kpit technologies - business...

KPIT Technologies

Strong beat, Visible signs of turnaround; Retain ‘BUY’

October 21, 2014

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in its research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to important disclosures and disclaimers at the end of the report

Q2FY15 Result Update

Shashi Bhusan [email protected] +91‐22‐66322300

Hussain Kagzi [email protected] +91‐22‐66322242

Rating BUY

Price Rs155

Target Price Rs220

Implied Upside 41.9%

Sensex 26,576

Nifty 7,928

(Prices as on October 21, 2014)

Trading data

Market Cap. (Rs bn) 29.8

Shares o/s (m) 192.9

3M Avg. Daily value (Rs m) 234.2

Major shareholders

Promoters 22.22%

Foreign 45.81%

Domestic Inst. 8.02%

Public & Other 23.95%

Stock Performance

(%) 1M 6M 12M

Absolute (9.0) (9.4) 6.8

Relative (7.1) (26.2) (20.4)

How we differ from Consensus

EPS (Rs) PL Cons. % Diff.

2015 13.9 13.9 0.0

2016 17.3 16.7 3.4

Price Performance (RIC: KPIT.BO, BB: KPIT IN)

Source: Bloomberg

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KPIT Technologies’ (KPIT’s) Q2FY15 results were a strong beat to PLe/Consensus expectations on all the operating parameters. In line with our expectation (Refer our note: “Autonomous roadmap for growth”, September 18, 2014), KPIT reported strongest QoQ growth in the company’s history in Automotive. We see visible signs of turnaround in fundamentals along with cash generation. We retain ‘BUY’ with a revised TP of Rs220 (Old: Rs200) as we tweak our model for stronger growth.

Strong operational performance: Revenue grew by 8.5% QoQ (Organic: ~6.3% QoQ) to US$125m (PLe: US$121m, Cons.: US$120.4m), whereas in INR terms, revenue grew by 9.8% QoQ to Rs7,574m (PLe: Rs7,319m, Cons: Rs7,281m). EBITDA margins expanded by 128bps QoQ to 13.3% (PLe: 13.4%, Cons: 13.7%) due to currency depreciation (30bps), offshore drive and utilization improvement. EPS grew by 38% QoQ to Rs3.52 (PLe: Rs3.08, Cons: Rs3.12), due to lower tax (Q2FY15: 8%, Q1FY15: 30%) as US jurisdiction approved revised tax.

Revenue guidance achievable: We expect revenue momentum to sustain in H2FY15 adjusted for seasonality. We are factoring in 13% YoY growth for FY15 in USD terms in‐line with their guidance of 12‐14% YoY. (Exhibit: 2, 3, 4). Management expects strong growth momentum in H2FY15 despite seasonality. We see limited concern due to miss at bottom‐line guidance by ~10% for FY15 as visible signs of operational improvement will be reflected in FY16.

Autonomous growth: In‐line with our expectation, KPIT reported the strongest ever growth in Automotive vertical. Management sees strong return of spending in ‘A&E SBU’. We expect continued strength in Automotive vertical.

Continued improvement in SAP profitability and FCF: SAP SBU reported 8.2% QoQ growth in Q2FY15 with mid‐single digit margin. Management expects exit operating margin in double digit. Moreover, KPIT continues to show improving FCF generation. (Exhibit: 5)

Valuation and Recommendation – BUY, revise TP of Rs220: We expect revenue momentum to get better as project ramp‐up accelerates. Moreover, higher offshoring, absorption of cost and improved profitability in SAP SBU would result in accelerated earnings momentum. We revise TP to Rs220 (from Rs200), 12x (from 11x) FY16E earnings estimate, as earnings visibility improves.

