KPIT Faces Reality Check Day Ahead Of Rival Tata Technologies’ IPO

Following its second-quarter results, KPIT Technologies its FY24 revenue growth guidance to 37% year-on-year in constant currency terms, as against 27-30% estimated earlier. Operational profitability is seen in excess of 20% as against 19-20% earlier.

Now, KPIT is trading at 59 times its estimated earnings for fiscal 2025. The stock price implies a compounded annual growth rate of 20% over the next decade with a consistent operational profitability of 20%. That implies a top line of $2.6 billion by FY33. To put that in context, the world’s largest pureplay ER&D firm, Sweden’s Afry AB, has a revenue base of $2.3 billion with diversified vertical presence.

“KPIT deserves premium valuations due to its strong capabilities in a high-growth vertical, although we disagree with the magnitude of the premium assigned,” Kotak Institutional Equities said in the note. “Our fair value of Rs 940 implies a multiple of 34 times on FY25 EPS.”

On Tuesday, shares of KPIT Technologies fell as much as 5.08% to Rs 1,541.50 apiece— the lowest level since Nov. 20. This compares to a 0.42% advance in the NSE Nifty 50 as of 9:56 a.m.

The stock has risen 119% on a year-to-date basis. The total traded volume so far in the day stood at 2.7 times its 30-day average. The relative strength index was at 75, implying that the stock may be overbought.

Nine out of the 14 analysts tracking the company maintain a ‘buy’ rating, one recommends a ‘hold’ and four suggest a ‘sell’, according to Bloomberg data. The average of 12-month analyst price targets implies a potential downside of 17.3%.

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