kellton tech solutions ltd cmp: 102.30 july 25 , 2017 ... · deloitte technology fast 50 india and...

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KELLTON TECH SOLUTIONS LTD Result Update (CONSOLIDATED BASIS): (Q4 FY17)

CMP: 102.30 JULY 25th, 2017

Overweight ISIN: INE164B01022

Index Details SYNOPSIS

Kellton Tech Solutions Limited is a CMMi Level 3 and ISO 9001:2008 certified global leader in digital transformation, propelling businesses into their future by transforming the way they operate.

Total revenue for the year FY17 was Rs. 6157.45 mn as compared to Rs. 4640.15 mn in FY16 reflecting a growth of 32.7% on Y-o-Y basis.

Total income was Rs. 1657.96 mn in Q4, up 4.7% on Q-o-Q basis.

The Company reported EBITDA of Rs. 867.53 mn in FY17, up 36.2% on Y-o-Y basis.

The Company reported EBITDA of Rs. 240.36 mn in Q4 FY17, an increase of 8.6% on Q-o-Q basis.

The EBITDA margin for the quarter was 14.5% as compared to 14.0% in Q3 FY17.

Net profit stood at Rs 537.54 mn for FY17 as compared to net profit of Rs 309.73 mn in FY16 reflecting a growth of 35.9%.

Net profit stood at Rs. 143.11 mn in Q4 FY17, registering 2.5% increase on Q-o-Q.

Net Sales and PAT of the company are expected to grow at a CAGR of 39% and 37% over 2016 to 2019E, respectively.

EPS of the company stood at Rs.11.40 for FY17. During the quarter, the company has acquired 9 new

clients. Kellton Tech acquired Lenmar Group to strengthen

the capabilities in the BFSI sector. Kellton Tech was ranked 19th and 193rd in the 2016

Deloitte Technology Fast 50 India and Fast 500 Asia-Pacific respectively.

Prestigious recognitions at industry-leading platforms like Digitizing India Awards and Digital India Summit.

Recently listed in the Forbes Asia’s latest 'Best under a Billion' list of the top 200 publicly traded companies in the Asia-Pacific region.

Stock Data Sector IT Software Products BSE Code 519602 Face Value 5.00 52wk. High / Low (Rs.) 177.00/79.00 Volume (2wk. Avg.) 11000 Market Cap (Rs. in mn.) 4973.76

Annual Estimated Results(A*: Actual / E*: Estimated) Years(Rs. In mn) FY17A FY18E FY19E Net Sales 6147.70 7500.19 8775.23EBITDA 867.53 1061.24 1240.87Net Profit 537.54 667.36 787.26EPS 11.40 14.16 16.70P/E 9.25 7.45 6.32

Shareholding Pattern (%)

As on June 2017 As on March 2017

Promoter 62 62

Public 34 34

Others (FIIs& FPIs) 4 4

1 Year Comparative Graph

KELLTON TECH SOLUTIONS LTD S&P BSE SENSEX

PEER GROUPS CMP MARKET CAP EPS(TTM) P/E (X)(TTM) P/BV(X) DIVIDENDCompany Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Kellton Tech Solutions Ltd 105.45 4973.76 11.40 9.25 3.95 0.00 Trigyn Technologies Ltd 127.95 3805.20 13.13 9.74 1.15 0.00 Intense Technologies Ltd 123.35 2729.00 5.93 20.80 3.75 0.00 Datamatics Global Services Ltd 107.05 6310.50 15.29 7.00 1.24 20.00


INVESTMENT HIGHLIGHTS

• Rapid growth and sustained momentum; consistently recognized among fastest growing technology companies in

India.

• Continued focus on future-embracing technologies like Artificial Intelligence, Blockchain, Big Data, Analytics,

Cloud, Chatbots, Internet of Things among others.

• Acquisition philosophy guided by twin objectives - deepening Kellton Tech’s technical expertise & acquiring

customers

• Kellton Tech powers 30% of $21 billion eCommerce Market in India

• Experienced Management team with 1400+ employees

• Served +300 clients ranging from start-ups and early stage enterprises to Fortune 500 companies.

• Brand consolidation of all group companies under umbrella brand Kellton Tech.

• Credit Rating of A- by ICRA

• Executing marquee projects including

World’s largest mHealth Implementation

World’s first successful deployment of iBeacon powered conference app supporting indoor location, gamification

& real time analytics

Smart Connection Management Solution for a US-based Public Utility

Digital Transformation of largest Spanish-media company in US.

