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KPIT sustained its growth momentum in 1Q. Revenues grew 4.7% cc QoQ, meeting elevated expectations (JMFe: 4.6%). Honda deal continues to ramp, reflected in 13% QoQ growth in Asia. Deal wins were healthy at USD 202mn, taking LTM book-to-bill to 1.3x. KPIT’s 20%+ YoY revenue growth, despite 1.3x book-to-bill indicates minimal leakage and faster ramp. This, we believe, is an under-rated characteristic of KPIT’s work. Its largely self-curated, nonRFP type deal wins from existing clientele facilitates such quick book-to-bill conversion, in our view. Focus on large deals in KPIT’s case therefore misses the point. That said, pipeline does have large deals (2 each in US/EU) which could close in 2H, lending visibility beyond FY25. Current order book however is sufficient to achieve an unchanged 18-22% cc revenue growth for FY25, per the management. Better margins (17.3% vs JMFE: 16.8%) despite two months of ESOP expense and consistent improvement in employee productivity reflects KPIT’s pricing power. We build this in our margin assumptions driving 1-2% EPS upgrades. Our TP rolls forward to INR 2,140. Structural nature of demand (EV/SDV) and KPIT’s increasingly evident moats in these areas should undergird its growth momentum. We reiterate BUY.

* 1QFY25 – Meets elevated expectations: KPIT reported 4.7% cc QoQ growth, in-line with JMFe: 4.6%. Growth was driven by Asia (13.2% QoQ, USD terms), likely on Honda deal ramp. Europe/US grew by 3.3%/(1.6%) QoQ. Architecture and Middleware consulting (+13.7%) led the growth among service lines. Rev/emp. grew by 1%. This metric has grown at 3% CQGR over the past eight quarters, reflecting KPIT’s pricing power. EBIT margin expanded 55bps QoQ to 17.3% (JMFe: 16.8%). This was despite two months impact of ESOP (70bps). The company divested 50% stake in the planned Qorix JV to ZF. This resulted in one-time gain (net of tax) of INR 328mn. Adjusted PAT came in at INR 1.7bn. Cash reserves improved further to INR 10bn (from INR 8.5bn in 4Q).

* Guidance retained: KPIT retained its FY25 cc revenue growth guidance of 18-22% cc. Guidance implies a CQGR of 2.8-5.1%. Management is counting on sustained ramp-up in Honda deal and helthy order book to achieve its FY25 guidance. Honda deal, when full ramped, will have 2,000 resources. At current rev/emp of USD 53K/year, that would translate into USD 100mn+ ARR. That still leaves a material upside in Honda account, per our estimate. LTM TCV of USD 808mn (book-to-bill: 1.3x) lends further visibility. Most of KPIT’s deals today are proactive (non-RFP), driving faster revenue conversion, in our view. The company is expanding into adjacent areas (Trucks, off-Highway) to increase its addressable market. That should help revive US growth as well. EBITDA margin guidance of 20.5%+ was retained too. Wage hike and one month additional impact of ESOP will however impact 2Q margins by 280bps, per the management.

* EPS up by 1-2%; Maintain BUY: Our FY25E USD revenues are down 180bps, largely on higher cross-currency impact. We have however raised our FY25-27E margin assumptions by 25-40bps. Consequently, our FY25-27E EPS is up 1-2%, after factoring in some loss coming from the Qorix JV. We roll forward our TP to INR 2,140 (from INR 2,050), valuing the stock at 60x (unchanged). KPIT growth story still has legs. BUY

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