KPIT CUMMINS
INFOSYSTEMS Ltd.
Technology Co with Focus on R&D
Attractive Valuations
Buy Rating with TP `128
Upside 23%
30th April-2013
1
KPIT Cummins Infosystems Ltd
Relative Performance
Stock Data
No. of shares : 19.28 cr
Market Cap : ` 2004.3cr
52 week high : `142
52 week low : `84
Bloomberg code : KPIT.IN
Reuter’s code : KPIT.BO
Current Price : `104
TTM P/E
: 10.1x
Target Price : `128
Shareholding Pattern(%)
Promoters
FIIs
DII
Others
March - 13
24.31
30.83
11.80
33.06
Performance Table
Month
1 month
6 month
12 month
Stock
7.2%
-16.1%
1.0%
Nifty
4.3%
5.5%
13.2%
Source: Ace Equity
2
QUATERLY UPDATE
Review of Q4’FY13 result
•
Revenue growth in Q4 in-line with our estimates
KPIT has reported consolidated revenues of $105.5mn in Q4FY13 which was a
13% Y-o-Y and 2.0% Q-o-Q growth. In ` terms KPIT clocked revenues of `
5,698.1mn in Q4FY13 which represents a Y-o-Y growth of 18.7% and Q-o-Q
growth of 1.2%. The revenue growth in Q4FY13 was mainly due to the strong
A&E SBU growth of 8.3% QoQ; with IES growing 1.7% QoQ despite softness in
the Cummins account. SAP SBU declined 5.8% QoQ, with SYSTIME revenues
growing 9.3% QoQ. The FY13 consolidated revenues stood at `22,385.8mn up
49.2% YoY. This was mainly led by robust 75.3% YoY growth in IES SBU, SAP
and A&E SBU’s growing by 36.7% and 39.1% respectively.
•
EBITDA margins expand ~200bps on a sequential basis
EBITDA for Q4FY13 stood at `1010mn as compared to `760mn in Q4FY12
which was a Y-o-Y growth of 32.9% and Q-o-Q growth of 14.5%. The EBITDA
margin for Q4FY13 stood at 17.7% as against 15.8% in the same quarter of the
previous year and 15.7% in Q3FY13. The rise in margins on a sequential basis
was due to the change in business mix, with A&E and IES SBU’s garnering
higher share of the total revenues. The utilization levels also showed an
improvement in Q4FY13 on a sequential basis. The EBITDA for FY13 stood at
`3,650mn as compared to ` 2181mn in the corresponding period of the previous
year. The EBITDA margin for FY13 stood at 16.3% up 180bps YoY. For the full
year FY13 A&E SBU & IES SBU recorded EBITDA margins of 24-25% and 173
18% respectively.
QUATERLY UPDATE
Review of Q4’FY13 result
•
FX loss in Q4FY13 as against a profit in Q3FY13
The other income profit/ (loss) for Q4FY13 stood at `(85.77)mn as compared to
`76.72mn in Q3FY13. The forex loss in Q4FY13 was to the extent of `
(149.2)mn v/s ` 56.9mn profit in Q3FY13. The net impact of translation of
foreign currency denominated assets and liabilities predominantly resulted in
the loss on forex in Q4FY13.
•
Net Profit is Flattish on a QoQ basis
The consolidated PAT after minority interest and share in associate
profit/(loss) for Q4FY13 stood at `511.7mn as compared to `437.2mn in the
same quarter of the previous year which was a Y-o-Y growth of 16.9% and
Q-o-Q growth of 1.4%.
The consolidated PAT after minority interest and share in associate profit/
(loss) for FY13 showed a YoY growth of 36.9% to touch `1,989.5mn.
The EPS for Q4FY13 stood at `2.7 as compared to `2.3 recorded in the
corresponding quarter of the previous year.
The EPS for FY13 (post dilution) stood at `10.3 as compared to `7.5 recorded in
FY12.
4
QUATERLY UPDATE
Key Takeaway’s of Q4’FY13 Con Call
•
•
•
•
•
•
•
•
•
•
•
•
•
•
KPIT’s o/s hedged position as at the end of 31.03.13 stood at $69.76mn.
The largest client Cummins is expected to have a soft H1CY13 (Q1FY14E
expected to be flat to marginally lower QoQ); with growth picking up in
H2CY13.
The SAP SBU could see growth momentum coming back in the next 1-2
quarters with better profitability.
The management sees non-linear opportunities in the Automotive segment in
areas of Infotainment, Safety, Powertrain etc.
