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Bridging the future mobility.

The company is a digital transformation consulting and software integration company. Provide cutting edge engineering solution to more than 150 companies & enterprises in the field of CASE Mobility.

• Unlike peers, KPIT technology works in the high entry barrier segment which include ADAS, Level 3-5 autonomous driving & connectivity, EV powertrain & infotainment and others.

• The company works with top 10 out of 15 OEMs globally. It derives most of it’s revenue from Top 25 (T25) customers, which roughly accounts for about USD10 billion in R&D spend.

• The revenue largely derive from Software Integration. However, Scalability in the industry is huge and currently electronics account of 30% and poised to reach 50% by 2030.

• We expect the revenue and PAT to grow by 19%/22% CAGR over FY22E-24E owing to superior product mix and robust order book.

• Given the strong fundamentals and strategic change adopted in the company’s segment mix, we value KPIT on 45x FY24E EPS and recommend Buy rating with a target price of Rs. 680 at CMP.

Strong player in the high entry barrier segment

KPIT’s complex manufacturing process in the autonomous vehicle computing is catching up faster in its outlook. Unlike other peers, KPIT’s 100% revenue comes from the automobile software. The company works in the high entry barrier segment which includes Advanced Driver Assistant Systems (ADAS), L3-L5 autonomous driving & connectivity, EV powertrain & infotainment, digital clusters, battery management system enhancements etc. KPIT is also working with semiconductor companies to help them to integrate final products to varied operating systems of OEM. The company’s expertise is likely to increase the margin outlook to 20% as electronics today plays a larger part of vehicle cost and which currently accounts 30% and poised to reach 50% by 2030 according to industry experts.

Formidable player in the future mobility

The company derive most of it’s revenue from innovative technology and the Scalability in the industry is huge. Automotive manufacturers are prioritizing investment in new age technologies and KPIT is at the forefront on these. Engineering spend by the OEMs gone up by 10% and specially the CASE (Connected Autonomous Shared and Electric) area gone up by ~20%. Over the years company has invested heavily in the technologies for automotive companies and continue to maintain it’s leadership position in this area. The company is positioned well to increase it’s focus on electric vehicles especially in the US and Europe with a revenue outlook of 18-20%.

Strategic approach for customer acquisition

KPIT works with top 10 out of 15 OEMs globally. It gets most of it’s revenue from the Top 25 (T25) customers, which roughly accounts for about USD10 billion in R&D spend which is growing at 10% yearly. Currently, KPIT has 21 strategic customers out of overall 50 customers. It is also working with other OEMs, Tier1 suppliers and other disruptors, to reduce it’s dependence on client concentration. The company also reiterated that, it is closely in touch with Tesla for a deal confirmation.

Valuation

The company is well placed to take the advantage of mobility and the disruptive sector (Telecom and Semiconductor). It’s software integration capability with top global automobile manufacturer’s will provide significant value creation compared to it’s peers. KPIT’s further expansion in the field of middleware (Complex Body electronics) & new architectural solutions and cloud base connected service through organic & inorganic route will bring long term revenue visibility. On a 1 yr. the stock is trading at 45x which is largely inline with it’s peers. We value KPIT at 45x FY24E EPS and arrive at a target price of Rs.680 and recommend Buy rating.

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