Key financials (Y/e March) 2013 2014 2015E 2016E

Revenues (Rs m) 22,386 26,940 30,377 34,444

Growth (%) 49.2 20.3 12.8 13.4

EBITDA (Rs m) 3,655 4,233 4,188 5,120

PAT (Rs m) 1,991 2,490 2,686 3,332

EPS (Rs) 10.3 12.9 13.9 17.3

Growth (%) 26.4 25.0 7.9 24.1

Net DPS (Rs) 0.8 1.8 2.2 2.4

Profitability & Valuation 2013 2014 2015E 2016E

EBITDA margin (%) 16.3 15.7 13.8 14.9

RoE (%) 22.8 21.5 19.3 20.2

RoCE (%) 20.9 20.2 18.2 18.9

EV / sales (x) 1.3 1.1 1.0 0.8

EV / EBITDA (x) 8.1 7.0 7.0 5.3

PE (x) 15.0 12.0 11.1 9.0

P / BV (x) 2.9 2.3 2.0 1.7

Net dividend yield (%) 0.5 1.2 1.4 1.5

Source: Company Data; PL Research

October 21, 2014 2

KPIT Technologies

Exhibit 1: Strong beat to expectation

Y/e March (in Rs m) Q2FY15 Q1FY15 QoQ gr. Q2FY14 YoY gr. Cons. PLe Var Ple

Sales (USD m) 125.0 115.2 8.5% 112.2 11.4% 120.4 121.0 3.3%

Sales 7,574 6,897 9.8% 7,028 7.8% 7,281 7,319 3.5%

EBITDA 1,010.2 832 21.5% 1,088 ‐7.2% 998 981 3.0%

EBITDA Margin 13.3% 12.1% 128 bps 15.5% ‐215 bps 13.7% 13.4% ‐7 bps

Profit After Tax 706 508 38.9% 667 5.7% 626 617 14.3%

EPS (Rs) 3.52 2.54 38.4% 3.37 4.3% 3.12 3.08 14.1%

Source: Company Data, PL Research

Exhibit 2: We are factoring 13% YoY growth in USD terms

Incl. I‐Cubed Q1FY15 Q2FY15 Q3FY15i Q4FY15i FY15g

Revenue Guidance (Lower) 115 125 127 130 498

QoQ Gr. 1.4% 8.5% 2.0% 2.0% 12%

Revenue Guidance (Upper) 115 125 130 136 507

QoQ Gr. 1.4% 8.5% 4.3% 4.3% 14%

Source: Company Data, PL Research, i=Implied, g=Guidance

Exhibit 3: Organic gr. assumption looks attainable at the lower end

Excl. I‐Cubed Q1FY15 Q2FY15 Q3FY15i Q4FY15i FY15g

Revenue Guidance (Lower) 115 123 127 133 498

QoQ Gr. 1.4% 6.3% 4.0% 4.0% 12%

Revenue Guidance (Upper) 115 123 130 139 507

QoQ Gr. 1.4% 6.3% 6.4% 6.4% 14%

Source: Company Data, PL Research, i=Implied, g=Guidance

Exhibit 4: We expect consensus upgrade for FY15 and FY16

New Old Revision Consensus Variance

FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16 FY15 FY16

Revenue (US$ m) 502 584 496 569 1.3% 2.7%

Revenue (Rs m) 30,377 34,444 29,606 33,547 2.6% 2.7% 29,524 33,375 2.9% 3.2%

EBITDA Margin 13.8% 14.9% 14.0% 15.6% ‐18 bps ‐70 bps 14.5% 15.4% ‐74bps ‐55bps

EPS 14.53 18.02 14.17 17.93 2.5% 0.5% 13.927 16.7 4.3% 7.9%

Target Multiple 12x 11x 9.1%

Target Price 220 200 10.0% 178.0 23.6%

Source: Bloomberg, PL Research

Exhibit 5: Cash‐flow generation has improved steadily over the quarters

CASH FLOW Q1FY14 Q2FY14 Q3FY14 Q4FY14 Q1FY15 Q2FY15

Cash Profit for the Quarter 723.00 815.74 742.34 747.86 670.46 950.06

Working capital Adjustments (338.00) (80.06) (577.39) (1,178.46) 296.31 (80.31)

Cash generated from Operations 385.00 735.68 164.95 (430.60) 966.77 869.75

Fixed Assets + Dividend + ESOPs (146.00) (176.08) (106.80) (111.36) (233.11) (456.74)

Balance Cash Flow 239.00 559.60 58.15 (541.96) 733.66 413.01

M&A Investments (I‐Cubed) (1,331.00) (61.32) (269.70) (20.00) (715.07) (107.97)

Debt Availed (Net of Repayment) 1,399.00 (273.00) 144.83 (159.67) 350.00 (65.00)

Impact opening Cash Balance 17.50

Total Surplus for the Quarter 307.00 225.28 (66.72) (721.63) 368.59 257.54


October 21, 2014 3

KPIT Technologies

Exhibit 6: Onsite revenue accelerated over the last two quarters

‐6.0%

‐3.0%

0.0%

3.0%

6.0%

9.0%

12.0%

45.0

51.0

57.0

63.0

69.0

75.0

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Onsite Revenues (in $mn) Offshore Revenues (in $mn)

Onsite QoQ Growth (RHS) Offshore QoQ Growth (RHS)


Exhibit 7: S&M Professionals ‐ Improving investment in S&M expense

125128

132135

140

146

152155

165170

120

130

140

150

160

170

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15


Exhibit 8: Steady acceleration in revenue across client bucket

‐14.0%

‐7.0%

0.0%

7.0%

14.0%

21.0%

Q1FY13

Q2FY13

Q3FY13

Q4FY13

Q1FY14

Q2FY14

Q3FY14

Q4FY14

Q1FY15

Q2FY15

Top Client Top 2‐5 Clients Top 6‐10 Clients Non Top‐10 Clients


October 21, 2014 4

KPIT Technologies

Exhibit 9: Strong growth in USA and RoW

By Geography (US$ m) Q2FY15 Q1FY15 QoQ gr. Q2FY14 YoY gr.

USA 83.1 79.6 4.4% 80.7 3.0%

Europe 17.2 18.2 ‐5.8% 15.4 11.1%

Rest of World 24.8 17.4 42.6% 16.1 53.5%

USA 66.5% 69.1% ‐264 bps 71.9% ‐540 bps

Europe 13.7% 15.8% ‐209 bps 13.8% ‐3 bps

Rest of World 19.8% 15.1% 473 bps 14.4% 543 bps


Exhibit 10: Strong growth in ‘Energy & Utilities’ driven by SAP implementation

By Verticals (US$ m) Q2FY15 Q1FY15 QoQ gr. Q2FY14 YoY gr.

Automotive & Transportation 46.4 37.7 23.3% 40.5 14.6%

Manufacturing 39.5 47.2 ‐16.2% 44.5 ‐11.2%

Energy & Utilities 27.1 20.5 32.4% 15.3 77.6%

Others 12.0 9.9 20.5% 12.0 ‐0.1%

% of Total

Automotive & Transportation 37.1% 32.7% 446 bps 36.1% 106 bps

Manufacturing 31.6% 40.9% ‐933 bps 39.7% ‐805 bps

Energy & Utilities 21.7% 17.8% 392 bps 13.6% 809 bps

Others 9.6% 8.6% 95 bps 10.7% ‐110 bps


Exhibit 11: Continued Onsite revenue strong with offshore drive

Onsite / Offshore Split (US$ m) Q2FY15 Q1FY15 QoQ gr. Q2FY14 YoY gr.

Onsite Revenues 70.4 65.9 6.9% 61.3 14.8%

Offshore Revenues 54.6 49.4 10.6% 50.9 7.2%

% of Total

Onsite Revenues 56.3% 57.2% ‐82 bps 54.6% 170 bps

Offshore Revenues 43.7% 42.8% 82 bps 45.4% ‐170 bps


Exhibit 12: Contribution from FPP moved up steadily

By Contract Type (US$ m) Q2FY15 Q1FY15 QoQ gr. Q2FY14 YoY gr.

Time & Material 88.0 82.5 6.6% 85.7 2.6%

Fixed Price 37.1 32.7 13.3% 26.5 39.6%

% of Total

Time & Material 70.4% 71.6% ‐126 bps 76.4% ‐600 bps

Fixed Price 29.6% 28.4% 126 bps 23.6% 600 bps


October 21, 2014 5

KPIT Technologies

Exhibit 13: Continued strength in Top 6‐10 customer bucket, Top 2‐5 clients weak

Customer Details Q2FY15 Q1FY15 QoQ gr. Q2FY14 YoY gr.

No of Active Customers 203 201 1.0% 192 5.7%

No of Customers Added 2 3 ‐33.3% 3 ‐33.3%

>$1 m Clients 84 83 1.2% 78 7.7%

Top Customer 18.6 18.3 1.9% 18.5 0.6%

Top 5 Customers 40.1 39.6 1.3% 42.7 ‐6.0%

Top 2‐5 Customers 21.5 21.3 0.7% 24.1 ‐11.0%

Top 10 Customers 53.5 51.9 3.0% 52.0 2.9%

Top 6‐10 Customers 13.4 12.3 8.6% 9.3 43.7%

Non‐Top 10 Customers 71.5 63.3 13.0% 60.3 18.6%

% of Total

Top Customer 14.9% 15.9% ‐96 bps 16.5% ‐160 bps

Top 5 Customers 32.1% 34.4% ‐229 bps 38.0% ‐592 bps

Top 10 Customers 42.8% 45.1% ‐228 bps 46.3% ‐351 bps

DSO 80 82 ‐2.4% 75 6.7%


Exhibit 14: Strongest growth in A&E SBU in the company’s history

By Service Offering ($ m) Q2FY15 Q1FY15 QoQ gr. Q2FY14 YoY gr.

