ANTIQUE STOCK BROKING LIMITED

FROM THE RESEARCH DESK

26 October 2015 | 1

2QFY16 RESULT REVIEW

Current Reco

: HOLD

Previous Reco

: HOLD

CMP

: INR135

Target Price

: INR140

KPIT Technologies Limited

Stellar quarter; Margin improvement to continue

Potential Return : 4%

Omkar Hadkar

+91 22 4031 3427

omkar.hadkar@antiquelimited.com

Srinivas Seshadri

+91 22 4031 3432

srinivas.seshadri@antiquelimited.com

Market data
27,471

KPIT Technologies' (KPIT) reported a robust 5.3% QoQ USD revenue growth,
ahead of consensus and our estimate of 3%. EBITDA margin expanded a
whopping 440bps QoQ to 13.9%, way ahead of our estimate of 9.6%. Key
positives from the result are: i) Continued traction in SAP SBU, 22% of revenue
(9.5% QoQ growth on the back of 17.4% growth in 1Q), ii) Top client growing
5% QoQ after three consecutive quarters of decline, and iii) Stability in the
IES SBU, with a positive outlook for ensuing quarters. The company expects
EBITDA margin trajectory to improve from here on, riding initiatives like
pyramid rationalisation, offshoring and decline in attrition among others.
Given the beat on the margin front, anticipated margin expansion and
revision of USD:INR to 66 from 64 earlier, we revise our FY17 EPS by 10%
and have factored in 10.7% USD revenue growth versus 9.4% earlier. The
stock is up 20% in the last three months and current valuations of 9.7x midFY18e EPS factors in positives, based on our revised target price of INR140
per share (now based on mid-FY18 P/E vs FY17 earlier). Hence, we maintain
our Hold rating on the stock.

Sensex

Sector

IT

Market Cap (INRbn)

26.6

Market Cap (USDbn)

0.409

Growth driven by key segments

O/S Shares (m)

197.2

52-wk HI/LO (INR)

233/85

Avg Daily Vol ('000)

732

Bloomberg

KPIT IN

FY16e

FY17e

FY18e

EPS (INR)

12.3

13.4

14.4

P/E (x)

11.0

10.1

9.4

The quarter under review saw significant traction in key segments of SAP SBU and product
engineering (49% of revenues), growing over 9% each, while after two quarters of decline
IES posted flat growth. Automotive and energy and utilities grew 5.8% and 19.8% QoQ,
respectively. Europe and RoW grew over 14% each, while USA grew 1.2% QoQ. Top client
too made a comeback with 5% QoQ growth after three quarters of sequential decline. While
the management expects 3QFY16 to be flattish, given the seasonal impact of furloughs and
lower working days, it expects growth to bounceback in 4Q riding the healthy demand
environment in SAP and IES SBUs.

P/BV (x)

1.7

1.5

1.3

EV/EBITDA (x)

6.4

5.1

4.5

Margin accretion to continue in 2H

Dividend yield (%) 0.7

0.8

0.9

Source: Bloomberg

Valuation

Source: Bloomberg

Returns (%)
1m

3m

6m

12m

Absolute

23

20

(12)

(19)

Relative

15

25

(11)

(21)

Source: Company, Antique

Shareholding pattern
Promoters

22%

FII

30%

DII

6%

Others

42%

Post the 4QFY15 debacle, where EBITDA margin tanked to 4.5% due to a client-specific
issue, the company has seen margin returning to 3QFY15 levels of 13.9%. To achieve this,
the management has embarked on an optimisation drive like right sizing the pyramid through
higher fresher hiring (585 freshers added in 1HFY16) and improving utilisation. With growth
returning, these measures have yielded positive results. The management expects margin to
improve in 2HFY16 as well, led by fresher intake, offshoring and other operational initiatives.
While the 1HFY16 performance is encouraging, the company will have to follow it with
consistent performance in coming quarters for re-rating in valuations from here on.
Quarterly financials
INRm
Revenue (USDm)

2QFY16

1QFY16

QoQ(%)

