KPIT Cummins Infosystems (KPISYS)

Transcription

1 Result Update Rating matrix Rating : Hold Target : 110 Target Period : 12 months Potential Upside : 6% Key Financials ( Crore) FY12 FY13E FY14E FY15E Net Sales EBITDA EBITDAmargin % Net profit EPS ( ) Valuation summary FY12 FY13E FY14E FY15E PE (x) Target PE (x) EV to EBITDA(x) Price to book (x) RONW (%) ROCE (%) Stock data Market cap ( crore) 1905 crore Debt (Mar-13) 362 crore Cash (Mar-13) 399 crore EV 1868 crore 52 week H/L ( ) 142/84 Equity capital 37 crore Face value 2 DII Holding (%) 11.8 FII Holding (%) 30.8 Price movement Feb-11 May-11 Analyst s name Aug-11 Nov-11 Nifty Feb-12 May-12 Abhishek Shindadkar abhishek.shindadkar@icicisecurities.com Aishwariya KPL aishwariya.kpl@icicisecurities.com Aug-12 Nov-12 KPIT Cummins Feb-13 WHAT S CHANGED May 1, 2013 KPIT Cummins Infosystems (KPISYS) 104 PRICE TARGET... Changed from 120 to 110 EPS (FY14E)... Changed from 12.0 to 11.6 EPS (FY15E)... Changed from 13.9 to 13.0 RATING...Unchanged Growth deceleration continues KPIT reported Q4FY13 earnings, which were below our estimates. US$ revenues grew 2% QoQ to $105.5 million and were below our $108.9 million estimate. Growth was predominantly led by auto SBU (up 8.3% QoQ) and IES (up 1.7% QoQ, helped by SYSTIME) while SAP (down 5.8% QoQ) was the laggard. Excluding Systime ($19.9 million), organic revenues grew 0.4% QoQ to $85.6 million vs. $85.3 million in Q3. For FY14E, KPIT guided 14-16% US$ revenue growth ($ million) and PAT of crore. KPIT expects growth to accelerate in the back half of FY14E while Q1 could be soft led by Cummins. Weakness in top 10 clients (down 0.8% QoQ), tepid organic growth ex-systime (up 9.3% QoQ) Q4 was flat QoQ and low visibility in Cummins continue to influence our HOLD rating. EBITDA margins ahead but PAT below EBITDA margins improved 208 bps QoQ to 17.7% (15.7% in Q3 and 16.3% estimate) led by rising contribution of auto engineering and IES share in total revenues. Reported PAT of 51.2 crore was below our 59.4 crore estimate led by rising taxes (27.1% vs. 22.8% in Q3) and other income loss of 8.6 crore ( 0.5 crore estimate). Operating metric highlights Sequentially, Cummins revenues declined 11.5% QoQ and could be under pressure in Q1FY14E. Top 5 and top 10 customers declined 2.5% and 0.8%, respectively. North America and RoW grew 4.2% QoQ and 10.7% QoQ, respectively, whereas Europe declined ~17% QoQ. Across verticals, manufacturing and others grew 6.1% and 12.7% QoQ while E&U and auto declined 3.3% QoQ and 2.7% QoQ, respectively. Onsite and offshore utilisation improved 147 bps and 121 bps to 94.3% and 74.1%, respectively. The active client base increased by 5 to 183 vs. 178 in Q3. Muted organic growth dictates HOLD We are adjusting our estimates to account for 1) improved margin commentary and 2) higher tax rates. We expect revenues, diluted EPS to grow 12%, 9%, respectively, in FY14E with 52 bps EBITDA margin expansion. Further, we expect revenue, diluted EPS to grow 14%, 12% in FY15E, which translates to a CAGR of 24%, 17%, respectively, during FY12-15E. We are modestly lowering our PE multiple to 8.8x vs. 9x to account for the growth deceleration and now value KPIT at 110, i.e. at 8.8x CY14E EPS estimate of 12.7 vs. 9x of 13.9x CY14E earlier. Exhibit 1: Financial Performance ( crore) Q4FY13 Q4FY13E Q3FY13 Q4FY12 QoQ(Ch %) YoY(Ch%) Net Sales EBITDA Margin (%) bps up 190 bps up Depreciation Interest Other Income (8.6) (11.3) (211.8) (24.0) Reported PAT EPS ( ) (3.0) 6.6 ICICI Securities Ltd Retail Equity Research

