KPIT Technologies Ltd. Absolute: REDUCE 1QFY18Result: Est ...€¦ · Retain REDUCE on uneven margin profile: While valuations are reasonable (~11x FY18E EPS) and top customer growth

July 21, 2017 Analysts: Abhishek Shindadkar ([email protected] +91 9619137983, +91 22 4332 0634) Page 1 of 12

Before reading this report, you must refer to the disclaimer on the last page.

KPIT Technologies Ltd. Absolute: REDUCE

Relative: BENCHMARK

1QFY18Result: Est. (), PT (), Rating () Regular Coverage 5% ATR in 14months

Margin improvement key to re-rating; retain REDUCE IT Services

© 2017 Equirus All rights reserved

Rating Information

Price (Rs) 130

Target Price (Rs) 135

Target Date 30th Sept'18

Target Set On 20th July '17

Implied yrs of growth (DCF) 15

Fair Value (DCF) 136

Fair Value (DDM) 33

Ind Benchmark BSE IT

Model Portfolio Position NA

Stock Information

Market Cap (Rs Mn) 25,586

Free Float (%) 81.1 %

52 Wk H/L (Rs) 147.3/106.1

Avg Daily Volume (1yr) 925,399

Avg Daily Value (Rs Mn) 121

Equity Cap (Rs Mn) 395

Face Value (Rs) 2

Bloomberg Code KPIT IN

Ownership Recent 3M 12M

Promoters 18.9 % 0.0 % 2.2 %

DII 17.7 % -2.6 % -14.3 %

FII 40.4 % 1.7 % 13.3 %

Public 23.0 % 0.9 % -1.3 %

Price % 1M 3M 12M

Absolute 3.8 % 1.7 % -2.4 %

Vs Industry 2.0 % -2.8 % 2.6 %

Hexaware -4.8 % 18.5 % 11.9 %

Mindtree -6.8 % 9.4 % -15.1 %

Standalone Quarterly EPS forecast

Rs/Share 1Q 2Q 3Q 4Q

EPS (17A) 2.9 3.0 2.5 2.9

EPS (18E) 2.8 2.3 2.9 3.6

KPIT‟s 1QFY18 US$ revenues grew 4.8% qoq to US$ 134.4mn (EE: US$ 130.2mn) led by

P&P SBU (+48.5% qoq) and helped by PES and IES SBU. Growth was emphasized by

US$ 2mn of license sales, which however would be non-recurring in 2Q. Vertical-

wise, automotive & transportation (A&T) and energy performed well while

manufacturing was a laggard. Digital transformation was flattish qoq. Management

now expects to achieve the top-end of its 6-8% FY18e CC growth guidance (led by

engineering, digital & P&P acceleration) driven by encouraging 1Q, which has

moderated the ask rate. However, overcoming uneven margin performance requires

sustaining this growth momentum. We tweak estimates and retain our REDUCE rating

with a TP of Rs 135 at 10x Sep‟18 TTM EPS of 13.5 (Rs 133, 10x Jun‟18 EPS earlier). Automotive & transportation vertical, Europe drive growth: Sequential growth was

led by Europe (+17.7% qoq in US$ terms) and APAC (+16.1% qoq), while the US posted

a marginal decline (-1% qoq). A&T vertical (40.8% of revenues) grew 3.5%/18.6%

qoq/yoy; Energy & utilities 32.1%/22.5% qoq/yoy whereas manufacturing declined

1.2% qoq. SBU-wise, P&P SBU grew 48.5% qoq, IES grew 5.8% qoq but declined 0.3%

yoy, while PES was up 3.8%/17% qoq/yoy; SAP SBU (21.6% contribution) revenues

declined 0.4% qoq. We are modestly raising our FY18 US$ revenue estimate to

US$ 545mn to account for the 1Q beat. EBITDAM commentary remains upbeat: Reported EBITDAM (9.1%) were slightly

below EE (9.7%) as growth was offset by higher employee costs (+0.5% qoq/+8.2%

yoy) and other expenses. Management reiterated that profitability improvement

initiatives could bear fruit in H2. KPIT highlighted that utilization and revenue mix

shift towards high GM generating verticals (engineering, digital) is a key margin

levers. Utilisation improvement would be led by alignment of skills and growth,

aided by mismatch reduction between regions/SBUs. Though achievable, the ask rate

is demanding & leads to cut in FY18e margin assumption to 9.9% vs. 11.1% earlier. Top customer revenues grow for a second consecutive quarter: Top customer

revenues grew 5.5% qoq vs. 2.1% in 4Q. The top 20/40 strategic accounts contributed

51.5%/60.6% of total revenues and grew 13.3%/7.7% qoq. Retain REDUCE on uneven margin profile: While valuations are reasonable (~11x

FY18E EPS) and top customer growth in 1Q was encouraging, risks from volatile margins

and an adverse portfolio mix (towards lower-margin energy and ERP verticals) continue

to influence our REDUCE rating.

