[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 316207 Stock Beta 0.53 180 160 140 120 100 80 60 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) 10.0 8.2 7.2 P/BV (x) 1.9 1.5 1.3 RONW (%) 18.8 18.9 17.7 ROCE (%) 15.8 15.5 15.6 Peer Valuation (FY15P) Persistent Mindtree Avg PE 8.7 8.4 8.5 P/BV (x) 1.1 1.7 1.4 Equity Data Market Cap. (` bln) 20 Face value (`) 2 No of shares o/s (mln) 192 Mar 12 Mar 13 % Promoters 26.44 24.31-8.06 DFI's 16.47 11.79-28.42 FII's 21.22 30.83 45.29 Public 35.87 33.07-7.81 Shweta Malik shweta.malik@msflibg.in (+ 91 22 4915 6428) Shyamal Dhruve Shyamal.dhruve@msflibg.in (+ 91 281 2481313) 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 465-475mln which is more than NASSCOM estimates of 12-14% for industry growth. Net profit guidance for FY14 stands at ` 2309-2388mln 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 465-475mln 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 2017. 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 15000 22386 25272 28607 OPBDIT 2181 3650 4253 4686 Net Profit 1454 1990 2449 2758 EPS 8.2 10.4 12.7 14.3 Networth 7270 10564 12936 15613 Debt 2222 3213 2763 1863 Fixed Assets 1853 2005 2043 2052 Net Current Assets 3449 4352 6515 8258 Institutional Business Group, MSFL @p-sec, 306, Gresham Assurance House, 132, Mint Road, Fort, Mumbai 400 001 India Tel + 91 22 49156400 / 401 www.marwadionline.com *MSFL Research is also available on Bloomberg MSFL <GO>
Exhibit 1: Q4FY13 Performance Highlights KPIT Cummins (` in mln) Q4FY13 Q4FY12 % chg Y-o-Y Q3FY13 % chg Q-o-Q Net sales (USD mln) 105.50 95.38 10.6% 103.46 2.0% Net sales 5699 4800 18.7% 5633 1.2% Expenditure 4688 4040 16.0% 4751-1.3% EBITDA 1011 760 32.9% 882 14.6% EBITDA Margin (%) 17.74 15.84 190bps 15.66 208bps Interest 42 39 8.9% 42 2.3% Depreciation 121 102 18.6% 118 2.5% Other Income * -86-12 587.8% -18 382.9% PBT 762 607 25.5% 705 8.0% Tax 207 150 38.0% 183 13.2% Net Profit 512 437 17.0% 504 1.5% Adj. EPS 2.67 2.28 17.0% 2.63 1.5% 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 16.6 19.1 (11.5) Top 5 35.2 36.8 (2.5) Top 10 44.0 45.2 (0.8) Top 5 (Ex Cummins) 18.6 17.7 7.2 Top 10 (Ex Cummins) 27.4 26.1 7.1 Source: Company, MSFL Research 2
Financial Summary Profit & Loss Net Sales 10065 15000 22386 25272 28607 Total Expenditure 8543 12819 18736 21020 23921 EBITDA 1522 2181 3650 4253 4686 EBITDA Margin (%) 15.1 14.5 16.3 16.8 16.4 Depreciation 411 445 466 528 591 EBIT 1111 1736 3184 3725 4096 Interest 34 78 154 243 183 OPBT 1077 1658 3030 3482 3913 Non-Op Income 26 128-115 142 122 Extraordinary Items 0 100-68 0 0 PBT 1103 1886 2847 3624 4035 Tax 155 437 766 1056 1158 PAT 948 1450 2082 2568 2877 Profit from Associates/Minority -2 4-92 -120-120 Net Profit 946 1454 1990 2449 2758 PAT Margin (%) 9.4 9.7 9.3 10.2 10.1 Adj. EPS 4.9 7.6 10.4 12.7 14.3 Sales Growth % 38 49 49 13 13 EBITDA Growth % -6 43 67 17 10 PAT Growth % 10 54 37 23 13 Balance Sheet Sources of funds Share Capital 176 356 384 384 384 Reserves & Surplus 0 6913 10178 12550 15227 Networth 6032 7270 10564 12936 15613 Total Loans 931 2222 3213 2763 1863 Non-current liabilities and provisions 158 367 143 341 384 Deferred tax liability 57 8 0 0 0 Minority Interest 9 326 270 390 509 TOTAL 7187 10193 14190 16429 18369 Application of funds Net Fixed Assets 1580 1853 2005 2043 2052 Other Non Current assets 2082 4274 5219 5367 5486 Investment 477 582 2568 2663 2758 Current Assets 4947 6619 8010 10480 12573 Current Liabilities 1901 3169 3658 4170 4546 Net Current assets 3047 3449 4352 6310 8027 Deferred tax asset (net) 2 35 45 45 45 Total 7187 10193 14190 16429 18369 3
Cash Flows Internal accruals 1287 1749 2390 2939 3288 (Inc)/Dec in Net Current Assets 989 670 823 330 579 Other adjustments 265 2153-466 0 0 Cash flow from Operations 33-1075 2033 2609 2709 Inc/(Dec) in Debt -2 1291 990-450 -900 Inc/(Dec) in Equity 1212 0 29 0 0 Cash flow from Financing 1210 1291 1019-450 -900 Fixed Asset formation 470 718 618 566 599 Inc/(Dec) in Investment -270 106 1986 95 95 Cash flow from Investment 200 823 2604 661 694 Net Change in Cash 1043-607 448 1498 1114 Ratio Valuation Ratio FY11 FY12 FY13 FY14P FY15P P/E 21.1 13.7 10.0 8.2 7.2 P/BV 3.1 2.5 1.9 1.5 1.3 EV/EBIDTA 1.7 1.3 0.9 0.6 0.5 EV/Sales 11.2 8.7 5.7 3.8 3.0 Dividend Yield (%) 0.3 0.7 0.7 0.7 0.8 EPS 4.9 7.6 10.4 12.7 14.3 DPS 0.3 0.7 0.7 0.7 0.8 Book Value 33.9 40.9 54.9 67.3 81.2 Adj. ROE (%) 15.7 20.0 18.8 18.9 17.7 Adj. ROCE (%) 13.3 13.0 15.8 15.5 15.6 Solvency Ratio (x) Debt/Equity 0.2 0.3 0.3 0.2 0.1 Debt/EBIDTA 0.7 1.0 0.9 0.6 0.0 Turnover Ratio (x) Asset Turnover 6.5 1.3 1.4 1.3 1.3 Fixed Asset Turnover 6.5 8.7 11.6 12.5 14.0 Current Ratio 2.0 1.5 1.9 2.3 2.7 Inventory (days) 34.2 42.7 31.0 31.5 31.4 Debtors (days) 83.0 106.6 76.2 78.8 78.4 4
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, MSFL @p-sec, 306, Gresham Assurance House Registered Office Marwadi Financial Plaza, Nava Mava Main Road, 132, Mint Road, Fort, Mumbai 400 001 Off 150 FT. Ring Road, Rajkot - 360 005 Tel : + 91 22 49156400 / 401 Fax : +91 22 2269 0478 Tel : + 91 281 2481313 / 3011000 5