Buy KPIT Cummins - Dolat Capital

We remain positive on the stock post the earnings call in view of its focused approach on its niche strength (Automotive, Enterprise services) and sustained strong business traction through new deal wins and through successful integration of acquired entities (Stock returned over 65% YTD vs the IT index return of 6%). We maintain our BUY rating with a TP of Rs.160 (valued at 11x FY14E EPS).

- Revenue in H1 has grown by 43% YoY basis on strong organic growth momentum and Systime integration. Growth was been broad based across verticals and geographies, except for SAP SBU. It has also announced further dilution of about 7% stake raising Rs.1.6bn through private placements to PE investors to meet some debt/earn out obligations and to create reserve for possible buy-outs opportunities.

- SAP SBU witnessed minor de growth in revenues QoQ as it is seeing slow movement in platform movement of SAP clients for HR management solutions onto its acquired new platform of Successfactor (SAP has acquired Successfactor in early 2012 and is integrating platforms from both entity to create a global cloud leader and on-premise solutions).

- Systime integration is in sync with the expected lines as it clocked quarterly revenues of USD 17mn and EBITDA Margin of 14%. The company expects sustained growth in the JDE business practice and may end up year with a 20%+ growth for the full year.

- It has retained its annual guidance and would review post Q3 which we believe is quite conservative as it implies a modest 3.5% QoQ growth for rest of the year. The PAT guidance is also quite conservative at Rs.1.7bn (achieved over 50% of its guidance in H1). We believe there is high likelihood of outperformance over this stated guidance by the company.

Source : Equity Bulls

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