In-memory analytics powered real-time monitoring solution across geographies for a leading Oil and Gas

Corporation.

COMPANY PROFILE

Kellton Tech is a global leader in digital transformation, propelling businesses into their future by transforming the way

they operate. The company enables the execution of the digital vision, strategy and roadmap, thus driving the digital

journey of enterprises. It infuses unprecedented levels of business agility and synergy into organizations through the

power of disruptive technologies like I-SMAC (InternetofThings(IoT),Social,Mobility,Analytics,Cloud),Artificial

Intelligence, BigData, Chatbots & Blockchain among others. Its sharp focus on I-SMAC has enabled it to consolidate its

hold in this market.

Kellton Tech Solutions Limited is a CMMi Level 3 and ISO 9001:2008 certified global IT company with a portfolio

comprising an exhaustive list of IT services in the web, mobile, security, ERP, Cloud Computing and IOT space.

Founded in 1993; the company has accelerated its growth after the new management led by Mr. Niranjan


Chintam and Mr. Krishna Chintam took over the company in the year 2009. The company is committed to

providing end-to-end IT solutions, strategic technology consulting, and offshore product development services. It has

forayed into newer technologies like Big Data, Cloud Computing and Internet of Things.

For two innovative decades, Kellton Tech has put into practice the vision upon which it was founded viz. "to offer infinite

possibilities with technology".

Headquartered in Hyderabad, India, Kellton Tech’s global footprint is strengthened by offices in US and Europe. It

employs over 1,400+ people catering to 300+ clients ranging from startups to Fortune 100 companies, spread across

verticals such as BFSI, travel, e-commerce, manufacturing, logistics, healthcare and others. Kellton Tech powers 30% of

the $21 billion eCommerce market in India through its clients.

Kellton Tech has expanded its business portfolio following an organic and inorganic path by making acquisitions in

United States (US) and India. It has an impeccable track record in integrating and assimilating acquisitions. The

acquisitions are an integral part of company’s strategy which has enabled Kellton Tech to acquire capabilities and become

a trusted digital partner of customers.

Kellton Tech foresaw the rise of digital technologies ahead of the curve and invested significantly in building the requisite

expertise in various technologies well before they appeared on the horizon. Its heightened sensitivity to the emerging

market trends and evolving customer expectations has enabled it to tap into trending niche markets while retaining its

strong focus on its key traditional areas.

Kellton Tech could successfully pursue cross-selling opportunities and leverage its enhanced capabilities to full potential

during this period. The enhanced capabilities were derived from organic efforts to strengthen and expand its offerings

portfolio, and through acquired companies. Kellton Tech has achieved the right mix of traditional and IP-based Digital

capabilities, which would help it maintain a high-growth rate hereon organically.

SERVICES:

1. Digital Transformation Solutions/ ISMAC

• Digital Transformation

Reimaging and reinventing the way enterprises operate, helping them embrace their digital future.

• Digital Commerce

eCommerce Portal Development, mCommerce Application Development, Web and Mobile Applications Maintenance

and Support


• Enterprise Mobility

Strategic mobility consulting, User Experience (UI/UX) Design, Mobile Application development, maintenance and

support, mobile device management

• Digital Governance

mHealth applications development, security and surveillance applications development, RFID Solutions

• IoT, Big Data and Analytics

IoT applications development, location based services (LBS) application development, analytics and reporting

• Software R&D Labs

Proof of concept, minimum viable product, application development, maintenance and support

• Outsourced Product Development

Application Development, Maintenance and Support

• Digital Marketing

Internet Marketing, SEO, SEM/PPC, SMM, Analytics and Reporting

ISMAC


ISMAC – Future is here

(* Courtesy: Kellton Tech’s Investor Presentation)

2. Enterprise Solutions

• Business Enterprise Solutions

ERP Implementation, Maintenance and Support

• Business Integration

Enterprise Application Integration, Service Oriented Architecture Strategy, Maintenance and Support

• Business Process Management

Business Process Analysis and Optimization, Process Design and Integration, Process Management, Activity

Monitoring and Analytics

Business Segments

Digital Transformation Business

In FY17, Digital transformation contributed ~55% of revenue. Digital revenue has grown at a CAGR of 33.14% from FY14 to FY17 with growth being higher at 50% in FY17. The growth was led by capability edge in digital transformation and acquisitions.

