Buy KPIT Cummins; target of Rs 215: Karvy Stock Broking

Karvy Stock Broking is bullish on KPIT Cummins Infosystems and has recommended buy rating on the stock with a target of Rs 215 in its September 28, 2010 research report.

“KPIT Cummins Infosystems (KPIT) has acquired US-based CPG Solutions, an Oracle consulting firm focussed on the manufacturing sector for Rs 600 million of which Rs 270 million is guaranteed while Rs 330 million will be paid over 3 years. CPG has revenues of USD 11 million (~ Rs 500 million) and margins of 13%.”

“KPIT is paying 1.2x revenues for CPG spread out over 3 years, which we believe is quite reasonable. KPIT itself is currently trading at nearly 2x FY10 revenues. The acquisition of CPG will boost KPIT's Oracle consulting practice. Oracle ERP revenues stand at around 1/3rd total ERP revenues for KPIT (USD 26 million). Post this acquisition. Oracle revenues will get a boost and exceed 40% of total ERP revenues. CPG will be consolidated wef. 3QFY11 and will contribute USD 6 million to FY11 revenues, a boost of around 3% (current FY11E revenues USD 194 million). The CPG acquisition will boost FY11 and FY12 revenues by 3% and 4%, respectively, while EBITDA margins could see a fall of 15 bps and 21 bps, respectively.