Change in Estimates:

Revised Estimates % Change over Old Estimates

FY18E FY19E FY18E FY19E

US$ Sales 545 578 3% 2%

Sales(Rs.) 35,384 38,735 1% 2%

EBITDA 3,515 4,293 -9% -2%

EBIT 2,745 3,485 -8% 1%

PAT 2,201 2,650 -5% -2%

EPS 11.5 14.1 -7% -2%

Consolidated Financials

Rs. Mn YE Mar FY17A FY18E FY19E FY20E

Sales 33,200 35,384 38,735 41,418

EBITDA 3,486 3,515 4,293 4,503

Depreciation 827 771 807 861

Interest Expense 136 124 150 138

Other Income 207 273 198 201

Reported PAT 2,385 2,201 2,650 2,779

Recurring PAT 2,125 2,176 2,650 2,779

Total Equity 15,841 17,596 19,679 21,846

Gross Debt 3,334 3,932 3,632 3,332

Cash 3,902 5,155 5,829 6,483

Rs Per Share FY17A FY18E FY19E FY20E

Earnings 11.3 11.5 14.1 14.8

Book Value 84 93 104 116

Dividends 2.2 2.3 2.5 2.7

FCFF -3.8 9.4 8.8 8.9

P/E (x) 11.5 11.2 9.2 8.8

P/B (x) 1.5 1.4 1.2 1.1

EV/EBITDA (x) 7.3 6.9 5.4 5.0

ROE (%) 14 % 13 % 14 % 13 %

Core ROIC (%) 14 % 12 % 15 % 14 %

EBITDA Margin (%) 11 % 10 % 11 % 11 %

Net Margin (%) 6 % 6 % 7 % 7 %

KPIT Technologies Ltd. Absolute – REDUCE Relative – Benchmark 5% ATR in 14 Months


Exhibit 1: A&T, energy lead; manufacturing drags

Vertical Performance Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18

Automotive & Transportation 8.9% -4.8% 8.7% -2.8% 8.4% 3.5%

Manufacturing -3.2% 3.3% -4.4% 4.8% -3.6% -1.2%

Energy & Utilities -10.5% -13.5% -7.7% -3.0% 3.6% 32.1%

Others 10.9% -4.7% 32.6% -5.3% 19.7% -6.9% Source: Company, Equirus Research

Exhibit 2(a): Top customer revenues grow qoq for two consecutive quarters

(9.1% yoy, a first in 8 quarters)

Avg Revenue/Client Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18

Top Client (Cummins) $ mn 17.3 15.3 16.2 15.5 15.9 16.7

QoQ Growth -0.2% -11.4% 5.4% -3.9% 2.1% 5.5%

Top 5 Clients ($ mn) 6.6 6.7 6.9 6.7 6.8 -

QoQ Growth -0.9% 1.3% 1.8% -2.3% 1.6% -

Top 10 Client ($ mn) 4.9 4.8 4.8 4.4 4.8 -

QoQ Growth 0.3% -1.0% -1.5% -7.5% 9.3% -

Overall ($ mn) 0.6 0.5 0.6 0.5 0.6 0.6

QoQ Growth -0.7% -4.4% 1.7% -1.3% 3.0% 3.8% Source: Company, Equirus Research

Exhibit 2(b): Top client contribution likely stabilising

Contribution Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18

Top Client (Cummins) % 13.9% 12.8% 13.1% 12.6% 12.4% 12.5%

Top 5 Clients % 26.8% 28.1% 27.8% 27.2% 26.5% 51.5%*

Top 10 Clients % 39.3% 40.3% 38.6% 38.9% 37.5% 60.6%**

Non-Top 10 Clients % 60.7% 59.7% 61.5% 61.1% 62.5% 39.4% *top 20 clients’ contribution **top 40 clients’ contribution Source: Company, Equirus Research

Exhibit 3: Onsite-offshore mix flattish; offshore increases 30bps

Source: Company, Equirus Research, SI (Telematics solution not included)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Jun-1

