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KPIT Cummins Infosystems Ltd Q2FY13 results update

Contributed by Nirmal Bang

Revenues above expectations

USD Revenues grew 5.5% QoQ at $ 103.4 mn on the back of good traction in Systime business. SYSTIME revenues which KPIT consolidated since Q4FY12 grew 15.7 % QoQ to $ 17mn. Constant currency growth was at 6% QoQ. In Rupee terms, revenues grew 5.4% QoQ to Rs.567.2 crore. Onsite Volume growth came in at 9% and adjusted offshore volumes grew 3%. Pricing was stable during the quarter.

EBIDTA margin growth – leveraged due to top line growth

EBIDTA margins grew by 157 bps QoQ at 16.7% despite higher onsite share in revenues. The growth was contributed due to operational efficiency, SG&A leverage due to higher revenues and higher share of the Automotive segment which have better margins. Systime EBIDTA margins stood at 14% for the quarter against 5% at the time of acquisition.

Pat down due to forex loss and higher taxes

Forex loss for the quarter came in at Rs.21.3 crore against a small gain of Rs.1.8 crore in the previous quarter. Tax rate increased by 370 bps QoQ at 29.4% which dragged the PAT after minority and share from associates by 10% QoQ to Rs.46 crore. However, adjusted PAT (adjusted for forex and exceptional income) grew by 26% QoQ to Rs.44 crore.

Other Highlights

- The top client - Cummins account grew by 52% YoY and as their revenue contribution stood at 19.5% in Q2FY13.
- The company also witnessed growth in Top 5 and Top 10 accounts which grew 2.36% and 4.59% on QoQ basis respectively and both grew by 58% YoY.
- Integrated Enterprise Solutions (IES) SBU grew 9% Q-o-Q and Auto & Engineering (A&E) SBU grew by 8.45%. SAP SBU marginally declined by 1.94% Q-o-Q.

Guidance

Despite good performance in the H1FY13, the company has maintained its earlier guidance i.e; 32-35% growth in USD revenues and 36-39% growth in Rupee revenues. We expect company to revise the guidance post Q3FY13 results.

Valuation & Recommendations

The company has grown at a CQGR of 5% in the past 2 quarters and has benefitted from its vertical centric approach. Though we have seen good rally in the stock in the past few quarters, we feel the growth momentum would continue into FY14 as well and upgrade our target price to Rs. 147 and recommend a BUY (from earlier target of Rs.137 and Hold rating) on the stock. At CMP, the stock is trading 10.4x and 9x its FY13E and FY14E expected earnings.