Digitization is disrupting business as never seen before. According to Gartner, 75% of the business will be a digital business or will be preparing to become digital by 2020. Management is expecting large opportunities with companies looking for enterprise digital transformation deals, given its expectation of mass adoption in the near future. It has


technology partners such as Mulesoft, Software AG, Microsoft Azure, SAP, IBM and IBM Watson, Kellton Tech is very well positioned to grasp this opportunity

Digital Transformation is Disrupting

Industries currently Adopting Digital Disruption

The annual survey conducted by Russell Reynolds Associates studies above 2000 C-level enterprises about the impact, structure, enablers, and barriers of digital transformation across 15 major industries.The graphic above shows the percentage of executives surveyed who responded that their business would be moderately or massively disrupted by digital in the next 12-18 months, industry-wise.

Digital disruption is difficult to navigate for traditional enterprises. Embracing a technology shift makes it difficult for enterprises to change their business processes. Kellton Tech provides digital advisory services to accelerate the client’s transformation journey, and continuously empowers them to thrive through each stage of business disruption. Its core


services include defining initial strategy, providing customer research analytics, integrated marketing support, and agile innovation for the enterprise.

Kellton Tech’s experts helps customers define the strategy for how to undertake this digital transformation by providing the capabilities for organizations to align this transformation with their business strategy, manage risk and compliance and find efficiencies within their application portfolio to drive cost savings. Its solutions help clients achieve higher customer value and market differentiation.

Key Clients under Digital Transformation Business

The recent Transformational project executed by Kellton Tech was for India’s Leading Digital payments and wallet provider, India’s largest airline, and a multinational insurance giant, helping them usher a revolution in digital payments scenario.

Enterprise Applications Business

In FY17, Enterprise applications accounted for ~26% of revenues. In the Enterprise Application business, Management expects a movement from traditional SAP, ERP towards Cloud solutions such as Hybris and S/4 Hana as big opportunity going forward

Kellton Tech provides an end-to-end analytics platform using technologies like Big Data, IoT to improve business performance and operational efficiency.An in-depth analysis of structured as well as unstructured data is done through the following process:

• Collect data from multiple sources. • Store data in servers using Hadoop MapReduce, Cloudera, HortonWorks etc. • Process the collected data to gain insights using technologies like Hive. • Utilize trending data visualization technologies like Tableau, Splunk etc. to improve business reporting and

monitoring activities.

Example of Transforming Retail Industry

Taking the example of the retail industry, big data technologies can be used to reduce license cost and integrate huge volumes of data, with a minimal impact on client’s reporting structure.Hadoop MapReduce is used to leverage data from terradata. Enterprises can transform and aggregate huge volumes of data into relevant customer insights with the help of technologies like Hive. Kellton Tech’s solution recommends the integration of MongoDB and Hive to integrate these insights and improve the efficiency of client’s reporting and monitoring systems thereby impacting the overall business


growth. Solutions provided by Kellton Tech help clientsto achieve efficient data migration and quicker aggregation of large datasets at an affordable cost.

Kellton Tech’s customer engagement models help businesses transcend their inherent constraints, boost their workforce synergy, and leapfrog competition with enterprise-wide digital integration.

Kellton Tech builds a connected world. Customized IT solutions, digital transformation strategy, strategic mobility consulting, Governance, risk and compliance, etc. using technologies like IBM, Software AG, and efficient tools of digital commerce and marketing are few of the services that Kellton Tech excels in.

Key Clients under Enterprise Applications Business Segment


Hybris Omni-Commerce Platform

Kellton Tech provides omnichannel commerce solutions—developed on industry-leading commerce platforms—to help organizations achieve top-line growth. Kellton Tech works with best-in-class platform partners to deliver comprehensive e-commerce and omni-channel solutions to address the unique needs of clients. Kellton Tech continuously invests in partner solutions and technologies for faster time to market in its clients’ omni-channel transformation journey.

PRODUCTS:

Kellton Tech has built several IPs that push the envelope of technology further, redefining the way in which business

processes operate. These push enterprises in advanced world to unprecedented levels of digitization, even as they are

primed to function in the heat and dust of developing economies through cutting-edge, cost-efficient innovations.

Following are select IP-based Products from Kellton Tech:

• KLGAME: Kellton Tech Location based Gamification, Analytics and rich Messaging Engine • Kellton Tech IoT: A scalable enterprise standard based platform for connected devices, sensors, beacons which covers

data acquisition, device provisioning and management, data processing and analysis, dashboards, alerts. • Kellton Tech Mobility Framework: An end-to-end mobility solution provisioned with data collection, data integration,

analytics and enterprise dashboards. It’s a cross-platform framework with online-offline mode and intuitive UI and UX.

