KPIT Cummins Infosystems Ltd.
(Rs 120, FY09E - EPS Rs 10.9, P/E 11x, Target price: Rs. 178)
(Rs 120, FY09E - EPS Rs 10.9, P/E 11x, Target price: Rs. 178)
KPIT Cummins is the first Indian Company to receive Jaspar membership
KPIT Cummins Infosystems Ltd (KPIT), one of the premium members of AUTOSAR (Automotive Open System Architecture), has joined Jaspar (Japan Automotive Software Platform Architecture). Jaspar is a consortium of automotive manufacturers and suppliers working together to develop and establish a standard Japan Automotive Platform Architecture where as AUTOSAR is a partnership between these manufacturers and suppliers to develop and establish a de-facto open industry standard for automotive electrical/electronic architectures. KPIT is the first and the only Indian company which has become part of the Japan-based consortium. KPIT had recently began its partnership with Renesas for one of the largest outsourcing deals in Japan, in the area of semiconductors.
Jaspar:
Jaspar’s objective is to promote automotive software technology and to cut development costs by encouraging Japanese companies to collaboratively develop non-competitive technologies such as automotive LAN (Local Area Network) enabling technology, middleware and software platforms. Jaspar addresses the escalating need for efficient cars and the increasingly stringent legislations for car safety in Japan. As the density of in-vehicle electrical integration and networked systems increases, there is a growing need to develop non-competitive technology on a common platform, at a reduced cost. Car safety requires complex electronic components, which need to collaborate in harmony for safer and more reliable ride. Jaspar connects auto OEMs and suppliers to understand common problems faced by the industry and provide solution by combined efforts. The
consortium carries out activities concerning software and networks for electronic vehicle control systems including survey, research, technological development, specification development and activities related to intellectual properties.
Jaspar is responsible for defining uniform, interchangeable high-speed bus architecture for the Japanese car industry and aims to contribute technical support to international standardization of communication in the areas of auto & electronic software and contribute to the development of global standards, on the whole.
Advantages to KPIT through Jaspar membership:
Having received the membership, KPIT Cummins is able to use Jaspar specifications to develop tools in compliance with Jaspar standards for the Japanese automotive market. AUTOSAR standards would be modified by Jaspar to meet Japan car makers needs/domestic needs.
Jaspar membership enables access to technology development requirements of participating OEMs as well as preferential access to the outcome of the joint development and most importantly reduces the software development cost. KPIT is going to be benifitted getting access to these requirements.
KPIT’s position will further strengthen in Japan as it can enhance its contribution to the world of automotive electronics in Japan by deeper understanding of local market and existing customers. Over the years, KPIT Cummins has established a leadership position and domain expertise in automotive & semiconductor solutions, partnering with some of the major European, North American & Japanese OEMs and Tier-1s.
Business Outlook and Valuation:
KPIT Cummins has been able to build its presence both organically and inorganically in last few quarters. Growth visibility of the company continues to be strong with recent partnerships and inorganic initiatives coupled with strong ramp up in both Star and Non Star customers.
KPIT has demonstrated its ability to grow on the back of its strong focus on the automotive and semiconductor verticals. The Japanese market is strong in both these verticals. KPIT currently gets about 12% of its revenues from rest of the world (primarily Japan) and expects this to touch to about 20% till 2010. We believe that KPIT’s membership with Jaspar is an excellent platform where the company can both gain and contribute knowledge and expertise in the focused area of Automotive Electronics in the Japanese market. At the same time, KPIT has been able to reduce its dependence on Cummins, from 44% a year ago to 39% today.
However, on the margin front, concern still remains on account of appreciating rupee scenario. About 60% of the company’s revenues come from US making it susceptible to unfavorable rupee movements. KPIT has tried to create geographical diversification, and Europe now accounts for almost 30 per cent of its turnover, which has doubtless helped manage financial results in the face of dollar depreciation.
We expect KPIT’s revenue and net profit to grow at a CAGR of 28% and 25% respectively over FY07A-09E.
