KPIT Cummins Infosystems - Decent Q4FY13 & FY13 Performance - Sushil Finance

During Q4FY13, KPIT delivered decent performance and achieved its guidance with USD Revenue (105.5 mn) growth of 2% QoQ. In INR term its Revenues grew 1.2% QoQ to Rs.5,698.6 mn, driven by strong 8.3% QoQ growth in A&E SBU and 1.7% QoQ growth in IES SBU despite ~12% QoQ de-growth in Cummins account. However, Its Revenues from SAP SBU remained muted with decline of 5.8% QoQ.

For FY13, its USD Revenues grew 32.7% to 410.5 mn and achieved its 32%+ growth guidance, driven by strong growth in its IES SBU due to consolidation of USD 69.8 mn Revenue of SYSTIME (the largest JDE solution provider), while its FY13 INR Revenues grew 49.2% to Rs. 22,386.3 mn with strong growth delivered across its IES (75.3%), A&E (39%) & SAP (36.7%) SBUs. However, during H2FY13, growth of its SAP SBU was impacted due to SAP's increased focus on cloud application in HR areas, and top account Cummins' contribution also declined due to its cost cutting & biz restructuring measures. The management expects the growth from Cummins to remain subdued in H1FY14 before stabilizing from H2FY14 onwards, while SAP SBU to grow at decent rate in FY14. However, in view of continued strong traction form its A&E & IES SBUs, the management has provided USD Revenue growth guidance in the range of 14-16% for FY14, which in our view is achievable.

EBITDA Margins expand 210 due to change in business mix & improved utilization

Its EBITDA grew 14.9% QoQ to Rs.1,010.7 mn, while the EBITDA margins expanded 210 bps QoQ to 17.7%. The expansion in margins can be attributed to the change in business mix with increased share of high margin A&E and IES SBUs in Revenues along with QoQ improvement in utilization. However, on account of foreign exchange loss (Rs.149.2 mn) and higher tax provisioning (27.1% of PBT), its RPAT grew by 1.5% QoQ to Rs.511.7 mn.

For FY13, its EBITDA grew 67% to Rs.3,641.4 mn, while EBITDA margins expanded 170 bps QoQ to 16.3%, exceeding its guidance of 50-100 bps margin expansion. During FY13, the EBITDA margins of A&E SBU stood in the range of 24-25%, while the margins of IES SBU were in the range of 17-18%, while the SAP SBU stood at 5%. Going forward, the company expects the margins of A&E and IES SBUs to be maintained at current level, while SAP SBU's margins to get back to 10% level. We expect its overall EBITDA margins to soften in Q1FY14, absorbing the impact of annual wage increment (~8-9% offshore), and stabilize at 16-16.5% during FY14.

Decent Client additions & client mining provide growth visibility

During FY13 KPIT added 14 new customers and the number of its active customers increased to 183 from 169 at the end FY12, while the customers with Revenue run rate of USD 1 mn+ have grown significantly from 59 to 78 driven by client mining. Although the Revenue contribution from its top customer Cummins has come down from 21.5% to 19%, the Revenues contribution from its top 2-10 clients has increased from 22.1% to 24.5%. KPIT is well positioned across its businesses with strong relationship with global players in manufacturing, Automotive and Energy sectors, that enhances its client mining ability and provides growth visibility of its business going forward.

OUTLOOK & VALUATION

During FY10-13, KPIT has delivered strong CAGR of 38.7% in its USD Revenue, while for FY14 the management has provided USD Revenue growth guidance in the range of 14 - 16%, while expects its APAT to be in the range of Rs.2,309 - 2,388 mn (Y-o-Y growth of 16 - 20%), which in our view is achievable given its strong performance in FY13.

In view of FY14E guidance and current business outlook, we have slightly reduced our FY14E Revenue & APAT estimates, while also have introduced FY15E estimates. We expect KPIT to deliver 14.3% CAGR in INR Revenue and 19.5% CAGR in APAT during FY13-15E. At CMP of Rs.107, it is trading at 8.3x & 7.2x its FY13E & FY14E Earnings respectively. Considering its decent growth visibility, the strong positioning across the service line and verticals, we maintain our "BUY" Rating on the stock with a target price of Rs.135.

Source : Equity Bulls

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