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KPIT Cummins Infosystems 2QFY2013 performance highlights and results update

Contributed by Angel Broking

For 2QFY2013, KPIT Cummins Infosystems (KPIT) reported a strong operational set of results. For FY2013, the management has maintained its guidance of 32-35% yoy growth in USD revenue, which is 2.5x more than NasscomRs.s guidance of 11-14% growth and includes ~US$45mn inorganic revenue from Systime. We maintain our Accumulate recommendation on the stock.

Quarterly highlights: For 2QFY2013, KPIT reported a revenue of US$103mn, up 5.5% qoq. The overall volume growth stood at 4% qoq. In INR terms, the revenue came in at Rs.567cr, up 5.4% qoq. The EBITDA and EBIT margins increased by 157bp and 166bp qoq to 16.7% and 14.6%, respectively, aided by improvement in Systime margins from 5% in 4QFY2012 to 14% in 2QFY2013 and a qoq decline in general and administrative (G&A) costs. The PAT came in at Rs.41cr, down 16.4% qoq, negatively impacted by forex loss of Rs.21cr. The management indicated that forex losses are expected to decline going forward at prevailing currency rates.

Outlook and valuation: KPIT's management has maintained its FY2013 USD revenue growth of a whopping 32-35% yoy, which is the strongest amongst its peers, even on the back of a strong 40% yoy revenue growth recorded in FY2012 because of the companyRs.s strengthening deal pipeline as well as incremental revenues from Systime. On the PAT front also, the company has maintained its guidance of 1 9-24% yoy growth to Rs.1 73cr-180cr. The company is growing ahead of other IT companies in terms of revenues; and on the operational front, the companyRs.s performance has been improving since the last couple of quarters. Hence, we expect the companyRs.s revenue to post a CAGR of 21.2% and 24.3% in USD and INR terms, respectively, over FY2012-14E. On the EBITDA and PAT fronts, the company is expected to post a 26.2% and 28.1% CAGR respectively over FY2012-14E. We value the company at 11x FY2014E EPS of Rs.12.0, which gives us a target price of Rs.132. We maintain our Accumulate rating on the stock.