KPIT Cummins Infosystem Ltd.
(Rs 120, FY09E - P/E 11x, BUY with a target price of Rs. 158)
Company Background:
KPIT Cummins has built a strong business model with core focus in few industry verticals, namely Manufacturing and BFSI coupled with few large anchor clients and effectively strengthening and broadening its services offering ranging from Auto electronics, Business Intelligence, Semiconductors, GBS. On the other hand, with strong domain expertise in the core industry verticals and offerings has enabled KPIT to add value and increase the wallet share from the clients IT budget. Moreover, company is impressively expanding its footprints in the niche geographies, like US, France, Japan, Germany, Middle East etc.
KPIT Cummins has built strong clients relationship with several globally renowned companies like Cummins, HP, Renesas, Deutsche bank, Unilever, Capital One, BNP Paribas, Business Objects, and Lehman Brothers. The business potential from these clients is very high, and there is immense potential left for further mining. KPIT Cummins is currently having a wallet share of around 20% from the top client Cummins, which has a annual IT budget of over $100mn.
On the other hand, other clients like Unilever, Renesas, HP Etc has a annual IT budget of over $1000 mn, KPIT Cummins share is little over 1%, which reflects the further potential from these accounts. Moreover, with company proven execution skill coupled with strong delivery model and steady improvement in the Star customer other than Cummins accounts in the recent quarters, indicates that KPIT Cummins has enough opportunities in its non- Cummins Star accounts to increase the wallet share and growth boosters.
KPIT Cummins has a successful track record in effective integration of its inorganic initiatives, starting from its acquisitions of Panex in late 2003, which strengthens company presence in high spending ERP space. Furthermore, company has made two acquisitions in November 2005, namely SolvCentral and Pivolis and CG Smith in March 2006.
Q1FY08 Performance: Rupee Appreciation continues to dampen growth
KPIT Cummins reported a consolidated revenues of Rs 1352.9 mn, up by 4% QoQ and 32% YoY, On the other hand, EBITDA margins expanded marginally by around 14bps to 15.9 QoQ%. On account of higher depreciation cost and lower than expected topline growth, net profit was lower by 9.7% QoQ to Rs 126.9 mn.
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