KPIT Tech shares at Rs 1,500? Axis Securities initiates coverage with 'Buy' rating

KPIT Technologies Ltd (KPIT Tech), whose shares are up 65 per cent in 2023 so far, has potential to deliver over 30 per cent further return to investors in the next 12 months, if Axis Securities' latest report is to go by. The domestic brokerage, which has initiated coverage on the stock with a 'Buy' stance said the IT firm is capitalising on growing investment in the automobile vertical and that it is seeing accelerated demand for digital ER&D services. The brokerage anticipated KPIT Tech to attain a revenue growth of 29 per cent compounded annually over FY24-FY26, thanks to its strategy to focus on select strategic OEMs and Tier-1 suppliers by deep mining them.

What makes Axis Securities positive on the stock is the fact that the company has strategically centred its efforts on the automobile vertical, aiming to assist automobile companies in enhancing their product development and software integration capabilities. It said the swift shift of ER&D (Engineering Research and Development) spending toward electric and  software technologies may push original equipment manufacturers (OEMs) to increasingly depend on strategic partners such as KPIT, known for their software expertise. This trend, it said, is poised to unlock substantial growth opportunities for the company in the foreseeable  future.

Shares of KPIT Tech were trading at Rs 1,145.20 in Wednesday's trade. At this price, Axis Securities’ target price suggests a 31 per cent upside potential for the stock.

Axis Securities noted KPIT Tech's ER&D spending continues to be concentrated among top-tier companies and it sees the strategy as optimal to drive growth.

"We believe KPIT Tech has a resilient business model and strong earnings visibility through its  multiple long-term contracts with globally leading brands. We further believe that KPIT Tech is well[1]positioned to capture the immense growth opportunity in the industry considering robust  demand for ER&D spend, focus on client retention for long-term sustainable growth, margin tailwinds driven by cost efficiencies, lower input costs, rupee depreciation, and lower  travel cost," Axis Securities said.

Axis Securities noted that autonomous driving technologies and electrified powertrains reduce costs and promise more cost-effective and profitable trucking and logistical service operations. Despite a slow start, Axis Securities said, the criticality of these technologies to customer profitability indicates a faster pickup in CASE R&D spending for commercial vehicle manufacturers moving forward.

"Digital engineering spends are accelerating across industries, and companies moving from

traditional to digital engineering will quickly adopt digital engineering. Major industries such as  Manufacturing, BFSI, Media & Technology, Retail, Healthcare Payers & Providers, and Travel &  Hospitality are developing new products and services to differentiate themselves in their respective industries, thereby creating remarkable opportunities for the company," Axis Securities said.

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