KPIT Technologies Ltd

Rating:

Target price:

EPS:

How does our one year outlook change?

KPITs 2QFY16 US$ revenues were better than expected led by growth
in SAP SBU & Engineering services. Top client grew 5.4% qoq after
three quarters of decline. 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 Global Auto PES space. However, we would still be cautious
about SAP revival given the strong structural issues in that SBU and
would wait out for at least two quarters of sustainable growth. It is too
early to believe that 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 KPITs 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.
KPITs 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

-3

CNXIT

-3

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 (%)

Find Spark Research on Bloomberg (SPAK <go>),

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Page 1

KPIT Technologies Ltd

CMP

Target

Rating

Quarterly financial statements

Rs.138

Rs.144

REDUCE

Quarterly financial results

Rs. mn\Period
Revenues (US$)

Sep-15

852

219

-74.3%

4,768

1.6%

17,420

18,986

-14.2%

944

-2.7%

4,125

3,711

1,075

10.3%

1,097

8.1%

4,259

4,394

3.2%

20,877

38,300

-45.5%

5,744

263.4%

26,656

27,310

2.5%

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%

1,007.2

768.0

31.1%

615.7

63.6%

2,484.2

3,557.8

43.2%

Minority int.

Expectional items

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%

13.9%

13.2%

10.8%

13.1%

4,264

4,267

4,228

3,438

EBITDA

PBT

Tax

EBITDA Margin
Cash & cash equivalents

118

5.3%

7,574

7.2%

7,583

7.1%

40

291

-86.3%

53

4,846

4,134

17.2%

919

1,070

1,186

9.5%
-0.1%

3,387

25.9%

489

yoy Growth

-25.1%

Total operating expenses

8,123

FY16E

5.1%

Others

-0.3%

FY15P

31,429

Sub contracting costs

125

qoq Growth

29,899

Employee costs

Jun-15

0.8%

Cost of raw materials

125

yoy Growth

492

Revenues

Sep-14

-1.5%

Page 2

KPIT Technologies Ltd

CMP

Target

Rating

Financial Summary

Rs.138

Rs.144

REDUCE

Financial sum m ary

Rs.m n.

FY15

FY16E

FY17E

FY18E

Profit & Loss

Revenues

29,899

31,429

32,123

35,024

Cash from operating

Employee costs

17,420

18,986

19,469

20,988

Cash from investing

Sub contracting costs

4,125

3,711

3,694

4,114

Cash from financing

Other expenses

5,155

8,051

7,997

8,612

Free cash flow

EBITDA

3,244

4,120

4,306

4,903

Key ratios (%)

Depreciation and amortisation

FY15

851

731

836

826

3,389

3,469

4,076

Interest costs

260

172

144

128

PAT Grow th

Other income

352

342

331

472

EBITDA margin

2,484

3,558

3,657

4,421

115

970

1,024

1,238

2,369

2,588

2,633

3,183

11.9

13.0

13.2

15.9

PBT
Minority int.
Tax
PAT
EPS - Diluted
Balance Sheet
Share capital

Revenue grow th

1,828
-1,146

3,840
-649

3,778
-328

-403

-1,224

-935

-965

791

340

2,860

2,978

5.1%

2.2%

9.0%

27.0%

4.5%

13.9%

-4.8%
10.8%

9.2%
13.1%

1.7%
13.4%

20.9%
14.0%

EBIT margin

8.0%

10.8%

10.8%

11.6%

PAT margins

7.9%

8.2%

8.2%

9.1%

ROE

18.4%

18.3%

16.0%

16.8%

ROCE

21.7%

19.8%

18.1%

18.1%

190.9

190.9

191.1

191.1

Valuation m etrics
Shares o/s (mn)

374

374

374

15,331

17,573

20,318

Long term borrow ings

780

311

111

-89

Market cap (Rs. mn)

EV (Rs.mn)

Other liabilities

423

500

500

500

EV/Sales (x)

14,165

16,142

18,183

20,729

Fixed assets

2,328

2,833

2,797

2,770

P/E (x)

Other long term assets

Cash

7,224

7,907

8,087

8,087

EPS(E) / Current market price

3,638

2,803

5,059

7,544

Per share data (Rs.)

