KPIT Cummins Infosystems. In-line performance Strong FY14 guidance

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1 [Type text] Result Update - Q4FY13 Buy Reco Maintained CMP ` 104 Target Price ` 144 Upside Potential 38.5% Price Performance 52 wk Hi/Lo 142/84 All time Hi/Lo 142/1 6 mnth Average Vol Stock Beta KPIT Cummins BSE IT Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Valuation FY13 FY14P FY15P P/E (x) P/BV (x) RONW (%) ROCE (%) Peer Valuation (FY15P) Persistent Mindtree Avg PE P/BV (x) Equity Data Market Cap. (` bln) 20 Face value (`) 2 No of shares o/s (mln) 192 Mar 12 Mar 13 % Promoters DFI's FII's Public Shweta Malik shweta.malik@msflibg.in ( ) Shyamal Dhruve Shyamal.dhruve@msflibg.in ( ) May 02, 2013 KPIT Cummins Infosystems In-line performance Strong FY14 guidance MSFL Research KPIT delivered in-line results for Q4FY13. Revenue grew by 2% q-o-q to USD 105.5mln. EBITDA margin improved sharply by 208bps sequentially led by higher growth in Automotive & Engineering segment and SG&A leverage. Net profit was in-line at ` 512mln due to net other income loss from forex loss and higher tax rate. The key positive was revenue guidance of 14-16% growth at USD mln which is more than NASSCOM estimates of 12-14% for industry growth. Net profit guidance for FY14 stands at ` mln indicating 16-20% growth over FY13. EBITDA margin is expected to move by 50bps in FY14. Company plans to add 1000 net employees during FY14 for its growth estimates. The guidance for FY14 stands strong and indicates robust revenue visibility and operational improvements for the company. Despite softness in Cummins account and knowledge transition in SAP, growth momentum remains good. Cummins is expected to recover back in H2CY13 as also growth in SAP. KPIT has strong focus on its key verticals with strong SBU presence. We remain upbeat on the company and KPIT remains our mid-cap preferred pick. In-line revenue: Revenue growth of 2% q-o-q was in-line with expectations. Growth was led by automotive & engineering (A&E) segment which grew at 9.1% q-o-q followed by IES at 2.5% while SAP was soft and declined by 5% q-o-q. SYSTIME under IES delivered strong 9.3% q-o-q growth with revenue of USD 19.9mln. Cummins was very soft as anticipated due to budget cuts and declined by 11.5% q-o-q. Top 5 and top clients excluding Cummins covered up for Cummins softness and grew at 7.2% and 7.1% q-o-q respectively. EBITDA margin in-line: EBITDA margin surprised positively improving by 208bps q-o-q to 17.7% due to higher growth in A&E segment with highest margins due to higher non-linear proportion. Utilization improved to 94.3% and 74.1% for onsite and offshore respectively from 92.8% and 72.9% in Q3. Company added 35 employees during the quarter. For FY13, IES margin stood at 17-18%, A&E margins at 24-25% and SAP SBU margins at 5%. Company aims to improve FY14 margins by 50bps led by SG&A leverage, improvement in employee pyramid and improvement in SAP SBU s margin. FY14 guidance came strong: KPIT gave FY14 revenue guidance at USD mln indicating 14-16% growth, more than NASSCOM estimates of 12-14% which stands strong and provides strong revenue visibility. Profitability is expected to improve by 16-20% over FY13. KPIT has strong pipeline and order book and it aims to reach USD 1bln mark by Valuation: KPIT with its strong key vertical and business focus continues to perform strongly with improvement in cash flow. We maintain our BUY recommendation with higher TP of ` 144 valuing at 10xFY15P earnings of ` 14.4 Summary Financials ` in Mln FY12 FY13 FY14P FY15P Net Sales OPBDIT Net Profit EPS Networth Debt Fixed Assets Net Current Assets Institutional Business Group, 306, Gresham Assurance House, 132, Mint Road, Fort, Mumbai India Tel / *MSFL Research is also available on Bloomberg MSFL <GO>

