KPIT sees Q4 margins up 100-150 bps from Q3

KPIT sees Q4 margins up 100-150 bps from Q3

Mumbai: Mid-tier software services firm KPIT Cummins Infosystems Ltd sees a sequential 100 to 150 basis points rise in operating margins in the March-quarter, aided by strength in manufacturing, automotive and transportation verticals, a company executive told Reuters on Friday.

During the December quarter, EBITDA margins dipped about 1.5 percentage points sequentially to 14.08%, and were down 7.2 percentage points from a year ago.

“We continued to invest in freshers, we continued to invest in R&D and third reason is overall dollar realisation, which has slightly gone down as compared with the earlier quarter, that has also affected the margins," Anil Patwardhan, vice president, finance, said.

The rupee appreciated about 0.55% against the dollar during the quarter. In 2010, the currency had gained 4.1%.

Indian software companies, which get most of their revenue in foreign currency, hedge some of their currency risk, but a chunk of their costs are in rupees, and therefore currency appreciation tends to squeeze margins.

On Thursday, KPIT Cummins said its consolidated net profit for the October-December quarter jumped 18% to Rs251.4 million. Analysts polled by Reuters expected the firm to post a profit of Rs265 million.

The company raised its full-year net profit outlook to expect a growth of 8% to 10% from the 5% expected earlier.

“Automotive is showing strong traction overall. I see good traction for SAP practice, which have built over a period, particularly in the US market," Patwardhan said. “Another factor that is contributing to this growth is inorganic growth."

KPIT Cummins is scouting for more deals of about $20 million to $25 million in the areas of automotive electronics and enterprise resource planning, Patwardhan said, adding it would focus on US and Europe.

The company has acquired US-based CPG Solutions and Germany-based In2Soft Gmbh so far in FY11. The companies contributed $4.6 million to December-quarter revenue.

KPIT Cummins expects Revolo, a joint venture with auto parts maker Bharat Forge, to realise about 30% of its full revenue potential in FY12, Patwardhan said.

Revolo is a 50:50 joint venture for the manufacture of a plug-in parallel hybrid solution for automotive companies to bring about fuel efficiency of more than 40%.

“We are in discussions with a couple of OEMs (original equipment manufacturers) for providing Revolo as a solution to the OEMs," Patwardhan said.

Bharat Forge and KPIT Cummins have finalised the assembly and manufacturing location for the project, and operations would commence by the first quarter of the next financial year.

“Getting into commercial production in the first quarter, I believe we will see some momentum in FY12," he added.

KPIT Cummins expects Revolo to bring in Rs300 crore to Rs500 crore in revenue during the second year of operation, Patwardhan said.

The company expects to invest Rs150 million in the joint venture immediately and will pump in another Rs350 million over the next 12-18 months, he added.

At 2.26 pm, shares of KPIT Cummins, which the market values at Rs1,337 crore, were trading up 2.29% at Rs156.60 in a choppy Mumbai market.