• Kellton Tech SehatSense: A raspberry-PI based healthcare cloud-enabled device with health sensors for elderly care,

mother and child care etc. • Kellton Tech Chatbot Solution Framework: A chatbot middleware solution which can connect to any conversation

backend and any business tools like HRMS, ERP etc. With its high-impact Conversation Design and transformation, it gives the users near human-like conversation quality for business scenarios.


• Kellton Tech Media Solution Framework: A highly scalable world-class solution for media industry designed to improve user digital experience and workforce productivity.

• Kellton Tech DevOps Solution Framework: A solution which provides complete application and infrastructure health

dashboard, thorough application performance analysis, bottleneck analysis and detection, early warnings, system on autopilot for capacity, disaster recovery etc.

38.0% 37.0% 36.3% 35.1% 26.2%

46.0% 48.0% 49.5% 51.7%54.2%

16.0% 15.0% 14.2% 13.2% 19.6%

Q3 FY16 Q1 FY17 Q2 FY17 Q3 FY17 Q4 FY17

Revenue By Business

Enterprise Applications Digital Transformation Others

Latest Updates

• On 13th June, 2017, BEC (Systems Integration) Ltd, a leading provider of automated data capture and voice solutions

for use within the supply chain, logistics and manufacturing industries, has formed a partnership with Kellton Tech, a

global leader in digital transformation with astrongexpertise in enterprise solutions. The partnership will help infuse

SAP’s latest capabilities into BEC’s solutions, enabling them to successfullyimplement S/4 HANA migration.

New Client Wins during Q4 FY17:

The company has acquired 9 new clients, prominent of them are:

• A leading insurance provider: Kellton Tech is providing a cognitive virtual agent solution using chatbots, artificial

intelligence to improve customer service and satisfaction.

• A major airport: Kellton Tech is implementing an end-to-end Digital Transformation solution utilizing blockchain,

advanced analytics and cloud services enhancing security.

• A leading credit-reporting agency: Kellton Tech is developing a Digital Roadmap and advanced analytics platforms to

enhance their digital capability and improve credit accuracy.

• A leading US mobile communication solutions provider: Kellton Tech is scaling up their enterprise systems to support

increased demand and enabling them to achieve performance optimization.


People:

• Net addition of 130 in the Current Quarter

• Total Headcount ~1400

Historical Acquisitions:

The Company has expanded its reach globally via acquisitions. Kellton Tech is steadily expanding its offerings portfolio

through organic growth and synergistic acquisitions. It has strengthened its foothold in technology and through its

expanded workforce it is capable of offering a diverse range of IT services and solutions.

2017:

Acquired Lenmar Consulting, US-based global IT services & solutions company with strong presence in banking and

financial services (BFSI sector).

2016:

Acquired Bokanyi Group, leading US-based cloud and analytics service provider

2015:

Acquired ProSoft Technology Group Inc., a US-based ERP, EAI Solutions company

2014:

Acquired eVantage Solutions Inc., a US-based IT consulting company. eVantage Technologies is a leading IT

solutions provider and VIVOS is focused in offerings related to IT and life-sciences space.

Acquired Vivos Professional Services LLC, a USA based focusing on life-sciences & healthcare space

2013:

Acquired Supremesoft Global Inc., a US-based IT consulting company

2012:

Acquired SKAN DbyDx Software Pvt. Ltd, a mobility solutions company. SKAN Dbydx was competent in mobility

while supremesoft, a Software Development and IT Services company will substantially strengthen their expertise in

cloud computing and data analytics.

2011:


Acquired Tekriti Software Pvt. Ltd., a software services company focusing on web/open source

Acquired MCS Global, Inc., a US based IT consulting company

Acquisitions Detail (step down subsidiaries of Kellton Tech Inc.)

