USD revenues grow 12% Y-o-Y to reach USD 150.54 Million
Q1FY19 operational EBITDA at 13.2% against 12.7% last quarter
Constant Currency growth of 3.5% Q-o-Q on services business
July 25, 2018: KPIT (BSE: 532400; NSE: KPIT), a global technology company specializing in providing IT Consulting and Product Engineering solutions and services to Automotive, Manufacturing, Energy and Utilities companies, today reported its consolidated financial results for the fourth quarter and fiscal year ended March 31, 2018.
Highlights for the quarter ended March 31, 2018
Rs. Revenues grow 4.9% Q-o-Q and 16.5% Y-o-Y, cross the Rs. 1,000 Crore quarterly revenue milestone
Net Profit for the quarter registers a Y-o-Y growth of 39.6%
Reported EBITDA for the quarter at 12.1%, a Y-o-Y growth of 54.5%
 
Net Cash position continues to improve, Net Cash at Rs. 3.5 Bn. as at the end of the quarter
Management Comments
Commenting on the performance of Q1 FY19, Kishor Patil, Co-founder, CEO & MD, KPIT said, "We continue to focus on improving profitability and growth. We improved our operational margins by 50 bps during the quarter. We are on track with respect to the milestones on the proposed merger and then demerger of IT and Automotive Engineering businesses. We truly believe this will continue to be a significant value creator for all stakeholders as it has been in the last one year."
Sachin Tikekar, President and Board Member, KPIT said, "We witnessed a decent sequential constant currency growth of 3.5% in our services business, led by Engineering, Digital and Oracle, while the products revenue declined. Our strategic customers have contributed to a strong growth of 5.5% in CC terms, during the quarter. We have a robust pipeline in all our geographies and we are confident of profitable growth in the coming quarters."
Quick Summary
The growth during the quarter was led by the services business viz. engineering, digital technologies and Oracle. The Products business, as we have been saying is still in a nascent stage and hence we will witness quarterly fluctuations in the same.
We had a healthy operating margin improvement during the quarter led by operational efficiencies and aided a bit by the rupee depreciation. The reported EBITDA margin for the quarter was 12.11%. We incurred around Rs. 108 Million as expenses towards the Merger-Demerger transaction during the quarter. The operational EBITDA during the quarter, thus was as follows:
Details Unit Q1FY19 Q4FY19 FY18
Reported EBITDA Rs. Mn 1,228 1,098 3,785
Merger-Demerger Transaction Expenses Rs. Mn 108 129 169
Operational EBITDA Rs. Mn 1,336 1,227 3,954
Reported EBITDA Margin % 12.11% 11.36% 10.33%
Operational EBITDA Margin % 13.18% 12.70% 10.79%
The Profit for the quarter stood at Rs. 774.3 Million, registering a sequential growth of 1.9% and a year on year growth of 39.6%. Q4 FY18 being the last quarter of the year, had a very low effective tax rate (16.5%) due to write backs, basis actual tax returns filed. The effective tax rate for the quarter is at a normalized level of 22.6%. Thus, at the PBT level, there was a sequential growth of 6.2% and a year on year growth of 47%.
We will continue with the profitability improvement measures to lead us to steady and sustainable improvement in the operating margins, during the year.
Update on proposed merger-demerger:
Background
Earlier in the year, we announced a transaction of merger and demerger involving KPIT and Birlasoft. Birlasoft is a part of the USD 1.6 billion diversified CK Birla Group.
  • The merger of KPIT and Birlasoft will create a USD 700+ Million entity which will immediately demerge into two separate companies:
    • KPIT Technologies (USD 220+ Million revenue company, post-merger), a global leader in Automotive Engineering and Mobility Solutions, which will evolve from the existing Engineering business of KPIT.
    • Birlasoft (a USD 500+ Million revenue company, post-merger), a new Digital Business IT Services company, focusing on the mid-tier IT space formed by combining Birlasoft with the KPIT's IT business.
The proposed structure is one of the most favorable structure from the taxation and company law perspective.
Status