2QFY15

YoY(%)
-0.3

125

118

5.3

125

Revenue

8,123

7,583

7.1

7,574

7.2

Source: Bloomberg

EBITDA

1,132

721

57.1

1,010

12.1

Price performance vs Nifty

EBIT

965

557

73.3

766

26.0

Recurring PAT

751

444

69.1

706

6.3

160

EPS (INR)

3.8

120

Margins

2QFY16

1QFY16

2.2

69.4
QoQ (bps)

3.67

2.3

2QFY15

YoY (bps)
154

80

Gross profit

31.3

28.0

328

29.7

40
Oct-14

EBITDA

13.9

9.5

444

13.3

60

EBIT

11.9

7.3

454

10.1

177

PAT

9.2

5.9

339

9.3

-8

Feb-15 Jun-15
KPIT

Source: Bloomberg, Indexed to 100

Oct-15
NIFTY

Source: Company, Antique

ANTIQUE STOCK BROKING LIMITED

SAP SBU growth continues

20
15
10
5
0
(5)
(10)
(15)
(20)
(25)
(30)
(35)

IES revenue continues to lag

17.4
9.5

8.7
4.5

(3.4)

(27.9)
1QFY15

2QFY15

26 October 2015 | 2

FROM THE RESEARCH DESK

3QFY15

4QFY15

1QFY16

6.0
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
-4.0
-5.0

4.6
2.9
2.0

(0.1)
(1.6)
(4.0)
1QFY15

2QFY16

2QFY15

3QFY15

Revenue grow th QoQ

4QFY15

1QFY16

2QFY16

IES revenues

Source: Company, Antique

Source: Company, Antique

Top client grows after declining for the previous three quarters

Utilisation uptick continues, see still scope for an improvement

Revenues from top client (USDm)

Source: Company, Antique

70%

71%
68%

69%
67%

QoQ grow th (%) - RHS

Blended
Source: Company, Antique

2QFY16

1QFY16

65%
4QFY15

2QFY16

1QFY16

4QFY15

3QFY15

2QFY15

1QFY15

4QFY14

3QFY14

2QFY14

1QFY14

15

73%

73%

3QFY15

-8%
-10%

73%

2QFY15

16

75%
74%

1QFY15

17

4QFY14

-1% -1%

74% 74%

75%

3QFY14

18

77%
77% 76%

2QFY14

2%

76%

77%

1QFY14

4%
1%

78%
77%

4QFY13

19

79%

3QFY13

4%

8%
6%
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%

2QFY13

5%

6%

1QFY13

20

ANTIQUE STOCK BROKING LIMITED

26 October 2015 | 3

FROM THE RESEARCH DESK

Financials
Profit and loss account (INRm)

Cash flow statement (INRm)

Year-ended March 31 FY14

FY15 FY16e FY17e

Year-ended March 31 FY14

FY15 FY16e FY17e

Revenues

26,940

29,899

32,223

36,308

39,997

PBT

3,430

2,485

3,308

3,666

3,935

Software development expenses

18,180

21,473

22,491

25,260

28,029

Depreciation & amortisation

540

851

761

1,089

1,200

Gross profit

8,761

8,426

9,731

11,048

11,968

Interest expense

182

165

363

523

484

Expenses

4,528

5,155

5,657

6,172

6,799

Interest/dividend received

(158)

(97)

(357)

(401)

(451)

EBIDTA

4,233

3,271

4,075

4,876

5,168

Other adjustments

57

(98)

540

851

761

1,089

1,200

(Inc)/dec in working capital

(1,730)

365

(1,144)

(1,196)

(1,302)

3,694

2,420

3,314

3,787

3,968

Tax paid

(1,291)

(777)

(849)

(990)

(1,063)

-74

345

357

401

451

CF from operating activities

1,030

2,894

2,082

2,690

2,804

287

279

363

523

484

Capital expenditure

(689)

(913)

(1,200)

(1,300)

(1,200)

3,333

2,486

3,308

3,666

3,935

(Purchase)/sale of Investments

(1,374)

(304)

(66)

(66)

(100)

941

115

849

990

1,063

Income from investments

155

97

357

401

451

-98

(1,908)

(1,120)

(909)

(965)

(849)

