Buy KPIT Technologies; target of Rs 640: Motilal Oswal

Moneycontrol • 3 days ago

Original source

Key Investment Pillars

  • Revenue recovery remains gradual: Growth remained subdued due to spending cuts at two large OEMs in Europe and Japan, but is expected to improve in 2H, driven by the US, India, and off-highway segments.
  • Margin expansion to be gradual: EBITDA margin improved to 17.8% in 2Q, driven by a higher contribution from products, but further expansion will be gradual, linked to revenue recovery and productivity gains.
  • Products and solutions are emerging as key growth and margin levers: Product revenue grew 5% QoQ and 25% YoY, with AI-first projects contributing ~9% of revenue.
  • European passenger-car weakness persists, but opportunities from vendor consolidation are emerging: The European passenger-car market remains under pressure, but KPIT expects to gain wallet share through AI-led transformation and supplier consolidation.

Thesis Validation Checklist

  • Revenue growth: Watch for gradual improvement in revenue growth, driven by the US, India, and off-highway segments.
  • Margin expansion: Monitor EBITDA margin expansion, driven by revenue recovery, productivity gains, and a higher contribution from products.
  • Products and solutions growth: Track growth in product revenue and AI-first projects, which are expected to drive margin expansion.
  • European vendor consolidation: Watch for opportunities from European vendor consolidation, which could drive growth and margin expansion for KPIT.