We are progressing well on the regulatory front as per the anticipated timelines. We received the approval from the Competition Commission of India (CCI) and filed the scheme with the National Company Law Tribunal (NCLT), Mumbai Bench, for their approval. The NCLT, by virtue of an order dated July 12, 2018, has directed a meeting to be held of the equity shareholders of KPIT for considering and if found fit, approving the proposed scheme of merger and demerger. In pursuance of the said order, the meeting will be held on August 29, 2018 at 1400 hrs. at the registered office of KPIT in Hinjawadi, Pune.
Why Birlasoft
Birlasoft is a part of the renowned CK Birla Group. Hence we believe the group would have long-term interest in the company, which will take care of continuing interest of our customers and employees. Secondly, if we were to look at the offerings, both the organizations have very complementary offerings. In our case, the ERP revenues are 50%+ of our total revenues, whereas in their case the non-ERP revenues, especially the digital and application development revenues are 85% of their revenues. Thus, the two companies collectively in Business IT, will have a complete suite of end-to-end solutions in the IT services domain. We believe the knowledge and the depth that Birlasoft has in digital revenues will add more value to our digital technology revenues, thereby enhancing our credibility in that segment. Thirdly, the Industry Verticals of the two companies are also complementary. We work largely in the Manufacturing and Energy domain while Birlasoft mainly works in the BFSI and Media verticals, though they also have some Manufacturing revenues. We believe that the kind of technologies we have built over the years, will get a substantial boost, if we can give a consulting edge to it which gets facilitated by the complementary skillsets.
The scalable and proven leadership across both the organizations and the right size of the combined IT for customer attention, will create a compelling proposition for our customers with the right depth of domain, appropriate spread of offerings and the attention the customers seek.
Services Update
Vertical Update
Technology Update
  • We have filed 4 patents during the quarter in automotive and medical domain. With this the total number of patents filed as on Q1 FY19 end stood at 60, including 55 patents with complete specifications.
  • We were also granted 4 patents during this quarter taking the total count of granted patents to 44. The details of granted patents in Q1 FY19 are mentioned below:
Patent Number Patent Title Country Domain
IN295396 A Motor Mounting and Transmission System India Hybrid
JP 2016-524942 A Dynamically Adjustable Suspension Device Japan Chassis
33705 Retrofit system for converting a vehicle into one of a hybrid electric vehicle (HEV) and electric vehicle (EV) Colombia Electric Vehicle
10-2012-7009598 Method of Converting Vehicle into Hybrid Vehicle South Korea Hybrid
Customer Highlights
  • KPIT was chosen by a global automobile maker for its expertise within the Autonomous Driving space.
  • KPIT has begun an engagement with a leading multinational Tier1 within the Vehicle Electrification space.
  • KPIT was selected as a strategic engagement partner by a major multinational automobile maker within the Infotainment and Connectivity space.
  • An American multinational oil and gas corporation selected KPIT for a JD Edwards rollout extension project.
  • A Fortune 500 medical technologies firm selected KPIT for a JD Edwards AMS extension project within the Asia-Pacific region.
  • A Middle East-based shipping and logistics conglomerate selected KPIT for an Oracle Cloud technologies implementation project.
  • An electricity supplier from the North American region selected KPIT for SAP S/4HANA implementation and upgrades projects.
  • A North America headquartered management services company selected KPIT for SAP SuccessFactors implementations in the European Union and Americas regions.
  • A North America-based multinational aerospace and transportation company selected KPIT for an Application Lifecycle Management implementation project..
Financial Update

