Inside KPIT Cummins’ Q1FY14 Numbers

In Q1FY14, KPIT Cummins saw revenue growth of 3.1% to USD 108.82 million. In rupee terms, this translated into growth of 7.61% to Rs 613.21 crore.

Geographically, a significant traction was seen across geographies. Revenues from the US, which contributes to 75% of the company’s total revenues, grew by 7.36%. Europe grew by 10.72% while other geographies grew by 5.84%.

In terms of verticals, revenues from the company’s Automotive & Transportation business declined by 0.68%. This vertical contributes to 35.51% of KPIT Cummins’ total revenues and thus added pressure on the overall performance. However, the Manufacturing business grew by 20.52% and Energy & Utilities by 12.73%. The robust performance in these areas boosted the overall performance of KPIT Cummins.

In the first quarter of the current fiscal;, KPIT Cummins included Business Transformation Unit as a separate business unit. It would focus on bespoke technology offerings to drive growth by leveraging IBM and Microsoft alliances. The company saw strong growth of 16.01 from its Integrated Enterprise Solutions business which focuses on Oracle related technologies.

Although the performance on KPIT Cummins’ topline was strong, its operating margin was pressured. The company raised the salaries of offshore employees by an average of 8% and that of onsite employees by 3%. Combined with higher visa spending and milestone based discounts to a couple of customers, this resulted in a 4.8% decline in the company’s operating profit to Rs 84.43 crore. This meant a reduction of 179 basis points in its operating profit margin at 13.77%.

However, the net profit margin expanded by 7 basis points to 9.81%. This implies that certain factors have more than offset the pressure on the company’s operating profit margin. In Q1FY14, KPIT Cummins gained Rs 5.84 crore as Other Income. In Q4FY13, it had made a loss of Rs 9.35 crore on this front. This turned out positively for the company although there was an increase in Finance Costs and Tax Expenses.

KPIT Cummins’ order book looked strong with the total number of active customers increasing to 189 from 183 in the previous quarter. It added 6 clients in Q1FY14.

We have maintained a positive outlook on the long-term performance of the companu because of the potential of its car infotainment segment. Revenues from automotive applications are expected to reach USD 1.7 billion globally by 2018. The company is also present in energy and utilities and expects smart grids to keep growth buoyant. Moreover, the company expects technology spend by manufacturing companies to bottom out in 2013 and remain buoyant through 2016.

All of these factors add up to a positive long-term outlook on the prospects of KPIT Cummins.

Note: All comparisons are made on a sequential (quarter-on-quarter) basis.