2 Exhibit 1: Q4FY13 Performance Highlights KPIT Cummins (` in mln) Q4FY13 Q4FY12 % chg Y-o-Y Q3FY13 % chg Q-o-Q Net sales (USD mln) % % Net sales % % Expenditure % % EBITDA % % EBITDA Margin (%) bps bps Interest % % Depreciation % % Other Income * % % PBT % % Tax % % Net Profit % % Adj. EPS % % Source: Company, MSFL Research; * other income include forex gain /(loss) and exceptional item Q4FY13 Result Highlights US and ROW remained the key revenue drivers while Europe was soft. US grew at 4.1% q-o-q and ROW at 10.7% q-o-q. Tthe demand remains robust across US and APAC and will be key revenue drivers going ahead as well. Exhibit 2: Growth Metrics Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 Contract Type Fixed Price 25.8% 26.5% 28.1% 27.3% 29.9% 27.3% Time & Material 74.0% 73.6% 72.0% 72.7% 70.1% 72.7% Revenue by Geography USA 70.5% 73.3% 76.2% 76.4% 74.7% 76.3% Europe 19.0% 14.4% 14.6% 12.1% 13.9% 11.3% ROW 10.5% 12.3% 9.2% 11.6% 11.4% 12.3% Business Units Integrated Enterprise 36.5% 42.6% 44.4% 45.9% 48.7% 49.0% Auto & Engineering 27.5% 22.9% 23.7% 24.4% 23.4% 25.0% SAP 33.4% 32.4% 31.9% 29.7% 27.9% 26.0% Semiconductor 2.6% 2.1% 0.0% 0.0% 0.0% 0.0% Source: Company, MSFL Research Exhibit 3: Client Metrics % share Q4FY13 % share Q3FY13 % Growth Q-o-Q Cummins (11.5) Top (2.5) Top (0.8) Top 5 (Ex Cummins) Top 10 (Ex Cummins) Source: Company, MSFL Research 2

3 Financial Summary Profit & Loss Net Sales Total Expenditure EBITDA EBITDA Margin (%) Depreciation EBIT Interest OPBT Non-Op Income Extraordinary Items PBT Tax PAT Profit from Associates/Minority Net Profit PAT Margin (%) Adj. EPS Sales Growth % EBITDA Growth % PAT Growth % Balance Sheet Sources of funds Share Capital Reserves & Surplus Networth Total Loans Non-current liabilities and provisions Deferred tax liability Minority Interest TOTAL Application of funds Net Fixed Assets Other Non Current assets Investment Current Assets Current Liabilities Net Current assets Deferred tax asset (net) Total

4 Cash Flows Internal accruals (Inc)/Dec in Net Current Assets Other adjustments Cash flow from Operations Inc/(Dec) in Debt Inc/(Dec) in Equity Cash flow from Financing Fixed Asset formation Inc/(Dec) in Investment Cash flow from Investment Net Change in Cash Ratio Valuation Ratio FY11 FY12 FY13 FY14P FY15P P/E P/BV EV/EBIDTA EV/Sales Dividend Yield (%) EPS DPS Book Value Adj. ROE (%) Adj. ROCE (%) Solvency Ratio (x) Debt/Equity Debt/EBIDTA Turnover Ratio (x) Asset Turnover Fixed Asset Turnover Current Ratio Inventory (days) Debtors (days)

5 MSFL Disclaimer: All information/opinion contained/expressed herein above by MSFL has been based upon information available to the public and the sources, we believe, to be reliable, but we do not make any representation or warranty as to its accuracy, completeness or correctness. Neither MSFL nor any of its employees shall be in any way responsible for the contents. Opinions expressed are subject to change without notice. This document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this document. This document is for the information of the addressees only and is not to be taken in substitution for the exercise of judgement by the addressees. All information contained herein above must be construed solely as statements of opinion of MSFL at a particular point of time based on the information as mentioned above and MSFL shall not be liable for any losses incurred by users from any use of this publication or its contents. Analyst declaration We, Shweta Malik & Shyamal Dhruve, hereby certify that the views expressed in this report are purely our views taken in an unbiased manner out of information available to the public and believing it to be reliable. No part of our compensation is or was or in future will be linked to specific view/s or recommendation(s) expressed by us in this research report. All the views expressed herewith are our personal views on all the aspects covered in this report. MSFL Investment Rating The ratings below have been prescribed on a potential returns basis with a timeline of up to 12 months. At times, the same may fall out of the price range due to market price movements and/or volatility in the short term. The same shall be reviewed from time to time by MSFL. The addressee(s) decision to buy or sell a security should be based upon his/her personal investment objectives and should be made only after evaluating the stocks expected performance and associated risks. Key ratings: Rating Expected Return Buy > 15% Accumulate 5 to 15% Hold -5 to 5% Sell < -5% Not Rated - Marwadi Shares & Finance Limited Institutional Business Group, 306, Gresham Assurance House Registered Office Marwadi Financial Plaza, Nava Mava Main Road, 132, Mint Road, Fort, Mumbai Off 150 FT. Ring Road, Rajkot Tel : / 401 Fax : Tel : /