Revenue Update

Our $ revenue for the quarter stood at $152.54 Million, a Q-o-Q growth of 1.3% and Y-o-Y growth of 7.6%. In Rs. terms, revenue grew by 6.4% Q-o-Q and 17.8% Y-o-Y to Rs. 10,788.69 Million.
Amongst SBUs, there was a significant 5.1% Q-o-Q growth in PES SBU while P&P SBU grew by 33.7% sequentially. DT SBU also registered Q-o-Q growth of 1.7%. However, IES and SAP SBU declined sequentially by 6% and 2.6% respectively.
Among geographies, Europe registered Q-o-Q growth of 15.5% while US & APAC declined by 1% and 6.8% respectively.
In terms of industry verticals, there was a sequential growth of 4.1% in Automotive vertical whereas Energy & Utilities vertical declined by 0.2% and Manufacturing vertical declined by 6.9% on a Q-o-Q basis.
The 20 top strategic accounts constituted 52.7% of the total revenues and grew by 1.8%. Similarly, the 40 top strategic accounts constituted 64.9% of the revenues and had a Q-o-Q growth of 1.1%.
*All the revenue growth numbers mentioned under revenue update are in equivalent $ terms.

Profitability

The realized rate for the quarter was Rs. 70.73/$ against Rs. 67.35/$ in Q1 FY19. The operating margins for the quarter were 15.18% as against the reported margins of 13.59%. During the quarter there was an impact of wage hikes to the tune of around 220 bps. The increase in operating margins from 13.2% last quarter to 15.2% this quarter was mainly because of operational efficiencies and better revenue mix which led to an increase of around 300 bps. The rupee depreciation this quarter as compared to last quarter on an average realized rate basis was around 5% which aided the margins by around 120 bps.
The other income was lower by Rs. 92 Million which is a cumulative effect of translation of foreign currency denominated assets and liabilities, the realized gain on debtors and the realized loss on forward contracts, among other factors. The depreciation was higher by Rs. 97 Million, mainly on account of full capitalization of new building at MIDC Phase III, in Pune.
Summarized Representative Cash Flow
Details Rs. Million
Cash Profit for Q2 FY19 1,188
Working Capital Adjustments (553)
Cash Generated from Operations 635
Fixed Assets (269)
Balance Cash Flow 366
Dividend Payment (554)
Debt Repayment (249)
Total Increase/(Decrease) in cash balance (438)
Total Net Cash balance as at Q1 FY19 end (3,303)
  • The Cash Balance as at September 30, 2018 stood at Rs. 6,096 Million (Rs. 6,533 Million as on June 30, 2018).
  • The DSO were at 77 days, at the quarter end.
  • As on September 30, 2018 our total debt stood at Rs. 2,793 Million (Rs. 3,035 Million as of June 30, 2018) comprising of Rs. 902 Million of Term Loan and Rs. 1,891 Million of Working Capital Loan.
  • Thus, the Net Cash Balance as at September 30, 2018 stood at Rs. 3,303 Million (Rs. 3,498 Million as on June 30, 2018).
Income Statements
Conference call details
Conference name
:
KPIT Q1 FY2019 Conference Call
Date
:
July 26, 2018
Time
:
1600 Hours (IST)
 
Dial-in Numbers for all the participants
Primary number
:
+91 22 6280 1325/ +91 22 7115 8226
Local access Number
:
+91 70456 71221
Toll free Number
:
USA- 1 866 746 2133
UK- 0 808 101 1573
Singapore- 800 101 2045
Hongkong- 800 964 448

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About KPIT Technologies

KPIT (BSE:532400, NSE: KPIT) is a global technology company specializing in providing IT Consulting and Product Engineering solutions and services to Automotive, Manufacturing, Energy & Utilities and Life Sciences companies. Together with its customers and partners, it creates and delivers technologies to enable creating a cleaner, greener and more intelligent world that is sustainable and efficient.

Forward Looking Statements

Some of the statements in this update that are not historical facts are forward-looking statements. These forward-looking statements include our financial and growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements. These risks include, but are not limited to, the level of market demand for our services, the highly-competitive market for the types of services that we offer, market conditions that could cause our customers to reduce Their spending for our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualified personnel, currency fluctuations and market conditions in India and elsewhere around the world, and other risks not specifically mentioned herein but those that are common to industry.

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