The trials on 40 vehicles are continuing in REVOLO.
The management intends to take the non-linear revenues to 15% of total
revenues by 2017.
SAP has seen good growth in APAC region and muted in other geographies.
The EBITDA margins are expected to improve in FY14E due to productivity
gains and change in SBU composition.
KPIT will make net additions of 1000 employees in FY14E
KPIT management has planned a wage hike of 8-9% for offshore in FY14E.
The Effective Tax rate is expected to be in the region of 28-28.5% in FY14E.
The capex for FY14E is estimated to be ~$7-8mn.
The Utilities segment is seeing good growth in the North America region.
The S&M expenses in FY14E are expected to be at the same level of FY13.
FINANCIAL SUMMARY
FINANCIAL SUMMARY
Year
Consolidated
FY11
FY12
FY13
FY14E
FY15E
Net Sales
(`` mn)
9,870
15,000
22,386
25,724
29,840
EBITDA
(`` mn)
Rep.PAT
(`` mn)
1,522
2,181
3,650
4,245
5,014
946
1,454
1,990
2,361
2,808
EPS
(`` )
4.9
7.5
10.3
12.2
14.6
ROCE
(%)
16.1%
18.9%
21.8%
22.4%
22.9%
Source: Company and Vantage Securities
5 Year CAGR Financials (In %)
20
18
16
14
12
10
8
6
4
2
0
Source: Company
EBITDA Margins (In %)
30.0%
Revenues
EBITDA
Profit
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
Source: ACE Equity
6
FINANCIAL SUMMARY
FINANCIAL SUMMARY
Revised estimates V/s Old Estimates –FY14E EPS estimates (post
dilution) reduced by 17% to factor in lower top line growth
Particulars
` Mn
Actual
FY13E
Old Estimates New Estimates Introducing
FY14E
FY14E
FY15E
Revenues
22,386
28,409
25,724
29,840
EBITDA
3,650
4,621
4,245
5,014
EBITDA Margin (%)
16.3%
16.3%
16.5%
16.8%
PAT
1,990
2,828
2,361
2,808
EPS*
10.3
14.7
12.2
14.6
* denotes: EPS calculated post dilution of 12.96mn shares
Source: Company and Vantage Securities
Quarterly Estimates V/s Actual No's – Margins and PAT above
our estimates
(`` Mn)
Net Sales
EBITDA
EBITDA Margins (%)
PAT (incl Exceptional Items)
EPS (`)
Q4FY13 A
Q4FY13* E Variance (%)
5698.6
5767.5
-1.2%
1010.7
945.9
6.9%
17.7%
16.4%
130bps
511.7
465.6
9.9%
2.7
2.4
Source: Company and Vantage Securities
7
VALUATION PARAMETERS
VALUATION THESIS
•
We reiterate “BUY” at current levels mainly due to better than
Industry growth estimates and steady improvement in margins
KPIT has shown robust YoY $ top line growth of 13% in Q4FY13 and has also
guided for a $ revenue growth of 14-16% in FY14E. The management has also
stated its PAT guidance at `2309-2388mn (YoY growth of ~16-20%). Though
this is much lower than the high growth trajectory that KPIT has experienced
previously, (PAT growth of 37% YoY in FY13) we believe it is better than
NASSCOM industry estimates. KPIT has made investments over the last 4
quarters in non-linear initiatives (IP led revenues doubled during FY13) and
focus industries which would help increase margins. KPIT intends to move its
transformational deals from onsite to offshore which further aid the margins.
KPIT has also had well rounded client additions in various verticals and
geographies in Q4FY13 which diversifies its risk. We have reduced our EPS
estimates for FY14E to `12.2 from `14.7 earlier and introduced our FY15E
EPS at `14.6. We have factored in much lower growth levels for FY14E in-line
with the management guidance due to concerns emanating from the Cummins
account and continued sluggish growth in Europe. At the CMP of `104 the
stock is trading at 8.5x revised FY14E EPS of `12.2 and ~7.1x FY15E EPS of
`14.6. We have reduced our target price to `128 (earlier `154) on our FY14E
EPS and have not considered REVOLO revenues to flow in FY14; though
maintain our BUY rating on the stock. At our target price the KPIT stock
would command a multiple of 10.5x FY14E EPS and 5.4x FY14E EV/EBITDA.
