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January 31, 2015

Edelweiss on KPIT

KPIT Technologies Ltd (KPIT IN, INR 214, Buy)

KPIT Technologies Ltd.’s (KPIT) Q3FY15 revenue at USD 126.6mn (up 1.2% QoQ) was in line with our estimate, led by volume growth of 2.3% QoQ. EBITDA margins improved 58bps QoQ to 13.9% led by improvement in SAP SBUs margins. Growth during the quarter was driven by IES and SAP SBUs, which grew by 2.9% and 4.5% QoQ while Auto Engineering SBUs de-grew by 1.8% QoQ, respectively. The company sees improved order pipeline driving growth in FY16 in both Enterprise IT and Auto Engineering segments. Outlook continues to be healthy for revenue growth, while margins too are expected to expand going forward. Declining EBITDA margins, (a key concern earlier) for the company is expected to be addressed from here on as SAP margins have bottomed out. Sustaining the current revenue momentum and cost initiatives will drive the improvement in EBITDA margins. We maintain our ‘BUY’ rating.
 
Revenue traction improving, performance driven by IES & SAP
KPIT reported Q3FY15 revenue of USD 126.6mn, up 1.2% QoQ, led by volume growth of 2.3% QoQ (Onsite volume growth of 1.6% and Offshore volume growth of 2.5%). In INR terms, the revenue came in at INR 780cr, up 3% QoQ. EBITDA margins increased by 58bps QoQ to 13.9%, mainly due to improvement in SAP SBU margins during the quarter. SAP SBU margins continue to improve sequentially with the SBU reporting ~8% margins vs 5% Q2. The PAT came in at INR 65cr, down 7% QoQ, negatively impacted by higher tax rate during the quarter. KPIT witnessed good traction in IES and SAP SBUs grew by 2.9% QoQ and 4.5% QoQ, respectively while Auto Engg SBU, de-grew by 1.8% QoQ.  During Q3FY15, the top client Cummins de-grew by 1.1% QoQ.
 
To achieve lower end of FY15 guidance; Outlook positive
KPIT has reiterated its positive tone and expects to achieve lower end of FY15 guidance of USD revenues of USD 498-506m, implying growth of 4% QoQ for Q4. KPIT has won deals worth USD 40mn TCV deals during the quarter, which it expects to ramp-up in the coming quarters. We expect the company to be a key beneficiary of an uptick in discretionary spending. KPIT has restructured its SAP SBU towards growth oriented sectors and expects uptick in margins and revenues going forward.
 
Revenue growth and SAP SBU transformation to spur operating margin
KPIT’s EBITDA margin improved by 58bps QoQ to 13.9% led by improvement in SAP SBUs margins (8% in Q3 vs 5% in Q2). The company’s front-end investments, increased SG&A spends, one-off provisions and lower utilisation led to decline in overall margins in FY15.  We believe that margins have bottomed out and strong revenue growth itself will drive improvement from here onwards. Additionally, factors such as fresher additions, utilization improvement in SAP SBU, offshore work shift and stricter cost management could lead to overall margin improvement. We expect EBITDA margins to improve by 150bps by FY16E to 15% levels.
 
Outlook and valuations: Maintain BUY
We believe that KPIT, with a stable demand outlook and improving margin profile is likely to witness strong earnings growth in the coming quarters. At CMP of INR 214, the stock trades at P/E of 11.3x and EV/EBITDA of 4.3x FY17E. We maintain Buy rating on the stock.
Financials
Year to December
Q315
 Q215
Growth %
Q314
Growth %
FY15E
 FY16E
 FY17E
Revenue
780
757
3.0
678
15.0
3,008
3,292
3,675
EBITDA
106
101
4.4
104
1.3
399
506
578
Net profit
62
71
(11.8)
61
2.6
230.5
321.5
351.2
Diluted EPS (INR)
3.4
3.7
(7.5)
3.3
4.2
12.4
17.3
18.9
Diluted P/E (x)
17.2
12.3
11.3
EV/EBITDA (x)
 
 
 
 
 
7.1
5.4
4.3
EV / Revenue (x)
 
 
 
 
 
0.9
0.8
0.7

Regards,




EdelInvest Fundamental

Dir: +91 (22) 4088 6033
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Edelweiss on Wipro