3

Sep-1

3

Dec-1

3

Mar-

14

Jun-1

4

Sep-1

4

Dec-1

4

Mar-

15

Jun-1

5

Sep-1

5

Dec-1

5

Mar-

16

Jun-1

6

Sep-1

6

Dec-1

6

Mar-

17

Jun-1

7

Offshore Onsite



Exhibit 4: Blended utilization improves 40bps qoq

Source: Company, Equirus Research

Exhibit 5: EBITM trends: Down 31bps qoq/138bps yoy

Margin Q2FY16 Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18

EBITM 11.9% 12.3% 13.6% 8.3% 8.6% 7.9% 7.3% 6.9%


Exhibit 6: Europe and RoW witness healthy growth, while the US declines Geographical Segmentation

2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18

USA 67.0% 69.6% 68.9% 67.5% 67.2% 70.1% 67.7% 63.9%

Europe 18.2% 17.5% 18.0% 18.4% 16.2% 14.4% 16.8% 18.8%

RoW 13.6% 14.8% 13.0% 13.1% 16.6% 15.5% 15.6% 17.3%


Key concall takeaways:

Days sales outstanding (DSO) for 1QFY18 increased from 74 to 76 days.

Management expects to maintain profitability in FY18e as headwinds from forex

volatility and wage hikes would be offset by higher utilization and product mix

changes.

Cash generation continues to be high with net cash balance of Rs 1.34bn in Q1FY18.

Cash generation is expected to remain high in FY18 as significant capex has already

been incurred in FY17.

Segments like engineering, digital and P&P are expected to drive revenue growth in

FY18.

Fx impact on margins was 1.5%.

Capex related to phase III SEZ facility is likely over.

Utilisation and change in revenue mix towards high margin engineering/digital

business could improve profitability in 2HFY18.

KPIT has created a separate office for the Chief Digital Officer to improve utilisation

through multi-skilling.

Top 40 customer account mix is as follows: automotive vertical (55%), manufacturing

(30-35%), and energy & utilities (10-15%).

Sub-contracting costs stood at Rs. 1.13bn in 1QFY18 vs. Rs 0.99bn in 4QFY17.

Management expects products & platforms margins to breakeven in FY18e.

77% 77%

76%

74% 74%

74%

75%

73%

69%

70%

73%

73%

74%

71.5%

72.3%

71.1%

71.5%

71.9%

66%

68%

70%

72%

74%

76%

78%

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Q3FY15

Q4FY15

Q1FY16

Q2FY16

Q3FY16

Q4FY16

Q1FY17

Q2FY17

Q3FY17

Q4FY17

Q1FY18

Blended Utilization



Quarterly performance (consolidated)

Rs Mn 1QFY18 1QFY18E 4QFY17 1QFY17 % Change

Comments 1QFY18E 4QFY17 1QFY17

Net Sales 8,704 8,396 8,585 8,032 3.7% 1.4% 8.4%

Net Sales ($ mn) 134.4 130.2 128.3 119.8 3.2% 4.8% 12.2%

Employee Benefit Expenses 5,506 5,481 5,477 5,088 0.5% 0.5% 8.2%

Other Expenses 2,402 2,099 2,237 2,089 14.4% 7.4% 15.0%

Total Expenditures 7,909 7,580 7,714 7,176 4.3% 2.5% 10.2%

EBITDA 795 816 870 856 -3% -9% -7%

Depreciation 190 225 248 188 -15% -23% 1%

EBIT 605 591 623 668 2% -3% -10%

Interest 26 19 0 56 33% 5995% -55%

Other Income 121 41 12 116 191% 865% 4%

PBT 699 613 635 728 14% 10% -4%

Tax 170 147 97 177 15% 74% -4%

Recurring PAT 530 466 537 551 14% -1% -4%

Extraordinaries -26 0 0 0

Reported PAT 555 466 537 551 19% 3% 1%

EPS (Rs) 2.8 2.5 2.9 2.9 14% -1% -4%

EBITDA Margin 9.1% 9.7% 10.1% 10.7% -59 bps -101 bps -153 bps

EBIT Margin 6.9% 7.0% 7.3% 8.3% -10 bps -31 bps -138 bps

PBT Margin 8.0% 7.3% 7.4% 9.1% 73 bps 64 bps -102 bps

PAT Margin 6.4% 5.6% 6.3% 6.9% 83 bps 12 bps -48 bps

Tax Rate 24.3% 24.0% 15.3% 24.3% 28 bps 894 bps -7 bps



Exhibit 8: Growth Metrics

Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Net Sales ($ Mn) 126 122 118 125 123 124 120 123 123 128 134

Growth QoQ (%) 1.2% -3.2% -3.3% 5.3% -1.0% 0.7% -3.5% 3.0% -0.4% 4.4% 4.8%

Net Sales (Rs. Mn) 7,798 7,630 7,593 8,123 8,130 8,410 8,032 8,310 8,307 8,585 8,704