Integrated Enterprise Solutions 47.5 46.6 2.0% 43.1 10.3%

Auto & Engineering 37.5 30.3 24.0% 27.2 38.2%

SAP 28.2 26.0 8.7% 28.5 ‐0.8%

Semiconductor Solutions Group 11.7 12.4 ‐5.2% 13.6 ‐13.5%

% of Total

Integrated Enterprise Solutions 38.0% 40.4% ‐243 bps 38.4% ‐37 bps

Auto & Engineering 30.0% 26.3% 375 bps 24.2% 582 bps

SAP 22.6% 22.6% 4 bps 25.4% ‐276 bps

Semiconductor Solutions Group 9.4% 10.7% ‐136 bps 12.1% ‐270 bps


October 21, 2014 6

KPIT Technologies

Exhibit 15: Employee addition strong with uptick in Utilization

Human Resource – Details Q2FY15 Q1FY15 QoQ gr. Q2FY14 YoY gr.

Development Team ‐ Onsite (Avg) 1,456 1,423 2.3% 1,243 17.1%

Development Team ‐ Offshore (Avg) 7,518 7,224 4.1% 6,708 12.1%

Onsite FTE 1,327 1,293 2.6% 1,148 15.6%

Offshore FTE 5,383 5,068 6.2% 4,888 10.1%

Development (at Quarter end) 9,191 8,757 5.0% 8,122 13.2%

Gen Management / Support 572 568 0.7% 548 4.4%

Marketing (Subsidiaries) 170 165 3.0% 146 16.4%

Total 9,933 9,490 4.7% 8,816 12.7%

Onsite Utilization 91.1% 90.8% 28 bps 92.4% ‐125 bps

Offshore Utilization 71.6% 70.2% 145 bps 72.9% ‐127 bps


October 21, 2014 7

KPIT Technologies

Income Statement (Rs m)

Y/e March 2013 2014 2015E 2016E

Net Revenue 22,386 26,940 30,377 34,444

Raw Material Expenses 14,640 18,180 21,077 24,001

Gross Profit 7,746 8,760 9,300 10,443

Employee Cost — — — —

Other Expenses 4,091 4,528 5,111 5,324

EBITDA 3,655 4,233 4,188 5,120

Depr. & Amortization 472 540 670 712

Net Interest 146 287 182 104

Other Income (177) 24 245 261

Profit before Tax 2,860 3,430 3,581 4,564

Total Tax 765 941 895 1,232

Profit after Tax 2,095 2,490 2,686 3,332

Ex‐Od items / Min. Int. 79 — — —

Adj. PAT 1,991 2,490 2,686 3,332

Avg. Shares O/S (m) 192.8 192.9 192.9 192.9

EPS (Rs.) 10.3 12.9 13.9 17.3

Cash Flow Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

C/F from Operations 1,203 1,030 1,292 3,599

C/F from Investing (3,503) (1,665) (911) (1,033)

C/F from Financing 2,726 882 (416) (462)

Inc. / Dec. in Cash 426 247 (36) 2,103

Opening Cash 1,467 1,893 1,908 1,872

Closing Cash 1,893 1,908 1,872 3,975

FCFF 1,894 1,373 380 2,565

FCFE 2,307 1,305 380 2,565

Key Financial Metrics

Y/e March 2013 2014 2015E 2016E

Growth

Revenue (%) 49.2 20.3 12.8 13.4

EBITDA (%) 67.6 15.8 (1.0) 22.2

PAT (%) 36.9 25.1 7.9 24.1

EPS (%) 26.4 25.0 7.9 24.1

Profitability

EBITDA Margin (%) 16.3 15.7 13.8 14.9

PAT Margin (%) 8.9 9.2 8.8 9.7

RoCE (%) 20.9 20.2 18.2 18.9

RoE (%) 22.8 21.5 19.3 20.2

Balance Sheet

Net Debt : Equity — — — (0.1)

Net Wrkng Cap. (days) — 47 57 57

Valuation

PER (x) 15.0 12.0 11.1 9.0

P / B (x) 2.9 2.3 2.0 1.7

EV / EBITDA (x) 8.1 7.0 7.0 5.3

EV / Sales (x) 1.3 1.1 1.0 0.8

Earnings Quality

Eff. Tax Rate 26.7 27.4 25.0 27.0

Other Inc / PBT (6.2) 0.7 6.8 5.7

Eff. Depr. Rate (%) 10.9 10.4 11.0 10.0

FCFE / PAT 115.9 52.4 14.2 77.0

Source: Company Data, PL Research.

Balance Sheet Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

Shareholder's Funds 10,362 12,751 15,021 17,891

Total Debt 1,602 1,534 1,534 1,534

Other Liabilities 270 — — —

Total Liabilities 12,235 14,285 16,555 19,425

Net Fixed Assets 2,005 2,161 2,402 2,723

Goodwill 4,423 5,994 5,994 5,994

Investments 2,154 1,859 1,859 1,859

Net Current Assets 2,408 3,207 5,235 7,784

Cash & Equivalents 1,921 1,908 1,872 3,975

Other Current Assets 6,084 8,248 11,852 13,434

Current Liabilities 5,597 6,949 8,489 9,626

Other Assets 1,244 1,064 1,064 1,064

Total Assets 12,235 14,285 16,555 19,425

Quarterly Financials (Rs m)

Y/e March Q3FY14 Q4FY14 Q1FY15 Q2FY15

Net Revenue 6,779 7,001 6,897 7,574

EBITDA 1,042 1,130 832 1,010

% of revenue 15.4 16.1 12.1 13.3


Net Interest 79 71 40 39

Other Income 18 (76) 101 42

Profit before Tax 846 848 730 769

Total Tax 238 235 222 63

Profit after Tax 608 613 508 706

Adj. PAT 608 613 508 706

Key Operating Metrics

Y/e March 2013 2014 2015E 2016E

Total Volume (in hours) 12,018 12,859 14,531 16,565

Offshore Utilization 74.0 72.1 74.5 75.0

Re/US$ 54.5 60.7 60.5 59.0

SW Devp. Cost (% of sales) 65.4 67.5 69.4 69.7

S&M Cost (% of Sales) 6.9 7.4 7.4 6.8

Revenue (US$ m) 410 444 502 584

EBITDA Margin Expansion/(Erosion) (bps) 179 (62) (192) 108

Tax Rate (%) 26.7 27.4 25.0 27.0


October 21, 2014 8

KPIT Technologies

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai‐400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage

