Goldman Sachs sees 75% upside in KPIT Technologies – lists out positives and negatives; stock up 18.5%

The shares of mid-cap IT company KPIT Technologies shares jumped 18.5 per cent to Rs 749 per share on the BSE intraday trade on Friday, after a global brokerage report Goldman Sachs initiates a Buy call on the company with the upside of around 75 per cent amid a strong growth outlook going ahead.  

The brokerage stated, “We initiate on KPIT Technologies with a Buy rating with a target of Rs 1040 apiece as it is uniquely positioned as a 100 per cent automotive software integrator helping large OEMs accelerate their R&D projects in CASE related production platforms.” 

See Zee Business Live TV Streaming Below:

As the auto sector shifts focus towards’ electric powertrains, the brokerage indicates that R&D spending on CASE (connected, autonomous, shared, electric) technologies at the top 10 global auto R&D spenders is poised to triple over FY21-FY26 to around US $61 billion. 

According to the Goldman Sachs report, “KPIT’s expertise is in high entry barrier areas like L3-L5 autonomous driving, vehicle to anywhere connectivity, digital clusters and battery management system enhancement; combined with a strong talent pool.” It sets a target price of Rs 1,040 per share. 

The brokerage expects KPIT to grow sales/EBITDA/EPS by over 21/26/29 per cent annually over FY22 to FY25 driven by the potential addition of semiconductor and EV disruptor companies to the client base and further inflection in CASE R&D spending to support rising EV sales ratio targets. 

In terms of key risks, challenges to the company could stem from attrition in skilled talent pool; slowdown in auto tech outsourcing; vendor consolidation by OEMs; revival in onshoring; the Rupee appreciation and obsolescence of domain expertise, the brokerage states. 

On the valuations front, KPIT trades at 51x fwd P/E vs its closest Indian peer Tata Elxsi at 75x and global peer group at around 63x for a similar long term growth profile in the high 20 per cent EPS growth range, Goldman Sachs said adding further that FY24 EPS estimated at 11 per cent above consensus. 

The stock in the last one year has surged almost 422 per cent as compared to a 25 per cent surge in the BSE Sensex. At around 12:50 pm, the counter is up nearly 11.5 per cent to Rs 704.35 per share on the BSE, as against 0.06 per cent fall in the S&P BSE Sensex.