 8.23 6.89 5.78

ROE (%) 46.26% 42.70% 33.77% 28.73%

ROCE (%) 37.27% 40.71% 37.36% 34.15%

Debt Equity Ratio 1.12 0.78 0.59 0.47

EV/EBITDA (x) 10.06 6.04 4.94 4.23

Book Value (Rs.) 14.30 26.70 40.31 56.55

P/BV 6.56 3.51 2.33 1.66

Charts


VALUATION RATIONALE

Kellton increased its focus on BFSI market, extending digital transformation to banking and financial sector. Kellton Tech

has acquired Lenmar Group to strengthen the capabilities in the BFSI sector. Kellton has won multiple prestigious awards

from industry-leading platforms; enhancing brand value and recognition. Kellton continue to focus on fast growing and

cutting edge technologies – mobile application development, content management systems (CMS), analytics and cloud

computing. Kellton continue to be seen as the go-to digital partner for end-to-end enterprise transformation. Today, the

company is best positioned to drive digital transformation initiatives across the spectrum of industries.

OUTLOOK AND CONCLUSION

At the current market price of Rs. 93.85, the stock P/E ratio is at 6.89 x FY18E and 5.78 x FY19E respectively.

Earning per share (EPS) of the company for the earnings for FY18E and FY19E are seen at Rs. 13.61 and Rs. 16.25

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 39% and 36% over 2016 to 2019E

respectively.

On the basis of EV/EBITDA, the stock trades at 4.94 x for FY18E and 4.23 x for FY19E.

Price to Book Value of the stock is expected to be at 2.33 x and 1.66 x for FY18E and FY19E respectively.

We expect that, Kellton will maintain consistent revenue and profitable growth in future. Hence, we say that, we are

Overweight in this particular scrip for Medium to Long term investment.

The way Kellton Tech. is growing since last 3 years plus the kind of growth they are targeting for next 2 years, it can be a

multibagger.


INDUSTRY OVERVIEW

India is the world's largest sourcing destination for the information technology (IT) industry, accounting for

approximately 67 per cent of the US$ 124-130 billion market. The industry employs about 10 million workforces. More

importantly, the industry has led the economic transformation of the country and altered the perception of India in the

global economy. India's cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the

US, continues to be the mainstay of its Unique Selling Proposition (USP) in the global sourcing market. However, India is

also gaining prominence in terms of intellectual capital with several global IT firms setting up their innovation centres in

India.

The IT industry has also created significant demand in the Indian education sector, especially for engineering and

computer science. The Indian IT and ITeS industry is divided into four major segments – IT services, Business Process

Management (BPM), software products and engineering services, and hardware.

The Indian IT sector is expected to grow at a rate of 12-14 per cent for FY2016-17 in constant currency terms. The sector

is also expected triple its current annual revenue to reach US$ 350 billion by FY 2025.

Total spending on IT by banking and security firms in India is expected to grow 8.6 per cent year-on-year to US$ 7.8

billion by 2017.

India’s internet economy is expected to touch Rs 10 trillion (US$ 146.72 billion) by 2018, accounting for 5 per cent of the

country’s GDP.

The public cloud services market in India is slated to grow 35.9 per cent to reach US$ 1.3 billion according to IT

consultancy, Gartner. Increased penetration of internet (including in rural areas) and rapid emergence of e-commerce are

the main drivers for continued growth of data centre co-location and hosting market in India.

The bright spot, however, is that many businesses are keen to attain enterprise-wide digital convergence, having woken up

to the infinite possibilities that these technologies offer. From the margins the digital story is now mainstream, and the

Indian IT industry is well-placed to harness the global digital opportunities. Meanwhile, the trade sentiment about the

Indian economy seems largely optimistic. The government’s focus on mission Digital India continues to offer hope to

masses and businesses. The IT industry is poised to ride this digital wave to their advantage while improving government

systems’ ability to serve the citizens.

Technology:

Kellton Tech aims to extend its capabilities across the spectrum of digital possibilities. As a pioneer in ISMAC (Internet

of things, Social, Mobile, Analytics, Cloud) armed with acquisitions in ERP arena, Kellton Tech is poised to capitalize on

the cloud ERP space such as SAP HANA among others. Indeed, the added strength in the in-memory and streaming

analytics space opens new windows of opportunity.

Today, Kellton Tech is fully-equipped to enable businesses to make the digital leap, sustain their forward thrust and help

them acclimatize with the new digital landscape. With the emergence of Digital Systems Integration, its traditional


integration and BPM services are being re-engineered and re-invented to integrate ISMAC constituents too. Kellton Tech

is also at the forefront of capitalizing on the shift from traditional SOA and Webservices to APIs and Microservices.

IoT uptake KLGAMETM has been successfully implemented in various events, where Kellton Tech was a partner. The

capability and capacity of the innovation is now beyond apprehension, and its pilot projects reveal the same. Much like

the digital wave, which it was able to profitably ride, thanks to its early focus, KLGAMETM is another arena where

Kellton Tech has prepared the groundwork ahead of the curve and expects to tap the emergent market.

While Kellton Tech takes pride in the fact that it drives 30% of the digital traffic in the Ecommerce market of India,

mSehat gives it a unique satisfaction of harnessing the power of digital technologies to affect tangible change among the

masses. As more projects of this nature are undertaken with the same effectiveness and efficiency, the mission Digital

India will transform the very face of public systems and revolutionize citizen services.

Outlook:

The Government of India’s thrust on mission Digital India will bring many opportunities to IT companies, and Kellton

Tech being a leading enabler of digital transformation stands to gain from these initiatives. Likewise, the global IoT

market is growing at a rapid pace and Kellton Tech, armed with its IoT innovation KLGAMETM, is well-placed to

benefit from this market upsurge. Having harnessed its digital prowess to improve the health outcomes of masses, Kellton

Tech will continue to use its cutting-edge technology for the betterment of masses and earn their goodwill.

Meanwhile, as noted earlier, the surge in nationalism appears to have become a global phenomenon. “Glocalization” may

not be restricted to offerings portfolio alone, and might extend to people practices, given how politically charged the issue

of jobs creation is. However, Kellton Tech is well-positioned in terms of its compliance with local employment

stipulations and is poised to ride trends where necessary, whether these are driven by business needs, financial sops or

political compulsions.


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