31.7%

50.0%

18.3%

0.0%0%

10%

20%

30%

40%

50%

60%

BUY Accumulate Reduce Sell

% of Total Coverage

PL’s Recommendation Nomenclature

BUY : Over 15% Outperformance to Sensex over 12‐months Accumulate : Outperformance to Sensex over 12‐months

Reduce : Underperformance to Sensex over 12‐months Sell : Over 15% underperformance to Sensex over 12‐months

Trading Buy : Over 10% absolute upside in 1‐month Trading Sell : Over 10% absolute decline in 1‐month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

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information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be

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KPIT Technologies

Autonomous roadmap for growth, Retain “BUY”

September 18, 2014

Prabhudas Lilladher Pvt. Ltd. and/or its associates (the 'Firm') does and/or seeks to do business with companies covered in i ts research reports. As a result investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of the report. Investors should consider this report as only a single factor in making their investment decision.

Please refer to important disclosures and disclaimers at the end of the report

Co

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any

Up

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Shashi Bhusan [email protected] +91-22-66322300

Hussain Kagzi [email protected] +91-22-66322242

Rating BUY

Price Rs158

Target Price Rs200

Implied Upside 26.6%

Sensex 26,631

Nifty 7,976

(Prices as on September 17, 2014)

Trading data

Market Cap. (Rs bn) 12.4

Shares o/s (m) 78.5

3M Avg. Daily value (Rs m) 225.4

Major shareholders

Promoters 22.28%

Foreign 33.01%

Domestic Inst. 6.86%

Public & Other 37.85%

Stock Performance

(%) 1M 6M 12M

Absolute 3.7 0.6 14.4

Relative 1.7 (21.5) (20.0)

How we differ from Consensus

EPS (Rs) PL Cons. % Diff.

2015 14.1 14.0 0.6

2016 17.9 16.7 7.1

Price Performance (RIC: KPIT.BO, BB: KPIT IN)

Source: Bloomberg

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We evaluated KPIT’s service offerings and strength to dig deeper into our hypothesis. KPIT offers exposure to a highly attractive, rapidly expanding market (Automotive Electronics, Manufacturing and Energy & Utility), alongside an ability to capitalise as a low-cost disruptor with compelling technology like ‘Revolo’. KPIT has one of the strongest industry positioning profiles in the Automotive Segments. Retain “BUY”.

Core drivers of growth – Strength in Automotive sector to drive surprises: We expect strong end-market growth of AUTOSAR, Infotainment, Vision Systems and Powertrain driven by new car ratings regimes. We believe KPIT’s technological superiority will retain its dominant share in the automotive vertical. We expect the mix to shift towards higher-end functionality, leading to higher realization driving mid-20s revenue growth in the segment.

Return in discretionary and renewed strategy to drive SAP and IES momentum: SAP and IES (Oracle) SBU struggle are likely to grow over the last six quarters due to technology reset, weaker maintenance revenue, cost overrun and slow decision making. We see the concerns waning in FY15 as the management sees improved deal pipeline, deal closures and deal ramp-ups.

Account mining – Increasing focus on top 50 acccounts: Management has increased their focus on mining top-50 clients. KPIT has hired ~35 account managers to mine top-50 accounts and is in the processs of ramping it up. We expect this focus on account mining and restructuring of account management by verticals to drive stronger revenue growth.

Risks to the investment case: Risks to our view include (1) Weakening discretionary spend (2) In-house R&D for Automotive (3) Investment needs (4) Worsening DSOs and (5) Risk associated with inorganic ventures.

Valuation and Recommendation – BUY with TP of Rs200: We forecast top-line growth of 14% in FY14-16, while KPIT’s asset-light model should allow EBITDA margin expansion over FY14-16 from 12.1% to 15.6% and a net income CAGR of 16%. We maintain “BUY” with 27% upside from the current market price.

Key financials (Y/e March) 2013 2014 2015E 2016E

Revenues (Rs m) 22,386 26,940 29,606 33,547

Growth (%) 49.2 20.3 9.9 13.3

EBITDA (Rs m) 3,655 4,233 4,137 5,220

PAT (Rs m) 1,991 2,490 2,620 3,312

EPS (Rs) 10.3 13.4 14.1 17.9

Growth (%) 26.4 30.0 5.2 26.4

Net DPS (Rs) 0.8 1.9 2.2 2.5

Profitability & Valuation 2013 2014 2015E 2016E

EBITDA margin (%) 16.3 15.7 14.0 15.6

RoE (%) 22.8 21.5 18.9 20.2

RoCE (%) 20.9 20.2 17.8 18.9

EV / sales (x) 1.3 1.1 1.0 0.8

EV / EBITDA (x) 8.3 6.8 7.0 5.2

PE (x) 15.3 11.8 11.2 8.9

P / BV (x) 2.9 2.3 2.0 1.6

Net dividend yield (%) 0.5 1.2 1.4 1.6

Source: Company Data; PL Research

September 18, 2014 2

KPIT Technologies

Exhibit 1: Services and Vertical Metrics of KPIT


Exhibit 2: KPIT Competencies – Strength in Auto Vertical

In Auto Vertical In Manufacturing Vertical In Energy & Utility Vertical

Opportunities KPIT Competencies Opportunities KPIT Competencies Opportunities KPIT Competencies

Electrification Powertrain Intelligent Products Enterprise IT Sustainable Energy ERP

Connected Cars Infotainment M2M Communication Consulting Smart Grids Enterprise Asset Mgmt

Infotainment Safety, Chassis Concurrent Engineering BI & Analytics Smart Meters Cloud

Safety In-vehicle Networking Engineering Analytics Cloud Enterprise Asset Mgmt Mobility Solutions

Electronics Consolidation Teleatics Big Data eBiz Mobility Solutions On-Demand Analytics

Social Media Diagnostics Mobility Solutions Business Process Soln On-Demand Analytics Customer Billing & Info

Analytics Body Electronics 3D Printing Product Design Customer Billing & Info Productized Solution

Shortening Product Cycle ERP Competence Tracking Infrastructure Upgradation In Memory Computing

Newer Ownership Models Consulting

After Market

Multi-Modal Mobility After Market

Embedded Electronics


Exhibit 3: KPIT product portfolio – Strong presence in Automotive Ecosystem



KPIT Technologies

A&E – Powering the automotive vertical

We look at the Automotive SBU of KPIT that distinguishes it from other IT

companies. Tightening in emission standards, along with drive towards fuel

efficiency and a shift in consumer preference have brought focus on Powertrain

engineering to design engines abiding these innovations.

