KPIT Cummins - Target Price of Rs. 145 - Dolat Capital

We remain positive on the stock 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. We maintain our BUY rating with a TP of Rs. 145 (valued at 10x FY15E EPS).

- Revenue in FY13 has grown by 49% YY basis on strong organic growth momentum and Systime integration. Growth was been broad based across verticals and geographies, except for SAP SBU wherein traction is slow for last two quarters. EPS has grown up by 27% YY after adjusting for equity dilution of about 7% stake. KPIT raised 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.

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

- Management has guided revenues in the range of USD 465-475mn implying 14-16% growth for FY14 and Profit guidance at 16-20% indicating improvement of margin. It has guided net addition of 1000 employee for the year and salary hike effective the current quarter. We believe there is high likelihood of outperformance over this stated guidance by the company. We have built in 17% revenue growth for FY14E.

- The Company has indicated improved margin outlook for FY14 supported by full year benefit of improved efficiency in IES segment (largely Systime driven) and expected better margins in SAP segment (current margins at 5%) post the thrust in revenues expected as it has built a 25 member SuccessFactors (HCM software) team.

Key risk: Demand slippage in Europe (especially SAP SBU and Cummins) and aggressive inorganic strategy remains the key concern to our revenue/cash flow estimates.

Source : Equity Bulls

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