KPIT Technologies Ltd - All Set To Soar; Result Update Q2FY15 :: Edelweiss, PDF link

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KPIT Technologies Ltd. (KPIT Tech) reported a robust Q2FY15 with revenue of USD125mn, up 8.5% QoQ, which surpassed our and street’s estimate of a 4.5% QoQ growth. EBITDA margin at 13.3% was slightly below estimate mainly due to higher S,G&A spends (up 195bps QoQ). This strong growth was driven by Auto Engineering (24% QoQ growth) while the SAP SBU grew by 8.7%. Resolution of client-related issues and strong order book resulted in the company posting strong organic growth. KPIT Tech sees increase in discretionary spending and improved order pipeline driving growth in FY15 in both, Enterprise IT and Auto Engineering segments.

Revenue traction looking up, margin improvement to follow

KPIT Tech’s Q2FY15 revenue of USD 125mn (up 8.5% QoQ) were ahead of our and street estimates. In local currency terms, the revenue came in at INR 757 cr, up 9.8% QoQ. EBITDA margins increased by 128bps to 13.3% (our estimate was 14%), mainly due to higher S,G&A spends (up 195bps QoQ). While onsite and sub-contracting costs are expected to remain at current levels due to ramp-up of new projects, we believe the company has levers like utilisation and S,G&A rationalisation to improve margin in the near term. At the same time, dip in sub-contracting and offshoring will aid margin enhancement efforts in the short to medium term. PAT for the quarter came in at INR 70 cr, up 39.1% QoQ, driven by lower tax rate.

All engines firing

During Q2FY15, KPIT Tech witnessed good traction in Auto Engineering SBU, which grew by 24% QoQ. Simultaneously, there was a sharp rebound in SAP SBU, which reported a growth of 8.7% QoQ. Enterprise IT SBU growth was 2% QoQ. During Q2FY15, the top client Cummins grew by 1.9% QoQ, while Top 10 clients grew by 3.0%. The management expects SAP SBU’s growth to continue in coming quarters and margins to improve. Enterprise IT and Auto Engineering SBU are expected to drive incremental growth in FY15 and also in FY16.

Growth to be back ended; SAP SBU transformation to aid performance

KPIT Tech has reiterated its positive tone and expects growth to be back-ended and pick up in 2HFY15. High growth in APAC geography and A&E SBU was largely contributed by ramp-up in telematics deal. The management expects IES and Auto Engineering SBUs to drive incremental growth for the full year. We believe that new deal wins and healthy pipeline in Americas will drive sequential revenue growth of 2-4% through FY15. Further, transformation is underway in the SAP SBU with a shift towards greater network services that offer higher per head revenue. This will also help improve margin.

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https://www.edelweiss.in/research/KPIT-Technologies-Ltd--All-Set-To-Soar;-Result-Update-Q2FY15/10005095.html