JPMorgan has reiterated its 'Overweight' rating on automobile-industry-focused KPIT Technologies, citing the company's potential for recovery despite recent underperformance.
Over the past year, KPIT Tech's stock has declined by 10 percent, underperforming the Nifty 50's 17 percent gain. The stock has also posted negative monthly returns for five consecutive months. With a target price of Rs 1,900, JPMorgan foresees a potential upside of 42 percent from the last closing price of Rs 1,342.
JPMorgan believes that the near-term softness in the company's performance is cyclical and transient, not structural. While the current pace of investments in EV and hybrid technologies has slowed, the brokerage said that such investments will continue, though at a measured pace.
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Additionally, the board of KPIT Tech had approved raising up to Rs 2,880 crore through Qualified Institutional Placements (QIP) which JPMorgan said will be used for tuck-in mergers and acquisitions.
A tuck-in acquisition is a business strategy in which a larger company acquires a smaller firm within the same or a related industry and integrates its operations into an existing division or business unit. Typically, the smaller company ceases to exist as an independent entity after the acquisition.
Calling KPIT Tech 'a fallen hero that can rise again,' JPMorgan projects a base-case potential upside of 42 percent, with a bear-case downside capped at 10 percent.
Also Read | JPMorgan names KPIT Tech as top pick on expected auto sector revival in 2025
The brokerage had recently named KPIT Tech its top pick among ER&D firms, citing expectations of a recovery in the auto sector to drive growth from 2025. "Auto weakness is more cyclical and transient, and growth should accelerate from next year," JPMorgan said.
Financially, KPIT Tech delivered strong results in Q2FY25, with consolidated net profit rising 44 percent year-on-year to Rs 203.7 crore and revenue increasing 22.7 percent to Rs 1,471.4 crore. Sequentially, revenue grew by 7.8 percent, although profits dipped marginally by 0.2 percent. The company has guided FY25 revenue growth at 18-22 percent, with an EBITDA margin expectation of 20.5 percent.
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