KPIT Technologies: Subdued expectations but brokerages expect up to 17% upside in stock 

Shares of KPIT Technologies, which are down 45% this year and 39% in six months, clocked their biggest intra day gains (10%) in 1.5 years on Wednesday. The rally in the stock came after the firm reported Q1 earnings, which the management said came 'slightly ahead of outlook'.

Goldman Sachs assigned a neutral call to the stock with a target price of Rs 637. It said earnings met estimates. Going forward, management expects to see a similar quarter in Q2, but expects a good exit to year in 4Q. KPIT is focused on offsetting the current soft demand situation in its core European / Japanese customer cohort by

1) Adding a broader range of PV OEMs (vs historical focus on Top 25 customer);
(2) Deepening the off high way and commercial customer base;
(3) Increasing focus on product plus solutions integration for customers.

According to Goldman Sachs, the management expects ongoing efforts in AI led productivity improvement and an increasing fixed cost pricing model to support gradual build back in margin.

HSBC has a hold call on the stock with a target price of Rs 735.

Q1 revenues were largely in-line with its outlook announced at end of the quarter. HSBC said deal wins in Q1 & pipeline is satisfactory. The management expects the business to turn to strong growth in 2HFY27. EBIT margins fell 360bps q-o-q to 12.3% but management expects to see successive improvement in next quarters.

MOFSL said near-term margin pressure to keep recovery under stress while assigning an upside of 14% with a target price of Rs 730.

The brokerage expects KPIT’s H1FY27 to remain subdued, with recovery likely in the second half. Sequential growth to be seen from Q4, where it expects 3% QoQ constant currency growth.

Strength in business 

The brokerage expects there is strength in certain areas of the business.

It expects strong performance in the off-highway clients in the US, products and solutions segment, after-sales transformation and autonomous offerings, connected vehicles, and the new in-vehicle gaming platform, which also helped secure the deal win with Tata Motors PV.

The brokerage pared its target multiple to 22 times from the earlier 25 times. It cut  near-term numbers due to a notable miss on EBIT margins.

Slower Recovery 

"We are seeing slower-than-expected recovery in revenue growth and consequently, lower than-expected EBIT margin. We believe KPIT will continue to see near-term weakness as it is grappling with global pressure in the automotive industry, along with geography and client-specific weakness," said MOFSL. It assigned a price target of Rs 730, an upside of 14% to the CMP of Rs 639.

Choice Broking expects a 17% upside in the stock with a price target of Rs 740.

"We believe KPIT remains well positioned to benefit from the shift towards software-defined vehicles, supported by expanding wallet share, new client addition and growing AIled product adoption. Thus, we revise our rating to ADD with a TP of Rs 740 (valuing at 20x FY28 EPS), as we continue to view the current weakness as cyclical rather than structural, " said Choice Institutional Equities.