Buy Kpit Technologies For Target Rs. 788 - Sushil Finance
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Mobility industry to be an important growth engine for the future
The automotive and mobility industry has undergone a prodigious transformation toward Software Defined Vehicles (SDV). KPIT has contributed to this transformation, as it is a leading software development and integration partner, thereby, accelerating the transition to a clean and smart future.
Uniquely positioned as a 100% software integrator for OEM’s in CASE related platforms
CASE is an acronym that refers to Connected, Autonomous, Shared, and Electric. It is a guiding principle for the future of mobility. Engineering Spends by OEM’s in CASE areas have gone up by 25% in the last 12 months, and is expected to increase 3-fold in the next few years. Technological advances in these areas are completely changing the concept of automobiles, thereby, placing KPIT in pole position to accentuate their business
Focus on niche segment of Automotive sector
KPIT commands a higher valuation due to its niche focus on solely the automotive sector, as compared to large IT companies that focus more on scalability. KPIT on the other hand focuses on capability in the niche automotive sector, thereby, making the company a formidable player in the future of mobility. Its revenues are derived from 6 software solutions namely – Autonomous Driving & ADAS (Advanced Driver Assistant System), Powertrain, Diagnostics, Connected Vehicles, AUTOSAR (Automatic Open System Architecture), and Vehicle Engineering.
OUTLOOK & VALUATION
With the world poised for a shift towards Electric Vehicles (EV), KPIT has set itself in a strong position for the coming years. We have forecasted a revenue growth of 19.5% CAGR until FY24E where we expect revenue at Rs. 3534.2 cr, EBITDA at Rs. 807.6 cr at an EBITDA margin of 22.9%, and Adjusted PAT of Rs. 490.9 cr. Given the strong revenue and earnings outlook, we estimate FY24E EPS at Rs. 17.9, and assign a PE multiple of 44x to arrive at a target price of Rs. 788, which is an upside of ~22.0% from its last closing price of Rs. 646. We initiate coverage on KPIT Technologies Ltd. with a BUY rating, over an investment horizon of 18-24 months.
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