8
VALUATION PARAMETERS
VALUATION THESIS
120
100
46.3
46.1 44.2
47.0 47.8 51.5
52.7 53.8
54.7
53.8
80
60
53.7
53.9 55.8 53.0
52.2 48.5
47.3 46.2
46.2
40
45.3
20
0
Offshore
Onsite
Source: Company
9
QUATERLY UPDATE
Q4FY13 & Annual P&L
Consolidated Financials
Revenue
Software Development Expenses
Gross Profit
Selling and Marketing Expenses
General and Admin Expenses
Total Expenditure
EBITDA
Depreciation
Interest Expenses
EBD
Other Income
Exceptional Item
PBT
Provision for Tax
PAT
Minority Interest
Share of Associate in Profit/(Loss)
Adjusted Net Profit
EPS
Source: Company
Q4FY12 Q3 FY13 Q4FY13 QoQ Grth (%) YoY Grth (%)
4800.1 5633.0
5698.1
1.2
18.7
(3185.5) (3706.3) (3725.1)
0.5
16.9
1614.6 1926.7
1973.0
2.4
22.2
(304.6) (419.1)
(346.3)
(17.4)
13.7
(549.6) (625.4)
(616.6)
(1.4)
12.2
(4039.8) (4750.8) (4687.9)
(1.3)
16.0
760.3
882.2
1010.2
14.5
32.9
(101.7) (117.7)
(120.6)
2.5
18.6
(39.0)
(41.5)
(42.5)
2.3
8.9
619.6
722.9
847.1
17.2
36.7
(112.9)
76.7
(85.8)
211.8
-24.0
100.5
(94.5)
0.0
(1.3)
607.1
705.2
761.3
8.0
25.4
(149.8) (182.6)
(206.8)
13.2
38.0
457.4
522.6
554.6
6.1
21.3
22.0
18.3
43.4
137.7
0.0
1.8
0.0
0.0
437.2
504.3
511.2
1.4
16.9
2.3
2.6
2.7
FY13
22,385.8
(14,639.8)
7,746.0
(1,538.0)
(2,558.4)
(18,736.3)
3,649.5
(466.1)
(153.9)
3,029.5
(169.7)
(13.1)
2,846.7
(765.6)
2,081.1
86.1
(5.4)
1,989.5
10.3
FY12 YoY Grwth (%)
15,000.1
49.2
(9,934.4)
47.4
5,065.7
52.9
(1,115.0)
37.9
(1,769.7)
44.6
(12,819.2)
46.2
2,180.9
67.3
(444.9)
(4.8)
(78.1)
97.0
1,658.0
82.7
128.0
(232.7)
100.5
1,886.4
50.9
(436.7)
75.3
1,449.7
43.6
31.5
173.8
35.3
1,453.6
36.9
7.5
10
QUARTERLY UPDATE
Operating Metrics
Segment Wise Revenue Mix – Auto, Manufacturing saw flat growth and Energy &
Utilities de-grew in Q4FY13
Segment wise Revenue Mix
Automotive, Transportation &
Manufacturing
Revenues
Q-o-Q / Y-o-Y Growth %
Energy & Utilities
Revenues
Q-o-Q / Y-o-Y Growth %
Others
Revenues
Q-o-Q / Y-o-Y Growth %
Q1 FY13
72.5%
3902
12.8%
13.7%
740
33.4%
13.8%
741.2
-5.8%
Q2 FY13
71.2%
4041
3.6%
15.3%
868
17.4%
13.5%
762.9
2.9%
Q3 FY13
74.3%
4185
3.6%
14.2%
800
-7.8%
11.5%
647.2
-15.2%
Q4 FY13
73.8%
4206
0.5%
13.5%
768
-4.0%
12.7%
723.7
11.8%
Strategic Business Unit Wise Revenue Mix – DFS & SSG divisions part
of strategic business transfer
SBU wise Revenue Mix
Integrated Enterprise Solutions
Revenues
Q-o-Q / Y-o-Y Growth %
Auto & Engineering
Revenues
Q-o-Q / Y-o-Y Growth %
SAP
Revenues
Q-o-Q / Y-o-Y Growth %
Semiconductor Solutions Group
Revenues
Q-o-Q / Y-o-Y Growth %
Source: Company
Q1 FY13
44.4%
2389
17.0%
23.7%
1276
16.0%
31.9%
1717
10.5%
0.0%
0
0.0%
Q2 FY13
45.9%
2605
9.0%
24.4%
1384
8.4%
29.7%
1683
-2.0%
0.0%
0
0.0%
Q3 FY13
48.7%
2743
5.3%
23.4%
1317
-4.8%
27.9%
1574
-6.5%
0.0%
0
0.0%
Q4 FY13
49.0%
2790
1.7%
25.0%
1426
8.3%
26.0%
1483
-5.8%
0.0%
0
#DIV/0!