Date of Acquisition Acquired Entity Region Description

March 2017 Lenmar Consulting USA

Offers IT services & solutions in BFSI space; Has 100 employees serving 20 clients

January2016 Bokanyi Consulting

USA

(Texas)

Provides Enterprise, Analytics & Cloud services; Specializes in SAP HANA implementation

May 2015 Prosoft Technology Group USA (Illinois) ERP-EAI provider

April 2014 eVantage Technologies US (New Jersey) Implementation of ERP solution

October 2014 Vivos Professional Services, LLC USA (Virginia)

Focus on healthcare & Life sciences industry

October 2013 Supremesoft Global Inc. US IT consulting company

December 2012 DbyDX software US Mobility solutions company

December 2011 MCS global USA IT consulting company

August 2011 Tekriti Software US Enterprise Software Solutions

Awards / Accolades:

Kellton Tech Solutions has won ‘Best e-Governance Initiative of the Year' award at Digital India Summit organized

by BW Businessworld.

mSehat, a Kellton Tech project which earlier in the year was featured as a case study in a WHO report, won the Skoch

Award for Best Health Initiative in India .

Kellton has ranked 19th and 193rd in the 2016 Deloitte Technology Fast 50 India and Fast 500 Asia-Pacific

respectively.

The company has won the prestigious Digitizing India Award, a Cisco initiative in collaboration with CNBC.

Featured in ‘Best Places to Work’ by ‘The CEO Magazine’

KLGAME was nominated in the finals of HYSEA Annual Summit and Awards 2015

Ranked 21st in Deloitte Technology fast 50 India 2014


Selected among the ’20 Most Promising Travel & Hospitality Solution Providers’ and ‘Top 20 Enterprise Mobility

Companies in India by CIO Review

In July’17, listed in the Forbes Asia’s latest 'Best under a Billion' list of the top 200 publicly traded companies in the

Asia-Pacific region.

QUARTERLY HIGHLIGHTS (CONSOLIDATED BASIS)

Results update (Q4 FY17):

Rs. In Million Mar-17 Mar-16 % Change

Revenue 1653.61 1322.63 25.02

Net Profit 143.11 112.82 26.85

EPS 3.04 2.41 25.99

EBIDTA 240.36 176.85 35.91

Kellton Tech Solutions Ltd has achieved a turnover of Rs. 1653.61 million for the quarter ended of 31st March, 2017 as

against Rs. 1322.63 million in the quarter ended of 31st March, 2016, an increase of 25.02%. During the quarter, net profit

increased by 26.85% to Rs. 143.11 million from Rs. 112.82 million in the corresponding quarter ending of previous year.

Reported earnings per share of the company stood at Rs. 3.04 in Q4 FY17 as against Rs. 2.41 in the corresponding quarter

of the previous year. Profit before interest, depreciation and tax stood at Rs. 240.36 million as against Rs. 176.85 million

in the corresponding period of the previous year.

Break up of Expenditure

Break up of Expenditure

Value in Rs. Million

Mar-17 Mar-16 % Change

Cost of Materials Consumed 0.81 12.74 -94%

Employee Benefits Expenses 787.32 719.20 9%

Depreciation & Amortisation Expenses

16.37 9.98 64%

Other Expenses 629.47 418.86 50%


Operating Metrics


Revenue by Industry

Revenue By Industry Q4 FY17 Q3 FY17 Q3 FY16 BFSI 6.9% 6.7% 5.9% Education 0.0% 0.0% 0.0% Energy & Utilities 6.7% 6.7% 6.2% Healthcare & Life Sciences 13.9% 13.8% 13.7% Information Services & Technology 27.4% 28.1% 32.4% Manufacturing 7.5% 7.5% 7.2% Media & Entertainment 2.5% 2.4% 2.1% Others, Aviation & NGO 6.0% 6.1% 6.1% Professional Services/ Business Services 14.9% 14.6% 14.9% Retail 14.0% 13.9% 11.4%

Clients

The company has 344 clients and the breakup of the same is given hereunder:

• USA - 276

• Europe - 6

• India - 57

• Others - 5

Key Management

Name Designation Independent / Non-Independent

Krishna Reddy Chintam (Promoter) Managing Director Executive

Niranjan Reddy Chintam (Promoter) Chairman & Wholetime Director Executive

Rajendra Vithal Naniwadekar Director Independent

Srinivas Potluri Non Executive Director Non-Independent, Non Executive Director

Brij Mohan Venkata Mandala Director Independent

Karanjit Singh CEO & Whole Time Director Executive Director

PVV Srinivasa Rao Additional Director Independent

N Kalpana Reddy Additional Director Independent


The company is managed by handpicked professionals from a cross-section of the industry.

