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Published on 16/08/2022 10:51:03 AM | Source: GEPL Capital

Stock of the week : KPIT Technologies Ltd For Target Rs.707 - GEPL Capital

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KPIT Technologies is a global technology company with software solutions that will help mobility leapfrog towards autonomous, clean, smart and connected future. With many Automo-believers across the globe, specializing in embedded software, AI & Digital solutions, KPIT enables customers accelerate implementation of next generation mobility technologies.

Investment Rationale

* Robust Deal Wins Momentum with Multiyear Programs: During Q1FY23, Company’s Total Contract Value (TCV) remained strong at US$155mn (+24% QoQ) led by multi-year programs across middleware, electric powertrain and connected solutions. KPIT’s Management said demand continues to be robust and that spends in middleware architecture are critical and existential in nature for most automotive OEMs. Hence it is reasonable to expect no budget cuts in this area. The multiyear contract helps company to protect operating margins and work in recession proof environment.

* Margins are in Strong Grip despite Turmoil in Sector: EBIT margin during Q1FY23 expanded by a further 100bps QoQ to 14.9%, higher than estimate of 14%, shows grip on expense account. This was despite roll-out of promotions and it was led by revenue growth leverage and operational efficiency. Positive impact of INR depreciation against the USD was offset by INR appreciation against EUR, GBP and JPY in Q1FY23. EBITDA margin stood at 19.4%. Management has retained its EBITDA margin guidance of 18- 19%.

* Well Positioned to Benefit from Improved Industry R&D spend: The top 10 global automakers, many of whom are important KPIT customers are poised to triple R&D spending from ~US$20bn in FY21 to ~US$61bn by FY26E (+25% CAGR). Hence KPIT Tech is poised to be beneficiary from the upcoming trend. KPIT is also increasingly working with semiconductor companies to help them integrate their final products to varied operating system architectures among OEMs.

* Outlook and Valuations: In line with guidance, We estimate a 20% CAGR in Topline over FY22-25E, which implies a forward PE (x) of 32.2 for FY 25E. We value it with a earnings multiple of 40x to FY25 earnings estimate which results per share value of Rs 707. We recommend BUY on KPITTECH at CMP of Rs. 570 with Target price of Rs. 707 (24%).

 

KPIT Technologies

Observation

* On Weekly chart of KPITTECH, We can spot that prices have shown a bounce from 38.2% Fibonacci level of prior swing from 34.35 Level (March 2020) till 800 level (January 2022).

* Prices have also sustained above 23 Week EMA which provided variable support for the prices.

* On the Daily chart of KPITTECH, in the latest trading session prices witnessed a breakout from the Ascending Triangle pattern, which indicates beginning in the uptrend.

* Prices on daily timeframe have also sustained above Upper Bollinger band reflecting increase in the volatility by the prices for upside move.

* RSI plotted on the weekly and daily timeframe have sustained above 55 mark which tells that the prices are in strong momentum

 

Inference & Expectations

* The breakout is in sync with indicators evidence and the trend.

* Going ahead we expect the prices to rise higher till the level of 730.

* We recommend a strict stop loss of 527, strictly on the closing basis.

KPIT Technologies Ltd : LTP : 570 Target: ?707 Stop Loss : 527

 

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