EDELSTAR • FUNDAMENTAL RESEARCH
February 02, 2015  

Wipro Ltd
Current Price: Rs. 606   Target Price: Rs. 675
Buy

BUSINESS OVERVIEW
Wipro Ltd (WIPLTD) is a leading Indian company with business interests in export of IT & BPO services, domestic hardware, consumer lighting, and consumer care. It has the widest range of services, including systems integration, IT-enabled services, package implementation, software application development & maintenance, and R&D services. Wipro is the first P CMM Level 5 and SEI CMM Level 5-certified IT services company in the world. It has 1,018 clients spanning the BFSI, manufacturing, retail, utilities, and telecom verticals. Wipro has 154,297 employees. The company’s revenues for the past twelve months stood at INR457bn (USD6.9bn).
INVESTMENT THEME
·         IT outsourcing demand from US picking up: IT Industry revenues are forecasted to grow by 13-15% over FY14-15. The domestic IT sector derives over 60% revenue from US. Going forward, business recovery will be led by the US. Macro fundamentals seem to be improving in the US after QE2 by Fed, with recent data showing encouraging trends. US GDP has recovered sharply in the near term, growing at 4.6% YoY in Q2CY14. Un-employment rate in US is also showing signs of recovery with jobless claims down at fourteen-year lows and improving housing starts data showing revival in housing economy. Wipro as a scale player is expected to benefit from the same.
·         Revenue growth to improve: Wipro post its restructuring exercise, realigned its client facing profiles and also increased its focus on mining strategic clients. It is also investing in sales and marketing to increase its new deal wins rate, its S&M spend has gone up to 7.0% vs 5.9% in FY11. Wipro is now effectively competing in higher number of deals than earlier and is hitting the final shortlist of vendors. We believe continued investments in S&M and increased focused on client mining would result in higher new deals wins and revenue growth going forward.
·         Operating Metrics to improve from heron: Wipro’s EBITDA margin has been in the range of 20-21% in FY13 vs the earlier range of 22-23% in both FY10 and FY11. Going forward, we believe EBITDA margins are set to rise largely due to improvement in utilisation due to new deal wins. We expect utilisation to improve from current 79% range to 81%-84% range.
·         Attractive Valuations: We expect revenue growth to improve to 2-4% on a QoQ basis in FY15 versus the 0-2% in FY14, driven by improved client mining and deal flows. We expect the improved revenue momentum to drive earnings upgrades and re-rate the stock from current levels, though at a more gradual pace than Infosys. Wipro now trades at ~13x on FY17E and at ~20% discount to its peers. There is pessimism on the company – with some signs of 2H recovery, recent INR depreciation and current valuations, risk reward is favorable. We expect Wipro valuation discount to peers to narrow on the back of potential trigger of large deal being won in coming two quarters.
INVESTMENT RISKS
·         Sustained slowdown in the US;
·         Failure in maintaining margins at current levels, while pursuing large deals;
·         Appreciation of the INR against the USD, EUR and GBP.
OUTLOOK AND VALUATIONS
WIPRO strategy of grabbing bigger share of large deal has been witnessed, ramp-up of which helped it offset the weakness in the core software over the past three quarters. Going forward, with improvement in the overall IT spending, we believe new business will gather traction for WIPRO, which will reflect in revenue growth. On our FY16E and FY17E EPS estimate of INR 40 and INR 44 the stock is currently trading at a P/E of 15x on FY15E basis and at a P/E of 13x on FY17E basis. Given these attractive valuations and its growth prospects, we believe the stock offers upside potential in the near term.

QUICK DATA
Face Value (Rs.)
2.0
Div. Yield (%)
1.3
No of shares ('mn)
2468.7
52-week High/Low (Rs)
622 / 475
NSE Symbol
WIPRO
BSE Code
507685
Edel Code
WIPLTD
Market cap (Rs. bn.)
1487

SHAREHOLDING PATTERN (%)
Promoters
73.5
MFs, FIs & Banks
3.5
FIIs
10.1
Others
12.9

EDELWEISS CLASSIFICATION
Market Cap
Large Cap
Relative Risk
Low
Relative Reco
Sector Performer
Sector Rating
I.T - Overweight

GROWTH METRICS (%)
Year to June
FY14
FY15E
FY16E
Revenues
16.0
7.1
11.6
EBITDA
24.0
7.3
11.4
Net Profit
27.1
7.7
15.5
EPS
26.9
7.7
15.5


EDELWEISS RATIOS - COMPARATIVE VALUATIONS
Company
1 Wk Price performance (%)
3.26
(1.63)
(0.92)
0.93
3 M Price performance (%)
9.49
10.55
13.08
2.28
PE (x)
17.30
16.90
20.10
23.60
EV to EBITDA (x)
12.46
12.59
13.75
18.05
Return on Capital Employed (%)
29.49
43.86
35.63
60.13




