KPIT Technologies: Driving Ahead of its Peers

The mid-cap IT stock KPIT Technologies has caught the attention of investors on Dalal Street.

The stock has jumped nearly 60% over the past one year vis-a-vis a 28.5% rise in the sectoral index, BSE IT index. The Sensex has gained 30% over the past one year.

KPIT Technologies' stock performance has also outperformed similar sized and larger peers over the past one year. Mphasis has gained about 21.5% while Tata Elxsi has risen 7.5%, and TCS has gained 19%.

The KPIT Technologies stock traded broadly flat at Rs 1,659 on Wednesday, not too far away from its 52-week high of Rs 1,928.75 that was reached on 12 July 2024.

A key factor that differentiates KPIT Technologies from other software companies is its very focused corporate strategy. It only provides software and related technology solutions to the global auto and broader mobility sector.

In contrast, larger IT players like TCS, Infosys, amongst others, provide a range of software and technology services to several industries including automobile, financial services, retail, healthcare, and manufacturing.

KPIT Technologies' client base includes marquee global brands like Renault, BMW, Honda, and Cummins. Clients from the European automobile industry accounted for nearly half of KPIT Technologies consolidated revenues of Rs 13.65 billion (bn) in the first quarter of FY25.

The Pune-based company has benefited from the rapid technological transformation that is taking place in the global automobile industry. This includes electric vehicles, autonomous vehicles, and AI-driven vehicles, as well as the corresponding need for IT and related solutions.

This technology driven shift is expected to result in global spending on automobile software to rise from nearly US$ 19 bn in 2023 to about US$ 46 bn by 2030, as per various industry estimates.

Performance in the June 2024 Quarter

KPIT Technologies' consolidated revenue from operations grew 24.3 % year-on-year (YoY) to Rs 13.65 bn in the June 2024 quarter.

This was attributed to strong demand conditions for middleware stack, which serves as a bridge facilitating communication and data exchange between various components within the vehicle's software architecture.

Also, the company benefited from brisk demand for powertrain which broadly integrates the functions of the engine and transmission control modules of a vehicle.

Consolidated net profit of KPIT Technologies grew 52.2% (YoY) to Rs 2 bn in the quarter partly due to one off a gain arising from Qorix, turning from a wholly owned company to a 50:50 joint venture with Germany-based ZF Friedrichshafen AG.

Strong demand also resulted in KPIT Technologies head count increasing to 12,438 at the end of the June 2024 quarter vis-a-vis 10,837 a year earlier.

The company has also highlighted total commercial value (TCV) of new engagements worth US$ 202 million (nearly Rs 16.5 bn) during the June 2024 quarter.

Growth Outlook

Several leading European automobile companies have lowered their growth targets on account of sluggish demand conditions. This could potentially impact KPIT Technologies going forward.

The company is expanding its operations in the booming Chinese electric passenger car segment and the resulting demand for IT / software services.

The company in its annual report for FY24 has highlighted its optimism of growing between 18-22% going forward, despite the economic pressures in Europe, given its service offerings and strong overall demand from the global EV industry.

At Rs 1,659, the KPIT Technologies stock trades at a PE of nearly 76 times FY24 earnings. Other mid-sized software companies like Mphasis, trades at a PE of 36.8 times FY24 earnings while for Tata Elxsi, the PE is 61.6 times.

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