Year Ended FY07A FY08E FY09E
Net Sales (Rs Mn) 4637.0 5943.0 7689.5
EBITDA (Rs Mn) 707.8 965.1 1280.4
OPM% 15.3 16.2 16.7
Net Profit (Rs Mn) 504.8 654.1 829.9
EPS (Rs) 6.6 8.6 10.9
P/E (x) @ Rs 120 18.2 14.0 11.0
KPIT Cummins Infosystems Ltd (KPIT), one of the premium members of AUTOSAR (Automotive Open System Architecture), has joined Jaspar (Japan Automotive Software Platform Architecture). Jaspar is a consortium of automotive manufacturers and suppliers working together to develop and establish a standard Japan Automotive Platform Architecture where as AUTOSAR is a partnership between these manufacturers and suppliers to develop and establish a de-facto open industry standard for automotive electrical/electronic architectures. KPIT is the first and the only Indian company which has become part of the Japan-based consortium. KPIT had recently began its partnership with Renesas for one of the largest outsourcing deals in Japan, in the area of semiconductors.
Jaspar:
Jaspar’s objective is to promote automotive software technology and to cut development costs by encouraging Japanese companies to collaboratively develop non-competitive technologies such as automotive LAN (Local Area Network) enabling technology, middleware and software platforms. Jaspar addresses the escalating need for efficient cars and the increasingly stringent legislations for car safety in Japan. As the density of in-vehicle electrical integration and networked systems increases, there is a growing need to develop non-competitive technology on a common platform, at a reduced cost. Car safety requires complex electronic components, which need to collaborate in harmony for safer and more reliable ride. Jaspar connects auto OEMs and suppliers to understand common problems faced by the industry and provide solution by combined efforts. The
consortium carries out activities concerning software and networks for electronic vehicle control systems including survey, research, technological development, specification development and activities related to intellectual properties.
Jaspar is responsible for defining uniform, interchangeable high-speed bus architecture for the Japanese car industry and aims to contribute technical support to international standardization of communication in the areas of auto & electronic software and contribute to the development of global standards, on the whole.
Advantages to KPIT through Jaspar membership:
Having received the membership, KPIT Cummins is able to use Jaspar specifications to develop tools in compliance with Jaspar standards for the Japanese automotive market. AUTOSAR standards would be modified by Jaspar to meet Japan car makers needs/domestic needs.
Jaspar membership enables access to technology development requirements of participating OEMs as well as preferential access to the outcome of the joint development and most importantly reduces the software development cost. KPIT is going to be benifitted getting access to these requirements.
KPIT’s position will further strengthen in Japan as it can enhance its contribution to the world of automotive electronics in Japan by deeper understanding of local market and existing customers. Over the years, KPIT Cummins has established a leadership position and domain expertise in automotive & semiconductor solutions, partnering with some of the major European, North American & Japanese OEMs and Tier-1s.
Business Outlook and Valuation:
KPIT Cummins has been able to build its presence both organically and inorganically in last few quarters. Growth visibility of the company continues to be strong with recent partnerships and inorganic initiatives coupled with strong ramp up in both Star and Non Star customers.
KPIT has demonstrated its ability to grow on the back of its strong focus on the automotive and semiconductor verticals. The Japanese market is strong in both these verticals. KPIT currently gets about 12% of its revenues from rest of the world (primarily Japan) and expects this to touch to about 20% till 2010. We believe that KPIT’s membership with Jaspar is an excellent platform where the company can both gain and contribute knowledge and expertise in the focused area of Automotive Electronics in the Japanese market. At the same time, KPIT has been able to reduce its dependence on Cummins, from 44% a year ago to 39% today.
However, on the margin front, concern still remains on account of appreciating rupee scenario. About 60% of the company’s revenues come from US making it susceptible to unfavorable rupee movements. KPIT has tried to create geographical diversification, and Europe now accounts for almost 30 per cent of its turnover, which has doubtless helped manage financial results in the face of dollar depreciation.
We expect KPIT’s revenue and net profit to grow at a CAGR of 28% and 25% respectively over FY07A-09E.
Year Ended FY07A FY08E FY09E
Net Sales (Rs Mn) 4637.0 5943.0 7689.5
EBITDA (Rs Mn) 707.8 965.1 1280.4
OPM% 15.3 16.2 16.7
Net Profit (Rs Mn) 504.8 654.1 829.9
EPS (Rs) 6.6 8.6 10.9
P/E (x) @ Rs 120 18.2 14.0 11.0
KPIT stock trades at a P/E of 14x FY08E and 11x FY09E. We continue to maintain a BUY on KPIT with our previous target price of Rs 178. At our target price the stock trades 20.7x and 16.3x EPS for FY08E & FY09E respectively (based on fully diluted equity of Rs 152.5 mn). We continue to maintain a BUY on KPIT with our previous target price of Rs 178.
Source:emkayshare.com
