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KPIT Technologies Ltd

Rating: ◄►

Target price: ▲

EPS: ▲

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.
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.

CMP

Target

Rating

Rs.138

Rs.144

REDUCE

2QFY16 Update

27 July, 2015

Promoters

22.3

Bloomberg

KPIT IN

Institutions

35.7

Shares o/s

197mn

Public

42.0

Market Cap

Rs. 27bn

52-wk High-Low

Rs. 233-85

3m Avg. Daily Vol

Rs. 158mn

Index

-

%

1m

3m

12m

KPIT

25

21

-18

Sensex

6

-3

2

CNXIT

-3

1

8

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%

9.9

13.0

11.9

13.2

EPS

30.6%

10.9%

All figures in Rs. mn, except EPS, which is in Rs.

Financial summary

Revenues
(Rs. mn)

EBITDA
(Rs. mn)

EPS (Rs.)

P/E (x)

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

Year

SRIVATHSAN RAMACHANDRAN, CFA  srivathsan@sparkcapital.in  +91 44 4344 0039
AISHWARIYA KPL  aishwariya@sparkcapital.in  +91 44 4344 0040

EV/EBITDA(x) ROE (%)

Page 32

1% 4.986 -14.125 3.132 1.394 3.9% 1.484.1% Total operating expenses 8.7% 47 -6.007.7% Int.6% 17.2 768.2% 7.392 3.8 969.3% 2.429 Sub contracting costs 125 qoq Growth 29.711 1.1% 4.259 4.8% Cost of raw materials 125 yoy Growth 492 Revenues $ Sep-14 -1.134 17.3% 53 4.3% 1.1% Others -0.9 13.1% EBIT 965 759 27.186 9.5% -0.070 1.300 -45.6% 2.7% 352 342 -2.1% 40 291 -86. & finance expense 44 33 34.6% Other income 86 42 105. mn\Period Revenues (US$) Sep-15 852 219 -74.9% 721 57.0 31.5% 1.1% 3.3 62.5 114.4% 11.264 4.588 9.8% 13.420 18.2 3.2% 13.389 41.2% 20.0% Depreciation 167 245 164 2.2% 106 -18.877 38.0 9.8% 2.2% Diluted EPS 3.2% 919 1.144 REDUCE Quarterly financial results Rs.1% 2.9% $ 489 $ yoy Growth -25.097 8.2% 557 73.387 25.228 3.5 6.003 12.574 7.4% 26.5% 5.310 2.2 69.123 $ FY16E 5.244 4.2% 10.3% 7.768 1. - - - - - Expectional items 0 0 0 0 0 256.5 171.583 7.7% 4.744 263.8 3.8 43.7 63.369 2.3% FY15P 31.6 PAT 751 706 6.899 Employee costs $ Jun-15 0.3% 4.138 Rs.846 4.267 4.656 27.4% 444 69.1% 851 731 -14.KPIT Technologies Ltd CMP Target Rating Rs.557.2% 944 -2.1% 3.120 27.5% 260 172 -33.075 10.9% 13.1% 615.2% Minority int.438 EBITDA PBT Tax EBITDA Margin Cash & cash equivalents 118 5.5% Page 33 .

m n.986 19.142 18.1% 2.165 16.694 Cash from financing Other expenses 4.302 5.9 0.0% 4.123 Cash from operating Employee costs 13.536 7. FY14 FY15P FY16E FY17E FY14 FY15P FY16E FY17E 1.3% 11.940 29.558 3.mn) 233 423 500 500 EV/Sales (x) 0.0 8.679 Valuation m etrics Book value Free cash flow 66.2 0.4% EBIT margin 13.Diluted Cash flow s Balance Sheet Share capital Total shareholder's equity Long term borrow ings Other liabilities Total liabilities Total current liabilities Total Assets 6.5% 8.089 3.7% 19.120 1.149 12.4% 18.573 1.8% 10.155 8.030 -1.997 Free cash flow EBITDA 4.4 6.7 17.1% 1.2% 7.2% EBITDA grow th 14.2 190.638 2.8% 9.144 REDUCE Financial sum m ary Rs.389 3.860 Revenue grow th 20.8 199.1 Fully diluted shares (mn) 192.0% ROCE 22.225 7.9 191.7 11.626 4.9 0.908 2.8% PAT margins 9.949 8.5% 27.440 3.331 17.6% 21.2 371 376 374 374 12.183 791 -403 -1.161 2.8 88.899 31.087 EPS(E) / Current market price 0.224 7.366 25.840 -649 Profit & Loss Revenues 26.5 5.677 3.0 13.1 0.142 18.183 3.095 Short term borrow ings 3.8 14.8% 18.285 14.125 3.351 26.7% 13.8% 10.626 15.580 26.907 8.392 3.7 14.0% 10.024 2.711 3.369 2.804 17.1 0.3 Page 34 .5% -4.751 12.1 0.183 EV/EBITDA (x) 6.1% Shares o/s (mn) 187.240 Cash Operating cash flow Depreciation and amortisation EBIT PBT Minority int.306 Key ratios (%) 540 851 731 836 3.) Total current assets 11.351 26.089 27.051 7.224 -935 -1.2 -5.5 6.146 3. Tax PAT EPS .9 11.9% 8.2 19.469 Interest costs 258 260 172 144 Other income -78 352 342 331 3.6 10.2% 8.894 -1.176 7.0 28.833 2.5 Other long term assets Cash 7.797 P/E (x) 10.908 3.092 26.0 1.120 4.5% PAT Grow th EBITDA margin 25.328 2.301 780 311 111 Market cap (Rs.165 16.828 -1.796 14. mn) EV (Rs.138 Rs.420 18.059 Per share data (Rs.0% 5.2 Fixed assets 2.126 791 340 2.961 15.9 190.833 26.3 19.897 13.588 2.7% -22.429 32.KPIT Technologies Ltd CMP Target Rating Financial Summary Rs.5% 18.285 14.643 2.489 2.1 1.2% ROE 21.5 9.4 14.657 0 0 0 0 941 115 970 1.633 12.308 2.3% 16.244 4.1% 15.9 4.3 199.9 13.2 76.9 21.469 Cash from investing Sub contracting costs 4.2% 13.803 5.8 199.7 10.0 64.484 3.7 25.