KPIT Technologies India Research

Technology November 03, 2015

Bloomberg: KPIT IN

Reuters: KPIT.BO BUY

Road to Recovery Recommendation KPIT, a key IT service provider in manufacturing domain particularly in CMP: Rs140 Automotive is all geared up for next leg of growth. Company is one of a kind Target Price: Rs205 in delivering auto electronic services, semiconductor solutions while other Upside (%) 46% service offerings include Enterprise IT. Improving demand environment in Stock Information Automotive & Manufacturing coupled with traction in SAP provides ample Market Cap. (Rs bn / US$ mn) 28/421 growth opportunities. The company has grown at a CAGR of 32.5% over FY10- 52-week High/Low (Rs) 233/85 FY15 with a mix of organic and inorganic growth. We believe strong organic 3m ADV (Rs mn /US$ mn) 149/2.3 growth from its existing and new clients is set to yield better growth ahead. We Beta 0.8 Sensex/ Nifty 26,559/8,051 initiate coverage on the stock with a “BUY” rating and Target Price of Rs 205 Share outstanding (mn) 197 based on 11xFY17E (45% discount to TCS P/E of 20). Cummins account stabilizing: Cummins Inc. is KPIT’s largest client with ~14% Stock Performance (%) revenue contribution and has shown flat revenue growth for FY15. With the 1M 3M 12M YTD Absolute 31.6 26.8 (15.7) (31.1) robust CAPEX plan for CY15 and improvement in growth prospects by Cummins Rel. to Sensex 30.0 34.2 (11.6) (28.6) Inc, KPIT is expected to benefit as it is one of the three preferred IT service providers. Non-Cummins accounts are also showing good traction at 1.9% CQGR Performance over Q1FY14-Q2FY16. 31,500 280 29,500 Increase in revenue and margin contribution from SAP: With healthy growth in 27,500 230 25,500 SAP and Oracle license sales, revenue growth is expected to be stronger. 23,500 180 21,500 19,500 130 Realignment of its service offerings with the SAP offerings and increasing deal 17,500

15,500 80

sizes provides ample opportunities to capture growth. Management expects

14 15

14 15 15 15

15 15

- -

- - - -

- -

margin improvement in SAP due to increase in offshore share on account of Jul

Jan

Jun

Oct Oct

Feb

Sep

Mar Nov better implementation and support work mix. May Number of margin tailwinds: Margins are expected to improve to 15-16% with Sensex (LHS) KPIT Tech (RHS) benefits from increase in utilization, offshore leverage, higher fixed price Source: Bloomberg contracts, expanding employee pyramid, SG&A efficiency and better SBU margins.

Valuation: We expect KPIT to grow at a CAGR of 11% over FY15-FY17E. EBITDA and Net Profit are expected to grow at a higher CAGR of 29% and 23% over the same period. We recommend Buy on the stock with a target price of Rs 205 (currently, 9.0xFY16E and 7.5xFY17E). We have not built in any contribution from Revolo until KPIT enters into a tie up with any OEM.

Key Financials Y/E March (Rs Mn) FY13 FY14 FY15 FY16E FY17E

Net Sales 22,386 26,940 29,899 32,574 36,715 EBITDA 3,650 4,233 3,271 4,508 5,401

EBITDA Margin (%) 16.3 15.7 10.9 13.8 14.7

Net Profit 2,023 2,417 2,397 3,009 3,630 EPS (Rs) 11.3 13.7 12.7 15.3 18.4

EPS Growth (%) 55.9 21.2 (7.6) 20.6 20.7 PER (x) 12.2 10.1 10.9 9.0 7.5 Analysts Contact EV/EBITDA (x) 7.2 6.6 8.3 5.8 4.4 Shyamal Dhruve RoCE (%) 19.9 17.2 13.4 15.2 15.7 +91 22 6184 4313 [email protected] RoE (%) 23.1 20.9 18.6 20.9 20.7

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Company Financial Snapshot Profit & loss Company Background Rs mn FY15 FY16E FY17E KPIT is a mid-cap IT services provider primarily to the Net sales 29,899 32,574 36,715 manufacturing industry. It is headquartered in Pune and EBIDTA 3,271 4,508 5,401 services clients across the world. The services provided by Depreciation 851 693 840 KPIT include development, maintenance and support of Interest Expense 260 179 162 software applications, implementation of software packages, PBT 2,512 4,056 4,973 supply chain management solutions, embedded software and networking solutions for automotive companies, Tax 115 1,047 1,343 development of business intelligence tools, chip design, Adj. PAT 2,397 3,009 3,630 verification and testing for semiconductor companies, ERP EPS (Rs) 12.7 15.3 18.4 consulting, risk management and compliance services, DPS (Rs) 1.1 1.1 1.1 transaction processing, technology based and knowledge Profit and Loss Ratios based services. These services are delivered from KPIT’s EBIDTA Margin % 10.9 13.8 14.7 offshore delivery centers in Pune and Bangalore in India. Adj Net Margin % 8.0 9.2 9.9 Services are also delivered from onsite locations at the Valuation Multiples customers’ premises across the world.

P/E (x) 10.9 8.6 7.1 EV/EBIDTA (x) 8.3 5.8 4.4

Balance Sheet Cash Flow Rs mn FY15 FY16E FY17E Rs mn FY15 FY16E FY17E Total Assets 22,181 25,366 29,155 PBT 2,512 4,056 4,973 Net Fixed Assets 7,416 8,153 8,113 Depreciation 851 693 840 Current Assets 13,149 15,205 18,803 Tax (115) (1,047) (1,343) Other Assets 1,616 2,008 2,240 Change in Wkg Cap (100) (534) (672) Total Liabilities 22,181 25,366 29,155 CF from Operations 3,148 3,169 3,799 Networth 12,961 15,856 19,201 Capex (113) (1,430) (800) Debt 4,457 3,951 3,551 Investments 1,044 180 - Current Liabilities 4,339 5,044 5,817 CF from Investing 931 (1,251) (800) Other Liabilities 423 514 585 Change in Equity 5 (2) - Balance Sheet Ratios Change in Debt 67 (506) (400)