Growth (%) 3.0% -2.2% -0.5% 7.0% 0.1% 3.4% -4.5% 3.5% 0.0% 3.3% 1.4%

USD-INR realized rate 61.7 62.4 64.2 65.2 65.9 67.7 67.1 67.3 67.6 66.9

Onsite - Offshore Split Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Onsite 53.5% 52.4% 55.3% 55.1% 58.8% 57.9% 58.5% 56.2% 57.0% 55.8% 53.1%

Offshore 43.2% 42.6% 43.7% 44.1% 40.9% 41.4% 41.1% 42.7% 42.3% 43.3% 43.6%

SI (Telematics) 3.3% 5.0% 1.0% 0.8% 0.3% 0.7% 0.4% 1.1% 0.7% 0.8% 3.3%

Contract Type Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Fixed Price 62.9% 63.7% 72.9% 72.1% 70.6% 72.9% 71.2% 70.9% 65.6% 63.3% 61.9%

Time & Materials 33.8% 31.3% 26.2% 27.1% 29.1% 26.4% 28.5% 28.0% 33.7% 35.8% 34.8%

Geographical split of revenues (%) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

USA 67.3% 64.5% 69.7% 67.0% 69.6% 68.9% 67.5% 67.2% 70.1% 67.7% 63.9%

Europe 15.5% 16.9% 16.8% 18.2% 17.5% 18.0% 18.4% 16.2% 14.4% 16.8% 18.8%

Rest of the World 17.2% 18.6% 13.6% 14.8% 13.0% 13.1% 14.1% 16.6% 15.5% 15.6% 17.3%

Customer Concentration (%) Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17

Top 5 (%) 28.6% 30.1% 30.7% 29.7% 27.2% 26.8% 28.1% 27.8% 27.2% 26.5% -

Top 10 (%) 39.4% 41.6% 42.1% 41.5% 39.4% 39.3% 40.3% 38.6% 38.9% 37.5% -

Non-top 10 32.0% 28.4% 27.2% 28.8% 33.4% 34.0% 31.6% 33.7% 33.9% 36.0% -



Company Snapshot

How we differ from Consensus

- Equirus Consensus % Diff Comment

EPS FY18E 11.5 12.5 -7 % Consensus numbers before the earnings.

FY19E 14.1 15.1 -7 %

Sales FY18E 35,384 34,628 2 %

FY19E 38,735 37,948 2 %

PAT FY18E 2,176 2,461 -12 %

FY19E 2,650 2,914 -9 %

Our Key Investment arguments:

Though visibility has improved and is reflected in the guidance, execution continues to be demanding.

Topline growth would be led by the automotive and life sciences verticals, Products and platform SBU and Digital.

Replenishing deceleration in average ~28% of the portfolio could be demanding.

Key Assumptions FY17A FY18E FY19E FY20E

Overall US$ Revenue $494.4 $544.9 $578.1 $618.2

USD-INR Rate 67.2 64.9 67.0 67.0

Ending Headcount 12,107 12,361 12,441 13,071

Onsite billing rate (US$/hr) $98.6 $99.4 $100.5 $104.4

Offshore billing rate (US$/hr) $17.7 $18.8 $18.9 $19.4

Employee benefit expenses (% of

revenue) 63.7% 63.8% 63.9% 65.0%

Other expenses (% of revenue) 25.8% 26.3% 25.0% 24.1%

EBITDA (%) 10.5% 9.9% 11.1% 10.9%

EBIT % 8.0% 7.8% 9.0% 8.8%

PAT % 6.4% 6.1% 6.8% 6.7%

Risk to Our View: (1) Recovery in energy vertical spends. (2) Increased wallet share of

top customers. (3) Sustaining top customer growth achieved in 1Q.

Key Triggers

Revival in key verticals, strong account mining, robust performance in

automotive, utilities and life sciences verticals, and rupee depreciation.

Improvement in margins.

Sensitivity to Key Variables % Change % Impact on EPS

Rupee Appreciation 1 % -2%

DCF Valuations & Assumptions

Rf Beta Ke Term. Growth Debt/IC in Term. Yr

6.9 % 1.0 12.9 % 3.0 % 10.0 %

- FY18E FY19E FY20-22E FY23-27E FY28-32E

Sales Growth 7 % 9 % 6 % 5 % 8 %

NOPAT Margin 6 % 7 % 7 % 7 % 7 %

IC Turnover 2.05 2.10 2.08 2.06 2.05

RoIC 12.2 % 14.6 % 14.1 % 13.8 % 13.9 %

Years of strong growth 1 2 5 10 15

Valuation as on date (Rs) 104 120 126 122 122

Valuation as of 30thJun „18 116 135 141 137 136

Based on DCF, assuming 15 years of 8% sales CAGR and 14% average ROIC, we derive

current fair value of Rs. 122 and 30th Jun‟18 fair value of Rs.136.