Considering the fast development of auto electronics and intelligence, automotive

electronics has become the fastest growing segment of auto parts with an increasing

demand on safety and security, telecommunications, environmental protection and

energy-saving. More and more OEMs have begun to adopt electronic systems and

have integrated semiconductor circuits in vehicles. Automotive electronics has

become a major differentiated indicator for vehicles. A major feature of the

development of automotive safety is active safety, while active safety technology

development is mainly represented by electronics control with reliability as a top

priority. Mobile Internet technology has further promoted the development of

automotive intelligent interconnected applications, which can be combined with

vehicle safety through a combination of big data to improve reliability. As connected

vehicles involve different aspects of the industry chain, various parties are seeking

more benefits. Realising how to make a trade-off regarding the interests of all

parties is an important prerequisite to promoting the development of Connected

Vehicles. No matter in which sub-segment, improving products and the cost

performance of the technology from the perspective of consumers is imperative for

making a quick win in the market.

Most automotive electronics enterprises do not have the core technology and are

hampered by a limited R&D scale. Automotive electronics enterprises will continue

to focus on independent R&D and M&A for future development.

Exhibit 4: Demand of automotive electronics is going to surge

190205

314

150

170

190

210

230

250

270

290

310

330

2013 2014 2020

Automotive Electronics revenue ($ bn)

Source: Industry Expert, PL Research


KPIT Technologies

Newly developed and improved automotive electronics applications represent an

important pillar in the value creation of the next generation of automobiles. Market

researchers and Industry Experts estimate the total global market volume for

automotive electronics as being more than US$190bn in 2013, a figure that is set to

rise to US$205bn in 2014. The market is expected to continue growing, leaping to a

level of US$314bn by the year 2020; this is equivalent to a CAGR of 7.3% for the

period 2012 to 2020.

Exhibit 5: An example of sensors needed in the cars

Source: Cisco, PL Research

Exhibit 6: Global Automotive Sensors Market

16.217.4

18.8

30.3

14

17

20

23

26

29

32

2012 2013 2014 2020

Automotive Sensor ($ bn)

Source: Industry Experts, PL Research


KPIT Technologies

Overall, the major driving forces for increased demand for automotive sensors in

vehicles include regulatory mandates for improving fuel economy and stringent

emission standards as well as requirements for advanced safety systems. The growth

is also attributed by consumer demand for safety & security, comfort & convenience

features and the growth of hybrid and electric vehicles which is creating enormous

opportunities for new types of sensors in automobile industry. Automotive Sensors

market worldwide, standing at US$16.2bn in 2012, estimated to be US$17.4bn in

2013 and forecast at US$18.8bn in 2014, is further projected to reach US$30.3bn by

2020, thereby, posting a CAGR Of 8.2% between 2012 and 2020. Estimated to be

US$2.6bn in 2013, demand for Automotive MEMS Sensors globally is projected to

reach US$4.7bn by 2020.

KPIT has established practices in the embedded space like Powertrain, Hybrid

Solutions, Infotainment, Autosar, Body Electronics, Chassis, Safety, Diagnostics,

Telematics, specialized Mechanical Design, coupled with initiatives like Diagnostics

on the cloud, Intelligent Transportation Systems, Big Data Analytics, Infotainment

Platform (KIVI) , Warranty Management Solutions and patented software products

position us extremely well for sustained growth in the automotive vertical.

A&E SBU, which contributes 25% of total company revenue, was the second highest

growing SBU during the year with 23% YoY growth. Despite increased investments

on people and technology, EBITDA margin for this SBU was stable at 22-23%.

Exhibit 7: A&E SBU - Consistent growth CQGR of 4.2% since Q1FY12

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

10

15

20

25

30

35

Q1F

Y12

Q2

FY

12

Q3F

Y12

Q4F

Y12

Q1

FY

13

Q2F

Y13

Q3F

Y13

Q4F

Y13

Q1

FY

14

Q2F

Y14

Q3F

Y14

Q4

FY

14

Q1F

Y15

Auto & Engineering (US$ m) QoQ Gr. (RHS)


We expect A&E SBU to grow in high-teens in FY15-17E, with EBITDA margin seeing

improvement from currently ~23% to ~25% over FY15-16E.


KPIT Technologies

IES SBU and SAP SBU – Driven by return in discretionary spend

SAP SBU – Success from SuccessFactor

According to the management, KPIT, in H2FY13, struggled to keep-up the pace with

changed strategy of SAP, as SAP acquired SuccessFactors (SFSF) (a cloud based HRM

product company). After the acquisition, the demand for on-premise HRM licenses

declined and SFSF sales ballooned. Hence, KPIT had to train its onsite resources and

get them certified on SFSF which had a dent on growth and utilization, thus,

affecting profitability negatively.

Moreover, with the rapid growth over the years, the SAP deal sizes kept on

increasing and the company was not fully prepared on execution of these large deals

which resulted in some cost overruns in a couple of large projects. The company also

experienced delayed closure of some very large SAP deals by a couple of quarters

which further impacted growth and profitability.

Impact: Revenues declined by 1% on a YoY basis, with the SBU contributing 25% to

total company revenues. Delay in closure of a few of these deals, especially in North

America, was the major factor for the slowdown in the SBU’s performance, thus,

hindering company’s overall growth. They closed more than 17 deals exceeding

US$78.5m in value. Profitability for SAP SBU went down as the full year EBITDA

margin was negative at 5-6%.

Measures Taken: The management has taken various initiatives for SAP turnaround

Created SFSF practices in the US and are seeing traction and deal flows

Rationalized fixed cost (acquired through Sparta)

Let go low profitability businesses to improve margin

Positive impacts in FY15: According to the management, profitability improvement

in FY15 would be the top priority. SAP SBU has already witnessed turnaround during

Q1FY15 with a low single digit margin. Management is confident of turning around

SAP SBU to high-single-digit EBITDA margin by Q4FY15.


KPIT Technologies

Exhibit 8: SAP SBU - Patchy growth CQGR of 2% since Q1FY12

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

18

21

24

27

30

33

Q1

FY

12

Q2

FY

12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4

FY

13

Q1F

Y14

Q2F

Y14

Q3F

Y14

Q4F

Y14

Q1F

Y15

SAP SBU (US$ m) QoQ Gr. (RHS)


Integrated Enterprise Solution SBU – Deal pipeline healthy

KPIT continues to see good traction for JDE offerings, Oracle E-Business suite, Oracle

Fusion Middleware and (IMS) as they won new deals in these respective areas.