2,294

2,371

2,459

2,676

2,873

12.4

11.9

12.3

13.4

14.4

Depreciation
EBIT
Other income
Interest expense
Profit before tax
Taxes including deferred taxation
Extra ordinary items & others
Profit after tax
Recurring EPS

FY18e

Inc/(dec) in share capital

Inc/(dec) in debt
Dividends & interest paid

Balance sheet (INRm)

Year-ended March 31 FY14
Share capital

CF from investing activities

FY15 FY16e FY17e

FY18e

FY18e

75

141

1,047

(103)

1,631

(390)

(484)
(484)

(376)

(412)

(363)

(523)

Others

118

196

CF from financing activities

865

(177)

1,268

(913)

(968)

386

384

384

384

384

(13)

1,597

2,441

812

987

Reserves & surplus

12,365

12,578

15,036

17,712

20,585

Opening balance

1,921

1,811

3,637

6,078

6,890

Net worth

12,751

12,961

15,420

18,096

20,969

Closing balance

1,908

3,407

6,078

6,890

7,877

4,390

4,457

6,088

5,698

5,214

FY15 FY16e FY17e

FY18e

Debt
Deferred tax liability & others

Net cash flow

Growth indicators (%)

234

423

463

503

543

17,375

17,842

21,972

24,297

26,726

Gross fixed assets

5,179

6,109

7,309

8,609

9,809

Revenue

20.3

11.0

7.8

12.7

10.2

Accumulated depreciation

3,041

3,901

4,662

5,751

6,951

EBITDA

15.8

-22.7

24.6

19.7

6.0

Net assets

2,138

2,208

2,647

2,858

2,858

PAT

15.3

3.4

3.7

8.8

7.4

Capital work in progress & others

1,087

2,031

2,231

2,431

2,631

EPS

17.1

-4.5

3.7

8.8

7.4

Investments

1,859

815

881

947

1,047

Goodwill

5,994

5,088

5,088

5,088

5,088

Current assets, loans & adv. 10,156

FY15 FY16e FY17e

FY18e

Capital employed

12,559

15,989

18,035

20,433

34

229

229

229

229

Debtors

7,373

7,952

8,742

9,776

10,986

Cash & bank balances

Inventory

Year-ended March 31 FY14

Valuation (x)
Year-ended March 31 FY14
P/E

10.9

11.4

11.0

10.1

9.4

P/BV

2.0

2.1

1.7

1.5

1.3

1,908

3,638

6,078

6,890

7,877

EV/EBITDA

6.3

8.2

6.4

5.1

4.5

Loans & advances and others

841

740

940

1,140

1,340

EV/Sales

1.0

0.9

0.8

0.7

0.6

Current liabilities & prov.

3,859

4,859

4,865

5,062

5,331

Dividend Yield (%)

0.8

0.7

0.7

0.8

0.9

Creditors

1,021

1,308

1,264

1,411

1,336

Other liabilities & provisions

2,839

3,551

3,601

3,651

3,995

Net current assets

6,297

7,700

11,124

12,973

15,101

FY15 FY16e FY17e

FY18e

Application of funds

17,375

17,842

21,972

24,297

26,726

Financial ratios
Year-ended March 31 FY14
RoE (%)

18.0

18.3

15.9

14.8

13.7

RoCE (%)

21.3

13.6

15.1

15.6

14.8

Per share data

Debt/Equity (x)

0.3

0.3

0.4

0.3

0.2

Year-ended March 31 FY14

EBIT/Interest (x)

12.9

8.7

9.1

7.2

8.2

No. of shares (m)

FY15 FY16e FY17e

FY18e

192

200

200

200

200

BVPS (INR)

66.3

64.9

77.2

90.6

105.0

CEPS (INR)

19.6

22.3

34.9

39.3

44.7

DPS (INR)

1.1

0.9

1.0

1.1

1.2

FY15 FY16e FY17e

FY18e

Margins (%)
Year-ended March 31 FY14
EBIDTA

15.7

10.9

12.6

13.4

EBIT

13.7

8.1

10.3

10.4

9.9

8.5

7.9

7.6

7.4

7.2

PAT
Source: Company, Antique

12.9

Source: Company Antique

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