Company Description:

KPIT is a mid-tier Indian IT firm. Since 2009, it has chosen a strategy of focusing on the

verticals of Manufacturing, Automotive and Energy & Utilities. It is currently the largest

third-party Indian vendor for automotive electronics. It has also tried to build a

leadership position in other niches like J.D. Edwards services for which it has three

advanced specializations - which no other Indian vendor.

Comparable valuation Mkt Cap

Rs. Mn.

Price

Target

Target

Date

EPS P/E BPS P/B RoE Div Yield

Company Reco. CMP FY17A FY18E FY19E FY17A FY18E FY19E FY17A FY18E FY17A FY18E FY19E FY17A FY18E

KPIT Tech REDUCE 130 25,586 135 30th Sept'18 11.3 11.5 14.1 11.5 11.2 9.2 84.3 1.4 14 % 13 % 14 % 1.7 % 1.8 %

Hexaware Technologies Ltd.

ADD 245 72,538 228 30th Jun'18 13.8 14.8 15.9 17.7 16.5 15.4 56.7 3.8 27 % 24 % 23 % 2.2 % 1.6 %

Mindtree NR 484 81,405 NR NR 24.8 29.1 34.5 19.5 16.6 14.0 161.5 4.9 16 % 29 % 28 % 2.1 % 0.9 %



Quarterly Earnings Forecast and Key Drivers Rs in Mn 1Q17A 2Q17A 3Q16A 4Q17A 1Q18A 2Q18E 3Q18E 4Q18E 1Q19E 2Q19E 3Q17E 4Q19E FY17A FY18E FY19E FY20E

Revenue 8,032 8,310 8,307 8,585 8,704 8,905 8,858 8,918 9,422 9,704 9,736 9,873 33,200 35,384 38,735 41,418

Employee Benefit Expenses 5,088 5,239 5,358 5,477 5,506 5,736 5,690 5,641 5,989 6,153 6,252 6,347 21,161 22,574 24,740 26,925

Other Expenses 2,089 2,157 2,103 2,237 2,402 2,449 2,259 2,185 2,355 2,494 2,434 2,419 8,553 9,295 9,702 9,990

- - - - - - - - - - - - - - - - -

EBITDA 856 914 846 870 795 720 909 1,092 1,077 1,057 1,050 1,108 3,486 3,515 4,293 4,503

Depreciation 188 200 191 248 190 192 193 195 196 200 205 207 827 771 807 861

EBIT 668 714 654 623 605 528 716 897 882 857 846 901 2,660 2,745 3,485 3,642

Interest 56 14 66 0 26 20 39 39 39 38 37 36 136 124 150 138

Other Income 116 49 29 12 121 63 43 46 47 49 50 52 207 273 198 201

PBT 728 750 618 635 699 572 720 903 890 868 858 917 2,730 2,894 3,533 3,705

Tax 177 188 143 97 170 143 180 226 222 217 215 229 606 718 883 926

PAT bef. MI & Assoc. 551 562 475 537 530 429 540 677 667 651 644 688 2,125 2,176 2,650 2,779

Minority Interest 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Profit from Assoc. 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

Recurring PAT 551 562 475 537 530 429 540 677 667 651 644 688 2,125 2,176 2,650 2,779

Extraordinaries 0 0 -261 0 -26 0 0 0 0 0 0 0 -261 -26 0 0

Reported PAT 551 562 736 537 555 429 540 677 667 651 644 688 2,385 2,201 2,650 2,779

EPS (Rs) 2.93 2.99 2.53 2.86 2.82 2.28 2.87 3.61 3.55 3.47 3.43 3.66 11.30 11.55 14.07 14.75

Key Drivers

Revenue ($ mn) 119.8 123.4 122.9 128.3 134.4 137.0 136.3 137.2 140.6 144.8 145.3 147.4 494.4 544.9 578.1 618.2

USD INR 67.1 67.3 67.6 66.9 64.8 65.0 65.0 65.0 67.0 67.0 67.0 67.0 67.2 64.9 67.0 67.0

Onsite Utilization % 89.0% 89.6% 89.1% 89.4% 89.4% 90.0% 88.8% 89.0% 89.1% 89.6% 88.5% 89.3% 89.3% 89.3% 89.2% 89.3%