Management sees strong deal pipeline in IES as clients look for discretionary spend

with green-field implementations and instance consolidation. The company has

improved EBITDA margin to the range of 18-19% and likely to sustain it.

Exhibit 9: IES SBU – Better than SAP but weaker than A&E CQGR of 3.9% since Q1FY12

-22%

-16%

-10%

-4%

2%

8%

14%

25

30

35

40

45

50

Q1

FY

12

Q2

FY

12

Q3F

Y12

Q4F

Y12

Q1F

Y13

Q2F

Y13

Q3F

Y13

Q4

FY

13

Q1F

Y14

Q2F

Y14

Q3F

Y14

Q4F

Y14

Q1F

Y15

IES SBU (US$ m) QoQ Gr. (RHS)



KPIT Technologies

Eyeing US$1bn revenue and 20% EBITDA margin by 2017

FY14 – Year of Restructuring and Consolidation

FY14 was the year of consolidation as KPIT’s management spent time reorganizing

themselves for the next phase of high growth at an increased base. The company

missed the guidance due to reduction in SAP revenues (which contributes 25% of the

top-line, declined by 11%) due to delayed closure of deals and cross-currency

fluctuations during the year. The miss was also courtesy flat growth realized by

largest customer. For FY14, excluding SAP, revenue grew by 17% YoY.

KPIT has taken various initiatives to capture next phase of high growth.

Greater focus on R&D space for IP creation, solution development and filing of

patents.

Created a separate unit called “Products & Platforms” with increased focus on

non-linear growth and IP-based revenues, which will work towards

development of a strong product portfolio

Witnessing higher traction in (IMS) and would be creating a separate SBU to

capture these significant opportunities.

KPIT has made few key Executive Appointments

Mr. Frederic Ramioulle has joined as President – Automotive & Transportation

Industry Business Unit (IBU)

Mr. Dietmar Imminger has joined as Head of Automotive and Transportation

business in Germany

Mr. Baljeet Chhazal has joined as Senior VP and Global head of Oracle Business

Unit and he will be based out of US

Mr. Abhishek Sinha has joined as Senior VP- Operational Excellence and his

key responsibility will be to identify and improve areas of operational

excellence across the organization

Mr. Deepak Purohit has joined as Senior VP- Large deals and his immediate

focus market will be US, besides supporting large deal activities in other

geographies

Mr. Lee Liviu Cocis has joined as VP & Head of IMS practice

Improving account mining capabilities: KPIT has hired account managers (~30)

to mine their existing clients. Management is targeting their top-50 accounts,

with one account manager assigned to each account, who has strong industry

understanding, to cross-sell services like ERP, SCM etc.

Management is confident of achieving FY15 12-14% revenue growth guidance.


KPIT Technologies

Initiatives for improving cash generation

KPIT has struggled due to poor cash generation over FY11-14. However,

management effort to improve cash flow has met with some success in Q1FY15. We

expect cash generation to improve in FY15-16.

According to the management, the reasons for lower cash conversion in FY14

compared to historic performance are:

CFO considerably lower compared to PAT due to increase in working capital

Slipped on DSO by 11 days due to increase in credit period by 15 days to largest

customer and higher revenues in the last month of the quarter

Lower CFO/EBITDA attributed to cost of growth since a fast growth eats up

working capital resulting in lower cash flow conversions

Exhibit 10: Weaker cash generation

-50%

10%

70%

130%

190%

-145%

-95%

-45%

5%

55%

FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14

FCF/EBITDA OCF/PAT (RHS)


Exhibit 11: One year forward PER - Trading below long term average

11.5

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Apr

-04

Sep

-04

Mar

-05

Sep

-05

Fe

b-0

6

Aug

-06

Feb

-07

Jul-

07

Jan

-08

Jul-

08

Dec

-08

Jun-

09

Dec

-09

Ma

y-1

0

Nov

-10

May

-11

Oct

-11

Ap

r-1

2

Oct

-12

Apr

-13

Sep

-13

Mar

-14

Se

p-1

41-Yr Forward PER Average PER

Source: Company Data, Bloomberg, PL Research


KPIT Technologies

Rated as “Top 10 Breakthrough Sourcing Standouts” by ISG

KPIT, (BSE: 532400; NSE: KPIT), an IT consulting and product engineering partner to

automotive & transportation, manufacturing and energy & utilities corporations,

today announced that it has been listed amongst the Top 10 Outsourcing Service

Providers by Information Services Group (ISG), a leading technology insights, market

intelligence and advisory services company.

KPIT was listed among America's “Top 10 Breakthrough Sourcing Standouts” based

on annual contract value (ACV) won over the last 12 months, according to the ISG

Global Outsourcing Index.

“For more than a decade, the ISG Outsourcing Index has been the authoritative

source for marketplace intelligence related to outsourcing transaction structures and

terms, industry adoption, geographic prevalence and service provider performance,”

said Paul Reynolds, Chief Research Officer of ISG. “KPIT continues to establish itself

as a leading and growing player in the global market, based on its volume of business

in relation to other industry providers.”

Now in its 47th consecutive quarter, the ISG Outsourcing Index provides an

independent review of the latest sourcing industry data and trends for enterprises,

service providers, analysts and the media.


KPIT Technologies

Appendix – A quick look at KPIT’s role in automotive

Since 2010, the global auto market has featured quite a polarized development. The

US has begun to emerge from the economic crisis, while European countries are

facing a debt crisis and excess production capacity. Major emerging markets have

entered a stable stage after one or two years of explosive growth. Hence, the auto

industry is experiencing a global capacity redesign to capture the new growth

markets. At the same time, OEMs are looking for new growth opportunities through

improving car performance, a trend that results from increasingly strict regulatory

requirements as well as technological developments, more specifically a leap in

automotive electronics technology.

Auto development trends such as lightweight materials, miniaturization, intelligence

and electrification, the auto electronics market is experiencing rapid growth. The

improved specialization of parts manufacturers enables them to play a more

important role than OEMs in leading technological innovation in some segments.

Meanwhile, penetration of cross-industry technology into the automotive industry

has further intensified cross-sector competition. With the dual impact of industry-

internal changes and the external economic environment, market concentration has

been further accelerated.

Exhibit 12: Emissions goals include the most stringent regulations in developed markets

Source: ICCT, PL Research

Automotive companies are driving to the fuel efficiency through Hybrids and Electric

Vehicles (EVs) as the solution, but large degree adoption would be High Efficiency

Powertrain (HEP) – Downsized turocharged engines com combined with lighter,

more efficient transmissions and start-stop batteries.


