KPIT Technologies shares have gained 38 percent in the last six months, climbing from ₹451.55 apiece to ₹622.25. According to domestic brokerage firm Ashika Stock Broking, the stock has the potential to rise even further.
KPIT Tech is a small-cap IT stock with a market cap of ₹19,054 crore. It is a global technology company specializing in providing product engineering solutions and services to the automobile and mobility sectors.
The brokerage stated that the company stands to benefit from the recent acquisition of the four Technica Group companies, as the acquisition will help KPIT create a unique one-stop shop for the automotive industry in its transformation towards Software Defined Vehicles (SDVs).
In October 2022, KPIT completed a Technica Engineering deal to acquire four Technica Group companies for a consideration of Rs. 640 crore.
The group companies have a strong presence in Europe, which could be highly beneficial to KPIT going forward. The full quarter revenues will get consolidated into KPIT from Q3FY23, the brokerage noted.
The objective of the acquisition is to create a one-stop shop for the industry in its transformation towards Software Defined Vehicles (SDV). The acquisition will bring synergies like increased client stickiness, it added.
"KPIT operates in an area that is extremely complex and disruptive; therefore, entry into such a segment is extremely difficult for new players."
“KPIT’s complex manufacturing process in autonomous vehicle computing is catching up faster in its outlook. Unlike its competitors, KPIT generates 100% of its revenue from automobile software, giving it a competitive advantage in the software integration space,” said the brokerage.
The company is well placed to take advantage of mobility and disruptive sectors (telecom and semiconductor). In comparison to its peers, its software integration capability, middleware and new architectural solutions, and cloud-based connected services via organic and inorganic routes will bring long-term value creation, it stated.
Management upgraded its FY23 organic growth guidance to more than 23 percent in CC (from 18–21% earlier) and also guided for overall CC growth of 31-32 percent and EBITDA margin of 18.5–19 percent.
The brokerage has a "buy" call on the stock with a 12-month target price of ₹800 apiece, an upside of 15.10 percent from the stock's current market price.
However, the brokerage laid out some of the downside risks for the stock, including a reduction of innovation budgets by OEMs and Tier I auto companies due to the economic slowdown and an appreciation of the rupee, which will impact the company’s business negatively.
For the September quarter, the company reported a 28.26 percent YoY jump in its consolidated net profit at ₹83.56 crore on the back of strong revenue growth.
It reported a 25.31 percent increase in overall revenues during the September quarter, at ₹754.32 crore, compared to ₹601.9 crore in the same quarter last fiscal.
The company reported the total contract value of new deals signed during the quarter at USD 142 million and added that it has a very strong pipeline, which includes two deals of USD 100 million or more.
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