KPIT Technologies share was trading more than 5 percent down on April 3 afternoon after JP Morgan initiated coverage with an “underweight” rating and the lowest target price on the Street of Rs 540, indicating a 44 percent downside from current levels.
The brokerage sees two major de-rating catalysts. First, KPIT's growth is expected to fall below 20 percent beyond the financial year 2024. Second, the announcement of Tata Technologies' IPO has reduced the scarcity premium associated with KPIT's stock.
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Tata Technologies, which gets 88 percent of its revenue from the auto sector, is also a core focus area for KPIT.
According to JPMorgan, KPIT will have to win significant orders every year to maintain its growth above 20 percent, which it sees as a challenge given the cyclical nature of the auto industry.
The brokerage appreciated KPIT's focus on the fast-growing auto vertical but said it would wait for an attractive entry point.
KPIT recently announced a partnership with Honda, which its CEO and MD Kishor Patil said would be the largest in Software defined Mobility (SDM).
In Q3FY23, the company reported a 47 percent YoY increase in revenue at Rs 917 crore. It also secured new deals worth $272 million, up from $142 million in the September 2022 quarter.
The company has 10 “buy”, one “hold” and three “sell” calls with target prices in the range of Rs 750-1,050.
KPIT's share price has jumped 34 percent in the last six months and over 40 percent in the past year.
At 12.27 pm, the scrip was trading 5.28 percent lower on the NSE at Rs 876.30, while sectoral benchmark Nifty IT was down 0.66 percent at 28,508.30 points.
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