Express Idea KPIT Technologies Ltd

Momentum to continue driven by strong deal pipeline and focused client mining

KPIT Technologies through its consistent execution and niche capabilities has registered sustained revenue growth. This is evident in the 30%+ revenue growth in FY13 despite the weakness in its SAP business (~25% of revenues). This was on the back of strong demand traction in IES and Auto engineering business which grew at 5.5%/5% CQGR over the same period. More recently, thedealfunnelhasshownsubstantialimprovement(+50%inlast69months) with 67 large deals in the pipeline (US$1030mn). SAP and Automotive business are also expected to pickup in H2 FY14 further supporting the revenue traction. From a longer term perspective, KPITs increased focus on miningitsmarqueeclientbasethroughitsBusinesstransformationservicesis expectedhelpmaintainthedecentbusinesstraction.

Rating: Target(13months): CMP: Upside: ExitTrigger*:

Sector: Sector view:

BUY
Rs148 Rs131 12.9% Rs118

IT Positive 18,129 145/92 2,545 346 KPITIN 532400 KPIT 2

Sensex: 52Weekh/l(Rs): Marketcap(Rscr): 6mAvgvol(000Nos): Bloombergcode: BSEcode: NSEcode: FV(Rs):

PriceasonAug29,2013

Operating margin to expand supported by SAP business, rupee and operational leverage

KPITsoperatingprofitabilitysufferedoverFY1112onthebackofintegration of low margin acquisitions, higher onsite growth and continued investments. In FY13 too, margin had to bear the brunt due to the impact of technological reset in the SAP business. Going forward, owing to the improving offshoring (especially in the SAP business), weak rupee and operational leverage due to strong volume led traction (due to deal rampups) in key SBUs, we expect margin performance to improve. Improving client mining as seen in the 9%/7%revenueCQGRforTop5/Top10clients(exCummins)shouldalsobode well from the margin perspective. Additionally, higher locals /green card owners amongst KPITs US employee base may result in relatively lower impactofprotectionistmoves.
Valuations at 8x FY15E earnings are attractive; Maintain BUY

Companyratinggrid
EarningsGrowth CashFlow B/SStrength Valuationappeal Risk LowHigh 1 2 3 4 5

Sharepricetrend
KPITCummins 150 125 100 75 50 Aug12 Dec12 Apr13 Aug13 Sensex

Consistent execution and continued traction which has been a hallmark of KPITs business performance over past two years, should continue going forward too. Our expectation is supported by the improving overall demand environmentintheUS,bettermanagementcommentaryandgreenshootsin discretionaryservicesspending.Consequently,weexpectcompanytowitness 15%/27% dollar revenue/INR EPS CAGR over FY1315E. P/E valuations at 8x FY15Eearningsareattractive. Financialsummary
Y/e31Mar(Rsm) Revenues yoygrowth(%) Operatingprofit OPM(%) ReportedPAT yoygrowth(%) EPS(Rs) P/E(x) Price/Book(x) EV/EBITDA(x) RoE(%) RoCE(%)
Source:Company,IndiaInfolineResearch

FY12 15,000 49.0 2,171 14.5 1,453 53.3 8.2 16.5 3.4 11.4 20.6 22.4 FY13 22,386 49.2 3,641 16.3 1,990 36.9 10.4 13.0 2.5 7.4 22.9 25.6 FY14E 26,654 19.1 4,467 16.8 2,657 33.6 13.9 9.7 1.9 5.5 22.3 26.2 FY15E 31,232 17.2 5,167 16.5 3,209 20.8 16.8 8.0 1.6 4.4 21.5 26.2

Shareholdingpattern
100 80 60 40 20 0 Sep12 Dec 12 Mar13 Jun13 Promoters FIIs Others

Research Analyst:

AniruddhaMehta research@indiainfoline.com

August29,2013

*Exittriggeristhepricelevelbelowwhichinvestorshouldexitposition

An Express Idea is a recommendation based on our view on the sector and / or stock from a near to medium term perspective, typically less than three months. The view can be based on fundamentals and / or technical parameters for the stock and / or our viewonthesectoronthewhole.
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