MOSL: KPIT TECHNOLOGIES (Neutral)-Momentum still elusive
KPIT Technologies: Momentum still elusive
(KPIT IN, Mkt Cap USD0.4b, CMP INR130, TP INR150, 15% Upside, Neutral)
- Revenue driven by acquisition: KPIT’s 4QFY17 revenue of USD128m (+4.4% QoQ) was ahead of our estimate. The quarter included USD4m from the acquisition of MicroFuzzy, excluding which growth was 1.2%, in line with our estimate. Mirroring the past trends, Engineering and Product & Platforms exhibited strength, while growth was weighed upon by softness in IES.
- Margins yet to show meaningful expansion: EBITDA margin at 10.1% was flattish and at par with expectations. 4Q profitability was impacted by INR appreciation and additional costs associated with the acquisition. EBITDA margin contracted 600bp YoY due to missing revenue growth, continued investments and operational inefficiencies. PAT of INR537m grew 13.1% QoQ, above our estimate of INR451m (+5.0% QoQ).
- Guidance fails to enthuse: FY17 was a dismal year, where USD revenue was flat YoY, EBITDA margin shrunk 300bp and PAT declined 25% YoY. The company expects 6-8% growth in FY18. A 2pp contribution from MicroFuzzy would imply organic growth of 4-6%, which does not signify a material uptick. The margins outlook remains positive, but not to the extent that lost profitability would be recovered.
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