Fundamental Report KPIT Technologies Ltd

Recommendation	CMP	Target Price	Time Horizon
Accumulate	Rs. 580	Rs. 720	12 Months

KPIT Technologies Limited is an Indian multinational corporation that focuses on power train Conventional and electrical, autonomous technology (vision and control systems), connectivity and diagnostics software. The company’s focus sub verticals are Commercial vehicle, Passenger cars and Off-highway vehicles and New Mobility. KPIT has development centres in USA, Europe, Japan, China, Thailand, and India. It derives significant revenue i.e. 85.27% of its revenue from strategic top 21 clients across America, Europe, and ROW. Around 70% of revenue come from ADAS, EV, powertrain and infotainment.

Stock Details
Market Cap. (Cr.)	14774.98
Face Value	10.00
Equity (Cr.)	274.14
52 Wk. high/low	560/116.15
BSE Code	542651
NSE Code	KPIT TECH
Book Value (Rs)	46.63
Industry	Software
P/E	67.71

 

Share Holding Pattern %
Promoter	40.14
FIIs	20.90
Institutions	10.73
Non Promoter Corp.	24.72
Public & Others Government	3.51 0.00
Total	100.00

Key Trigger:

• Key Beneficiary as OEM Are upgrading Their Technology: KPIT is the leading software company which is getting benefitted with the upgradation of OEM software. Companies like Tesla, BMW are upgrading themselves with new technology, as Google Apple are also entering digital mobility space. To keep pace with the disruptions, existing automotive companies have raised their R&D investments focusing on technologies of Autonomous, Electrification, Connected, etc. This open up an opportunity for players like KPIT who have built competencies in the space.

• Entering New Partnership: KPIT recent older win of BMW shows the confident that big OEM have on this company. KPIT receives an important strategic large deal win from BMW Group which covered software development, integration, and maintenance of combined powertrain coordination unit including charging control. This deal will bring expected revenue of USD 50 Million + over next 5 years. Company announced a partnership with Triumph Motorcycles to bring ‘Distraction Free Digital Connected Experience’ to bikers. KPIT develops one of the earliest technology solutions for Turn-by-Turn navigation based on Google maps for Triumph’s premium bikes. Its software is going to be for 15+ models of Triumph.

• Cost rationalization: Company focus on lowering its cost and improving its margin is showing traction. Employee cost has declined in second quarter 7% Y-o-Y and given its niche product offering they have the pricing power. EBITDA Margin are expected to be maintain and improve going forward.    

Indian IT Industry: 

India is the world’s largest sourcing destination with largest qualified talent pool of technical graduates in the world. According to Nasscom, IT sector is the largest employer within the private sector, IT industry employed 4.5 million people. The push towards cloud services has boosted hyper-scale data center investments, with global investments estimated to exceed ~US$ 200 billion annually by 2025. India is expected to gain a significant share in the global market, with the country’s investment expected to hit US$ 5 billion annually by 2025. The country’s cost competitiveness in providing IT services, which is approximately 3-4 times more cost-effective than the US, continues to be its unique selling proposition in the global sourcing market.

KPIT is focused on auto engineering, termed as mobility instead of auto. The company is focused on passenger cars at present, apart from commercial vehicles, tractors and heavy equipment as well as shared mobility like OLA and UBER. It has a strategy to service five areas – electric power train, autonomous driving, infotainment, software architecture (termed it as AUTOSAR) and diagnostic and security. KPIT is focused entirely on the mobility industry with its niche offerings in the power train, autonomous and connectivity categories. Growth is expected to be driven by electric powertrain (18% of rev), autonomous (20% of rev), battery management systems and development of IPs. KPIT has a team of 500 engineers in Germany with 85-90% local staff. Shifting of work offshore and consolidation of centers would support margins

Source: globe newswire, Annual Report

Q2FY22 Financial Performance – Consolidated:

Particulars (In ₹. Cr)	Q2FY22	Q1FY22	Q2FY21	QoQ %	YoY%
Revenue From Operation	590.87	567.38	485.45	4.14%	21.72%
Other Income	8.93	9.97	2.45	-10.43%	264.49%
Total Income	599.80	577.35	487.90	3.89%	22.94%
Operating Expenses	486.81	469.26	415.80	3.74%	17.08%
EBITDA	104.05	98.11	69.65	6.05%	49.39%
EBIT	74.96	69.47	34.16	7.90%	119.44%
PAT	65.10	60.20	27.88	8.14%	133.50%
EBITDA Margin (%)	17.61	17.29	14.35	1.84%	22.74%
EBIT Margin	12.69%	12.24%	7.04%	3.61%	80.29%
PAT Margin	11.02	10.61	5.74	3.84%	91.84%
Basic EPS (in Rs.)	2.39	2.21	1.04	8.14%	129.81%

Extract of Q2FY22 Earning:

• KPIT total revenue from operations rose 21.72% YoY to ₹590.87 crore in September Quarter. The consolidated operating profit increased 49.39% YoY to ₹ 104.05 crore during second quarter, this was the fifth sequential quarter of margin expansion, despite higher-than-average increments during the September 2021 quarter.