11
QUARTERLY UPDATE
Operating Metrics
Onsite-Offshore Revenue Contribution Mix
Q4FY13
46.2%
53.8%
Onsite
Offshore
Geography Wise EBIT margins
40
37.2
36.6
35
25.0
24.3
28.0
26.7
20
15
37.2
35.8
30
25
37.0
25.6
24.9
31.9
30.2
27.8
26.6
22.6
21.9
18.0
17.3
15.0
27.5
10
5
0
Q2FY12
Q3FY12
Q4FY12
US
Source: Company
Q1FY13
UK & Europe
Q2FY13
Q3FY13
Q4FY13
ROW
12
QUARTERLY UPDATE
Operating Metrics
Client Contribution to Revenue – H1CY13 sees growth challenges to Cummins
Client contribution to revenue
Top Client - Cummins
Rs in Mn
QoQ growth
YoY growth
Top 5
Rs in Mn
QoQ growth
YoY growth
Top 10
Rs in Mn
QoQ growth
YoY growth
Q1FY13
20.6%
1108
18.4%
70.7%
36.3%
1951
23.1%
44.0%
44.0%
2369
16.9%
38.8%
Q2FY13
19.7%
1117
0.9%
-19.4%
35.2%
1997
2.4%
-19.0%
43.7%
2478
4.6%
-20.6%
Q3FY13
19.1%
1076
-3.7%
18.8%
36.8%
2074
3.9%
46.4%
45.2%
2547
2.8%
43.1%
Q4FY13
16.6%
945
-12.2%
1.0%
35.2%
2006
-3.3%
26.6%
44.0%
2507
-1.6%
23.7%
Geography Wise Revenue Mix
90.0%
80.0%
70.0%
68.9% 68.5%
64.2%
68.1% 70.5%
73.3%
76.2% 76.4% 74.7% 76.3%
60.0%
50.0%
40.0%
30.0%
20.0%
10.0%
20.9% 18.7% 21.0% 20.1% 19.0%
10.2%
12.8%
14.8%11.7%
14.6% 12.1% 13.9%
11.3%
14.4%
9.2%
11.6% 11.4% 12.3%
10.5%
12.3%
0.0%
Q3FY11
Q1FY12
US
Source: Company
Q3FY12
UK & Europe
Q1FY13
Q3FY13
Rest of the World
13
PROFIT & LOSS STATEMENT
Consolidated P&L
FY11
FY12
FY13
FY14E
FY15E
Revenues
Expenditure
9,870
15,000
22,386
25,724
29,840
Software Development Expenses
6,248
9,934
14,640
16,823
19,485
Selling and Marketing Expenses
762
1,115
1,538
1,742
1,991
General and Admin Expenses
1338
1770
2558
2914
3351
8,348
1,522
45
411
12,819
2,181
78
445
18,736
3,650
154
466
21,479
4,245
214
522
24,826
5,014
264
653
1066
1658
3029
3509
4098
36
128
(170)
(150)
(125)
Total Expenditure
Operating Profit
Interest
Depreciation
Profit After Depn. & Int
Other income
PBT
Tax
1,103
155
1,786
437
2,860
766
3,359
907
3,972
1073
PAT
EO
948
0
1,349
100
2,094
(13)
2,452
0
2,900
0
31
86
86
86
35
(5.4)
(5.4)
(5.4)
MI
Share of Asscoiate in Profit
Net Profit
EPS ( ` )
2
0
946
4.9
1,454
7.5
1,990
10.3
2,361
12.2
2,808
14.6
Source: Company
14
BALANCE SHEET STATEMENT
Consolidated Balance Sheet
SOURCES OF FUNDS :
Share Capital
Total Reserves and Surplus
Total Shareholders Funds
Loan Funds
Total Loan Funds
Minority Interest
Deferred Tax Liability (Net)
Other long term Liabilities
FY11
FY12
FY13
FY14E
FY15E
176
356
386
386
386
5,854
6,032
6,768
7,125
9,975
10,362
12,101
12,488
14,629
15,016
931
9
2,139
326
3,213
270
3,213
270
3,213
270
57
8
0
0
0
107
264
1
1
1
Total Liabilities
7,135
9,862
13,846
15,971
18,500
APPLICATION OF FUNDS :
Gross Block
2,941
3,822
4,440
4,990
5,540
1,678
2,155
2,621
3,143
3,795
Net Block
Capital work-in-progress
1,263
316
1,668
185
1,820
185
1,848
185
1,745
185
Goodwill on Consolidation
1,300
3,623
4,423
4,423
4,423
477
2
582
35
2,154
69
2,154
69
2,154
69
27
34
32
32
32
Sundry debtors
2,288
4,233