Offshore Utilization % 68.1% 69.2% 67.8% 68.3% 68.8% 70.6% 71.0% 72.0% 73.2% 74.5% 74.5% 74.0% 68.3% 70.6% 74.1% 73.9%

Onsite Billing Rate Growth % -1.5% -0.7% -0.4% -0.4% 0.3% 2.0% -0.5% -0.5% 0.1% 1.0% 0.8% 0.0% -2.3% 0.8% 1.1% 3.9%

Offshore Billing Rate Growth % -4.2% 0.3% -2.2% 4.2% 2.5% 2.5% -0.5% -0.5% 0.1% 0.5% 0.2% 0.0% -6.5% 6.2% 0.6% 2.8%

Sequential Growth (%)

Revenue -4 % 3 % 0 % 3 % 1 % 2 % -1 % 1 % 6 % 3 % 0 % 1 % - - - -

Employee Benefit Expenses 6 % 3 % 2 % 2 % 1 % 4 % -1 % -1 % 6 % 3 % 2 % 2 % - - - -

EBITDA -35 % 7 % -7 % 3 % -9 % -9 % 26 % 20 % -1 % -2 % -1 % 5 % - - - -

EBIT -42 % 7 % -8 % -5 % -3 % -13 % 36 % 25 % -2 % -3 % -1 % 7 % - - - -

Recurring PAT -48 % 2 % -15 % 13 % -1 % -19 % 26 % 25 % -1 % -2 % -1 % 7 % - - - -

EPS -48 % 2 % -15 % 13 % -1 % -19 % 26 % 25 % -1 % -2 % -1 % 7 % - - - -

Yearly Growth (%)

Revenue 6 % 2 % 2 % 2 % 8 % 7 % 7 % 4 % 8 % 9 % 10 % 11 % 3 % 7 % 9 % 7 %

EBITDA 20 % -20 % -28 % -34 % -7 % -21 % 7 % 25 % 36 % 47 % 16 % 1 % -20 % 1 % 22 % 5 %

EBIT 22 % -27 % -35 % -46 % -10 % -26 % 9 % 44 % 46 % 62 % 18 % 0 % -27 % 3 % 27 % 4 %

Recurring PAT 30 % -24 % -35 % -49 % -4 % -24 % 14 % 26 % 26 % 52 % 19 % 2 % -27 % 2 % 22 % 5 %

EPS 30 % -24 % -35 % -49 % -4 % -24 % 14 % 26 % 26 % 52 % 19 % 2 % -27 % 2 % 22 % 5 %

Margin (%)

EBITDA 11 % 11 % 10 % 10 % 9 % 8 % 10 % 12 % 11 % 11 % 11 % 11 % 11 % 10 % 11 % 11 %

EBIT 8 % 9 % 8 % 7 % 7 % 6 % 8 % 10 % 9 % 9 % 9 % 9 % 8 % 8 % 9 % 9 %

PBT 9 % 9 % 7 % 7 % 8 % 6 % 8 % 10 % 9 % 9 % 9 % 9 % 8 % 8 % 9 % 9 %

PAT 7 % 7 % 6 % 6 % 6 % 5 % 6 % 8 % 7 % 7 % 7 % 7 % 6 % 6 % 7 % 7 %



Consolidated Financials P&L (Rs Mn) FY17A FY18E FY19E FY20E

Balance Sheet (Rs Mn) FY17A FY18E FY19E FY20E

Cash Flow (Rs Mn) FY17A FY18E FY19E FY20E

Revenue 33,200 35,384 38,735 41,418 Equity Capital 376 377 377 377 PBT 2,730 2,894 3,533 3,705

Op. Expenditure 29,714 31,869 34,443 36,915 Reserve 15,465 17,219 19,303 21,470 Depreciation 827 771 807 861

EBITDA 3,486 3,515 4,293 4,503 Networth 15,841 17,596 19,679 21,846 Others 261 26 0 0

Depreciation 827 771 807 861 Long Term Debt 3,334 3,926 3,626 3,326 Taxes Paid 606 718 883 926

EBIT 2,660 2,745 3,485 3,642 Def Tax Liability 579 0 0 0 Change in WC -1,678 175 -351 -409

Interest Expense 136 124 150 138 Minority Interest 0 0 0 0 Operating C/F 1,535 3,146 3,106 3,232

Other Income 207 273 198 201 Account Payables 1,311 1,546 1,762 1,918 Capex -2,359 -1,460 -1,566 -1,666