Abhishek Vinod Singh (IIT Kanpur) - Sr. Vice President, Americas & Europe

Brian Bokanyi - VP, Operations

Nitin Verma (IIT Kanpur) - Sr. Vice President, India & APAC

Jim Burton (America Strayer University, Maryland) - VP, Healthcare & Life Sciences

Gerard John - GM, EMEA

Key Risks

Risks include appreciation of the Indian Rupee versus other currencies, breach in the data confidentiality that could lead to

loss of contract or penalties, shortage of skilled manpower that could put upward pressure on the employee expenses and

new innovation or technology introduction by rivals could pose further risk to the business.

Technology Obsolesces: There is a tendency to rush towards latest fads in technology, and by the time a company equips

itself with the necessary specific expertise, the fad may be no longer be a hot trend.

Highly Competitive Market that may impact pricing power: The volatility in the technology space and the changing fads

in the industry that requires companies to constantly innovate to remain competitive and thus put pressure on margins.

Technology being highly volatile, there is a need to cater to newly developed markets in quick notice and capitalise on the

opportunities they offer. However, companies risk being caught off-guard if after all the efforts they put in, the market

need has evolved or moved on.


FINANCIAL HIGHLIGHT (CONSOLIDATED BASIS) (A*- Actual, E* -Estimations & Rs. In Millions)

Balance Sheet as of March 31, 2016 -2019E

FY16A FY17A FY18E FY19E

SOURCES OF FUNDS

Shareholder's Funds Share Capital 234.13 235.72 235.72 235.72 Reserves and Surplus 1023.08 1532.48 2145.47 2853.47

1. Sub Total - Net worth 1257.21 1768.20 2381.19 3089.19 2. Share application money pending allotment 0.33 0.00 0.00 0.00

Non Current Liabilities

Long term Borrowings 321.47 437.81 516.62 578.61

Deferred Tax Liabilities 14.27 13.94 13.10 12.45

Other Long term Liabilities 78.42 55.46 57.68 59.98

Long term Provisions 4.67 12.23 15.04 18.05

3. Sub Total - Non Current Liabilities 418.83 519.44 602.44 669.09 Current Liabilities

Short term Borrowings 428.01 538.19 602.77 650.99 Trade Payables 176.09 205.18 229.80 252.78 Other Current Liabilities 206.49 314.53 364.86 415.94 Short Term Provisions 603.52 605.74 617.86 636.39

4. Sub Total - Current Liabilities 1414.11 1663.64 1815.28 1956.10 Total Liabilities (1+2+3+4) 3090.48 3951.27 4798.91 5714.38 APPLICATION OF FUNDS Non-Current Assets Fixed Assets

a) Fixed Assets 102.38 136.63 172.16 204.87 b) Goodwill on consolidation 1089.47 1492.77 1821.17 2112.56 c) Long Term Loans and Advances 16.06 24.47 30.59 36.10 d) Other non-current assets 0.69 0.41 0.47 0.57

1. Sub Total - Non Current Assets 1208.60 1654.28 2024.39 2354.10 Current Assets

Inventories 33.22 23.92 27.27 30.81 Trade receivables 1222.93 1467.73 1731.92 2126.32 Cash and Bank Balances 78.84 161.31 203.25 243.90 Short-terms loans & advances 405.76 564.69 712.10 840.28 Other current assets 141.14 79.35 99.98 118.97

2. Sub Total - Current Assets 1881.88 2296.99 2774.51 3360.28 Total Assets (1+2) 3090.48 3951.27 4798.91 5714.38


Annual Profit & Loss Statement for the period of 2016 to 2019E

Value(Rs.in.mn) FY16A FY17A FY18E FY19E

Description 9m 12m 12m 12m Net Sales 3589.90 6147.70 7500.19 8775.23

Other Income 6.70 9.75 11.22 12.34

Total Income 3596.60 6157.45 7511.41 8787.56

Expenditure -3092.91 -5289.92 -6450.17 -7546.69

Operating Profit 503.69 867.53 1061.24 1240.87

Interest -87.67 -102.87 -117.27 -130.17

Gross profit 416.03 764.66 943.98 1110.70

Depreciation -25.10 -42.28 -48.19 -53.98

Profit Before Tax 390.93 722.39 895.78 1056.72

Tax -81.20 -184.85 -228.42 -269.46

Net Profit 309.73 537.54 667.36 787.26

Equity capital 234.13 235.72 235.72 235.72

Reserves 435.34 1023.08 1534.62 2148.46

Face value 5.00 5.00 5.00 5.00

EPS 6.61 11.40 14.16 16.70

Quarterly Profit & Loss Statement for the period of 30th Sep, 2016 to 30th Jun, 2017E