RoE % 18.6 20.9 20.7 Dividends & others (2,422) (113) (285) RoCE % 13.4 15.2 15.6 CF from Financing (2,350) (620) (685) Net Debt/Equity 0.1 (0.0) (0.2) Change in Cash 1,730 1,298 2,314 Equity/Total Assets 0.6 0.6 0.7 P/BV (X) 2.0 1.6 1.4

November 03, 2015

KPIT Technologies

Investment Rationale

Well grounded expertise in Automotive and Manufacturing services KPIT is a key manufacturing IT service provider particularly in automotive segment since its inception and has grown organically and inorganically as a provider of end to end IT solutions and services. Automotive & Transportation contributes ~37% as on Q2FY16 while Manufacturing contributes ~33% at the same time. The company diversified its verticals during 2009-10, stretching services to Energy & Utilities so as to minimize the overall risk to its top line pertaining to concentration of one vertical.

Exhibit 1: Vertical Mix (%) Vertical Mix (%) Q4FY14 Q1FY15 Q2FY15 Q3FY15 Q4FY15 Q1FY16 Q2FY16 Automotive & Transportation 33.1 32.7 37.1 36.0 41.3 37.1 37.3 Manufacturing 39.2 40.9 31.6 32.8 33.3 35.8 33.3 Energy & Utilities 18.0 17.8 21.7 21.8 17.8 18.7 21.3 Others 9.7 8.6 9.6 9.5 7.7 8.4 8.2 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Source: Company, Karvy Stock Broking

KPIT is one of a kind providing auto electronics services covering entire sub domain of the automobile from powertrain, body electronics, safety, in-vehicle communication, telematics, infotainment & navigation to engineering design and testing & diagnostics. KPIT is one of the premium members with AUTOSAR (Automotive Open System Architecture) and JASPAR (Japan Automotive Software Platform and Architecture) which helps it in direct bidding of contracts with core partners of AUTOSAR, JASPAR. The core partners of AUTOSAR include BMW, Bosch, Daimler, Ford, GM, Toyota, PSA Peugeot Citroen, and Volkswagen. JASPAR board members include Toyota, Nissan, Honda, and Denso. Other IT service providers who are premium members of AUTOSAR include iGATE Computer, TCS and TATA Elxsi.

Exhibit 2: Automotive and Transportation Revenue Trend

100 35 30 80 25 20 60 15 10 40 5 20 0 -5

0 -10

1Q11 1Q13 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Auto & Manu. Rev ($ mn) Growth (QoQ, %) - RHS

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Recovery in manufacturing sector aided KPIT’s growth Revival in the manufacturing industry primarily led by US and pent up demand generated from Automotive, semiconductor, hi-tech and other industry verticals coupled with the acquisitions did during 2008-11 led to strong revenue growth during FY11-FY14. However, challenges witnessed in ERP business during FY15 resulted in tepid revenue growth for the year.

Exhibit 3: USD Revenue growth over past quarters

140 35 130 30 120 25 110 20 100 15 90 10 80 70 5 60 0 50 -5

40 -10

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

US$ Revenue (mn) - LHS Growth (QoQ, %) - RHS

Source: Company, Karvy Stock Broking

Global Automotive Electronics market The utilization of electronic components in modern automobiles has shot up over the past few years with concentration on developing safety systems. The anti-lock braking helps stopping of cars faster in a controlled manner, the electronic traction control systems provide safety to the drivers under difficult driving conditions, and in case of crash the air-bag and the advanced collision sensors save lives. The telematic system covers geographic maps, GPS, navigation, mobile phones, road tolling and entertainment systems.

Research shows that by 2030, an average car will have 150 Million lines of code, 100 ECUs, and software that will account for 25% of the cost of the car. At the same time electronics will account for 50% of the cost of the car.

As per the industry experts, electronics cost as a percentage of the car cost will increase from 32-35% in 2010 to 45-50% by 2030. Automotive Electronic Products include Engine Management Systems, Safety & Security Systems, Entertainment Systems and Navigation Systems.

Automotive semiconductor solutions Main demand drivers are the continued pervasion of electronics into almost all vehicle systems. The highest growth will be seen in the powertrain segment. According to industry sources, the market volume for ECU (Engine Control Unit) is estimated to have been worth USD 42-45bn in 2013 and is forecast to grow to USD 75-80bn in 2020.

November 03, 2015

KPIT Technologies

The current uptrend in automotive semiconductor demand is directly attributed to the strong growth in light vehicle production in the emerging markets, particularly in China. Other geographies with increasing demand for cars are Brazil, Russia and India. The North American market has also recovered.

In the long term, the demand for semiconductors for cars will exceed the production rate for light cars. In other words, the vehicles will contain a growing semiconductor content: While the production of light vehicle production is forecasted to climb by 3% annually, the production of the related semiconductors will rise at a rate of 8% per year. There are several sources that feed this trend.

 The cars need to become more environmentally friendly. This can be achieved by electronic controls that improve the overall fuel efficiency. Other demand drivers are safety and mobile connectivity as well as infotainment and navigation where increasingly sophisticated solutions will be seen.  The rise of hybrid electric and battery electric vehicles is forecast to offer substantial new revenue opportunities for semiconductor suppliers. Driven by this electrification, the powertrain sector is forecast to grow fastest overall for OE automotive semiconductors and to have the highest revenue growth over the period 2015 to 2020.  Following the powertrain sector, next highest revenue growth for automotive semiconductors is forecast for OE entertainment systems. In- vehicle entertainment systems have witnessed an exceptional rise in complexity and functionality in just the last three years.

SAP returning to normalcy: KPIT has classified SAP under a different SBU post Sparta merger consolidating its existing and Sparta’s SAP practices which contributed ~22% to the total revenue as on Q2FY16. Majority of the SAP revenue comes from Sparta because of higher onsite share as 80% of Sparta’s work is implementation work. But despite having higher average billing of $ 100-110 per hour compared to offshore billing of $ 15-20 per hour, margins are comparatively lower in Sparta on account of higher onsite cost.