PBT 2,730 2,894 3,533 3,705 Other Curr Liabi 4,148 4,163 4,557 4,873 Change in Invest 0 0 0 0

Tax 606 718 883 926 Total Liabilities & Equity 25,213 27,232 29,625 31,963 Others 0 -6 0 0

PAT bef. MI &

Assoc. 2,125 2,176 2,650 2,779 Net Fixed Assets 8,085 8,780 9,538 10,267 Investing C/F -2,359 -1,466 -1,566 -1,666

Minority Interest 0 0 0 0 Capital WIP 0 0 0 0 Change in Debt 1,108 592 -300 -300

Profit from Assoc. 0 0 0 0 Others 2,498 2,492 2,492 2,567 Change in Equity 124 76 0 0

Recurring PAT 2,125 2,176 2,650 2,779

Inventory 433 462 506 541 Others -459 -1,095 -567 -612

Extraordinaires -261 -26 0 0 Account Receivables 7,843 7,852 8,490 9,078 Financing C/F 773 -427 -867 -912

Reported PAT 2,385 2,201 2,650 2,779 Other Current Assets 2,453 2,491 2,771 3,028 Net change in cash -52 1,254 673 654

FDEPS (Rs) 11.3 11.5 14.1 14.8 Cash 3,902 5,155 5,829 6,483 RoE (%) 14 % 13 % 14 % 13 %

DPS (Rs) 2.2 2.3 2.5 2.7 Total Assets 25,214 27,232 29,625 31,963

RoIC (%) 12 % 11 % 12 % 12 %

CEPS (Rs) 15.7 15.6 18.4 19.3 Non-cash Working Capital 5,271 5,096 5,447 5,856

Core RoIC (%) 14 % 12 % 15 % 14 %

FCFPS (Rs) -3.8 9.4 8.8 8.9 Cash Conv Cycle 57.9 52.6 51.3 51.6 Div Payout (%) 22 % 24 % 21 % 22 %

BVPS (Rs) 84.3 93.4 104.5 116.0 WC Turnover 6.3 6.9 7.1 7.1 P/E 11.5 11.2 9.2 8.8

EBITDAM (%) 11 % 10 % 11 % 11 % FA Turnover 4.1 4.0 4.1 4.0 P/B 1.5 1.4 1.2 1.1

PATM (%) 6 % 6 % 7 % 7 % Net D/E 0.0 -0.1 -0.1 -0.1 P/FCFF -33.9 13.8 14.8 14.6

Tax Rate (%) 22 % 25 % 25 % 25 % Revenue/Capital

Employed 1.9 1.9 1.9 1.8 EV/EBITDA 7.3 6.9 5.4 5.0

Sales Growth (%) 3 % 7 % 9 % 7 %

Capital Employed/Equity 1.3 1.2 1.2 1.2

EV/Sales 0.8 0.7 0.6 0.5

FDEPS Growth (%) -27 % 2 % 22 % 5 %

Dividend Yield (%) 1.7 % 1.8 % 1.9 % 2.1 %

TTM P/E vs. 2 yr forward EPS growth

TTM P/B vs. 2 yr forward RoE



Historical Consolidated Financials P&L (Rs Mn) FY14A FY15A FY16A FY17A

Balance Sheet (Rs Mn) FY14A FY15A FY16A FY17A

Cash Flow (Rs Mn) FY14A FY15A FY16A FY17A

Revenue 26,940 29,899 32,243 33,200 Equity Capital 388 376 376 376 PBT 3,430 2,485 3,645 2,730

Op. Expenditure 22,758 26,655 27,901 29,714 Reserve 12,363 12,585 13,479 15,465 Depreciation 540 851 691 827

EBITDA 4,183 3,244 4,342 3,486 Networth 12,751 12,962 13,854 15,841 Others 81 -31 277 261

Depreciation 540 851 691 827 Long Term Debt 4,390 4,457 2,226 3,334 Taxes Paid 1,291 777 816 606

EBIT 3,643 2,393 3,651 2,660 Def Tax Liability 233 423 516 579 Change in WC -1,730 365 320 -1,678

Interest Expense 258 260 165 136 Minority Interest 0 0 0 0 Operating C/F 1,030 2,894 4,117 1,535

Other Income 45 352 282 207 Account Payables 1,021 1,308 1,184 1,311 Capex -684 -906 -1,244 -2,359

PBT 3,430 2,485 3,767 2,730 Other Curr Liabi 2,839 3,551 4,051 4,148 Change in Invest -1,379 -311 -299 0

Tax 941 115 845 606 Total Liabilities & Equity 21,234 22,701 21,832 25,213 Others -62 -684 204 0

