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KPIT Technologies share price drops over 5% after a sharp rally; analysts see 42% downside on expensive valuations


KPIT Technologies share price declined over 5% in early trade on Tuesday after witnessing a stellar rally this month. The stock fell as much as 5.50% to 1,533.00 apiece on the BSE.

KPIT Technologies shares have jumped more than 31% in one month while the stock is up over 12% year-to-date (YTD). The shares hit a 52-week high of 1,639.60 apiece on November 20.

Analysts believe this rally over the past month was without any commensurate fundamental catalyst and the stock now trades at expensive valuations.

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Kotak Institutional Equities has a ‘Sell’ rating on KPIT Technologies with a target price of 940 per share, implying a downside of 42% from Monday’s closing price.

“KPIT trades at a rich 59X FY2025E earnings. The stock price implies elevated growth of 20% over a period of 10 years with margin expansion to 20% on average at the EBIT level (16% current). Implied absolute revenue size works out to $2.6 bn by FY2033E,” said Kotak Institutional Equities.

To put the size in context, the largest pure-play ERD player, AFRY, has a revenue base of $2.3 billion with diversified vertical presence. 

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“KPIT deserves premium valuations due to its strong capabilities in a high-growth vertical although we disagree with the magnitude of premium assigned. Our Fair Value of 940 implies multiple of 34X on FY2025E EPS,” the brokerage added.

It noted that the automotive clients’ ERD spends are likely to remain elevated in the near term but believes a more nuanced understanding is required to forecast evolution of the addressable market over the long term. 

Stock valuations are excessive at 59X FY2025E, extrapolating recent robust performance, it added.

The mid-cap IT firm KPIT Tech had posted a net profit of 141.40 crore for the second quarter of FY24, recording a growth of 69.21% year-on-year (YoY). Sequentially, its profit was up 5%.

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The company’s revenue in Q2FY24 rose over 60% YoY and 8% QoQ to 1,208.86 crore. Its dollar revenue increased 54.3% YoY and 8.4% QoQ.

KPIT Technologies raised its FY24 guidance in constant currency (CC) terms. For the financial year FY24, the company now expects revenue growth of 37% in CC terms, from the earlier guidance which ranged between 27% and 30%. 

It has also increased its EBITDA (earnings before interest, taxes, depreciation, and amortisation) guidance for the year to over 20% from 19-20% earlier.

At 10:10 am, KPIT Technologies shares were trading 4.56% lower at 1,548.25 apiece on the BSE.

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Disclaimer: The views and recommendations made above are those of individual analysts or broking companies, and not of Mint. We advise investors to check with certified experts before taking any investment decisions.

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Updated: 21 Nov 2023, 10:12 AM IST

Joanna Swanson

Joanna Swanson is Europe correspondent at the Thomson Reuters Foundation based in Brussels covering politics, culture, business, climate change, society, economies and inclusive tech. With specific focus in breaking news, she has covered some of the world's most significant stories.