KPIT witnessed some pressure in this domain after the stellar performance reported during FY12 and FY13 owing to the changes in the landscape of the SAP business after SAP acquired SuccessFactors – a cloud based HCM Software Company. From the on-premise implementation, demand shifted considerably to the cloud based solutions. With the lack of expertise in cloud-based implementation, this shift resulted in change in business mix for KPIT also resulting in execution issues and cost over-runs. SAP vertical registered de-growth at a CQGR of 0.4% during Q1FY14-Q2FY16. This has also resulted in negative margin from this vertical. The cloud-based deals are 30-40% of the on-premise SAP implementation but margins are high as there is a larger scope of offshoring. Management intends to improve the profitability of this SBU as well as revenue growth.

November 03, 2015

KPIT Technologies

Exhibit 4: SAP SBU Revenue Trend (US$ mn)

35 40 30 30 25 20 10 20 0 15 -10 10 -20 5 -30

0 -40

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

SAP Growth (QoQ, %) - RHS % of Revenue

Source: Company, Karvy Stock Broking

Exhibit 5: SAP Global Revenue (Euro mn)

3,000 2,500 2,000 1,500 1,000 500

Q3CY08 Q1CY06 Q3CY06 Q1CY07 Q3CY07 Q1CY08 Q1CY09 Q3CY09 Q1CY10 Q3CY10 Q1CY11 Q3CY11 Q1CY12 Q3CY12 Q1CY13 Q3CY13 Q1CY14 Q3CY14 Q1CY15

Software Support Subscription

Source: SAP, Karvy Stock Broking

Cummins account stabilizing

Cummins Inc. is a corporation of complementary business units that design, manufacture, distribute and service engines and related technologies, including fuel systems, controls, air-handling and emission solution systems. Cummins reported net income of $ 1.65bn on sales of $19.2bn in 2014.

KPIT acquired Cummins Infotech in 2002 from Cummins Inc. and since then Cummins Inc. has remained top customer for KPIT. In FY06, revenue from Cummins business accounted for ~47% of the total revenue of KPIT. However, with the increased focus on expanding and diversifying its client base, contribution from Cummins business has decreased to ~14% as on Q2FY16.

KPIT is one of the three preferred outsourcing vendors of Cummins in the global space, other being Infosys and TCS from Indian IT space. KPIT does ~70% of the total engineering outsourcing work for Cummins and ~35% of business IT outsourcing work. After the global financial crisis and slowdown in manufacturing industry, Cummins decreased its capex and IT spend considerably, which affected KPIT’s performance during that period.

November 03, 2015

KPIT Technologies

Exhibit 6: Revenue from Cummins

25 23 20 20 15

17 10 5 14 0 11 -5 8 -10

5 -15

1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Cummins Rev ($ mn) Growth (QoQ, %) - RHS

Source: Company, Karvy Stock Broking

Cummins revenue has increased considerably after the CY09 meltdown. We expect Cummins to deliver stable revenue run rate during FY16-17 following robust CAPEX plan for CY15 by Cummins Inc. We note here that, despite Cummins being the largest and oldest customer for KPIT, it does not enjoy any price discount and provides company level margins.

Direct correlation between Cummins Inc and KPIT’s revenue from Cummins (r=0.74) Revenue from Cummins has direct correlation with Cummins Inc global revenue with one month lag period and has positive correlation at 0.74. Also Cummins revenue in KPIT goes hand in hand with CAPEX cycle of Cummins Inc. However, growing client base will result in reduction in Cummins contribution to the top- line.

Exhibit 7: Correlation of Cummins Revenue to Revenue from Cummins in KPIT

Cummins Rev (USD mln), X KPIT Cummins Rev (USD mln), Y 5500 22.0 5000 20.0 4500 18.0 4000 16.0 3500 14.0 3000 2500 12.0

2000 10.0

Q3CY08 Q3CY13 Q1CY07 Q3CY07 Q1CY08 Q1CY09 Q3CY09 Q1CY10 Q3CY10 Q1CY11 Q3CY11 Q1CY12 Q3CY12 Q1CY13 Q1CY14 Q3CY14 Q1CY15

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Exhibit 8: Correlation of Cummins CAPEX to Revenue from Cummins in KPIT

Cummins Rev (USD mln), X KPIT Cummins Rev (USD mln), Y 5500 22.0 5000 20.0 4500 18.0 4000 16.0 3500 14.0 3000 2500 12.0

2000 10.0

Q3CY08 Q3CY13 Q1CY07 Q3CY07 Q1CY08 Q1CY09 Q3CY09 Q1CY10 Q3CY10 Q1CY11 Q3CY11 Q1CY12 Q3CY12 Q1CY13 Q1CY14 Q3CY14 Q1CY15

Source: Company, Karvy Stock Broking

Non –Cummins account continues to show healthy growth Healthy revenue growth is posted by its top 10 clients (ex-Cummins) at a CQGR of 3.2% over Q1FY12-Q2FY16. Company has strong client mining in automotive with large OEMs like Hyundai, Volkswagen etc as its clients. Addition of clients from Energy & Utilities segment through Sparta Consulting is also propelling growth.

Though the growth rate from Top-10 clients (Ex-Cummins) has tapered-off in the last few quarters due to scale down by one of its top-5 clients since Q1FY15, we note that, the scale-down is over and revenues from this client should start growing again.

Exhibit 9: Performance of Top-10 Clients (Ex – Cummins)

40 40

35 30

30 20

25 10

20 0

15 -10

10 -20

3Q11 2Q13 1Q11 2Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Top 10 (Ex Cummins) Growth (QoQ, %) - RHS

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Exhibit 10: Performance of Top 5 Clients (Ex-Cummins)

30 50 40 25 30

20 20 10 15 0 -10 10 -20

5 -30

2Q11 2Q13 1Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Top 5 (Ex Cummins) Growth (QoQ, %) - RHS

Source: Company, Karvy Stock Broking

Onsite Billing Rates steadily increasing….Highest among mid-cap peers

After the acquisition of Sparta Consulting in US, CPG in US and In2soft in Germany during 2009-2010, KPIT’s onsite billing rate increased substantially owing to the higher rate enjoyed by the acquired companies. While offshore billing has remained stable at around $20 per hr, onsite billing has increased from $64/hr in Q1FY11 to $107/hr in Q4FY13, before stabilizing at current levels of $95/hr. These rates are much higher than its mid-size peers MindTree ($76/hr) and Hexaware ($80/hr). We expect the billing rates to remain in the range of $96-97/hr going ahead.