PAT bef. MI & Assoc. 2,490 2,370 2,922 2,125 Net Fixed Assets 8,132 7,382 6,662 8,085 Investing C/F -2,125 -1,901 -1,339 -2,359

Minority Interest 0 0 0 0 Capital WIP 23 34 0 0 Change in Debt -129 -577 625 1,108

Profit from Assoc. 0 0 0 0 Others 1,182 2,136 2,388 2,498 Change in Equity 119 112 -76 124

Recurring PAT 2,490 2,370 2,922 2,125 Inventory 34 229 380 433 Others 797 51 -3,602 -459

Extraordinaires 0 0 113 -261 Account Receivables 6,743 6,979 6,861 7,843 Financing C/F 787 -414 -3,053 773

Reported PAT 2,490 2,370 2,809 2,385 Other Current Assets 1,471 1,714 1,588 2,453 Net change in cash -308 579 -275 -52

EPS (Rs) 13.3 12.6 15.6 11.3 Cash 3,649 4,228 3,953 3,902

RoE (%) 22 % 18 % 22 % 14 %

DPS (Rs) 1.1 1.1 1.1 2.2

Total Assets 21,234 22,701 21,832 25,214

RoIC (%) 17 % 15 % 18 % 12 %

CEPS (Rs) 15.9 16.8 19.2 15.7 Non-cash Working Capital 4,388 4,062 3,593 5,271 Core RoIC (%) 21 % 16 % 21 % 14 %

FCFPS (Rs) -4.8 6.5 15.5 -3.8 Cash Conv Cycle 59.5 49.6 40.7 57.9 Div Payout (%) 10 % 11 % 9 % 22 %

BVPS (Rs) 65.7 68.9 73.8 84.3 WC Turnover 6.1 7.4 9.0 6.3

P/E 9.8 10.3 8.3 11.5

EBITDAM (%) 16 % 11 % 13 % 11 % FA Turnover 3.3 4.0 4.8 4.1 P/B 2.0 1.9 1.8 1.5

PATM (%) 9 % 8 % 9 % 6 % Net D/E 0.1 0.0 -0.1 0.0 P/FCFF -27.2 20.1 8.4 -33.9

Tax Rate (%) 27 % 5 % 22 % 22 % Revenue/Capital Employed 2.2 1.9 1.8 1.9 EV/EBITDA 6.4 8.2 5.7 7.3

Sales growth (%) 20 % 11 % 8 % 3 %

Capital Employed/Equity 1.4 1.4 1.4 1.3

EV/Sales 1.0 0.9 0.8 0.8

FDEPS growth (%) 20 % -5 % 23 % -27 %

Dividend Yield (%) 0.8 % 0.8 % 0.8 % 1.7 %



Equirus Securities

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Equity Sales E-mail

Abhishek Shindadkar IT Services [email protected] 91-22-43320643 Vishad Turakhia [email protected] 91-22-43320633

Ashutosh Tiwari Auto, Metals & Mining [email protected] 91-79-61909517 Subham Sinha [email protected] 91-22-43320631

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Rating & Coverage Definitions: Absolute Rating • LONG : Over the investment horizon, ATR >= Ke for companies with Free Float market cap > Rs 5 billion and ATR >= 20% for rest of the companies • ADD: ATR >= 5% but less than Ke over investment horizon • REDUCE: ATR >= negative 10% but <5% over investment horizon • SHORT: ATR < negative 10% over investment horizon Relative Rating • OVERWEIGHT: Likely to outperform the benchmark by at least 5% over investment horizon • BENCHMARK: likely to perform in line with the benchmark • UNDERWEIGHT: likely to under-perform the benchmark by at least 5% over investment horizon Investment Horizon Investment Horizon is set at a minimum 3 months to maximum 18 months with target date falling on last day of a calendar quarter. Lite vs. Regular Coverage vs. Spot Coverage We aim to keep our rating and estimates updated at least once a quarter for Regular Coverage stocks. Generally, we would have access to the company and we would maintain detailed financial model for Regular coverage companies. We intend to publish updates on Lite coverage stocks only an opportunistic basis and subject to our ability to contact the management. Our rating and estimates for Lite coverage stocks may not be current. Spot coverage is meant for one-off coverage of a specific company and in such cases, earnings forecast and target price are optional. Spot coverage is meant to stimulate discussion rather than provide a research opinion.

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KPIT Technologies Ltd. Absolute: REDUCE 1QFY18Result: Est ...€¦ · Retain REDUCE on uneven margin profile: While valuations are reasonable (~11x FY18E EPS) and top customer growth

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