KPIT Cummins Infosystems Ltd - Nirmal Bang

Overall Superior Performance. Company has announced 1:1 bonus.

The company reported good set of numbers and has revised guidance upwards for FY12E. For Q3FY12E, Dollar Revenues moved up 4.3% QoQ, Rupee revenues climbed up 16.6% QoQ and EBIDTA stretched 166 bps QoQ.

Revenues advanced – Volumes grow, Pricing marginally higher

Revenues in $ terms grew 4.3% QoQ, 21.6% YoY at $ 73.4 mn. This was supported by 4% volume growth QoQ and Price improvement of 70-80 bps. In Rupee terms, revenues grew by 16.6% QoQ, 38.4% YoY at Rs.Rs.378.9 crores. The Top Client 'Cummins' contributed 24% of the revenues, while the contribution from the Top 10 clients has gone down by 2.7% QoQ.

EBIDTA margins – not a reflection of top line growth

EBIDTA margins expanded 166 bps QoQ at 15.3%. The onsite revenues expanded (SAP business where margins are comparatively lower) 84 bps QoQ and kept the margins subdued as against the robust top line growth.

SAP business contributed 33.35% to the total revenues, increase by 274 bps QoQ. Company continues to hold a strong order book position in this business.

Profits aided by forex gain

Net Profits rose by 21.7% QoQ at Rs.41.1 crs maintaining the margins at 11%. The company made forex gains of Rs.9.8 crores during the quarter.

Revision in Guidance

The company has upped its guidance for the full year i.e. FY12 from range of $275 mn - $285 mn given previously to $289 mn - $291 mn (excluding revenue from SYSTIME). It implies that the management expects revenue growth in the range of 2.3%-5% (in USD terms) in Q4FY12.

SYSTIME's financials will be consolidated from Q4FY12E and will contribute around $13 mn-$14 mn to the revenue. Company had acquired 50% of Systime for Rs 104 crs and it would acquire the remaining 50% over the next 3 years for which it would have to pay ~Rs 150-200 crs. In the current Qtr, the company has acquired additional 7.5% in SYSTIME.

In addition, the board has approved an investment of upto $25 million in the company's wholly-owned US-based subsidiary, KPIT Infosystems Inc, in the form of loan/equity in a phased manner.

Valuation & Recommendations

We are revising our numbers upwards for FY12E and FY13E factoring good growth the company showed in the current quarter. We have revised Revenues and PAT by 4.0% and 9.2% respectively for FY12E and by 3.4% and 0.1% respectively for FY13E. At CMP, the stock is trading 10.2x and 8.8x FY12E and FY13E expected earnings. We continue to maintain 'Hold' view on the stock with a target price of Rs.190.

Source : Equity Bulls

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