FINANCIAL SNAPSHOT
Year to March
FY14
FY15E
FY16E
FY17E
Net Revenue
43,426
46,663
53,706
60,097
Gross profit
13,878
14,714
17,126
18,974
EBITDA
9,710
10,315
11,970
13,145
EBIT
8,599
9,075
10,681
11,762
Profit After Tax
7,840
8,576
9,824
10,864
Diluted EPS (INR)
32.0
35.0
40.0
44.0
EPS (INR) diluted
32.0
35.0
40.0
44.0
Diluted PE (x)
19.1
17.5
15.2
13.7
EV/EBITDA (x)
14.1
13.0
10.9
9.6



TECHNICAL VIEW
https://www.edelweiss.in/cas/images/pow/edelstar_29Jan2015.gif

Resistance
Resistance1 - 632
Resistance2 - 666
Support
Support1 - 572
Support2 - 550






Edelweiss.in
Broking services offered by Edelweiss Broking Limited under SEBI Registration No.: INB/INF/INE231311631 (NSE), INB/INF011311637 (BSE) and INB/INF/INE261311634 (MCX-SX); Name of the Compliance Officer: Mr. Brijmohan Bohra, Email ID: Complianceofficer.ebl@edelweissfin.com. Corporate Office: Edelweiss House, Off CST Road, Kalina, Mumbai - 400098; Tel. (022) 4009 4400/ 4088 5757/4088 6278

The Sunil Agrawal Lecture Video and Slides -Sanjay Bakshi

Sanjay bakshi is a class act.He has turned out with a 68 bagger for his fund with Vaibhav Global

Here is a copy of a post from his blog

On 28 Jan, 2015, Sunil Agrawal, Chairman and MD of Vaibhav Global Limited delivered an inspirational talk to my students at MDI about his journey as an entrepreneur. Displaying extraordinary candor, he talked about the story of his ups and downs and what he has learnt over the last 35 years.
You can watch the video playlist from here and his presentation slides from here.
Before Sunil delivered his lecture, I had written a teaching note for my students which you can get from here.

January 29, 2015

Breaking now: Amar ambani tells his clients to Buy coal india OFS

Coal India Ltd.: Riding on the reform cycle – BUY
OFS Floor Price* Rs358, Target Rs432, Upside 20.2%
*Retail to get 5% discount at cutoff Coal India has underperformed the benchmark indices over the last one year due to the overhang of Govt’s share sale, disappointment on volume growth, Govt’s directive to reduce E-auction sales and inability to pass on the increase in costs. We believe most of the negatives are already factored in the current price or have turned positive for the company. Production, which was mere 1.8% CAGR during FY10-14, increased 7.3% yoy in 9M FY15. Since coming to power, the Narendra Modi-led Government has emphasized a lot on power for all. In line with this, the power ministry has set a target of 1bn tons of coal production from Coal India by 2019 from ~500mn tons in FY15 to meet the rising demand from the domestic market.
Though we believe that it is a steep task for the company to meet its target, we expect CIL volumes to witness production CAGR of 6.5% over FY14-17E. Offtake too would be higher after decongestion of railway network. We expect blended realisations to increase 3.3% yoy in FY16 and 4.7% yoy in FY17, led by our estimate of a price hike in H1 FY16 and higher market linked prices. Margin for the company is expected to improve from FY16 due to a combination of higher volumes, increase in prices and lower diesel costs.
We estimate earnings CAGR of 13.7% over the period FY14-17 on the back of higher volumes and higher margins. At the OFS floor price of Rs358, it is available at 6.2x FY17 EV/EBIDTA, lower than its average of 7.3x. We believe Coal India would be a major beneficiary of the new Government’s focus on fuel security. In addition to the upside risks to our estimate, if government manages to achieve its goals in the near term, the company would witness a re-rating. We recommend a BUY on the stock with a price target of Rs432.
The Government of India plans to reduce its stake in Coal India from 89.65% to 79.65% via the Offer For Sale (OFS) route. The government will sell 315.8mn shares or 5% stake, through an offer for sale, with an option to sell the same number of shares as a greenshoe option. The floor price for the OFS is Rs358 and will start on Friday 30th January ‘15. Government has doubled the quota for retail investors to 20% from the 10% mandated by SEBI and would also provide a 5% discount to retail investors. We believe that the OFS is a good opportunity for retail investors to participate.
Click here for the detailed report on the same.

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