2 Exhibit 2: North America, RoW lead quarterly growth (4.2% QoQ & 10.7% YoY) while Europe declines 2.6% $ million Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 US Contribution change (%) QoQ growth (%) Europe Contribution change (%) QoQ growth (%) ROW Contribution change (%) QoQ growth (%) Exhibit 3: Manufacturing grows 6.1% while E&U, auto decline 3.3%, 2.7% QoQ, respectively $ million Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Manfacturing Contribution (%) QoQ growth (%) Auto & Transport Contribution (%) QoQ growth (%) E&U Contribution (%) QoQ growth (%) Others Contribution (%) QoQ growth (%) Exhibit 4: Onsite, offshore utilisation improve 147 bps, 121 bps QoQ, respectively Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Development staff Support staff Marketing staff Closing employees Utilisation (%) Onsite Offshore ICICI Securities Ltd Retail Equity Research Page 2

3 [ Exhibit 5: Cummins revenues decline 11.5% QoQ & could be under pressure in Q1FY14E $ million Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Active clients Client added Top customer Contribution (%) QoQ growth (%) Top 5 customers Contribution (%) QoQ growth (%) Top 10 customer Contribution (%) QoQ growth (%) Risks and concern The macro continues to remain challenging while cross currency and rupee could create operating margin headwinds in FY14E. Exhibit 6: One year forward (PE) chart Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13 Price Exhibit 7: Assumptions FY12 FY13 FY14E FY15E Total Employee base Additions , Utilisation (offshore) 72.5% 73.9% 75.1% 76.0% Average $/ ICICI Securities Ltd Retail Equity Research Page 3

4 Financial Summary Profit & Loss Account ( crore) FY12 FY13E FY14E FY15E Total Revenues 1,500 2,239 2,517 2,876 Growth (%) Total Operating Expenditure 1,282 1,874 2,094 2,404 EBITDA Growth (%) Depreciation Other Income 13 (17) 4 5 Interest PBT before Exceptional Items Growth (%) Tax PAT before Exceptional Items Exeptional items (10) PAT before MI Minority Int & Pft. from associates 3.5 (0.5) - - PAT Growth (%) EPS* EPS (Growth %) Cash flow statement FY12 FY13E FY14E FY15E Net profit before Tax Depreciation (inc)/dec in Current Assets (141) (134) (30) (164) (inc)/dec in current Liabilities CF from operations Other Investments 21 (17) 4 5 (Purchase)/Sale of Fixed Assets (60) (65) (75) - CF from investing Activities (283) (216) (202) (126) Inc / (Dec) in Equity Capital Inc / (Dec) in sec.loan Funds (50) Dividend & Divendend tax (7) (19) (27) (32) Interest Paid on Loans (7) (14) (17) (14) CF from Financial Activities (94) (96) Exchange rate differences (2) Opening cash balance Closing cash Balance sheet FY12 FY13E FY14E FY15E Equity Reserves & Surplus 677 1,022 1,230 1,463 Networth 713 1,058 1,266 1,499 Minority Interest Loans Source of funds 1,680 2,439 2,826 3,267 Gross Block Acc.dep Net Block CWIP Investments & godwill Debtors Cash & Cash equivalents** Loans and advances Others 53 Current liabilities Provisions Application of funds 1,680 2,439 2,826 3,267 Ratio Analysis (Year-end March) FY12 FY13E FY14E FY15E Per share data ( ) EPS BV DPS Cash Per Share Operating Ratios (%) EBITDA Margin PAT Margin Debtor days Creditor days Return Ratios (%) RoE RoCE RoIC Valuation Ratios (x) P/E EV / Net Sales Market Cap / Sales Price to Book Value Solvency Ratios Debt / Equity Current Ratio Quick Ratio ICICI Securities Ltd Retail Equity Research Page 4

