KPIT Technologies shares: FPI holding jumps in Q4 to highest level since September 2019

KPIT Technologies (KPIT Tech), whose shares recently got battered following JPMorgan's 44 per cent downside projection, were lapped up by foreign portfolio investors (FPIs) in the March quarter. 

The FPI holding in the IT firm rose 316 basis points sequentially to 23.42 per cent as on March 31, as per a BSE filing, which was the highest since September quarter of 2019. FPIs held 20.26 per cent stake in KPIT Tech as on December 31, 2022, 16.88 per cent in the September quarter and 15.99 per cent stake in the June quarter, as per data compiled with AceEquity.

FPIs held 23.67 per cent stake in the IT firm at the end of Q2FY20, data showed. 

Despite a 15 per cent drop in the last five sessions, KPIT Tech shares are up 15 per cent year-to-date.

For the March quarter, PhillipCapital sees KPIT Tech reporting a 36 per cent YoY surge in profit at Rs 107.30 crore compared with Rs 78.90 crore in the year-ago quarter. Sales are seen soaring 50.4 per cent YoY to Rs 980.30 crore compared with Rs 651.80 crore in the year-ago quarter. Revenue in dollar terms is seen growing 36.7 per cent YoY (7.8 per cent QoQ to $119 million), the brokerage said.

The brokerage expects margins to expand 70 basis points QoQ to 14.8 per cent from 14.1 per cent in December quarter, due to continued strong growth and optimisation of costs.

"We expect strong CC revenue of growth 6 per cent QoQ on strong organic growth helped by ramp up of recent large deals (including Renault deal). Technica is expected to decline due to seasonality," it said.

In its initiation report on April 1, JPMorgan said a combination of lower structural margin, single vertical presence and high client concentration and excessive valuations would drive underperformance for the stock. 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, it said.

JPMorgan said it is too optimistic to give the benefit of the doubt that the company can maintain over 20 per cent growth for the next 5-10 years given its dependence on a single vertical and high client concentration puts risk on the downside.

Key derating catalysts for KPIT Tech include a slowing growth beyond FY24 to less than 20 per cent, with reverse discounted cash flow (DCF) ask rate at 24 per cent for the next 10 years. JPMorgan also cited scarcity premium going away with the announced IPO of Tata Technologies that generates 88 per cent of revenues from auto ER&D segment.

The stock has an average target of Rs 794 on the stock, based on 11 analyst recommendations. JPMorgan said it likes KPIT's focus on fast-growing auto vertical but would wait for an attractive entry point.

               

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