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KPIT’s healthy top-line growth in 3QFY24 (+4.3% cc QoQ vs JMFe: 2.7%) defied subdued performance/commentary by peers recently. Growth was led by T-25 strategic clients (+5.5% JMFe). Even the deal bookings for the quarter (USD 189mn TCV) came entirely from these strategic accounts. As we argued in our recent initiation (Charged up for a long-range, 8 Jan 2024), KPIT is pursuing a middleware-led land and expand strategy to grow. 3Q results - growth and bookings – suggest the strategy continues to yield result. With just couple of these accounts above USD 100mn ARR currently, we see significant growth headroom in the existing accounts. It also continues to add new logos, augmenting its mining efforts. That lends support to the medium term growth outlook. c.USD 960mn LTM deal TCV (book-tobill: 1.7x), on the other hand, provides visibility to the near-term growth. Consistent improvement in EBITDA margin (236bps YoY), despite onsite-centric acquisitions, indicate KPIT has been able to integrate these well. Higher entry barriers in ER&D and KPIT’s headstart should allow KPIT to maintain its growth momentum, sustaining its earnings trajectory and hence valuations. Our FY24-26E EPS are up 1-3%. We continue to value the stock at 60x 24-M forward EPS (2x PEG). Maintain BUY with a revised TP of INR 1,860 (from INR 1,830).

3QFY24 – beats expectations: KPIT reported 4.3% cc QoQ growth, ahead of JMFe: 2.7%. Growth was led by APAC (+4.4% QoQ USD) and EU (+3.4% QoQ) while US growth was muted (+0.9%). Among verticals, passenger cars drove the growth (6%) while commercial vehicles dragged (-11%). However, the company indicated that they continue to focus on CVs (Trucks and Off-highways). EBIT margin expanded by 56bps QoQ to 20.6%, ahead of expectations. PAT came in at INR 1.6bn, up 11% QoQ. Net cash balance improved by c.60% QoQ to INR 8.3bn. Company declared INR 2.1 div/share.

Deal wins and outlook: The company reported USD 189bn TCV of deal wins (book-to-bill of 1.3x). Deal wins came from existing diamond and platinum accounts, where KPIT’s win rates are higher. The company indicated a healthy growth in pipeline too. The company is engaged with three new logos and expect at least couple of them to convert into long term engagements. The company also sounded far more sanguine compared to other peers around US growth outlook. Also, it has started to explore Chinese OEMs given the rising ER&D spend and market share of new-age Chinese EV players. In terms of guidance, while the company did not change its FY24 revenue/EBITDA margin guidance (37%+ /20%), management indicated that they will easily exceed both of them

Limited changes to estimate; Maintain BUY: A higher than expected cross-currency headwind in 3Q resulted in minimal changes to our FY24-26E USD revenues, despite a strong 3Q beat. We have also largely maintained our margin assumptions driving 1-3% increase in FY24-26E EPS. However, robust performance in a seasonally weak quarter makes our FY25E USD revenue growth (18%) more achievable (4.5% CQGR). Consistency in performance, a long growth run-way and a clear head-start are strong reasons for its valuation to sustain. c.6% fall in the stock in past one-week should, in our view, be used to accumulate the stock. We maitain BUY with INR 1,860 TP.

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SEBI Registration Number is INM000010361lol