Buy KPIT Technologies Ltd For Target Rs. 1,700 By JM Financial Services
Optimism sans guidance
KPIT’s 3% cc QoQ growth, albeit in-line, is impressive under the circumstances. Pause in Auto OEMs’ programs, as echoed by all of KPIT’s peers, impacted KPIT as well. Weakness in EU (- 7.4% QoQ; USD terms) and PV (-2.2%) reflect that. KPIT was able to offset that through growth in off-highway/semi-con segments – new growth areas. That said, weakness in PVs, if persists, could be concerning. That looks unlikely though. KPIT’s 4Q deal wins (TCV: USD 280mn; book-to-bill: 1.6x) and pipeline is skewed towards EU PV clients. Besides, KPIT announced collaboration with Mercedes Benz for its SDV program. It remains confident of closing one of the large deals (with EU OEM) in 1Q. These are clear signs that current challenging macro, though infusing pauses and uncertainty in the near-term, is creating new opportunities for the medium-term – vendor consolidation, higher offshoring. KPIT is well placed to capture that. Elevated uncertainty however is limiting TCV-revenue conversion timelines, at least in 1HFY26. KPIT therefore suspended its annual guidance – both growth and margin. No cancellation thus far however suggests this is merely a timing issue. We cut our FY26E cc growth assumptions by 300bps to 10.7%. A c.500bps swing in cross-currency expectations (from headwind to tailwind) however means EPS changes are minimal. A still healthy 18% EPS CAGR (FY25-27E) makes 29x FY27E PER reasonable, in our view. Large deal closure and guidance re-instatement could be positive triggers. BUY.
* 4QFY25 – operationally in-line: KPIT reported 3% cc QoQ growth vs JMFe (3.1%). Growth was led by US (5.9% QoQ; USD terms) in geos, Architecture & Middleware Consulting (13.1%) in business units and others (Off-highway/semi-con) in verticals. On the other hand, EU (-7.4%) and PV (-2.2%) dragged, impacted also by cross-currency headwind. Impressively, revenue/employee still expanded (+0.2% QoQ). EBITDA margin was flat QoQ at 18.1%, in-line. PAT was aided by INR 271mn one-time gain due to stake sale in Qorix to Qualcomm and higher JV profit. Adjusted for Qorix stake sale, PAT grew 18.5% QoQ to INR 2,216mn (JMFe: 2,027).
* Outlook - optimistic sans guidance: KPIT did not provide any guidance for growth or margin for FY26. It cited difficulty in determining the pace of deal to revenue conversion as reason for the same. Though it did mention that some of these deals are already in the transition phase, suggesting imminent pick-up once clarity emerges. Deal wins were healthy though. KPIT won USD 280mn TCV (Book-to-bill: 1.6x), highest in past eight quarters. It also indicated healthy deal pipeline. Besides, It announced a multi-year collaboration with Mercedes-Benz Research and Development India (MBRDI) for their SDV program. KPIT believes many of EU OEMs are lagging their Chinese counterparts in SDV programs and want to catch up by leveraging partners such as KPIT, a sign that outsourcing/offshoring can increase. KPIT exuded confidence in maintaining margins.
* Cross currency turns favourable, offsetting lower growth; BUY: We have lowered our FY26 cc growth estimate by 300bps. However a 500bps favourable cross-currency swing (based on current FX) results in higher USD estimates, limiting changes to EPS. KPIT’s order backlog and execution should help it navigate the current macro. BUY.
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SEBI Registration Number is INM000010361