4,673
6,132
7,521
Cash and Bank balances
Other current assets
2,080
249
1,473
164
1,921
823
2,769
823
4,454
823
Less: Accumulated depreciation and amortisation
Investments
Net Deferred Tax assets
Other assets
Current Assets, Loans & Advances
Loans and Advances
1,085
1,285
1,748
2,009
2,330
Total Current Assets
Less : Current Liabilities and Provisions
5,703
7,154
9,165
11,732
15,129
Current Liabilities
1,701
2,755
3,164
3,649
4,217
Provisions
251
663
838
824
1,020
Net Current Assets
1,952
3,751
3,419
3,735
4,002
5,163
4,472
7,260
5,237
9,891
Total Assets
7,135
9,862
13,846
15,971
18,500
Total Current Liabilities
Source: Company
15
CASH FLOW STATEMENT
Consolidated Cash Flow
PBT
Depreciation and Amortisation
FY11
1,103
411
FY12
1,886
445
FY13E
2,860
466
FY14E
3,359
522
FY15E
3,972
653
(47)
(574)
894
(249)
645
(185)
(870)
1,276
(268)
1,008
170
(570)
2,926
(766)
2,160
150
(1,249)
2,782
(907)
1,875
125
(980)
3,770
(1,073)
2,698
643
(422)
270
1,005
(609)
112
2,160
(618)
(1,572)
1,875
(550)
0
2,698
(550)
0
Investing CF
Repayment of term loan (Net)
Dividends Paid (Incl corporatedividend tax)
Proceeds from issue of share capital
(675)
(131)
(64)
1,234
(2,828)
(219)
(72)
65
(2,254)
1,074
(145)
1,620
(623)
0
(170)
(176)
(623)
0
(202)
(670)
Financing CF
Net Change
Opening Cash
Closing Cash
1,043
1,011
1,001
1,084
(739)
2,080
519
425
1,473
(382)
871
1,898
(390)
1,685
2,769
2,080
1,473
1,898
2,769
4,454
Other operating expenses/income
Change in WC
Operating CF after WC
Direct taxes paid (net of refunds)
Cash flow before exceptional items
Net cash from operating activities after exceptional item
Purchase of Fixed Assets
Sale/ (Purchase) of investments
Source: Company
16
RATIOS
Consolidated Ratios
Growth In %
Net Sales (` )
Net Profit after minority interest
FY11
FY12
FY13E
FY14E
FY15E
34.9
10.3
52.0
53.7
49.2
36.9
14.9
18.7
16.0
19.0
EBITDA
EPS
(5.7)
10.3
43.3
53.7
67.3
36.9
16.3
18.7
18.1
19.0
Valuation
EPS (Rs.)
CEPS (Rs.)
PER (x)
PEG (x)
4.9
15.2
21.2
2.1
7.5
11.2
13.8
0.3
10.3
12.6
10.1
0.3
12.2
14.9
8.5
0.5
14.6
17.9
7.1
0.4
EV /EBITDA (x)
Debt/Equity (x)
12.1
0.2
9.2
0.3
5.3
0.3
4.3
0.3
3.3
0.2
Profitability
ROCE (%)
ROE (%)
EBITDA Margin (%)
EBIDTA Margin (%) (incl Other Income)
16.1
19.1
15.4
15.8
18.9
22.1
14.5
15.4
21.8
22.8
16.3
15.5
22.4
20.7
16.5
15.9
22.9
20.4
16.8
16.4
Net Profit Margin (%)
Tax/PBT (%)
9.6
14.0
9.7
24.5
8.9
26.8
9.2
27.0
9.4
27.0
Turnover
Avg. Collection Period (Days)
Avg. Payment Period (Days)
Net Fixed Assets (x)
84.6
85.3
6.2
103.0
97.3
8.1
76.2
78.0
11.2
87.0
76.0
12.7
92.0
77.0
15.5
1.4
1.5
1.6
1.6
1.6
2,556.5
29.1
2,055.1
11.5
4,075.0
21.1
4,923.1
25.5
6,608.0
34.3
Total Assets (x)
Cash on B/S
Cash per share (Rs)
Source: Company
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Atul Pandit, Research Analyst
+91-20-2566 6080
Atul.pandit@vantageindia.co.in
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