Exhibit 11: Average Billing Rates for KPIT (US$/Hr)

120

100

1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16

Average Onsite Billing Average Offshore Billing

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Exhibit 12: Highest Onsite Billing Rates amongst Mid-Cap Peers (US$/Hr)

110

100

FY15 FY10 FY11 FY12 FY13 FY14

FY16P FY17P

KPIT MindTree Hexaware

Source: Company, Karvy Stock Broking

Financials

KPIT has grown at a CAGR of 32.5% over FY10-FY15 through organic and inorganic route. EBITDA and PAT have grown at a CAGR of 15.2% and 22.8% over the same period. Focus on manufacturing vertical has provided enough growth headroom to the company as it expanded its service verticals to provide end to end servicing to clients in this vertical.

However, the same has resulted in bearing the wrath of the 2008 slowdown when manufacturing indices registered dismal performance. On the back of it, the company has diversified to other industry verticals like Energy & Utilities where same suite of services can be supplied. One of the key positive for the company is its ability to integrate its acquisitions effectively to generate better top-line and bottom-line growth. We expect KPIT to grow at a CAGR of 10.8% over FY15- FY17E. EBITDA and PAT over FY15-FY17E are expected to grow at a CAGR of 28.5% and 23.1% respectively.

Exhibit 13: Projected Financials FY15 FY16P FY17P

USD Revenue Growth (%) 10.0 2.7 14.2 USD-INR Rate 61.1 64.8 64.0 INR Revenue Growth (%) 11.0 8.9 12.7 EBITDA Margin (%) 10.8 13.8 14.7 EPS Growth (%) (7.6) 20.6 20.7

Source: Company, Karvy Stock Broking

Upping the margin game EBITDA margin for the KPIT has historically hovered in mid-teens. However, with the revenue pressure and cost over-runs in FY15, margin declined to 9.5% in Q1FY16 compared to 15.7% in Q4FY14. In order to address demand and growth in sales, company has gone forward with lateral hiring, increasing the average employee cost, and higher expenditure on sales force etc thus spiking the SG&A expenses. The worst margin performance came in Q4FY15 when it reported EBITDA margin of 4.4% on the back of one-time additional cost for a SAP project.

November 03, 2015

KPIT Technologies

Exhibit 14: EBITDA Margin (%)

24 22.1 22 20 18 16.3 15.3 15.7 14.5 14.7 16 13.8 14 10.9 12

FY11 FY10 FY12 FY13 FY14 FY15

FY16E FY17E

EBITDA margin (%)

Source: Company, Karvy Stock Broking

Over medium term, the company’s focus would be to improve the margin and return to normal margin level of 15-16%. We expect 390bps margin expansion in FY16E and 100 bps expansion in FY17E.

Key margin levers going ahead will be  Expansion in employee pyramid: Currently, ~70% of KPIT’s workforce is over 3-years of experience following higher lateral hiring in the past. However, this is expected to reduce following higher fresher intake addition expected over FY16. Management intends to take the fresher: lateral to 40:60 from the current 30:70. The broadening of employee pyramid will result in normalized average employee cost going forward.

 Utilization leeway: KPIT has huge leeway to expand its utilization. Its offshore utilization rate was at 69.8% at the end of Q2FY16, lower than industry average of 75%+ offshore utilization. Despite strong lateral addition and billing of fresher’s added during H1FY16, higher attrition rate at 25%+ has been unable to inch up the utilization rates. As attrition rate stabilizes in FY16 and campus hiring increases, utilization is expected to reach 72-73% over FY16-FY17 providing margin leverage.

Exhibit 15: Utilization provides enough headroom

76 73.9 74 72.5 72.1 71.2 72 69.4 70 68.4 68 66

FY13 FY10 FY11 FY12 FY14 FY15

Utilization (%)

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

 Onsite: Offshore mix: Onsite: Offshore mix at the end of Q2FY16 stood at 55:45. With the increasing proportion of cloud-based SAP deals which has more scope for offshoring, management expects to shift some of the work to its India-based delivery centers. This in-turn will help it in improving the margins.

Exhibit 16: Onsite: Offshore mix

100%

80% 46.2 46.0 46.5 59.9 57.9 52.4 60%

40% 53.8 54.0 53.5 20% 40.1 42.1 47.6

0% FY10 FY11 FY12 FY13 FY14 FY15

Onsite Revenue Offshore Revenue

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Q2FY16 Quarterly Review

Exhibit 17: Quarterly Performance Rs mn 2Q16 1Q16 2Q15 QoQ (%) YoY (%) 1H16 1H15 Change (%) Revenues 8,123 7,583 7,574 7.1 7.2 15,706 14,471 8.5 - Operating costs 6,990 6,862 6,571 1.9 6.4 13,853 12,641 9.6 EBITDA 1,132 721 1,003 57.1 12.9 1,853 1,830 1.3 EBITDA margin (%) 13.9 9.5 13.2 444 bps 70bps 11.8 12.6 (85)bps - Depreciation 167 164 245 2.1 (31.6) 331 407 (18.6) EBIT 965 557 759 73.3 27.2 1,522 1,423 6.9 EBIT margin (%) 11.9 7.3 10.0 454bps 186bps 9.7 9.8 (14)bps - Interest expense 44 47 33 (6.5) 34.7 91 75 21.8 + Other income, net (incl forex) 86 106 42 (18.7) 105.2 192 150 28.3 PBT 1,007 616 768 63.6 31.1 1,623 1,498 8.3 - Taxes 256 172 63 49.4 310.1 428 285 50.3 Effective tax rate (%) 25.4 27.9 8.1 (241)bps 1,731bps 26.4 19.0 736bps PAT 751 444 706 69.1 6.4 1,195 1,213 (1.5) Net margin (%) 9.2 5.9 9.3 339bps (7)bps 7.6 8.4 (78)bps EPS (Rs) 4.0 2.4 3.8 70.0 6.2 6.4 6.5 (2.0)

Source: Company, Karvy Stock Broking

Key takeaways from earnings call:

Above estimate revenue performance on back of healthy deal pipeline KPIT reported USD revenue growth of 5.3% QoQ, -0.3% YoY at US$124.6mn. This was way ahead of consensus estimates. The above estimate revenue growth was after the dismal revenue performance the company reported in the last two quarters (-3.3% in Q1 and -3.2% in Q4), largely led by strong traction in Europe, SAP and Cummins account.

