KPIT’s constant currency (CC) revenue growth of 2% q-o-q in Q3FY15 was above estimate of 1%. Adjusting for India-based Telematics deal, CC revenue growth in seasonally weak Q3 was 4%+, better than third quarter of the past two years. Sanguine Q2 and Q3 growth, and ~4% implied Q4 guidance is encouraging, but our low-teens FY16 growth outlook comes on the back of challenges in top account, SAP growth and FY15 Telematics base. Sustenance of recent performance depends on increase in contributing segments.
EBITDA margin during the quarter was 13.9%, up 60bps q-o-q, versus our estimate of 100 bps q-o-q increase to 14.3%. PAT was in line with our estimate – as higher depreciation, lower other income and higher net interest costs were offset by lower tax rate.
Growth during the quarter was led by Europe, SAP and manufacturing. The beat to our estimate was led by achievement of milestones in a couple of SAP accounts, which it was able to therefore invoice and accrue in P&L.
Our organic CC operating estimates are largely unchanged post the results. Re-rating of the stock will be a function of broad-basing of growth traction, as opposed to only select segments at present. Improvement in organic growth fundamentals can drive strong valuation upside. Our price target of R210 discounts FY17e EPS by 10x. We maintain a neutral rating.
By Motilal Oswal