Dismal Q3 performance weighs on the KPIT stock

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The stock of KPIT Technologies, a Pune-headquartered midcap software exporter, fell by nearly 5% in the morning session on Thursday after the company reported lacklustre results for the December 2016 quarter on Wednesday evening. The company reported flat revenue and lower operating profit and profitability compared with the previous quarter.

Consolidated revenue in the December quarter was Rs 830.7 crore, similar to that in the previous quarter and 2.1% higher than the year-ago quarter. Operating profit (PBIT) fell by 8.4% sequentially to Rs 65.4 crore as the increase in operating expenses was a tad higher compared with flat revenue. This resulted in 70 basis point drop in operating margin at 7.9%.

Net profit shot up by 31% to Rs 73.6 crore due to extraordinary income from sale of KPIT Medini Technologies, an erstwhile subsidiary in Germany focusing on functional safety products. The company’s performance was also subdued in the first nine months of the fiscal to December. Its revenue rose by 3.3% to Rs 2,464.9 crore while operating profit dropped by 18.8% to Rs 203.7 crore. Net profit fell marginally by 1.8% to Rs 184.8 crore.

The company’s business in the US, which accounts for 70% of total revenue, grew by 4.2% sequentially in the December 2016 quarter. Revenue from Europe and rest of the world fell by 11.1% and 6.5% respectively.

It added two clients during the quarter over and above three added in the previous quarter. While the third quarter was weak, the company’s employee addition reflects more optimistic scenario in the coming quarters. The number of employees in the development team increased to 11,017 from 10,816 in the previous quarter.

At 2:48 pm on Thursday, the stock was trading 3.9% lower at Rs 139.3 from the previous day’s close. At this price, the company’s trailing price-earnings (P/E) multiple was 10. The stock has not been able to earn meaningful return over the past year. Given the sustained addition in clients and employees, the company looks prepared to take advantage of future opportunities. This may support the stock in the near term.