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Fusion Investment Call Target: 170

Tenure: Medium

KPIT Technologies Limited is a product engineering and IT consulting company providing solutions and services to the Manufacturing, Automotive, Industrial Equipments, Utilities and Semiconductor companies. KPIT Tech witnessed inline set of numbers with healthy visibility of order book: KPIT posted inline numbers with 14.6% sales growth in INR term and 3% in USD term led by all round performance across all geographies, verticals and SBUs during 2nd quarter FY14, sequentially. Stable Margin: During the 2QFY14, despite currency gain margin was stable because of burden on some expenses. On QoQ, EBITDA margin almost flat at 15.4% and PAT at 9.5%. Commenting on margin, management stated that the higher margin growth business coming up apart from revenue growth would improve the margins going ahead. Growth out of US boundary: On a Q-o-Q basis, APAC has been the leading growth market for us with 38.2% followed by Europes growth of 20.2%. During the quarter, USA had a marginal de-growth in USD terms due to quarterly fluctuations in billing. In INR terms, US grew by 9.9%, Europe 20.2% and APAC 38.3%, sequentially. Healthy growth across verticals: KPIT reported teen rate of growth across key verticals Automotive & Transportation, and Manufacturing. Automotive & Transportation (36% contribution on sales) by 16% and Manufacturing (40% contribution on sales) by 15%, while Energy and Utilities reported 10% growth, sequentially. Client Metrics: Amongst the top customer accounts, Cummins has grown by 12.9% on a Q-o-Q basis with revenue share at 16.5% during the quarter. The top 5 and top 10 customers had Q-o-Q growth of 12.9% and 12.2% respectively. Robust pipeline of large deals: During the quarter, company closed 2 larges deals in excess of USD 10 mn 1 in Europe and 1 in the US and has created a robust pipeline of larger deals. We expect this large set of deals would reveal stronger 2HFY14 performance with judicious mix of volume and value growth. During the quarter, company added 500 minds including 20 senior people with domain expertise (SMEs) across the organization globally. Over the next few quarters, we expect, company will introduce multiple initiatives to develop individuals to take on more responsibilities in future. KPIT s Management is confident to report USD Revenue for FY14 to be in the range of USD 465 Mn to USD 475 Mn, and INR PAT for FY14 to be in the range of INR 2,309 Mn to INR 2,388 Mn. They expect better H2FY14E than H1FY14E. KPIT expects to close some more deals in next quarter, which will again drive growth and expects the companys growth to be stronger in the 2H FY14. The company expects better earnings, confident of generating a positive cash flow for FY14E, after considering the balance payments for existing M&A deals. KPIT management clues for better H2FY14E and also expects to close some more deals in the next quarter. We recommend buying with target of Rs 170.

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