KPIT Tech shares up 35% in 6 months. Can Q3 results give stock further lift?

Shares of KPIT Technologies (KPIT Tech), which have risen 35 per cent in the last six months, will be in focus in coming days, as IT firms start delivering December quarter results next week. While KPIT Tech has not announced its earnings date, a couple of brokerages are out with their quarterly estimates for the IT firm that has been promoted to midcap category from smallcap in AMFI's latest classification.

As per PhillipCapital, KPIT may report 16.1 per cent sequential growth in revenues in constant currency (CC) terms. This, as per the brokerage estimate, would be highest among tier II peer group that includes LTIMindtree, L&T Technology Services (LTTS), Cyient, Coforge, Persistent Systems and Mphasis. On the dollar revenue growth front as well, KPIT growth at 15.3 per cent would be highest, PhillipCapital estimates suggest. Ebit margin at 14.3 per cent for the quarter would be lower than most peers, PhillipCapital projections suggest.

Profit for the quarter is seen at Rs 91.10 crore, up 30.2 per cent YoY over Rs 70 crore in the year-ago quarter. Revenue is seen rising 43.50 per cent YoY to Rs 892.80 crore from Rs 622.40 crore in the year-ago quarter. Ebit margin is seen at 14.3 per cent against 13.5 per cent in the year-ago quarter.

Phillip Capital has a target of Rs 540 on KPIT Tech; Investec finds the stock worth Rs 570. Ashika Stock Broking has a target of of Rs 800 on the stock.

Investec is expecting KPIT Tech to report a sequential organic revenue growth of 4.5 per cent in CC terms. Including  Technica, it sees CC revenue growth at 16.9 per cent sequentially. The brokerage is expecting a flattish Ebitda margin, with Ebit largely to be impacted by amortisation cost of Technica. Net-net, it sees profit at Rs 94.50 crore (up 34.5 per cent YoY, up 13.1 per cent QoQ). It sees revenues at Rs 913 crore, up 46.7 per cent YoY or 22.6 per cent QoQ. Dollar revenues are seen at 111 million. Ebit margin is pegged at 13.8 per cent against 14.2 per cent in September and 13.5 per cent in the year-ago quarter.

Phillip Capital said the sequentially, aided by ramp up of recent deal wins.

"Recent win with Renault will have full quarter contribution in Q4. Margins are expected to expand modestly as headwind of furloughs will be offset by strong growth, Technica margins and rupee depreciation," Phillip Capital said. 

For KPIT Tech, investors may watch out for FY23 guidance update, spending outlook on different segments, spending outlook of US and EU auto OEMs, deal wins and pipeline and Ebitda margin outlook.

Ashika Stock Broking in a recent note said KPIT Tech has invested heavily in the technologies for automotive companies and continues to maintain its leadership position in this area. The company is positioned well to increase its focus on electric vehicles (EVs), especially in the US and Europe, Ashika Stock Broking said.

The key growth catalysts for KPIT Tech, said Ashika Stock Broking, are soaring TCV deal size, healthy BS status, strategic end-to-end engagement model and strong demand. All the key growth levers in cumulation affirm the continuance of positive earnings growth trajectory.

Also read: S&P 500 closes higher after Fed minutes confirm inflation focus; Microsoft shares down over 4%

Also Read: Axis Bank, Sanghvi Movers, Anand Rathi Wealth: What should traders do now?