KPIT CUMMINS INFOSYSTEMS Ltd.

Transcription

1 KPIT CUMMINS INFOSYSTEMS Ltd. Technology Co with Focus on R&D Attractive Valuations 30 th April-2013 Buy Rating with TP `128 Upside 23% 1

2 KPIT Cummins Infosystems Ltd Stock Data No. of shares : cr Market Cap : ` cr 52 week high : ` week low : `84 Bloomberg code : KPIT.IN Reuter s code : KPIT.BO Current Price : `104 TTM P/E : 10.1x Target Price : `128 Relative Performance Shareholding Pattern(%) March - 13 Promoters FIIs DII Others Performance Table Month Stock Nifty 1 month 7.2% 4.3% 6 month -16.1% 5.5% 12 month 1.0% 13.2% Source: Ace Equity 2

3 Review of Q4 FY13 result QUATERLY UPDATE 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 17-18% respectively. 3

4 Review of Q4 FY13 result QUATERLY UPDATE 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

5 Key Takeaway s of Q4 FY13 Con Call QUATERLY UPDATE KPIT s o/s hedged position as at the end of 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 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 % 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.

6 FINANCIAL SUMMARY FINANCIAL SUMMARY and Vantage Securities Year Net Sales EBITDA Rep.PAT EPS ROCE Consolidated (`mn) (`mn) (`mn) (`) (%) FY11 9,870 1, % FY12 15,000 2,181 1, % FY13 22,386 3,650 1, % FY14E 25,724 4,245 2, % FY15E 29,840 5,014 2, % EBITDA Margins (In %) 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Source: ACE Equity 5 Year CAGR Financials (In %) Revenues EBITDA Profit 6

7 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 Actual Old Estimates New Estimates Introducing ` Mn FY13E 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* * denotes: EPS calculated post dilution of 12.96mn shares and Vantage Securities Quarterly Estimates V/s Actual No's Margins and PAT above our estimates (` Mn) Q4FY13 A Q4FY13* E Variance (%) Net Sales % EBITDA % EBITDA Margins (%) 17.7% 16.4% 130bps PAT (incl Exceptional Items) % EPS (`) and Vantage Securities 7

8 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 ` mn (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

9 VALUATION PARAMETERS VALUATION THESIS Offshore Onsite 9

10 QUATERLY UPDATE Q4FY13 & Annual P&L Consolidated Financials Q4FY12 Q3 FY13 Q4FY13 QoQ Grth (%) YoY Grth (%) FY13 FY12 YoY Grwth (%) Revenue , , Software Development Expenses (3185.5) (3706.3) (3725.1) (14,639.8) (9,934.4) 47.4 Gross Profit , , Selling and Marketing Expenses (304.6) (419.1) (346.3) (17.4) 13.7 (1,538.0) (1,115.0) 37.9 General and Admin Expenses (549.6) (625.4) (616.6) (1.4) 12.2 (2,558.4) (1,769.7) 44.6 Total Expenditure (4039.8) (4750.8) (4687.9) (1.3) 16.0 (18,736.3) (12,819.2) 46.2 EBITDA , , Depreciation (101.7) (117.7) (120.6) (466.1) (444.9) (4.8) Interest Expenses (39.0) (41.5) (42.5) (153.9) (78.1) 97.0 EBD , , Other Income (112.9) 76.7 (85.8) (169.7) (232.7) Exceptional Item (94.5) 0.0 (1.3) (13.1) PBT , , Provision for Tax (149.8) (182.6) (206.8) (765.6) (436.7) 75.3 PAT , , Minority Interest Share of Associate in Profit/(Loss) (5.4) 35.3 Adjusted Net Profit , , EPS

