KPIT Technologies shares: Q4 results preview, stock price target & more

KPIT Technologies (KPIT Tech) is likely report over 35 per cent jump in profit in the March quarter on a 50 per cent year-on-year (YoY) surge in sales, Phillip Capital said in its IT results preview note.  The brokerage sees margin for KPIT Tech expanding for the quarter, both YoY and sequentially. FY24 guidance, deal wins and pipeline, spending outlook of US and EU auto OEMs and Ebitda margins outlook will be keenly follow, it said.

The stock was in news this week after JPMorgan initiated coverage on the scrip with a price target of Rs 520, which was 44 per cent lower than the prevailing price. Following the development, the scrip plummeted 12.49 per cent on Monday.

PhillipCapital expects KPIT Tech to report a 36 per cent YoY rise in profit at Rs 107.30 crore compared with Rs 78.90 crore in the year-ago quarter. Sales are seen rising 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 may grow 36.7 per cent YoY (7.8 per cent QoQ to $119 million, the brokerage said.

Margins are expected to expand 70 bps 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, 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 auto ER&D services is in the fast lane right now led by a shift towards electrical autonomous and connected vehicles. Even the uncertain macro has not caused a slowing in auto ER&D spend, it noted.

It noted that KPIT’s M&A strategy has been focused on acquiring capabilities. It has done four acquisitions over the past two years for a cumulative amount of $166mn with the biggest being Technica in September 2022 for $110 million. The company has decided to take a pause now on further M&A for the next 12-18 months as it focuses on integrating the acquired companies.

"FY233 organic CC revenue guidance is of 24 per cent-plus and overall growth of 33 per cent-plus. Ebitda margin guidance for FY23 is 18.5-19 per cent. Its medium term Ebitda margins target is 20 per cent over the next 18-24 months and once it reaches the 20 per cent-mark the incremental gains will be reinvested back into the business for growth. Ebitda margin improvement will come from higher utilisation and offshoring that has room to improve further from current levels," JPMorgan said.

That 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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