Margin improvement of 444bps despite salary hike impact KPIT gave salary increment to its employees in Q2, resulting in 200-230bps QoQ negative impact. However, this was negated by change in employee pyramid (585 freshers added in H1 while net reduction of 321 employees over the same time), improved utilization and favorable rupee movement, resulting in 444bps QoQ improvement in EBITDA margin at 13.9%. This is the highest EBIDTA margin reported by KPIT in last six quarters.

November 03, 2015

KPIT Technologies

Outlook and Valuation A better play in mid cap space with an effective management and room for growth from growing spending in engineering and enterprise solution space is expected to play in favor of KPIT. The company has grown at a CAGR of 32.5% over FY10- FY15 with a mix of organic and inorganic growth. We believe strong organic growth from its existing and new clients is set to yield better growth ahead. At CMP of Rs 140, the stock is trading at 9.0xFY16P and 7.5xFY17P earnings of Rs 15.3 and Rs 18.4 respectively. Historically, KPIT has traded at an average P/E of 13 times its forward earnings over a five year period. We initiate coverage on the stock with a BUY rating and a target price of Rs 205, based on 11xFY17P earnings.

Exhibit 18: P/E Band

350 300 250 200 150 100 50

Jul/08 Jul/13

Jan/11

Jun/11

Oct/14 Oct/09

Feb/08 Feb/13

Sep/07 Sep/12

Dec/08 Dec/13

Apr/07 Apr/12

Mar/10 Mar/15

Aug/10 Aug/15

Nov/11

May/09 May/14

Price 5 X 9 X 13 X 17 X 21 X

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

APPENDIX I – Company

Key Milestones 1990: KPIT Infosystems incorporated by a group of CPAs 1996: Outstanding achievement award from Oracle 1997: Achieved ISO 9001, certified by KPMG 1999: IPO: 42 times oversubscribed, became a public limited company in India 2002: Merger of Cummins Infotech into KPIT Infosystems to form KPIT Cummins Infosystems Ltd 2003: KPIT Cummins assessed at CMM level 5 2004: ISO 9001:2000. Acquisition of Panex Consulting, USA 2005: Lehman Brothers take 8% stake in KPIT Cummins Integrated all off-shore facilities in Pune into the state-of-the-art campus at Hinjewadi Acquisition of SolvCentral.com, USA Acquisition of Pivolis.com, France 2006: Acquisition of CG Smith, India 2007: Achieved corporate mission of being a US $100mln company by the year 2006-07 Strategic investment by Cargill Ventures, a venture capital arm of Cargill Inc. 2008: Acquisition of the Mechanical Design Services business of Harita TVS Technologies, India 2009: Acquisition of ERP Consulting firm Sparta Consulting, USA 2010: Acquisition of ERP Consulting firm CPG Solutions, USA 2010: Acquisition of In2Soft, German 2011: Acquisition of JD Edwards Solution Provider SYSTIME 2013: Acquisition of Learn2Perform, a Consulting, Education and Sales Partner of Success Factors 2014: Acquisition of I-Cubed, a PLM focused company

Inorganic initiatives – bore fruit through sound integration

KPIT has gone forward with a number of acquisitions in past 13 years, with latest being that of I-Cubed in 2014, and has been able to garner better growth through healthy integration of the companies. KPIT’s acquisition strategy is to either achieve domain expertise, get new customers or to enter into a new geography. Besides turning these acquisitions to better profitability, KPIT has expanded its existing service lines, added new services and industrial portfolio thus diversifying its offering to a larger customer base with higher share of customer outsourcing portfolio.

One of the interesting aspects about KPIT’s acquisition approach is to make the acquisition deal payment span over 2-3 years time period based upon top-line and EBITDA milestones rather than one-time upfront payment which would have cost the company to raise debt for the transaction and would have eroded the margins. Thus, despite a number of acquisitions made in recent past, KPIT’s Debt-Equity ratio is moderate at 0.3 in FY15 after peaking at 0.7 in FY09.

November 03, 2015

KPIT Technologies

Exhibit 19: Acquisition History Revenue Company Country Year Area of Practice Deal Size Rationale for Acquisition @ Acqui. Cummins Infotech -- 2002 Auto Electronics Equity Merger Manufacturing Domain $ 1mn Panex US 2003 ERP $ 1.7mn SAP Practice $ 7.2mn SolvCentral US 2005 Business Intelligence $ 2.2mn BI Practice $ 3.5mn Pivolis France 2005 Embedded Technology £ 1.75mn New Geography France £ 2.5mn CG Smith India 2006 Auto Electronics Rs 380mn Auto Electronics $ 6.25mn Harita TVS India 2008 Mechanical Design Rs 300mn Mechanical Engg. Design $ 1mn Sparta Consulting US 2009 ERP $ 38mn SAP Practice $ 25mn CPG Solution US 2010 ERP $ 12mn Oracle Practice $ 11mn In2Soft Germany 2010 Automotive NA Auto Electronics $ 4mn SYSTIME India 2011 ERP Rs 103mn Serving Manu. and E&U Industries $ 50mn Learn2Perfom US 2013 Consulting NA HCM Practice NA I-Cubed US 2014 PLM $24mn Product Engineering $ 10mn

Source: Company, Karvy Stock Broking

Revolo – the hybrid car KPIT has developed technology for an intelligent, plug-in parallel hybrid solution for automobiles. As per the FY11 initital agreement, it was supposed to be developed by a 50:50 JV between KPIT and Bharat Forge. However, in FY15, KPIT bought back the 50% shares held by Bharat Forge in order to exclusively manufacture and market the product.

