Recommendation From IT Services & Consulting Sector
This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.
KPIT TECHNOLOGIES : COMPUTING PROFITABLE SOLUTIONS
HERE IS WHY
β Huge growth potential
β Good returns on capital employed
β Good financial improvement.
KPIT Technologies is a leading global technology company providing software solutions that help mobility companies leapfrog towards autonomous, clean, smart and connected future. The major focus areas of the company include power train (conventional and electrical), autonomous technology (vision and control systems), connectivity and diagnostics. The company’s sub-verticals are passenger cars, commercial and off-highway vehicles and new mobility. KPIT Technologies derives 86.10 per cent of its revenue from strategic top 21 clients. The company’s business is spread across the US (42 per cent), Europe (41 per cent) and RoW (17 per cent).
The company has reported net sales of Rs 485.46 crore in September 2020, down by 10.78 per cent from Rs 544.10 crore in September 2019. PBIDT stands at Rs 69.66 crore in September 2020, up 5.04 per cent from Rs 66.31 crore in September 2019. During the quarter PBIDT margins improved by about 103 bps YoY to 14.87 per cent largely due to lower onsite costs which led to proportionately lower salary and sub-contracting costs. It reported net profit of Rs 27.15 crore in September 2020 against net profit of Rs 36.73 crore in September 2019.
The company reported net sales of Rs 2,156.17 crore in FY20, an increase of 236.24 per cent. It had reported net sales of Rs 641.26 crore in FY19. The company reported PBIDT of Rs 286.73 crore in FY20, an increase of 212.82 per cent. It had reported PBIDT of Rs 91.66 crore in FY19. The company reported PAT of Rs 146.78 crore in FY20, an increase of 166.77 per cent. It had reported PAT of Rs 55.02 crore in FY19. The company has reported cash from operating activities of Rs 388.74 crore in FY20 as against Rs 151.13 crore in FY19.
Despite challenges posed by the pandemic, the company has been able to continue its deal momentum with new additions from T25 accounts across electric powertrain, autostar, autonomous driving and connected domains. The company has expected performance improvement beginning 2HFY21 driven by new deal win and increase in offshore and operational efficiencies.
KPIT Technologies has laid focus on improvement in operating profitability with emphasis on productivity improvement, increase in offshore revenues, leveraging of fixed costs and scaling up in its strategic accounts. Long-term growth prospects of KPIT remain optimistic driven by positive traction seen in key accounts (up about 20 per cent in FY20) amid challenging situation, higher spending by automotive makers on research and development to build new technological capabilities, strategic end-to-end client engagement model, healthy cash reserves and near zero debt.
The company derives majority of its revenues (about 70 per cent) from innovative technology areas such as ADAS, EV, powertrain and infotainment where the size of opportunity is quite large. Debtor days have improved from 206.46 to 75.95 days. The company had a healthy return on capital employed (RoCE) of around 18.24 per cent and a return on equity (ROE) of around 14.66 per cent. By virtue of these factors, we recommend our reader-investors to BUY this stock.
