Ashika Stock Broking has a ‘buy’ call on KPIT Technologies (KPIT Tech) with a target price of Rs 800, which was the IT firm’s record high level that it hit in January last year. The brokerage said KPIT Tech has invested heavily in the technologies for automotive companies and continues to maintain its leadership position in this area. The company is positioned well to increase its focus on electric vehicles (EVs), especially in the US and Europe, Ashika Stock Broking said.
“KPIT’s revenue comes from the automobile software and it holds a competitive advantage in the software integration space. Its relationships with the top global OEM (original equipment manufacturer) clients have allowed them to become involved in numerous complicated production processes, allowing them to work on future software integration projects,” the brokerage added.
It also mentioned that the acquisition of Technica Engineering, done in October 2022, would propel the company’s growth.
Stock performance
KPIT Tech closed the calendar year 2022 with strong gains. The scrip has gained 14.61 per cent last year outperforming the BSE benchmark’s 3.12 per cent rise, despite overall weakness in the information technology (IT) pack.
That said, the stock has slipped 2.93 per cent in the last one month. On Monday, the scrip was trading 1.53 per cent lower at Rs 694. A total of 55,000 shares changed hands today with a turnover of Rs 3.84 crore. The company’s market capitalisation (m-cap) stood at Rs 19,100.97 crore.
Valuations
KPIT management has upgraded its FY23 organic growth guidance to 23 per cent in CC terms from 18- 21 per cent earlier. It has also guided for a total CC revenue growth of 31-32 per cent and Ebitda margins guidance of 18.5-19 per cent.
The key growth catalysts for KPIT Tech, said Ashika Stock Broking, for growth are soaring TCV deal size, healthy BS status, strategic end-to-end engagement model and strong demand. All the key growth levers in cumulation affirm the continuance of positive earnings growth trajectory.
“We recommend our investors to BUY the scrip with target of Rs 800 from 12 months investment perspective. The scrip is currently valued at P/E multiple of 40.7 times on FY24E Bloomberg Consensus EPS of Rs 17.20,” Ashika Stock Broking said.
Risks
The brokerage, however, underscored that factors like high dependency on the automotive sector, reduction of innovation budgets by OEMs and Tier 1 auto companies due to economic slowdown have the potential to play a spoilsport.
Appreciation of the Indian rupee can also impact negatively on the company’s business, Ashika added.
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