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KPIT Technologies Limited (KPIT) Q3FY15 results was below our estimates on all
fronts. Revenue in dollar term was $126 mn (up 1.2% Q/Q) relative to INSPL
expectations of $128 mn led by 2.3% Q/Q increase in volume, partially offset by
1.2% Q/Q decline in pricing. During the quarter, onsite revenue grew by 5.9%
Q/Q (to $68 mn), partially offset by 3.9% Q/Q (to $59 mn) decline in offshore
revenue. Rupee revenue went up 3.0% Q/Q to Rs.7,798 mn (INSPL est: Rs.7,950
mn). EBITDA stood at Rs.1,085 mn (INSPL est. Rs.1,150 mn), up 7.4% Q/Q on back
of higher revenue base. As a result, EBITDA margin expanded 58bps Q/Q (v/s
INSP est. of 56 bps q/q expansion) to 13.9%. The company reported 30.5% Q/Q
increase in interest expenditure to Rs.50.7 mn (v/s Rs 38.8 mn in Q2FY15) on
account of increase in short-term borrowings. Depreciation during the quarter
stood at Rs.218.9 mn (v/s Rs. 244.5 mn in Q2FY15). KPIT reported other income of
Rs.25.1 mn (v/s Rs.42.0 mn in Q2FY15). The forex loss for the quarter stood at
Rs.2.2 mn against forex gain Rs.10.8 mn in Q2FY15. The tax outgo during the
quarter was Rs.187.4 mn leading to the tax rate of 22.3% (v/s 8.4% in Q2FY15).
Net profit went down 7.5% Q/Q to Rs.653.3 mn against Rs.706.4 mn in Q2FY15.
Adjusting other income & forex, net profit went down 3.5% Q/Q to Rs.630 mn (v/
s Rs.654mn in Q2FY15). The management maintain FY15E revenue guidance to
$498 mn (v/s $500 mn) with PAT growth of +7.1% Y/Y (to Rs.2,647 mn) relative to
the earlier PAT growth guidance range of 18-21% Y/Y (to Rs.2,940-3,005 Mn).
Key Result Takeaway
Top Clients de-grew…
During the quarter, Cummins account demonstrated de-growth of 1.1% Q/Q to
$18.4mn (v/s $18.6mn in Q2FY15) and contributed 14.6% to overall revenue level.
Additionally, top-5/top-10 accounts reported $-revenue de-growth of 9.9%/6.8%
Q/Q to $36.1mn/$49.9mn (v/s $40.1mn/$53.5mn in Q2FY15) and contributed
28.57%/39.43% to the overall revenue. Top-9 clients [ex. Cummins] accounted for
24.9% of revenue and de-grew by 9.9% Q/Q to $31.43 mn during the quarter. The
only solace was Non-top10 accounts, which contributed 60.6% to the revenue, and
went up 7.1% Q/Q to $77 mn (v/s $72 mn in Q2FY15). The key reason for above
company average growth in Non-Top10 account was ramp-up in large deal, which
got delayed in the last quarter.
Performance of key - SBU/Verticals/Geography
Except RoW [-12.4% Q/Q |cont 17.2%] remaining key geographies - US/Europe grew
by 2.5%/14.1% Q/Q and contributed 67.3%/15.5% to the overall revenue level.
Manufacturing [+5.1% Q/Q to $41 mn] and Energy [1.4% Q/Q to $27mn] lead the
dollar revenue growth, partially offset by Automotive & Transportation [down 2.0%
Q/Q to $45mn] and others [down 0.1% Q/Q to $12mn] verticals. Auto & Engineering
reported revenue de-growth (1.8% Q/Q), partially offset by growth in SAP (+4.5%
Q/Q) and Integrated Enterprise Solutions (+1.5% Q/Q).
Update on key operating metrics
During the quarter, KPIT net hiring addition was at 388 employees [v/s 327 in
Q2FY15]. Its blended utilization rate went-down to 73.3% (v/s 74.8% in Q2FY15). As
a result, onsite utilization rate expanded to 90.2% (v/s 91.1% in Q2FY15). KPIT added
3 new clients (v/s 2 in Q2FY15) leading to total active customer base of 206 (v/s 203
in Q2FY15). During the quarter, the company signed various deals for JDE
implementation with a manufacturing company in US. In automotive space the
company signed deals in Chassis & Body Electronics, designing seating systems,
and Infotainment.
FY15 guidance Update (v/s Q3FY15 Performance)
On back of large deals ramp-up and robust deal pipeline KPIT is well positioned to
reach FY15 $-revenue guidance of $498-500 mn (11.9-12.0% y/y). Additionally, in
order to take care of future revenue growth, KPIT also made investments in hiring
of senior level industry specialists in newer technologies. The asking rate in Q4FY15
would be 3.6% Q/Q $-revenue growth in order to meet $498mn mark (+11.9% Y/
Y). However, management FY15 PAT guidance to Rs.2,647 mn looks difficult to
achieve due to lower EBITDA base. As a result, we estimate PAT of Rs.2,549 mn in
FY15E. We maintain our $-revenue growth estimate to 11.5%/11.9%/11.8% y/y in
FY15E/FY16E/FY17E with realization (INR/USD) rate of 61.7.
Other key details of Q3FY15 Results
The Cash Balance as at Dec 31, 2014 stood at Rs.3,921 mn as compared to
Rs. 4,363 mn as on Sep 30, 2014.
Capital expenditure for the quarter stood at Rs.168 mn including CWIP.
During the quarter KPIT filed 5 patents in automotive domain.
Earnings Call Details
KPIT will conduct Q3FY15 Earnings conference call at 4 pm (IST) on Wednesday,
22nd Jan., 2015. India, Mumbai (Primary: + : +91 22 3960 0888, Secondary: + : +91
22 6746 5988), Hong Kong, (Toll Free) 800-964-448, Singapore, (Toll Free) 800-101-
2045, UK, (Toll Free) 0-808-101-1573, USA, (Toll Free) 1-866- 746-2133.
Valuation
At CMP of Rs.208, the stock is trading at 16.3x FY15E, 14.3x FY16E, and 12.8x FY17E
EPS estimate. The current quarter performance was below our estimate on all fronts.
Further, below expectation $-revenue growth performance and inconsistent revenue
growth raises concern over future revenue outlook and valuation re-rating. However,
meeting PAT guidance looks difficult considering the lower EBITDA base higher
interest and depreciation expenditure. We downgrade our rating to HOLD from
BUY with reduction in target price to Rs.178 (valuing at 11.0x FY17E P/E) from Rs.190
on the stock.
LINK
http://www.indianivesh.in/Admin/Upload/635579485771070000_KPIT%20Technologies_Q3FY15%20Result%20Update.pdf
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