Why KPIT Tech Share Price is Falling?
KPIT Tech Share price has fallen by 20 percent over the week ended on October 25. JPMorgan has lowered its target price to Rs 1,900 per share after the company revised its FY25 constant currency revenue growth outlook to the lower end of its 18-22 percent range.
KPIT Tech share price has been underperforming the Nifty 50 over the last year. Is it the right time to invest in KPIT tech share price or should wait? This is a big question to answer. Let us do the KPIT Tech company analysis with detailed insights from financial performance to future outlook.
Table of Contents
Why KPIT Tech Share Price is Falling?
The KPIT share price is facing the pressures faced by the mobility industry, particularly the automotive sub-vertical, due to evolving regulations, cost reduction pressures, and shifting consumer preferences.
This industry-wide challenge could be a contributing factor to the stock price decline.
Furthermore, the recent broader market trends, particularly in the technology and automotive sectors, look dull due to a decline in consumer demand.
JPMorgan’s downgrade of the KPIT stock price also hurts the KPIT Share price.
KPIT Tech Share Price Analysis
KPIT Technologies, a key player in the IT and automotive mobility space, has seen a notable dip in its stock price over the past week while its peers such as Cyient share price has been gaining momentum.
The recent stock decline appears connected to multiple factors, including global economic dynamics and company-specific impacts stemming from its financial performance and strategic investments.
Key Financial and Operational Insights
Mixed Quarterly Performance
In Q2 FY25, KPIT reported a year-on-year revenue growth of 20.1%, driven by engagements in middleware and powertrain. EBITDA growth stood at 27.7% YoY, with a margin of 20.8%, slightly down due to wage hikes and one-month ESOP cost impacts
The lower-than-anticipated other income, largely attributed to conversion losses on Euro and Yen-denominated assets, also impacted profitability.
KPIT Technologies Revenue Growth
KPIT technologies revenue has witnessed strong growth over the years.
- The consolidated revenue from operations for FY 2023-24 was ₹ 48,715.41 million, representing a 44.8% increase from the previous fiscal year.
- In USD terms, revenue for FY 2023-24 was $587.31 million, a 40.4% growth compared to the previous year.
- Mr. Kishor Patil, the CEO and MD, stated in the July 24, 2024 earnings conference call that KPIT had achieved 16 consecutive quarters of growth.
- This indicates consistent revenue growth over the past four years.
- Mr. Patil also mentioned that KPIT Tech’s revenues quadrupled in the last four years, with consistent improvement in operational margins, cash conversion, and efficiency.
- For Q2 FY25, the revenue growth of 20.1% YoY, was led by strong demand in middleware and powertrain domains.
- Net profit for Q2 FY25 was ₹2,037 million, reflecting a 23.9% YoY growth (excluding one-time gains)
- EBITDA margins remained strong at 20.8%, despite absorbing the full-quarter impacts of wage hikes and ESOP costs
- KPIT Tech’s cash position remains healthy, though it saw a dip from ₹10.46 billion in Q1 FY25 to ₹9.68 billion in Q2 FY25, primarily due to payouts for M&A, dividends, and Capex
- The company has no long-term debt, indicating strong financial stability and prudent fiscal management.
- DSO (Days Sales Outstanding) remained efficient at 45 days
Strategic Investments and Cash Flow Impact
KPIT has been actively investing in new technologies and regions, particularly in China, to broaden its global footprint. These investments are critical for long-term growth but have pressured cash flow. The company’s cash balance also declined post significant M&A payouts, dividends, and capital expenditures
This raised concerns about cash flow stability, potentially affecting investor confidence.
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KPIT Tech Management Guidance
KPIT’s management guidance for the remainder of FY25 also looks good from a long-term perspective.
- Revenue Growth: The company expects to deliver constant currency (CC) revenue growth of 18%-22% for the full year of FY25
- Profitability: The management has reiterated its commitment to maintaining EBITDA margins of 20.5%+ through productivity improvements and cost optimization strategies
- Cost Management: KPIT’s ability to leverage a global delivery model while maintaining a lean cost structure will be key to sustaining profitability, especially as it scales up new client engagements
Strategic Moves and Future Outlook
While KPIT is positioned to capitalize on growth areas such as electric and autonomous vehicles, the near-term impacts of strategic expansions, investments, and fluctuations in international markets are causing short-term volatility. Investors may see this dip as a chance to enter the stock, given the long-term growth potential tied to KPIT’s investments in emerging automotive technology.
However, further dips may be expected until economic and strategic pressures stabilize. My view is to wait for the broader market to stabilize and turn positive. Once you know the trend of the broader market, you can do your analysis about the company for further action to buy or to average.
Please note that this is not a buy recommendation. I am just sharing my analysis of the company which may help you to understand the broader picture.
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