11 Operating Metrics QUARTERLY UPDATE Segment Wise Revenue Mix Auto, Manufacturing saw flat growth and Energy & Utilities de-grew in Q4FY13 Segment wise Revenue Mix Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Automotive, Transportation & Manufacturing 72.5% 71.2% 74.3% 73.8% Revenues Q-o-Q / Y-o-Y Growth % 12.8% 3.6% 3.6% 0.5% Energy & Utilities 13.7% 15.3% 14.2% 13.5% Revenues Q-o-Q / Y-o-Y Growth % 33.4% 17.4% -7.8% -4.0% Others 13.8% 13.5% 11.5% 12.7% Revenues Q-o-Q / Y-o-Y Growth % -5.8% 2.9% -15.2% 11.8% Strategic Business Unit Wise Revenue Mix DFS & SSG divisions part of strategic business transfer SBU wise Revenue Mix Q1 FY13 Q2 FY13 Q3 FY13 Q4 FY13 Integrated Enterprise Solutions 44.4% 45.9% 48.7% 49.0% Revenues Q-o-Q / Y-o-Y Growth % 17.0% 9.0% 5.3% 1.7% Auto & Engineering 23.7% 24.4% 23.4% 25.0% Revenues Q-o-Q / Y-o-Y Growth % 16.0% 8.4% -4.8% 8.3% SAP 31.9% 29.7% 27.9% 26.0% Revenues Q-o-Q / Y-o-Y Growth % 10.5% -2.0% -6.5% -5.8% Semiconductor Solutions Group 0.0% 0.0% 0.0% 0.0% Revenues Q-o-Q / Y-o-Y Growth % 0.0% 0.0% 0.0% #DIV/0! 11

12 Operating Metrics QUARTERLY UPDATE Onsite-Offshore Revenue Contribution Mix Q4FY % 53.8% Onsite Offshore Geography Wise EBIT margins Q2FY12 Q3FY12 Q4FY12 Q1FY13 Q2FY13 Q3FY13 Q4FY13 US UK & Europe ROW 12

13 Operating Metrics QUARTERLY UPDATE Client Contribution to Revenue H1CY13 sees growth challenges to Cummins Client contribution to revenue Q1FY13 Q2FY13 Q3FY13 Q4FY13 Top Client - Cummins 20.6% 19.7% 19.1% 16.6% Rs in Mn QoQ growth 18.4% 0.9% -3.7% -12.2% YoY growth 70.7% -19.4% 18.8% 1.0% Top % 35.2% 36.8% 35.2% Rs in Mn QoQ growth 23.1% 2.4% 3.9% -3.3% YoY growth 44.0% -19.0% 46.4% 26.6% Top % 43.7% 45.2% 44.0% Rs in Mn QoQ growth 16.9% 4.6% 2.8% -1.6% YoY growth 38.8% -20.6% 43.1% 23.7% 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Geography Wise Revenue Mix 68.9% 68.5% 64.2% 68.1% 70.5% 73.3% 76.2% 76.4% 74.7% 76.3% 20.9% 18.7% 21.0% 20.1% 19.0% 14.4% 14.6% 12.1% 13.9% 11.3% 10.2% 12.8% 14.8%11.7% 10.5% 12.3% 9.2% 11.6% 11.4% 12.3% Q3FY11 Q1FY12 Q3FY12 Q1FY13 Q3FY13 US UK & Europe Rest of the World 13

14 PROFIT & LOSS STATEMENT Consolidated P&L FY11 FY12 FY13 FY14E FY15E Revenues 9,870 15,000 22,386 25,724 29,840 Expenditure 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 Total Expenditure 8,348 12,819 18,736 21,479 24,826 Operating Profit 1,522 2,181 3,650 4,245 5,014 Interest Depreciation Profit After Depn. & Int Other income (170) (150) (125) PBT 1,103 1,786 2,860 3,359 3,972 Tax PAT 948 1,349 2,094 2,452 2,900 EO (13) 0 0 MI Share of Asscoiate in Profit 0 35 (5.4) (5.4) (5.4) Net Profit 946 1,454 1,990 2,361 2,808 EPS (`)

15 BALANCE SHEET STATEMENT Consolidated Balance Sheet FY11 FY12 FY13 FY14E FY15E SOURCES OF FUNDS : Share Capital Total Reserves and Surplus 5,854 6,768 9,975 12,101 14,629 Total Shareholders Funds 6,032 7,125 10,362 12,488 15,016 Loan Funds Total Loan Funds 931 2,139 3,213 3,213 3,213 Minority Interest Deferred Tax Liability (Net) Other long term Liabilities 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 Less: Accumulated depreciation and amortisation 1,678 2,155 2,621 3,143 3,795 Net Block 1,263 1,668 1,820 1,848 1,745 Capital work-in-progress Goodwill on Consolidation 1,300 3,623 4,423 4,423 4,423 Investments ,154 2,154 2,154 Net Deferred Tax assets Other assets Current Assets, Loans & Advances Sundry debtors 2,288 4,233 4,673 6,132 7,521 Cash and Bank balances 2,080 1,473 1,921 2,769 4,454 Other current assets Loans and Advances 1,085 1,285 1,748 2,009 2,330 Total Current Assets 5,703 7,154 9,165 11,732 15,129 Less : Current Liabilities and Provisions Current Liabilities 1,701 2,755 3,164 3,649 4,217 Provisions ,020 Total Current Liabilities 1,952 3,419 4,002 4,472 5,237 Net Current Assets 3,751 3,735 5,163 7,260 9,891 Total Assets 7,135 9,862 13,846 15,971 18,500 15

