KPIT Cummins’ Q4FY08 results were below our expectations. Revenues grew by 10.9% and 9% Q-o-Q in dollar and rupee terms respectively led by a volume growth of 11.3% Q-o-Q.
In contrast to our expectations of flat margins, the EBITDA margin declined by 140bps Q-o-Q. Net profit decreased by 26.9% Q-o-Q due to a write-off of Rs13.7 million on account of an investment which the company had made with a customer three to four years ago.
The management has given a revenue growth guidance of 31% and 26% in dollar and rupee terms respectively, with a rupee PAT growth guidance of 27-31% in FY09 to Rs650 – 670 million.
Our estimate for net profit is at Rs619 million, lower than the guidance. The company has often been unable to achieve its guidance amid a strong demand environment, which leaves growth in an uncertain scenario in question.
We maintain our FY09 and FY10 earnings estimates for KPIT while downgrading our rating from Hold to SELL with a reduced one-year target price of Rs65.