MOSL: KPIT TECHNOLOGIES (Under Review)-Exhibiting consistency in revenue; under review until demerger

KPIT Technologies: Exhibiting consistency in revenue; under review until demerger

(KPIT IN, Mkt Cap USD0.8b, CMP INR287, Under Review)

• Revenue in-line: KPIT's 1QFY19 revenue grew 12% YoY (flat QoQ) to USD151m, in line with our estimate of 13% growth. Engineering services (+5.5% QoQ, +22% YoY) continued to drive growth.
• Adjusted operating margins continue inching up: EBITDA margin expanded 75bp QoQ to 12.1%, in line with our estimate. The quarter included expenses related to the demerger of the Engineering business and the merger with Birlasoft. Excluding these expenses, EBITDA margin was at 13.2%, up 50bp QoQ. PAT declined 1.5% QoQ to INR826m, mainly due to a lower tax rate base of 4QFY18. This was 4% below our estimate due to elevated interest costs.
• On course to outdo guidance: The margin guidance of 11.5-12.5% for FY19 is below the 1Q adjusted operating margin of 13.2%, implying that margins should meet guidance, despite wage hikes in 2Q. Additional transaction-related expenses have pegged reported margins at 12.1%. On the revenue front, too, 12% YoY growth in 1QFY19 implies some possibility of exceeding the guided range of 8-10%. We expect USD revenue growth of 10% and EBITDA margin of 12% in FY19.