16 CASH FLOW STATEMENT Consolidated Cash Flow FY11 FY12 FY13E FY14E FY15E PBT 1,103 1,886 2,860 3,359 3,972 Depreciation and Amortisation Other operating expenses/income (47) (185) Change in WC (574) (870) (570) (1,249) (980) Operating CF after WC 894 1,276 2,926 2,782 3,770 Direct taxes paid (net of refunds) (249) (268) (766) (907) (1,073) Cash flow before exceptional items 645 1,008 2,160 1,875 2,698 Net cash from operating activities after exceptional item 643 1,005 2,160 1,875 2,698 Purchase of Fixed Assets (422) (609) (618) (550) (550) Sale/ (Purchase) of investments (1,572) 0 0 Investing CF (675) (2,828) (2,254) (623) (623) Repayment of term loan (Net) (131) (219) 1, Dividends Paid (Incl corporatedividend tax) (64) (72) (145) (170) (202) Proceeds from issue of share capital 1, ,620 (176) (670) Financing CF 1,043 1, (382) (390) Net Change 1,011 (739) ,685 Opening Cash 1,001 2,080 1,473 1,898 2,769 Closing Cash 2,080 1,473 1,898 2,769 4,454 16

17 RATIOS Consolidated Ratios FY11 FY12 FY13E FY14E FY15E Growth In % Net Sales (` ) Net Profit after minority interest EBITDA (5.7) EPS Valuation EPS (Rs.) CEPS (Rs.) PER (x) PEG (x) EV/EBITDA (x) Debt/Equity (x) Profitability ROCE (%) ROE (%) EBITDA Margin (%) EBIDTA Margin (%) (incl Other Income) Net Profit Margin (%) Tax/PBT (%) Turnover Avg. Collection Period (Days) Avg. Payment Period (Days) Net Fixed Assets (x) Total Assets (x) Cash on B/S 2, , , , ,608.0 Cash per share (Rs)

18 Important Disclaimer The Research team of Vantage Securities Pvt Ltd on behalf of itself has prepared the information given and opinions expressed in this report. The information contained has been obtained from sources believed to be reliable and in good faith, but which may not be verified independently. While utmost care has been taken in preparing the above report, Vantage Securities Pvt Ltd or its group companies make no guarantee, representation or warranty, whether express or implied and accepts no responsibility or liability as to its accuracy or completeness of the data being provided. All investment information and opinion are subject to change without notice. Also, not all customers may receive the material at the same time. This document is for private circulation and information purposes only. It does not and should not be construed as an offer to buy or sell securities mentioned herein. Vantage Securities Pvt Ltd shall not be liable for any direct or indirect losses arising from the use thereof and the investors are expected to use the information contained herein at their own risk. Vantage Securities Pvt Ltd and its affiliates and / or their officers, directors and employees may own or have positions in any investment mentioned herein or any investment related thereto and from time to time add to or dispose of any such investment. Vantage Securities Pvt Ltd and its affiliates may act as market maker or have assumed an underwriting position in the securities of companies discussed herein (or investments related thereto) and may sell them to or buy them from customers on a principal basis and may also perform or seek to perform investment banking or underwriting services for or relating to those companies. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advisors, as they believe necessary. Income from investments may fluctuate. The price or value of the investments, to which this report relates, either directly or indirectly, may fall or rise against the interest of investors. The value of or income from any investment may be adversely affected by changes in the rates of currency exchange. This document is strictly meant for use by the recipient only. None of the material in this report shall be reproduced, resold or redistributed in any manner whatsoever without the prior explicit written permission from Vantage Securities Pvt Ltd. Atul Pandit, Research Analyst Atul.pandit@vantageindia.co.in 18