Value(Rs.in.mn) 30-Sep-16 31-Dec-16 31-Mar-17 30-Jun-17E

Description 3m 3m 3m 3m Net sales 1510.74 1582.42 1653.61 1744.55

Other income 1.61 0.40 4.35 4.57

Total Income 1512.35 1582.82 1657.96 1749.13

Expenditure -1300.02 -1361.50 -1417.60 -1491.59

Operating profit 212.33 221.32 240.36 257.53

Interest -26.64 -21.26 -32.07 -32.56

Gross profit 185.69 200.06 208.29 224.98

Depreciation -7.90 -9.66 -16.36 -17.02

Profit Before Tax 177.79 190.40 191.93 207.96

Tax -45.00 -50.74 -48.82 -50.95

Net Profit 132.79 139.66 143.11 157.01

Equity capital 235.32 235.32 235.72 235.72

Face value 5.00 5.00 5.00 5.00

EPS 2.82 2.97 3.04 3.33


Ratio Analysis

Particulars FY16A FY17A FY18E FY19E

EPS (Rs.) 6.61 11.40 14.16 16.70

EBITDA Margin (%) 14.03% 14.11% 14.15% 14.14%

PBT Margin (%) 10.89% 11.75% 11.94% 12.04%

PAT Margin (%) 8.63% 8.74% 8.90% 8.97%

P/E Ratio (x) 15.45 8.96 7.22 6.12

ROE (%) 46.26% 42.70% 37.70% 33.02%

ROCE (%) 37.27% 40.71% 38.39% 35.83%

Debt Equity Ratio 1.12 0.78 0.63 0.52

EV/EBITDA (x) 11.14 6.67 5.55 4.80

Book Value (Rs.) 14.30 26.70 37.55 50.57

P/BV 7.15 3.83 2.72 2.02

Charts


VALUATION RATIONALE

Kellton increased its focus on BFSI market, extending digital transformation to banking and financial sector. Kellton Tech

has acquired Lenmar Group to strengthen the capabilities in the BFSI sector. Kellton has won multiple prestigious awards

from industry-leading platforms; enhancing brand value and recognition. Kellton Tech continue to be seen as the go-to

digital partner for end-to-end enterprise transformation. Today, the company is best positioned to drive digital

transformation initiatives across the spectrum of industries.

OUTLOOK AND CONCLUSION

At the current market price of Rs. 102.30, the stock P/E ratio is at 7.22 x FY18E and 6.12 x FY19E respectively.

Earning per share (EPS) of the company for the earnings for FY18E and FY19E are seen at Rs. 14.16 and Rs. 16.70

respectively.

Net Sales and PAT of the company are expected to grow at a CAGR of 39% and 37% over 2016 to 2019E

respectively.

On the basis of EV/EBITDA, the stock trades at 5.55 x for FY18E and 4.80 x for FY19E.

Price to Book Value of the stock is expected to be at 2.72 x and 2.02 x for FY18E and FY19E respectively.

The company is planning to grow its revenue upto Rs. 875 cr by March 2019 and if get successful in achieving this target

then by conservative valuation method of 2.5 times revenue, it would become a company with market cap of 2.5*875 =

Rs. 1750 cr, means it can give 3-4 times returns from current levels in next 2-3 years.

We expect that, Kellton will maintain consistent revenue and profitable growth in future. Hence, we say that, we are

Overweight in this particular scrip for Medium to Long term investment.


The way Kellton Tech. is growing since last 3 years plus the kind of growth they are targeting for next 2 years, it can be a

multibagger.

INDUSTRY OVERVIEW

India is the world's largest sourcing destination for the information technology (IT) industry, accounting for

approximately 67 per cent of the US$ 124-130 billion market. The industry employs about 10 million workforces. More

importantly, the industry has led the economic transformation of the country and altered the perception of India in the

global economy. India's cost competitiveness in providing IT services, which is approximately 3-4 times cheaper than the

US, continues to be the mainstay of its Unique Selling Proposition (USP) in the global sourcing market. However, India is

also gaining prominence in terms of intellectual capital with several global IT firms setting up their innovation centres in

India.

The IT industry has also created significant demand in the Indian education sector, especially for engineering and

computer science. The Indian IT and ITeS industry is divided into four major segments – IT services, Business Process

Management (BPM), software products and engineering services, and hardware.

