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KPIT Technologies 3QFY2014 performance highlights and results update

January 27, 2014, Monday, 05:30 GMT | 00:30 EST | 10:00 IST | 12:30 SGT
Contributed by Angel Broking


For 3QFY2014, KPIT Technologies (KPIT)’s results came in below our expectations on all fronts. The revenues were impacted by lower billing days during the quarter as well as extended furloughs at some of the company’s larger customers, leading to unanticipated revenue loss. The company closed US$70mn+ TCV worth of deals during the quarter. KPIT has reiterated its positive tone, expects growth pick up going ahead and does not foresee any delay in decision making going forward. We maintain our Accumulate rating on the stock.
 
Quarterly highlights: For 3QFY2014, KPIT reported revenues of US$109.7mn, down 2.3% qoq. Overall the volume growth was 1.2%. In INR terms, revenues came in at Rs.678cr, down 3.5% sequentially. The company’s EBITDA margin declined by 11bp qoq to 15.4%, mainly due to extended furloughs at some of the company’s larger customers, resulting in lower utilization and continued weakness in the SAP SBU. The PAT came in at Rs.61cr, down 9% qoq.
 
Outlook and valuation: The company sees increase in discretionary spending and improved order pipeline driving growth in FY2015 in both the Enterprise IT and Auto Engineering SBUs. We expect the company to be a beneficiary of an uptick in discretionary spending. The company has restructured its SAP SBU towards growth oriented sectors and expects uptick in margins and revenues going forward. For FY2014, the company expects USD revenue growth to be 10% plus in constant currency terms, which is lower than the earlier guided band of 13.3- 15.7% yoy. Over FY2013-15E, we expect the company to post a USD and INR revenue CAGR of 10% and 16.7%, respectively. On the operational front, after three quarters of successive declines in EBITDA margin to 15.4% in 3QFY2014, we expect margins to improve going ahead. On the EBITDA margin front, we expect margin to be at 15.7% and 16.6% for FY2014 and FY2015, respectively. The PAT is expected to post a CAGR of 25.4% over FY2013-15E. The stock is currently trading at 12.3x FY2014E and 9.8x FY2015E EPS. We value the company at 10x FY2015E EPS, which gives us a target price of Rs.166. We maintain our Accumulate rating on the stock.