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KPIT Technologies Ltd-Q4FY14 Result Update - "BUY"




Kisan Ratilal Choksey Shares and Securities Private Limited


30 Apr 2014





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KPIT Technologies Ltd-Q4FY14 Result Update CMP: Rs 158 Target Price : Rs 199 Recommendation : BUY “Outlook for FY15E seems better on back of recently signed large deals” Revenue and EBITDA margin in Q4 FY14 better than our expectation • Revenue grew by 3.6% QoQ (in USD terms) in Q4 FY14 which is marginally better than our expectation of 2.6% QoQ growth in revenue. Faster than expected ramp up of recently signed 3 large deals supported higher than projected revenue growth; inspite dip in top client i.e. Cummins by 10% QoQ and completion of implementation of SAP project in case of one of top 10 accounts. • EBITDA margin improved by 46 bps QoQ to 15.7% in Q4 FY14 against our estimates of 15.4%. Higher than expected margin was primarily led by no changes in Other Expenses on sequential basis. • However forex loss of Rs.24 crore in Q4 FY14 versus our projection of forex loss of Rs.13 crore led lower than expected net profit (adjusted) in Q4 FY14. Revenue guidance for FY15E factors in improvement in demand environment The company has guided for revenue growth of 12% to 14% YoY in USD terms (excluding revenue from recently acquired company i.e. I-Cubed) in FY15E; which implies compounded quarterly growth rate (CQGR) of 3.7% to 4.4% in FY15E. We believe, revenue guidance seems to have already factored in improvement in demand environment and hence believe there is limited scope to outperform Upper end of guidance especially in the light of pressure in top account i.e. Cummins. Guidance Q4FY14 Q1FY15 E Q2FY15 E Q3FY15 E Q4FY15 E FY15E Lower end 113.6 117.8 122.2 126.7 131.4 498 % Chg 3.7% 3.7% 3.7% 3.7% 12.1% Upper end 113.6 118.5 123.7 129.1 134.7 506 % Chg 4.4% 4.4% 4.4% 4.4% 13.9% … however Net Profit guidance seems conservative The management has guided that Net Profit will be in the range of Rs.294 crore to Rs.300 crore in FY15E as compared to adjusted Net Profit (excluding write back of Rs.12 crore provision) of Rs.237 crore in FY14.We believe Net Profit guidance in FY15E will be easily attained especially considering forex loss of Rs.40 crore in FY14; whereas in FY15E the company is likely to book forex gain on back of outstanding hedges of $42 mn at an average rate of Rs.63.5/USD. Moreover, they expect EBITDA margin to improve by 100 bps to 150 bps YoY in FY15E as compared to 15.5% margin in FY14 supported by improvement in margin of SAP segment from the negative level of ~5% in FY14. Valuation and view We expect revenue growth momentum to continue in H1 FY15E supported by recent signed large deals. Moreover, we believe there is scope for improvement in EBTIDA margin led by turnaround in SAP segment. We recommend “BUY” on the stock with a price target of Rs.199 by assigning P/E multiple of 11 times to FY16E EPS of Rs.18.1

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