The hybrid solution developed by KPIT Cummins is a plug-in parallel hybrid solution that consists of the following key components:  Electric Motor  Electric motor controller  Battery pack  Mechanical assembly & Coupling  Proprietory software for control algorithms of the motor & batteries  Intelligent battery mangement system that enhances battery performance and battery life.

November 03, 2015

KPIT Technologies

Exhibit 20: Representation of the sysetm deployed in the vehicle

Source: Industry, Karvy Stock Broking Revolo can be installed to the crankshaft of the internal combustion engine by an aftermarket dealer, in 4-6 hours. It can even be installed to engines that do not have an Engine Management System and engines fuelled by carburetors. Revolo is a mild hybrid system with a small 15-22 hp AC induction motor-generator and it offers torque assist, brake regeneration and engine stop-start.

Price range for Revolo falls in the range of Rs60000-150000 per kit. Commercial production of the Revolo kit is expected to start by the end of FY16. Revolo is being offered first in the after-market (currently being tested among fleet operators), which comprises 90% of the car population, rather than being pitched directly to auto makers. The Automotive Research Association of India (ARAI), which tested the new hybrid solution (REVOLO), confirmed fuel efficiency gains of more than 40%. Under city driving conditions, the increase in efficiency has been above 60% and reduction in Greenhouse Gas Emissions (GHG) has been more than 30%. Payback for an individual user for Revolo will be higher at 2.5-3 yrs considering daily run of 50 kms. For commercial applications when the vehicle is used for higher mileage (>55,000 kms), the breakeven is expected to be less than 1.5 years. Though crude oil prices have fallen considerably in the last year resulting in lower fuel prices, we believe, Revolo will stand a chance to gain market share on back of advantages of fuel efficiency and reduction in emission.

Exhibit 21: Hybrid Solution Specifications for Sample Vehicles Description 800 cc Hatchback 800 cc Small LCV 1400 cc Sedan Engine Displacement 796 cc 702 cc 1400 cc Fuel Type Petrol Diesel Petrol Engine Type MPFI DI MPFI Engine Power Output 46.3hp @ 6200rpm 16 hp@3200 rpm 75hp @ 5500rpm Engine Peak Torque 62nm @ 3000rpm 38nm @ 2000rpm 110nm @ 3000rpm

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Exhibit 22: Performance results of hybrid solution Description 800 cc Hatchback 800 cc Small LCV 1400 cc Sedan Fuel Type Petrol Diesel Petrol Fuel Efficiency Improvement 60%-80% 50%-60% 60%-80% Battery Weight 140 kg 140 kg 175 kg

Source: Company, Karvy Stock Broking

Expected Revenue from Revolo We have considered two scenarios. In scenario A, we have assumed sale of 15,000 units and for scenario B, we have assumed sale of 30,000 units at an average price of Rs 0.1 mn per unit. This will generate revenue of Rs 1,500 mn in A and Rs 3,000 mn in B. Company expects 15% EBITDA margin from this product (with battery to be the highest cost component with average cost of a lead acid battery at Rs 18,000- 20,000), which in first year can be assumed at 14% taking into consideration investment in marketing force. Also depreciation and interest cost will be minimal following assembly line operation. We expect KPIT to earn 8.7% and 9.3% PAT margin in scenario A and B respectively. Revolo is thus expected to earn Rs 0.70 per share in scenario A and Rs 1.5 in scenario B.

Exhibit 23: Estimates for Revolo Rs mn Scenario A Scenario B Highest Price (Rs) 1,50,000 1,50,000 Lowest Price (Rs) 65,000 65,000

Unit Sales 15,000 30,000 Average Price (Rs) 100,000 100,000

Sales 1,500 3,000 EBITDA Margin (%) 14.0% 15.0% EBITDA 210 450 Depreciation (@1% of Rev) 15 30 PBT 195 420 Tax (@33.22%) 65 140 PAT 130 280 PAT Margin (%) 8.7% 9.3% Equity Capital 376 376 No. of shares 188 188 EPS Contribution from Revolo (Rs) 0.7 1.5 Price multiple 10 10 Price contribution (Rs) 6.9 14.9

Source: Company, Karvy Stock Broking

However, as the company has been delaying the launch of product from last four years cited regulatory issues, we have not incorporated the derived EPS of Revolo in our estimates. We would wait for the official launch of the product to include the Revolo contribution in our financials.

November 03, 2015

KPIT Technologies

APPENDIX II – Industry

Product Lifecycle Management

Product Lifecycle Management, part of engineering space is the process of managing the entire lifecycle of a product from its conception, through design and manufacture, to service and disposal. PLM integrates people, data processes and business systems and provides a product information backbone for companies and their extended enterprise.

Exhibit 24: Services within PLM Valuechain

Source: Company, Karvy Stock Broking

Increasing competition is making it imperative for manufacturers to introduce newer products with multiple variants at a market-beating pace. This need is coupled with the pressure of reducing the cost of product development while building better and regulatory compliant products. Manufacturers can address this, through effective collaborations across various business processes of the extended enterprise.

The downturn of economic environment triggered by the collapse of Lehman Brothers has impacted the manufacturing industries, as typically shown in the downfalls of US automakers, and caused capital expenditure to drop sharply.

Revival in Auto industry

Automotive industry was a part of a global financial downturn during 2008. Although it affected European and Asian automobile manufacturers, but it was largely felt in the American automobile industry. The automobile industry also got weakened by a substantial increase in the prices of automotive fuels.

Increase in US Vehicle Sales numbers indicate boost in consumer spending

Auto industry was the most hit during the 2008 downturn in terms of the consumer confidence. It was the time when the industry showed negative growth rate in the auto sales numbers. With the technological advancements and newer emission norms, auto manufacturers are constantly in the pressure of introducing new products while maintaining the cost arbitration.

