Birlasoft Ltd. share price target

21 August 2018 After several years of coping with integration issues and legacy pressures in its IT services business, KPIT announced that it would demerge its Engineering business and merge the IT services bit with Birlasoft. KPITs Engineering business has been its strongpoint, exhibiting 16% revenue CAGR over the last five years. Birlasoft too has been under pressure because of issues in its top client and has witnessed a decline of ~4% in revenue over the last three years. However, we note that during this period, positioning, prowess and performance in the Engineering business has been strong; and a majority of the issues can be attributed to the companys presence and efforts in the IT services business. KPIT Technologies On completion of the transaction, we reckon the Engineering Services side should grow at a 20% CAGR.

KPIT reported a better-than-expected margin performance in Q1FY19 while revenues were below our estimates US$ revenues grew marginally by 0.2% QoQ to $150.5 million, below our 1.8% growth and $152.9 million estimate Revenues in rupees grew 4.9% QoQ to | 1013.8 crore, below our estimate of 6% growth and | 1024.8 crore EBITDA margins expanded ~70 bps QoQ to 12.1%, above our 50 bps expansion and 11.9% estimate. Better-than-expected margin...

KPIT Technologies (KPIT) has delivered a subdued revenue performance in 1QFY19, which grew 0.2% QoQ in USD terms to US$150.5mn (0.8% below our estimate). In CC terms, core service revenue rose by 3.5% QoQ. USD revenue from Product Engineering business grew by a healthy 5.5% QoQ, while IES revenue rose by a decent 2.7% QoQ. However, revenue from Products & Platforms declined by a steep 39.6% QoQ. It should be noted that this business is lumpy in nature. While Digital Transformation saw 2.2% QoQ growth, SAP continued to face growth headwinds with the business declining by 3.5% QoQ, marking the third successive quarter of decline. EBITDA margin expanded by 75bps (95bps ahead of our estimate) owing to INR...

Revenue above Industry Avg. coupled with margin improvement KPIT reported muted Q1FY19 with a USD revenue growth of 0.2% QoQ supported by services business. EBIT margin improved 74bps QoQ to 9.4% (DCMe: 9.5%) largely on back of operational efficiencies and INR depreciation. The stock is currently trading at inexpensive valuations 13.6x/11.3x FY20/FY21 earnings estimates. We believe revenue growth above industry avg., coupled with margin improvement will lead to absolute upside in near to medium term; upgrade the stock to ACCUMULATE...

ICICI Securities Ltd | Retail Equity Research KPIT reported a better than expected Q4FY18 on all fronts US$ revenues grew 6.4% QoQ to $150.2 million, above our 1% growth and $142.6 million estimate Revenues in rupees grew 5.9% QoQ to | 966.4 crore, above our estimate of 0.5% growth and | 917.5 crore EBITDA margins expanded ~50 bps QoQ to 11.4%, above our 30 bps expansion and 11.1% estimate. Margin expansion was on the...

Increase earnings est on margin reset and maintain NEUTRAL of KPIT with TP of Rs 250, 13x FY20E (12x earlier). KPIT Tech (KPIT) posted strong revenue and operating performance. Rev came at USD 150mn, 6.4/17.1% QoQ/YoY. Growth was led by PES (36.3% of rev) which grew 12% QoQ. EBITDA% came at 12.7%, +186bps QoQ (adjusted for one-time expense of Rs 129mn) supported by offshore-led growth. APAT at Rs 0.76bn was supported by lower ETR.

Impressive Performance; FY19E Revenue Outlook Fairly Conservative KPIT Technologies (KPIT) has delivered a strong performance in 4QFY18. Its revenue grew by 6.4% QoQ and topped US$150mn-mark (3.4% above our estimate) led by robust 12% QoQ growth (USD terms) in Product Engineering business. Revenue from Products & Platforms segment also grew by a healthy 49.9% QoQ, though this business typically shows volatility on quarterly basis. While revenue from Digital Transformation business grew by 6.3% QoQ, ERP business saw subdued growth (IES: up 0.3% QoQ & SAP: down 2.1% QoQ). Its EBITDA margin expanded by 53bps QoQ on higher utilisation and cost control measures. Notably, adjusting for one-time cost...

24 May 2018 4QFY18 revenue growth of 6.5% QoQ was above our estimate of +2.8%, primarily driven by strength in Product Engineering (+11% QoQ) and Products & Platforms (+49% QoQ). IT Services business remained sluggish, with SAP declining by 3% and IES remaining flat QoQ. 60bp QoQ to 11.4%, largely in-line. However, the quarter included expenses related to the demerger of the Engineering business and the merger with Birlasoft. Excluding these, EBITDA margin was at 12.7% (+190bp QoQ). PAT of INR838m was up 35% QoQ (est. KPIT guided for 8-10% revenue growth in FY19, despite the strong exit to FY18, implying a CQGR of 0.8-1.5%, which is much lower than the 4% achieved in FY18.

Board of Directors of KPIT Tech has approved a composite scheme for (a) amalgamation of Birlasoft (India) with KPIT (proposed merger); and (b) demerger of engineering business of KPIT into KPIT Engineering Ltd (KEL), and remaining KPIT-Birlasoft (IT Services business).

Maintain NEUTRAL with TP of Rs 195, 12x Dec-19E EPS. KPIT Tech has re-structured its business to create two entities of IT services and ER&D; (separate listing), by first merging with Birlasoft to create ~USD 700mn rev entity, and later demerging the ER&D; segment (USD 200mn rev) from it. Despite value unlocking by demerging the ER&D; business (higher growth/margin and better valuations), the deal is EPS neutral (but, 15% accretive assuming full acceptance in open offer).