• During second quarter company reported strong profit growth of 1.35x YoY, Profit came in at ₹65.10 crore

• Company saw robust volume growth in all the geographies in which company caters.

• In FY2021, overall cash flow generation from operating activity was ₹ 189.6 crore and free cash flow was ₹163 crore.

• EBITDA Margin of the company improved to 17.61% in Q2FY22 from 14.35% in Q2FY21.

• KPIT tech is a debt free company and has cash balance of ₹ 933.4 crore at the end of second quarter.

• Company is witnessing a robust demand environment resulting in strong order inflow and pipeline. With improved business visibility, company have increased their revenue and profit outlook for the year.
• KPIT won a multi-million-dollar strategic engagement from a leading European Car Manufacturer in the Electric Powertrain domain in this quarter.

Balance Sheet:

Particulars	2021	2020	2019
SOURCES  OF  FUNDS :
Share Capital	269.04	268.88	268.5
Reserves Total	937.8	780.23	691.06
Total Shareholders Funds	1206.84	1049.11	959.56
Minority Interest	2.87	3.57	3.91
Secured Loans	3.13	57.93	132.32
Unsecured Loans	226.84	145.75	0.01
Total Debt	229.97	203.68	132.33
Other Liabilities	37.69	12.09	32.62
Total Liabilities	1477.37	1268.45	1128.42
APPLICATION OF FUNDS :
Gross Block	989.51	809.58	593.09
Less: Accumulated Depreciation	412.6	283.15	173.32
Net Block	576.91	526.43	419.77
Capital Work in Progress	12.07	5.18	0.51
Investments	127.2	9.27	49.75
Current Assets, Loans & Advances
Inventories	0	11.53	17.99
Sundry Debtors	308.35	448.68	592
Cash and Bank	700.8	381.04	220.66
Loans and Advances	160.4	163.74	350.74
Total Current Assets	1169.54	1004.98	1181.4
Less : Current Liabilities and  Provisions
Current Liabilities	431.82	321.82	507.59
Provisions	58.33	46.95	38.08
Total Current Liabilities	490.15	368.77	545.67
Net Current Assets	679.39	636.21	635.74
Deferred Tax Assets	60.35	51.12	15.12
Deferred Tax Liabilities	4.99	8.54	10.78
Net Deferred Tax	55.36	42.58	4.34
Other Assets	26.45	48.79	18.31
Total Assets	1477.38	1268.45	1128.42
Contingent Liabilities	0	0	18.72

Cash Flow Statement:

Particulars	2021	2020	2019
Cash Flow Summary:
Cash and Cash Equivalents at Beginning of the year	275.89	200.87	0.1
Net Cash from Operating Activities	627.6	388.74	151.14
Net Cash Used in Investing Activities	-502.95	-136.38	15.87
Net Cash Used in Financing Activities	-114.77	-177.35	33.77
Net Inc/(Dec) in Cash and Cash Equivalent	9.89	75.01	200.78
Cash and Cash Equivalents at End of the year	285.77	275.89	200.87

Key Financial Ratios:

	2021	2020	2019
Key Ratios
Debt-Equity Ratio	0.19	0.17	0.14
Long Term Debt-Equity Ratio	0.14	0.08	0.04
Current Ratio	2.29	2.02	1.84
Turnover Ratios
Fixed Assets	2.26	3.07	2.16
Inventory	353.12	146.08	71.29
Debtors	5.38	4.14	2.17
Total Asset Turnover Ratio	1.48	1.8	1.14
Interest Cover Ratio	11.3	10.11	15.61
PBIDTM (%)	16.11	14.31	19.83
PBITM (%)	9.57	9.3	16.9
PBDTM (%)	15.27	13.39	18.74
CPM (%)	13.77	11.86	15.51
APATM (%)	7.23	6.85	12.58
ROCE (%)	14.23	16.78	19.28
RONW (%)	13.04	14.71	16.81
Payout (%)	0	31.82	0
Debtors Ratio	5.38	4.14	2.17
Inventory Ratio	353.12	146.08	71.29

Source: Company Financials, Capitaline Corporate Data Base

Outlook:

KPIT is leading company in automobile engineering and mobility solution. They have very strong relation with the leading automobile companies of the world. KPIT reported very strong  first half earning and is confident of sustaining its profitable growth momentum, going forward as they have enter into new partnerships, recently won new contracts. They also increased their revenue guidance for FY22 and expect margin improvement to continue going forward. The automotive industry is prioritizing investments in new age technologies and KPIT is at the forefront of these. Growth will be driven by electric powertrain and autonomous vehicles (AV) within Europe, US and Asia. KPIT has plans to launch new products, which will contribute to its revenue growth in coming years We remain optimistic about long term earnings prospects of the company given its strategic end to end client engagement model, healthy cash reserves, and traction seen in spending by Auto makers to build new tech capabilities .KPIT share price has gone up three times this year but we feels give its niche products offering  is going to command premium valuation.On performance front we expect company to report EPS of Rs.11.5 for FY23E, at CMP of ₹580 PE works out to be 50x. Hence, investors should Accumulate the stock on dips in the price range of 500-540 for target price of Rs.720.

  Source: Company Financials, Capitaline Corporate Data Base, EWL Research

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