The Indian IT sector is expected to grow at a rate of 12-14 per cent for FY2016-17 in constant currency terms. The sector

is also expected triple its current annual revenue to reach US$ 350 billion by FY 2025.

Total spending on IT by banking and security firms in India is expected to grow 8.6 per cent year-on-year to US$ 7.8

billion by 2017.

India’s internet economy is expected to touch Rs 10 trillion (US$ 146.72 billion) by 2018, accounting for 5 per cent of the

country’s GDP.

The public cloud services market in India is slated to grow 35.9 per cent to reach US$ 1.3 billion according to IT

consultancy, Gartner. Increased penetration of internet (including in rural areas) and rapid emergence of e-commerce are

the main drivers for continued growth of data centre co-location and hosting market in India.

The bright spot, however, is that many businesses are keen to attain enterprise-wide digital convergence, having woken up

to the infinite possibilities that these technologies offer. From the margins the digital story is now mainstream, and the

Indian IT industry is well-placed to harness the global digital opportunities. Meanwhile, the trade sentiment about the

Indian economy seems largely optimistic. The government’s focus on mission Digital India continues to offer hope to

masses and businesses. The IT industry is poised to ride this digital wave to their advantage while improving government

systems’ ability to serve the citizens.

Technology:

Kellton Tech aims to extend its capabilities across the spectrum of digital possibilities. As a pioneer in digital

transformation armed with acquisitions in ERP arena, Kellton Tech is poised to capitalize on the cloud ERP space. Indeed,

the added strength in the in-memory and streaming analytics space opens new windows of opportunity.


Today, Kellton Tech is fully-equipped to enable businesses to make the digital leap, sustain their forward thrust and help

them acclimatize with the new digital landscape. With the emergence of Digital Systems Integration, its traditional

integration and BPM services are being re-engineered and re-invented to integrate ISMAC constituents too. Kellton Tech

is also at the forefront of capitalizing on the shift from traditional SOA and Webservices to APIs and Microservices.

IoT uptake KLGAMETM has been successfully implemented in various events, where Kellton Tech was a partner. The

capability and capacity of the innovation is now beyond apprehension, and its pilot projects reveal the same. Much like

the digital wave, which it was able to profitably ride, thanks to its early focus, KLGAMETM is another arena where

Kellton Tech has prepared the groundwork ahead of the curve and expects to tap the emergent market.

While Kellton Tech takes pride in the fact that it drives 30% of the digital traffic in the Ecommerce market of India,

mSehat gives it a unique satisfaction of harnessing the power of digital technologies to affect tangible change in the health

outcomes of the masses. As more projects of this nature are undertaken with the same effectiveness and efficiency, the

mission Digital India will transform the very face of public systems and revolutionize citizen services.

Outlook:

The Government of India’s thrust on mission Digital India will bring many opportunities to IT companies, and Kellton

Tech being a leading enabler of digital transformation stands to gain from these initiatives. Likewise, the global IoT

market is growing at a rapid pace and Kellton Tech, armed with its IoT innovation KLGAMETM, is well-placed to

benefit from this market upsurge. Having harnessed its digital prowess to improve the health outcomes of masses, Kellton

Tech will continue to use its cutting-edge technology for the betterment of masses and earn their goodwill.

Meanwhile, as noted earlier, the surge in nationalism appears to have become a global phenomenon. “Glocalization” may

not be restricted to offerings portfolio alone, and might extend to people practices, given how politically charged the issue

of jobs creation is. However, Kellton Tech is well-positioned in terms of its compliance with local employment

stipulations and is poised to ride trends where necessary, whether these are driven by business needs, financial sops or

political compulsions.


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The information and opinions in Firstcall Research was prepared by our analysts and it does not constitute an offer or solicitation for the purchase or sale of any financial instrument including any companies scrips or this is not an official confirmation of any transaction. The information contained herein is from publicly available secondary sources and data or other secondary sources believed to be reliable but we do not represent that it is accurate or complete and it should not be relied on as such. Firstcall Research or any of its affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. Firstcall Research and/ or its affiliates and/or employees will not be liable for the recipients’ investment decision based on this document.

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Name of the Analyst Qualifications Sectors Covered

Exposure/Interest to company/sector Under Coverage in the Current Report

Dr.C.V.S.L. Kameswari M.Sc, PGDCA, M.B.A, Ph.D (Finance)

Pharma & Diversified

No Interest/ Exposure

U. Janaki Rao M.B.A Capital Goods


B. Anil Kumar M.B.A Auto, IT & FMCG


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