Result Update: KPIT Technologies Ltd - SELL - TP Rs.121 - Kotak

KPIT Technologies recorded a healthy growth in USD revenue of 4.8% QoQ to USD 134.4mn (includes USD 2mn of license revenue) in 1QFY18. EBITDA margin declined by 100bps QoQ to 9.1% despite strong revenue growth and absence of wage hike (2Q wage hike 225-250bp) which will be effective in 2Q, margins were mainly impacted by rupee appreciation to the tune of 150bps. PAT stood at INR555mn above our estimate of INR 464mn mainly due to higher other income of INR 121mn. IES reported healthy growth of 5.8% sequentially whereas SAP reported marginal decline of 0.4% QoQ. Vertical wise, only E&U had any material growth in 1Q (+32% QoQ), automotive (+3.5% QoQ), whereas manufacturing declined. Management retained its full year guidance of 6-8% revenue growth in CC Terms, it expects to achieve the higher end of the same. Our FY18 and FY19 EPS stand at Rs.11.3 and Rs.13.5, respectively. We continue to believe that it will be a challenge for KPIT to achieve a balance between improving growth and maintaining higher margins. We maintain SELL, due to inconsistent performance and difficulty in striking a balance between margins and revenue. At our TP of 121 (Rs.123, earlier) the stock will quote at 9x FY19 earnings. We will accord KPIT higher valuations only after seeing more stability in margins which have been de growing for few past quarters.

Shares of KPIT Technologies Limited was last trading in BSE at Rs.126.3 as compared to the previous close of Rs. 129.5. The total number of shares traded during the day was 85484 in over 2262 trades.

The stock hit an intraday high of Rs. 131.1 and intraday low of 125.9. The net turnover during the day was Rs. 10914047.

Source : Equity Bulls

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