KPIT Tech shares hit fresh high, take 1-year return to 120%. Stock price targets suggest fall ahead

Shares of KPIT Technologies Ltd (KPIT Tech) jumped nearly 4 per cent in Thursday's trade to hit a fresh record high, taking its one-year return to Rs 120 per cent. The scrip has surged a solid 820 per cent in the last five years, but if one were to go by consensus price target, the stock may be factoring in all the positives. As per data publicly available with Trendlyne, the average target price for KPIT Tech at Rs 894 suggests a potential 11 per cent downside ahead.

Analysts noted that automotive manufacturers are prioritising investment in new age technologies and KPIT is at the forefront due to its strong domain expertise. Despite weak global macros, engineering spend by OEM has gone up by 10 per cent, especially in the CASE (Connected Autonomous Shared and Electric) area where it has gone

up by 20 per cent. KPIT, analysts said, has invested heavily in the technologies to maintain its leadership position in this area and is looking well-positioned to increase its focus on electric vehicles, especially in the US and Europe. While analysts are positive on KPIT's prospects, they find its valuations rich.

Despite strong fundamentals, Geojit Financial Services expects the H2 growth for KPIT Tech could be conservative. The brokerage earlier this month lowered KPIT's valuation multiple to 38 times FY25E EPS and recommended 'Hold' on the stock with a target price of Rs 976.

The scrip breached that target level on Wednesday and stood at a record high of Rs 1,014.05 in Thursday's trade, up 3.6 per cent. The stock was in news in April after foreign brokerage JPMorgan initiated coverage on it with an 'underweight' rating and a 12-month target of Rs 520.

JPMorgan said the key derating catalysts for KPIT are slowing growth beyond FY24 to less than 20 per cent. It also cited scarcity premium going away with the announced IPO of Tata Technologies that generates 88 per cent of revenues from auto segment. The foreign brokerage said KPIT Tech would require to win large orders every year if it has to maintain its growth above 20 per cent in the years to come.

Post KPIT Tech's Q4 results in April, Phillip Capital suggested a 'neutral' rating on the stock with a price target of Rs 900, citing rich valuations at 46 times FY24 EPS.

This is even as the brokerage felt that growth will be H1-led as couple of large deals ramp up (Renault + Honda). "With strong demand momentum and exit rate in Q4, ask rate for FY24 guidance is at 3.3 per cent at the midpoint, achievable in our view. Demand commentary remained optimistic with mgmt categorizing spending by OEMs on new software architectures as critical, not discretionary. Despite difficult macro, spending within the new

technology areas by OEMs is expected to be strong, benefitting pure auto focused player like KPIT," it said.

The brokerage added margins should continue to improve in medium term driven by strong revenue growth, Technica integration (operating at higher margins), easing supply pressures and realization improvements.

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