November 03, 2015

KPIT Technologies

Exhibit 25: US Auto Sales Data (Annualized)

20 15% 18 10% 16 14 5% 12 10 0% 8 -5% 6 4 -10% 2

0 -15%

10 11 12 13 14 15

10 11 10 10 11 11 12 12 12 13 13 13 14 14 14 15 15

------

Jul Jul Jul Jul Jul Jul

Jan Jan Jan Jan Jan Jan

Sep Sep Sep Sep Sep Sep

Mar Mar Mar Mar Mar Mar

Nov Nov Nov Nov Nov

May May May May May May

US Auto Sales Data (in mln) Growth Q-o-Q (%)

Source: Industry Data, Karvy Stock Broking

ISM Manufacturing Index showing path of recovery in US market: The manufacturing sector started reporting strong growth, though the growth has moderated later. With the PMI at 50+%, it shows robust demand environment. A reading above 50% indicates that the manufacturing economy is generally expanding; below 50% indicates that it is generally contracting. A PMI in excess of 42%, over a period of time, generally indicates an expansion of the overall economy.

Exhibit 26: ISM Manufacturing US PMI Index

10 11 12 13 14 15

10 10 10 11 11 11 12 12 12 13 13 13 14 14 14 15 15

------

Jul Jul Jul Jul Jul Jul

Jan Jan Jan Jan Jan Jan

Sep Sep Sep Sep Sep Sep

Mar Mar Mar Mar Mar Mar

Nov Nov Nov Nov Nov

May May May May May May

Source: Government Data, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Exhibit 27: ISM Manufacturing UK PMI Index

12 10 10 11 11 12 13 13 14 14 15 15

12 10 11 13 14 15

10 11 12 13 14

10 10 11 11 12 12 13 13 14 14 15 15

------

- - - - -

------

Jul Jul Jul Jul Jul Jul

Jan Jan Jan Jan Jan Jan

Sep Sep Sep Sep Sep Sep

Mar Mar Mar Mar Mar Mar

Nov Nov Nov Nov Nov

May May May May May May

Source: Government Data, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Exhibit 28: Profit and Loss Statement Year End-March (Rs mn) FY13 FY14 FY15 FY16E FY17E Net Sales 22,386 26,940 29,899 32,574 36,715 % growth 49.2 20.3 11.0 8.9 12.7 Total Expenditure 18,736 22,708 26,628 28,065 31,315 EBITDA 3,650 4,233 3,271 4,508 5,401 % growth 67.4 16.0 (22.7) 37.8 19.8 Other Income, incl Forex (177) (78) 352 421 574 Financial Expenses 132 258 260 179 162 Depreciation & Amortization 472 540 851 693 840 Profit Before Tax 2,869 3,358 2,512 4,056 4,973 % growth 59.3 17.0 (25.2) 61.5 22.6 Tax 766 941 115 1,047 1,343 Effective Tax Rate (%) 26.7 28.0 4.6 25.8 27.0 Profit After Tax 2,023 2,417 2,397 3,009 3,630 % growth 55.9 19.5 (0.8) 25.6 20.6 EPS (Rs) 11.3 13.7 12.7 15.3 18.4

Source: Company, Karvy Stock Broking

Exhibit 29: Balance Sheet Year End-March FY13 FY14 FY15 FY16E FY17E Equity Share Capital 386 371 376 374 374 Reserves & Surplus 9,977 12,380 12,585 15,469 18,799 Total Shareholders Fund 10,362 12,751 12,961 15,843 19,174 Minority Interest 270 - - - - Non- current liabilities 1,533 1,244 683 518 439 Long Term Borrowings 1,459 1,301 780 524 374 Deferred Tax Liabilities (69) (289) (520) (520) (520) Other LT Liabilities & Prov 143 233 423 514 585 Current Liabilities 5,597 7,164 8,536 8,991 9,515 Short Term Borrowings 1,753 3,089 3,677 3,427 3,177 Trade Payables 1,199 1,021 1,308 1,248 1,421 Other Cur Liabilities & Prov 2,645 3,054 3,551 4,316 4,916 Total Liabilities 17,763 21,160 22,181 25,353 29,127 Assets Non- Current Assets 7,721 9,263 9,032 10,161 10,353 Fixed Assets 2,005 2,161 2,328 2,691 2,651 Goodwill 4,423 5,994 5,088 5,462 5,462 Non-Current Investments 118 118 225 225 225 Long-Term Loans & Adv 1,138 887 1,266 1,314 1,485 Other Non-Current Assets 37 103 125 469 530 Current Assets 10,042 11,897 13,149 15,192 18,775 Current Investments 2,036 1,741 590 411 411 Trade Receivables 4,673 6,743 6,979 7,507 8,484 Inventories - 34 228 423 478 Cash & Bank Balances 1,921 1,908 3,638 4,922 7,221 Short-Term Loans & Adv 593 744 681 751 848 Other Current Assets 818 727 1,032 1,179 1,332 Total Assets 17,763 21,160 22,181 25,353 29,127

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Exhibit 30: Cash Flow Statement Year End-March (Rs mn) FY13 FY14 FY15 FY16E FY17E PBT 2,869 3,358 2,512 4,056 4,973 Depreciation 472 540 851 693 840 Interest Exp 132 258 260 179 162 Others (86) - - - - CF before W.cap 3,386 4,155 3,623 4,929 5,975 Inc/dec in W.cap (1,240) (1,657) (100) (534) (672) Op CF after W.cap 2,146 2,498 3,523 4,395 5,304 Less Taxes (766) (941) (115) (1,047) (1,343) Net CF From Operations 1,380 1,557 3,408 3,348 3,961 Inc/(dec) in F.A + CWIP (623) (696) (1,019) (1,056) (800) (Inc)/Dec in Goodwill (801) (1,571) 906 (374) - (Pur)/sale of Investments (1,572) 295 1,044 180 - CF from Invst Activities (2,996) (1,971) 931 (1,251) (800) Loan Raised/(repaid) 1,074 1,177 67 (506) (400) Equity Raised 30 (15) 5 (2) - Interest Payment (132) (258) (260) (179) (162) Dividend (188) (239) (242) (254) (300) Others 1,280 (265) (2,180) 128 0 CF from Fin Activities 2,064 401 (2,610) (812) (862) Net inc /(dec) in cash 448 (13) 1,730 1,285 2,299 Op. bal of cash 1,473 1,921 1,908 3,638 4,922 Cl. balance of cash 1,921 1,908 3,638 4,922 7,221