5 Company Description KPIT Cummins (KPIT) was incorporated in 1990 (IPO in 1999) as KPIT Infosystems and was later merged with Cummins Infotech to form KPIT Cummins Infosystems Ltd. KPIT provides product engineering solutions and IT & consulting solutions and services to customers across manufacturing, automotive, industrial equipment, utilities and semiconductor sectors. The company focuses on select strategic business units (SBUs, integrated enterprise solutions, auto & engineering & SAP). Headquartered in Pune, KPIT has employees, eight development centres (mainly in Pune and Bangalore) and offices in 13 countries including the UK, China, Brazil, France, South Africa, Germany, the US, Japan, Singapore and South Korea. Exhibit 8: Recommendation History Nov-12 Nov-12 Dec-12 Jan-13 Jan-13 Feb-13 Mar-13 Apr-13 Apr-13 Price Target Price [ Exhibit 9: Recent releases Date Event CMP Target Price Rating 7-Jan-13 Initiating coverage HOLD 8-Jan-13 Q3FY13 Preview HOLD 29-Jan-13 Q3FY13 Result Update HOLD 11-Mar-13 Management meet update HOLD 8-Apr-13 Q4FY13 Preview HOLD 30-Apr-13 Q4FY13 Result Update HOLD [ ICICI Securities Ltd Retail Equity Research Page 5

6 ICICIdirect.com Coverage Universe (IT) CMP M Cap EPS ( ) P/E (x) EV/EBITDA (x) RoCE (%) Sector / Company ( ) TP( ) Rating ( Cr) FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E FY13E FY14E FY15E Eclerx (ECLSER) Buy HCL Tech* (HCLTEC) Hold Infotech (INFTC) Hold Infosys (INFTEC) ,450 Hold KPIT Cummins (KPISYS) Hold Mah. Satyam (SATCOM) Hold Mastek (MASTEK) Buy NA NA NA NA NA Mindtree (MINCON) Hold NIIT Ltd. (NIIT) Hold NIIT Technologies (NIITEC) Buy Sasken Com (SASCOM) Hold NA NA NA NA NA Persistent (PSYS) Buy TCS (TCS) ,560 Hold Tech Mahindra (TECMAH) 953 1,150 Buy Wipro (WIPRO) Hold ,*June year end, Mahindra Satyam target price assumes announced merger swap ratio RoE (%) ICICI Securities Ltd Retail Equity Research Page 6

7 RATING RATIONALE ICICIdirect.com endeavours to provide objective opinions and recommendations. ICICIdirect.com assigns ratings to its stocks according to their notional target price vs. current market price and then categorises them as Strong Buy, Buy, Hold and Sell. The performance horizon is two years unless specified and the notional target price is defined as the analysts' valuation for a stock. Strong Buy: >15%/20% for large caps/midcaps, respectively, with high conviction; Buy: > 10%/ 15% for large caps/midcaps, respectively; Hold: Up to +/-10%; Sell: -10% or more; Pankaj Pandey Head Research pankaj.pandey@icicisecurities.com ICICIdirect.com Research Desk, ICICI Securities Limited, 1 st Floor, Akruti Trade Centre, Road No. 7, MIDC, Andheri (East) Mumbai research@icicidirect.com ANALYST CERTIFICATION We /I, Abhishek Shindadkar MBA Aishwariya KPL MBA research analysts, authors and the names subscribed to this report, hereby certify that all of the views expressed in this research report accurately reflect our personal views about any and all of the subject issuer(s) or securities. We also certify that no part of our compensation was, is, or will be directly or indirectly related to the specific recommendation(s) or view(s) in this report. Analysts aren't registered as research analysts by FINRA and might not be an associated person of the ICICI Securities Inc. 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