KPIT Technologies

Exhibit 13: Mandated endeavour to drive fuel efficiency

Source: ICCT, PL Research

The automotive-related microelectronics market is expected to grow at a far faster

rate than its parent automotive sector. The motor vehicle-to-electronics-to

semiconductor ratio reached a 10:13:15 level in 2013. This dynamic trend is

expected to continue through to the mid-2020s, a development with significant

impact on the global automotive market.

Exhibit 14: Auto Electronics (CAGR): America (8%), Europe (7%), Japan (3%), APac (10%)

5.3

9.5

6.27.1

7.8

13.4

7.2

11.4

0

2

4

6

8

10

12

14

16

America Europe Japan APac

(US

$ b

n)

2012 2017

Source: ZVEI 2013, PL Research


KPIT Technologies

KPIT role in Powertrain

What is Powertrain? In a motor vehicle, the term powertrain describes the main

components that generate power and deliver it to the road surface, water or air. This

includes the engine, transmission, drive shafts, differentials and the final drive (drive

wheels, continuous track as in military tanks or caterpillar tractors, propeller, etc.).

Sometimes "powertrain" is used to refer to simply the engine and transmission,

including the other components only if they are integral to the transmission. In a

carriage or wagon, running gear designates the wheels and axles in distinction from

the body.

Exhibit 15: Powertrain components

Source: Honda, PL Research

Exhibit 16: ... and its layout

Source: Honda, PL Research

What is the HEP? The HEP (High Efficiency Powertrain) includes a downsized direct

injected turbocharged gasoline (or diesel) engine mated to a highly efficient

transmission with a start-stop battery system, plus supporting valve, piston, sealing

and exhaust technologies. We believe that HEP adoption will stem from both the

inefficiency of traditional powertrain and greater cost effectiveness than hybrids and

EVs. At its core, the HEP includes a downsized direct injected turbocharged gasoline

engine (or in some cases, especially in Europe, diesel) mated to a highly efficient

transmission with a start-stop battery system as well as several supporting

electronics, valve, piston, sealing and exhaust technologies.

Powertrain Electronics: Powertrain electronics create a highly developed central

nervous system stretching across a network of three different types of hardware:

sensors (which feed data to the engine control unit), actuators (small electro-

mechanical motors that control liquid flows) and control units (the “brain” of the

engine). When properly integrated with software, powertrain electronics can, in our

view, capture meaningful efficiency gains across a wide range of operating

conditions that may not be captured in the traditional improvement estimates for

individual mechanical components.


KPIT Technologies

KPIT’s Powertrain team of Automotive SBU has filed a patent application for

Hybrid system architecture for large vehicles. KPIT help OEMs rapidly adopt the

technology for full systems, including sensors and engine control electronics.

KPIT role in Autosar

What is Autosar? AUTOSAR (Automotive Open System Architecture) is an open and

standardized automotive software architecture, jointly developed by automobile

manufacturers, suppliers and tool developers. It is a partnership of automotive

OEMs, suppliers and tool vendors whose objective is to create and establish open

standards for automotive E/E (Electrics/Electronics) architectures that will provide a

basic infrastructure to assist with developing vehicular software, user interfaces and

management for all application domains. This includes the standardization of basic

systems functions, scalability to different vehicle and platform variants,

transferability throughout the network, and integration from multiple suppliers,

maintainability throughout the entire product life-cycle and software updates and

upgrades over the vehicle's lifetime as some of the key goals.

KPIT AUTOSAR OS is based on OSEK OS with backward compatibility. It is highly

portable and scalable in terms of features for automotive domain. The OS can be

scaled (configured) to run only with the desired features based on the applications

and other constraints.

Based on AUTOSAR standard

AUTOSAR OS available for R3.x and R4.x

Exhibit 17: World’s First AUTOSAR R4.0.3 ASIL-D Software Stack & ECU Configuration Tool



KPIT Technologies

Exhibit 18: KPIT’s competitors in AUTOSAR Implementation

ArcCore Continental Engineering services dSPACE

ETAS Dassault Systemes Freescale

Mecel Renesas Electronics OpenSynergy

see4sys Vector Informatik GmbH Mentor Graphics

Source: PL Research

Exhibit 19: KPIT’s comprehensive AUTOSAR services


KPIT in Infotainment

In-car entertainment (ICE), or in-vehicle infotainment (IVI), is a collection of

hardware devices installed into automobiles, or other forms of transportation, to

provide audio and/or audio/visual entertainment, as well as automotive navigation

systems (SatNav). This includes playing media such as CDs, DVDs, Freeview/TV, USB

and/or other optional surround sound, or DSP systems. Also, increasingly common in

ICE installs are the incorporation of video game consoles into the vehicle. Systems

can be standalone add-ons, part of the OEM controls, or a combination of the two.

Exhibit 20: Infotainment diagram

Source: Intel, PL Research


KPIT Technologies

Exhibit 21: Expected to grow at a CAGR of 5%

6.006.256.506.757.007.257.507.758.008.258.508.75

2011 2012 2013E 2014E 2015E 2016E 2017E 2018E

Worldwide Automotive Infotainement Semiconductor Revenue ($ bn)

Source: IHS Automotive Research, PL Research

KPIT’s offers off-the-shelf tools for authoring, communicating and debugging. The

tools manage the entire diagnostics lifecycle. Their diagnostic tool come with in-built

advance features like guided fault findings and remote diagnostics. In addition, they

significantly reduce the time needed for typical diagnostic use-cases like creation of

diagnostic data, commissioning and validation of ECU while providing flexibility

across every kind of ECU project and highly user friendliness.

Exhibit 22: An overview on each of our “In2Soft Diagnostic Tools”


The Smart and Connected Vehicle and the Internet of Things

Technology is evolving so rapidly it has become an integral component of everyday

life. Having uninterrupted connectivity is a must, even while driving. In fact, analysts

predict that by 2016 in-vehicle connectivity and basic online content will become

critical buying factors in consumers’ car-buying decisions in mature markets. This

dramatic convergence of technology in the car is quickly making it a key device in the

Internet of Things (IoT) with the ability to both receive data and feed it to the cloud,

to the traffic infrastructure, to other vehicles and more. As a result, automakers are

increasingly turning to leading technology companies to explore new ways to inform,

entertain and assist drivers to create a safer and more enjoyable driving experience.


KPIT Technologies

Exhibit 23: An example of intelligent transportation


Exhibit 24: Schema of connected vehicle and transportation


Exhibit 25: The smart and connected vehicle


KPIT’s offering

KPIT’s M2M (machine-to-machine) solution enables mission critical machines of

customers to become more responsive, safer and smarter. We have harnessed our

capabilities, learning and experience in the traditional IT space and taken it to highly

sophisticated industrial machines, which are critical to our clients. Our M2M solution

aids monitoring of IT enabled devices for clients in the focus industries.


