Why KPIT Technologies Share Price is Falling

The IT and artificial intelligence (AI sector) in India have been growing rapidly. Companies are expanding their digital infrastructure and investing in the futuristic artificial intelligence technology. The demand for tech solutions is on the rise, driven by both global and domestic markets.

Just yesterday, we saw India's biggest player Reliance team up with NVIDIA for AI implementation in India.

As a result, many Indian IT firms have experienced increased investor attention, with stocks rallying. However, amidst this growth, some companies are also facing market challenges.

KPIT Technologies is one of the reputed names in the Indian IT sector. It provides IT consulting and product engineering services. The company specialises in automotive engineering, embedded software, and digital transformation solutions.

KPIT's expertise has made it a key player in helping global companies navigate the future of mobility and connected vehicles.

Despite this, KPIT Technologies share price is currently under investor focus due to a 13.3% drop in its share price on 24 October 2024. This was followed by a 5% decline on the next day.

To understand this sharp decline, let's look at the management's latest commentary to understand why KPIT Technologies share price is falling.

#1 Dull Growth Prospects

KPIT Technologies recently issued a cautious outlook for the second half of FY25, sparking concerns about its growth trajectory.

Yesterday, the management indicated that revenue growth for the rest of the year would be at the lower end of its previously guided 18% to 22% range. This lowered expectation has created uncertainty around the company's ability to maintain strong growth in an increasingly competitive IT sector.

One of the key reasons for this dimmer outlook is the delay in certain projects, which has impacted the company's short-term revenue prospects. While the management emphasised that the underlying business remains strong, these project delays have created a slowdown in the pace of revenue growth.

This cautious commentary suggests that KPIT Technologies may face challenges in meeting its high-end growth targets in the near future.

Although the company expects its profitability to improve, with steady earnings before interest, tax, depreciation, and amortisation (EBITDA) margins around 20.5%, the slower revenue growth is the primary concern for investors.

The tempered growth expectations are a clear signal that while KPIT continues to operate efficiently, it may struggle to expand its revenue as quickly as anticipated. No wonder domestic brokerages downgraded the stocks.

As a result, the market has responded with a sharp decline in the company's. The combination of project delays and a conservative growth forecast has dampened investor confidence, leading to the recent downturn in KPIT Technologies share price.

#2 Mixed Quarterly Results

KPIT Technologies reported mixed financial results for Q2FY25.

Revenue increased by 7.8% quarter-on-quarter (QoQ) to Rs 14.7 billion (bn). This growth was driven by strong order inflows and consistent demand for the company's services, especially in the automotive and digital transformation segments.

Despite the rise in revenue, KPIT's net profit remained flat at Rs 2 billion compared to the previous quarter. This stagnation in profit suggests that the company faced higher costs or operational inefficiencies which limited its ability to convert revenue growth into increased profitability. Factors like rising expenses or delays in certain projects likely put pressure on the bottom line.

On a year-on-year (YoY) basis, the company's total revenue saw a healthy 22.7% rise, reflecting the company's ability to capitalise on the growing demand in IT and AI sectors.

While company's QoQ profit present a dull picture, its YoY profit presented a quite optimistic picture. On a YoY basis its net profit surged 44%. This indicates that while company maybe facing margin pressure at present but overall the company's business is doing well.

The company announced plans to raise up to Rs 28.8 bn through a qualified institutional placement (QIP). While this capital-raising effort is aimed at funding growth and expansion, it has raised concerns about potential equity dilution.

Growth Outlook

Earlier this month, we wrote to you about KPIT and explained what the future has in store.

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 the current price of Rs 1,350, KPIT Technologies stock trades at a PE of nearly 51 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 52.6 times.

How KPIT Technologies Share Price has Performed Recently

In the past five days, KPIT Technologies share price has tumbled 20.7%. In the last month, it is down 14.3%.

In 2024, so far it is down 4.9% and it is up 23.5% in the past one year.

The stock touched its 52-week high of Rs 1,928.8 on 12 July 2024 and a 52-week low of Rs 1,092.9 on 26 October 2023.

About KPIT

KPIT Technologies is a digital transformation consulting & software integration company that provides cutting edge engineering solutions to more than 150 companies & enterprises in the field of CASE Mobility.

The company derives most of its revenue from innovative technology and the scalability of the industry is huge. Automotive manufacturers are prioritizing investment in new age technologies and KPIT is at the forefront of these.

The company was formed by a three-step complex deal between KPIT Technologies and CK Birla Group's Birlasoft.

Birlasoft (India) merged with KPIT Technologies Ltd in January 2019 and the company was renamed as Birlasoft. The formed entity had two business divisions, the IT business and the engineering and mobility solutions business.

The latter business was demerged from the company under the name KPIT Engineering which was later renamed as KPIT Technologies and was listed to the stock exchanges.

The main aim of the complex restructuring by KPIT was to separate its IT and Engineering Services business.

To know more about the company, check out KPIT Technologies fact sheet and KPIT Technologies quarterly results.

You can also compare KPIT Technologies with its peers on our website.

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