Source: Company, Karvy Stock Broking

Exhibit 31: Key Ratios Year End-March FY13 FY14 FY15 FY16E FY17E RoE (%) 23.1 20.9 18.6 20.9 20.7 RoCE (%) 19.9 17.2 13.4 15.2 15.7 Operating Ratios Revenue Growth (%) 49.2 20.3 11.0 8.9 12.7 EBITDA Margin (%) 16.3 15.7 10.9 13.8 14.7 EBITDA Growth (%) 67.4 16.0 (22.7) 37.8 19.8 Net Profit Growth (%) 55.9 19.5 (0.8) 25.6 20.6 RPEs (Rs mn) 2.79 3.06 2.95 2.96 3.20 RPEs (US$'000) 51.18 50.45 48.23 45.59 50.06 Valuation Ratios

PER (x) 12.2 10.1 10.9 9.0 7.5 P/BV (x) 2.4 2.0 2.0 1.6 1.4 Price / Sales (x) 1.2 1.0 0.9 0.8 0.7 EV/EBITDA (x) 7.2 6.6 8.3 5.8 4.4

Source: Company, Karvy Stock Broking

November 03, 2015

KPIT Technologies

Stock Ratings Absolute Returns

Buy : > 15%

Hold : 5 -15% Sell : < 5%

For further enquiries please contact: [email protected] Tel: +91-22-6184 4300

Disclosures Appendix

Analyst certification The following analyst(s), who is (are primarily responsible for this report and whose name(s) is/ are mentioned therein, certify (ies) that the views expressed herein accurately reflect his (their) personal view(s) about the subject security (ies) and issuer(s) and that no part of his (their) compensation was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report.

Disclaimer

Karvy Stock Broking Limited [KSBL] is a SEBI registered Stock Broker, Depository Participant, Portfolio Manager and also distributes financial products. The subsidiaries and group companies including associates of KSBL provide services as Registrars and Share Transfer Agents, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, financial consultancy and advisory services, realty services, data management, data analytics, market research, solar power, film distribution and production profiling and related services. Therefore associates of KSBL are likely to have business relations with most of the companies whose securities are traded on the exchange platform. The information and views presented in this report are prepared by Karvy Stock Broking Limited and are subject to change without any notice. This report is based on information obtained from public sources, the respective corporate under coverage and sources believed to be reliable, but no independent verification has been made nor is its accuracy or completeness guaranteed. The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or reproduced in any form, without prior written consent of KSBL. While we would endeavor to update the information herein on a reasonable basis, KSBL is under no obligation to update or keep the information current. Also, there may be regulatory, compliance or other reasons that may prevent KSBL from doing so. The value and return on investment may vary because of changes in interest rates, foreign exchange rates or any other reason. This report and information herein is solely for informational purpose and shall not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial instruments. Though disseminated to all the customers simultaneously, not all customers may receive this report at the same time. KSBL will not treat recipients as customers by virtue of their receiving this report. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. This material is for personal information and we are not responsible for any loss incurred based upon it. The investments discussed or recommended in this report may not be suitable for all investors. Investors must make their own investment decisions based on their specific investment objectives and financial position and using such independent advice, as they believe necessary. While acting upon any information or analysis mentioned in this report, investors may please note that neither KSBL nor any associate companies of KSBL accepts any liability arising from the use of information and views mentioned in this report. Investors are advised to see Risk Disclosure Document to understand the risks associated before investing in the securities markets. Past performance is not necessarily a guide to future performance. Forward-looking statements are not predictions and may be subject to change without notice. Actual results may differ materially from those set forth in projections

November 03, 2015  Associates of KSBL might have managed or co-managed public offering of securities for the subject company or might have been mandated by the subject company for any other assignment in the pastKPIT twelve Technologies months.

 Associates of KSBL might have received compensation from the subject company mentioned in the report during the period preceding twelve months from the date of this report for investment banking or merchant banking or brokerage services from the subject company in the past twelve months or for services rendered as Registrar and Share Transfer Agent, Commodity Broker, Currency and forex broker, merchant banker and underwriter, Investment Advisory services, insurance repository services, consultancy and advisory services, realty services, data processing, profiling and related services or in any other capacity.

 KSBL encourages independence in research report preparation and strives to minimize conflict in preparation of research report.

 Compensation of KSBL’s Research Analysts is not based on any specific merchant banking, investment banking or brokerage service transactions.

 KSBL generally prohibits its analysts, persons reporting to analysts and their relatives from maintaining a financial interest in the securities or derivatives of any companies that the analysts cover.

 KSBL or its associates collectively or Research Analysts do not own 1% or more of the equity securities of the Company mentioned in the report as of the last day of the month preceding the publication of the research report.

 KSBL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report and have no financial interest in the subject company mentioned in this report.

 Accordingly, neither KSBL nor Research Analysts have any material conflict of interest at the time of publication of this report.

 It is confirmed that KSBL and Research Analysts primarily responsible for this report and whose name(s) is/ are mentioned therein of this report have not received any compensation from the subject company mentioned in the report in the preceding twelve months.

 It is confirmed that Shyamal Dhruve, Research Analyst did not serve as an officer, director or employee of the companies mentioned in the report.  KSBL may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report.

 Neither the Research Analysts nor KSBL have been engaged in market making activity for the companies mentioned in the report.

 We submit that no material disciplinary action has been taken on KSBL by any Regulatory Authority impacting Equity Research Analyst activities.

Karvy Stock Broking Limited Office No. 701, 7thFloor, Hallmark Business Plaza, Opp.-Gurunanak Hospital, Mumbai 400 051 RegdOff : 46, Road No 4, Street No 1, Banjara Hills, Hyderabad – 500 034. Karvy Stock Broking Research is also available on: Bloomberg - KRVY , Thomson Publisher & Reuters.