KPIT Technologies

KPIT’s M2M solution

Transforms machines into intelligent devices that exchange real time data,

making such devices predictable and improving their performance

Provides remote monitoring, operation and maintenance of industrial

equipment

Provides reduction in data duplication and a concurrent increase in data

consistency, increasing the reliability, speed and efficiency of data usage

Provides real-time control over critical infrastructure and remote assets

Optimizes productivity, asset management, energy management and enhances

safety and regulatory compliance

Gives better visibility into operations and costs, thus, enabling improved

customer service and reduction in potential losses

Optimizes energy use, enables better work force management, provides better

maintenance processes and enhances security, leading to operational

excellence.


KPIT Technologies

Income Statement (Rs m)

Y/e March 2013 2014 2015E 2016E

Net Revenue 22,386 26,940 29,606 33,547

Raw Material Expenses 14,640 18,180 20,443 23,144

Gross Profit 7,746 8,760 9,163 10,404

Employee Cost — — — —

Other Expenses 4,091 4,528 5,026 5,184

EBITDA 3,655 4,233 4,137 5,220


Net Interest 146 287 182 104

Other Income (177) 24 301 129

Profit before Tax 2,860 3,430 3,589 4,537

Total Tax 765 941 969 1,225

Profit after Tax 2,095 2,490 2,620 3,312

Ex-Od items / Min. Int. 79 — — —

Adj. PAT 1,991 2,490 2,620 3,312

Avg. Shares O/S (m) 192.8 185.5 185.5 185.5

EPS (Rs.) 10.3 13.4 14.1 17.9

Cash Flow Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

C/F from Operations 1,203 1,030 1,307 3,588

C/F from Investing (3,503) (1,665) (888) (1,006)

C/F from Financing 2,726 787 (416) (462)

Inc. / Dec. in Cash 426 152 3 2,119

Opening Cash 1,467 1,893 1,813 1,816

Closing Cash 1,893 1,813 1,816 3,935

FCFF 1,894 1,407 419 2,581

FCFE 2,307 1,339 419 2,581

Key Financial Metrics

Y/e March 2013 2014 2015E 2016E

Growth

Revenue (%) 49.2 20.3 9.9 13.3

EBITDA (%) 67.6 15.8 (2.3) 26.2

PAT (%) 36.9 25.1 5.2 26.4

EPS (%) 26.4 30.0 5.2 26.4

Profitability

EBITDA Margin (%) 16.3 15.7 14.0 15.6

PAT Margin (%) 8.9 9.2 8.8 9.9

RoCE (%) 20.9 20.2 17.8 18.9

RoE (%) 22.8 21.5 18.9 20.2

Balance Sheet

Net Debt : Equity — — — (0.1)

Net Wrkng Cap. (days) — — — —

Valuation

PER (x) 15.3 11.8 11.2 8.9

P / B (x) 2.9 2.3 2.0 1.6

EV / EBITDA (x) 8.3 6.8 7.0 5.2

EV / Sales (x) 1.3 1.1 1.0 0.8

Earnings Quality

Eff. Tax Rate 26.7 27.4 27.0 27.0

Other Inc / PBT (6.2) 0.7 8.4 2.8

Eff. Depr. Rate (%) 10.9 10.4 11.0 10.0

FCFE / PAT 115.9 53.8 16.0 77.9 Source: Company Data, PL Research.

Balance Sheet Abstract (Rs m)

Y/e March 2013 2014 2015E 2016E

Shareholder's Funds 10,362 12,751 14,955 17,805

Total Debt 1,602 1,534 1,534 1,534

Other Liabilities 270 — — —

Total Liabilities 12,235 14,285 16,488 19,338

Net Fixed Assets 2,005 2,161 2,382 2,681

Goodwill 4,423 5,994 5,994 5,994

Investments 2,154 1,859 1,859 1,859

Net Current Assets 2,408 3,173 5,060 7,611

Cash & Equivalents 1,921 1,908 1,816 3,935

Other Current Assets 6,084 8,214 11,518 13,051

Current Liabilities 5,597 6,949 8,273 9,375

Other Assets 1,244 1,064 1,064 1,064

Total Assets 12,235 14,251 16,359 19,209

Quarterly Financials (Rs m)

Y/e March Q2FY14 Q3FY14 Q4FY14 Q1FY15

Net Revenue 7,028 6,779 7,001 6,897

EBITDA 1,088 1,042 1,130 832

% of revenue 15.5 15.4 16.1 12.1


Net Interest 74 79 71 40

Other Income 23 18 (76) 101

Profit before Tax 889 846 848 730

Total Tax 222 238 235 222

Profit after Tax 667 608 613 508

Adj. PAT 667 608 613 508

Key Operating Metrics

Y/e March 2013 2014 2015E 2016E

Total Volume (in hours) 12,018 13,461 15,009 16,885

Offshore Utilization 74.0 72.1 74.5 75.0

Re/US$ 54.5 60.7 59.8 59.0

SW Devp. Cost (% of sales) 65.4 67.5 69.1 69.0

S&M Cost (% of Sales) 6.9 7.4 7.4 6.8

— — — —

Revenue (US$ m) 410 444 496 569

EBITDA Margin Expansion/(Erosion) (bps) 179 (62) (174) 159

Tax Rate (%) 26.7 27.4 27.0 27.0



KPIT Technologies

Prabhudas Lilladher Pvt. Ltd.

3rd Floor, Sadhana House, 570, P. B. Marg, Worli, Mumbai-400 018, India

Tel: (91 22) 6632 2222 Fax: (91 22) 6632 2209

Rating Distribution of Research Coverage

34.5%

49.1%

16.4%

0.0%0%

10%

20%

30%

40%

50%

60%

BUY Accumulate Reduce Sell

% o

f To

tal C

ove

rage

PL’s Recommendation Nomenclature

BUY : Over 15% Outperformance to Sensex over 12-months Accumulate : Outperformance to Sensex over 12-months

Reduce : Underperformance to Sensex over 12-months Sell : Over 15% underperformance to Sensex over 12-months

Trading Buy : Over 10% absolute upside in 1-month Trading Sell : Over 10% absolute decline in 1-month

Not Rated (NR) : No specific call on the stock Under Review (UR) : Rating likely to change shortly

This document has been prepared by the Research Division of Prabhudas Lilladher Pvt. Ltd. Mumbai, India (PL) and is meant for use by the recipient only as

information and is not for circulation. This document is not to be reported or copied or made available to others without prior permission of PL. It should not be

considered or taken as an offer to sell or a solicitation to buy or sell any security.

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