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KPIT CUMMINS
KPIT Cummins (KPIT) provides technology solutions partner for global
Manufacturing corporations with special focus on Automotive, Energy & Utilities,
Industrial Equipments, and Semiconductor industries. Highly focused approach
has helped company to pioneer innovative solutions and file 37 patents in the
Automotive and Semiconductor domains. Following the acquisition of Sparta,
KPIT’s revenue from its SAP-related ERP services doubled over the past two
years.
Investment Rationale
KPIT Cummins has been experiencing strong demand environment due to
cyclical up-tick in its manufacturing vertical, positive structural changes in
Automotive clients, emerging economies growth and ramp ups from newly
acquired business (CPG, In2Soft and Sparta).
We expect the robust growth to continue going ahead with strong Automotive
engineering demand, sustained IT spending by manufacturing clients being the
key growth drivers.
KPIT has shown one of the strongest revenue growth performance within the
mid-cap space with revenue growth of 46% (40% organically) due to strong
demand up-tick in major verticals.
KPIT acquired 50% stake in leading Oracle JDE enterprise service provider,
Systime, for ~Rs1.03bn in Q1 FY12 thus strengthening its Oracle offering
providing access to marquee clientele and un-penetrated geographies.
KPIT registered strong deal wins during 2QFY12. Traction from top client has
also improved (36% yoy in 2QFY12). Moreover, it has also won a large deal from
its top client recently. In addition, we expect KPIT’s partnership with PACCAR to
ramp up by 1QFY13 and account for ~5% of employee base of KPIT. These
strong deal wins and PACCAR relationship improve medium term visibility on
revenue growth.
Despite consolidation of lower-margin SYSTIME, we believe that due to
depreciating INR, KPIT will register a strong 250bps improvement in EBITDA
margins by 4QFY12.
Valuations
The stock is currently trading at 13.5x FY11P/E which appears to be cheap. We
assign BUY rating to the stock with a target price of Rs.185 indicating potential
upside of 27% from current levels.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
KPIT CUMMINS
KPIT Cummins (KPIT) provides technology solutions partner for global
Manufacturing corporations with special focus on Automotive, Energy & Utilities,
Industrial Equipments, and Semiconductor industries. Highly focused approach
has helped company to pioneer innovative solutions and file 37 patents in the
Automotive and Semiconductor domains. Following the acquisition of Sparta,
KPIT’s revenue from its SAP-related ERP services doubled over the past two
years.
Investment Rationale
KPIT Cummins has been experiencing strong demand environment due to
cyclical up-tick in its manufacturing vertical, positive structural changes in
Automotive clients, emerging economies growth and ramp ups from newly
acquired business (CPG, In2Soft and Sparta).
We expect the robust growth to continue going ahead with strong Automotive
engineering demand, sustained IT spending by manufacturing clients being the
key growth drivers.
KPIT has shown one of the strongest revenue growth performance within the
mid-cap space with revenue growth of 46% (40% organically) due to strong
demand up-tick in major verticals.
KPIT acquired 50% stake in leading Oracle JDE enterprise service provider,
Systime, for ~Rs1.03bn in Q1 FY12 thus strengthening its Oracle offering
providing access to marquee clientele and un-penetrated geographies.
KPIT registered strong deal wins during 2QFY12. Traction from top client has
also improved (36% yoy in 2QFY12). Moreover, it has also won a large deal from
its top client recently. In addition, we expect KPIT’s partnership with PACCAR to
ramp up by 1QFY13 and account for ~5% of employee base of KPIT. These
strong deal wins and PACCAR relationship improve medium term visibility on
revenue growth.
Despite consolidation of lower-margin SYSTIME, we believe that due to
depreciating INR, KPIT will register a strong 250bps improvement in EBITDA
margins by 4QFY12.
Valuations
The stock is currently trading at 13.5x FY11P/E which appears to be cheap. We
assign BUY rating to the stock with a target price of Rs.185 indicating potential
upside of 27% from current levels.
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