KPIT Technologies Ltd Research ReportQ2

Rupee depreciation drives margins...  KPIT reported better than expected margin performance in Q2FY19 while dollar revenues were in-line with our estimates.  Revenues in constant currency grew 2.9% sequentially on the back of healthy growth in engineering services. Among geography, dollar revenue growth was led by Europe (15.5% QoQ).  EBITDA margins surprised on the positive side and expanded 150 bps QoQ to 13.6% (above our estimate of 11.1%). Better than expected margin was on the back of rupee depreciation (+120 bps), revenue growth & revenue mix offset by wage hike (-220 bps).  Regarding its merger with Birlasoft, KPIT is going through the regulatory process and expects to complete the merger and demerger process by end 2018 or early 2019. We are not incorporating the above merger in our estimates as of now. IT services and manufacturing to decline in Q3FY19… Revenue growth in the quarter was driven by automotive (+4.1% QoQ) among verticals and engineering services (5.1% QoQ) among services. These two business units have been the growth driver for KPIT since many quarters and continue its momentum of double digit growth on YoY basis.