Buy KPIT Technologies Ltd For Target Rs. 1,760 By Geojit Financial Services Ltd
Long term growth will remain intact.
KPIT Technologies Ltd., a digital transformation consulting & software integration company, provides cutting edge engineering solutions to more than 150 companies & enterprises in the field of CASE mobility.
* We expect revenue and PAT CAGR to grow by 19% and 20% over FY25E-FY27E respectively, on the back of deal wins, pricing benefits and inorganic growth.
* Q2FY25 revenue came in at 20% YoY in constant currency, driven by middleware architecture consulting and software integration from the top strategic clients.
* EBITDA margin improved by 21bps YoY on account of strong volume growth and favourable currency mix. Despite investment in technology & and salary hike we expect the margin to stabilize at 20-21% for the full year.
* The growth in the mobility & autonomous space is a priority for customers and KPIT continues to hold strong domain expertise by adding more capabilities through JV and acquisitions.
* The Board has sanctioned a plan to raise up to Rs. 2.88 billion implying a equity dilution of up to 6% through a Qualified Institutional Placement (QIP), suggesting possible future acquisitions to drive growth.
Outlook & Valuation
Despite the industry becoming more cautious about spending, KPIT has not seen any deal rollover from its top clients, but revenue may tend towards lower end of guidelines. Hence, we lower our estimate by 4% in FY26. The company is cautious about the timing of large deal implementations, especially in Europe, due to financial concerns among European OEMs. This may impact near-term growth. However, they remain optimistic about long-term prospects, citing a robust pipeline and ongoing client engagement. Given the recent correction and fundamentally strong superior execution capability we rollover and value KPIT at its long term historical average at 40x on FY27E EPS with a target price of Rs.1,760 and reiterate with a Buy rating at CMP.
Key Concall Highlights
* Revenue grew by 20.1% year-on-year in constant currency terms and 19.3% in dollar terms, mainly driven by strong performance in Asian markets, especially Japan, Korea, and India.
* The company reaffirmed its revenue growth forecast of 18% to 22% year-on-year in constant currency, with EBITDA margins anticipated to be above 20.5%.
* The Board has sanctioned a plan to raise up to Rs. 2.88 billion through a Qualified Institutional Placement (QIP), suggesting possible future acquisitions to drive growth. The management is actively pursuing partnerships in various geographies to bolster their market position.
* The management observed a cautious atmosphere among OEMs in the U.S. and Europe, with European OEMs particularly impacted by financial performance challenges.
* Despite challenges, management anticipates growth in the U.S. from software bans on Chinese products and in offhighway and commercial vehicles. In Asia, strong growth is expected from existing Diamond and Gold clients, despite some OEM difficulties.
* KPIT attrition is at an all-time low, enabling to concentrate on developing competencies and productive utilization.
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