Total current assets

13,149

12,626

15,095

17,866

Fully diluted shares (mn)

EV/EBITDA (x)

Book value

Short term borrow ings

3,677

3,440

3,240

3,040

Cash

Total current liabilities

8,536

7,225

7,796

7,994

Operating cash flow

14,165

16,142

18,183

20,729

Total Assets

2,894
-1,120

11.0%

376

Total liabilities

FY18E

-22.5%

EBITDA grow th

12,961

Total shareholder's equity

FY17E

Cash flow s

2,392

EBIT

FY16E

Free cash flow

199.8

199.8

199.7

199.7

26,351

26,351

26,366

26,366

27,092

26,580

26,679

24,023

0.9

0.8

0.8

0.7

8.4

6.5

6.2

4.9

11.6

10.7

10.5

8.7

0.1

0.1

0.1

0.1

64.9

76.7

88.0

101.7

21.2

17.2

28.5

41.0

14.5

9.2

19.2

18.9

4.0

1.7

14.3

14.9

Page 3

KPIT Technologies Ltd

CMP

Target

Rating

Spark Disclaimer

Rs.138

Rs.144

REDUCE

Rs.

Report Date

KPIT 3 Year Price and Rating History

250

Price

Target

24/Jul/15

112

110

Reduce

Reco.

11/Jun/15

104

120

Reduce

200

30/Apr/15

124

125

Reduce

150

23/Mar/15

191

190

Reduce

23/Jan/15

212

200

Reduce

100

24/Nov/14

171

160

Reduce

50

27/Oct/14

168

160

Reduce

07/Oct/14

162

180

Reduce

19/Aug/14

153

155

Reduce

24/Jul/14

155

155

Reduce

01/Jul/14

172

170

Reduce

0
Oct-12

Apr-13

Oct-13

Apr-14
Price

Oct-14
Target

Apr-15

Oct-15

Spark Capital Advisors (India) Private Limited (Spark Capital) and its affiliates are engaged in
investment banking, investment advisory and institutional equities and infrastructure advisory
services. Spark Capital is registered with SEBI as a Stock Broker and Category 1 Merchant Banker.
We hereby declare that our activities were neither suspended nor we have defaulted with any stock
exchange authority with whom we are registered in the last five years. We have not been debarred
from doing business by any Stock Exchange/SEBI or any other authorities, nor has our certificate of
registration been cancelled by SEBI at any point of time.

Absolute Rating Interpretation

BUY

Stock expected to provide positive returns of >15% over a 1-year horizon

ADD

Stock expected to provide positive returns of >5% <15% over a 1-year horizon

REDUCE

Stock expected to provide returns of <5% -10% over a 1-year horizon

SELL

Stock expected to fall >10% over a 1-year horizon

Spark Capital has a subsidiary Spark Investment Advisors (India) Private Limited which is engaged in the services of providing investment advisory services and is registered with SEBI as
Investment Advisor. Spark Capital has also an associate company Spark Infra Advisors (India) Private Limited which is engaged in providing infrastructure advisory services.
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report.

Page 4

KPIT Technologies Ltd

CMP

Target

Rating

Disclaimer (Contd)

Rs.138

Rs.144

REDUCE

This report has been prepared on the basis of information, which is already available in publicly accessible media or developed through an independent analysis by Spark Capital. While we would
endeavour to update the information herein on a reasonable basis, Spark Capital and its affiliates are under no obligation to update the information. Also, there may be regulatory, compliance or
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incorporated a disclosure of interest statement in this document. This should however not be treated as endorsement of views expressed in this report:
Disclosure of Interest Statement

Yes/No

Analyst financial interest in the company

No

Group/directors ownership of the subject company covered

No

Investment banking relationship with the company covered

No

Spark Capitals ownership/any other financial interest in the company covered

No

Associates of Spark Capitals ownership more than 1% in the company covered

No

Any other material conflict of interest at the time of publishing the research report

No

Receipt of compensation by Spark Capital or its Associate Companies from the subject company covered for in the last twelve months:

Managing/co-managing public offering of securities

Investment banking/merchant banking/brokerage services
Products or services other than those above
In connection with research report

No

Whether Research Analyst has served as an officer, director or employee of the subject company covered

No

Whether the Research Analyst or Research Entity has been engaged in market making activity of the Subject Company;

No

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The views expressed in this research report accurately reflect the analysts personal views about any and all of the subject securities or issuers; and no part of the research analysts
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This research report prepared by Spark Capital Advisors (India) Private Limited is distributed in the United States to US Institutional Investors (as defined in Rule 15a-6 under the Securities
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Page 5