Fundamental Analysis of KPIT Technologies: The mid-cap company KPIT Tech. has rallied close to 70% in the last twelve months while the other IT giants’ shares went nowhere. What makes this company so special and different from other IT players as it trades at a price-to-earnings ratio of 67? What are its future plans? We’ll attempt to answer these questions and many others in our fundamental analysis of KPIT Technologies.

Fundamental Analysis Of KPIT Technologies

We’ll start off our fundamental analysis of KPIT Technologies by understanding its product offerings tailored for automotive companies specifically. After that, we’ll learn about the sector in which the company operates. Next, we’ll move at pace through the financials of the stock. A highlight of the future plans and a summary conclude the article at the end.

telegram channel

Company Overview

KPIT Technologies was co-founded by Ravi Pandit (Chairman), Kishor Patil (CEO & Managing Director), and Sachin Tikekar (President & Joint Managing Director) in 1990. Over the years, it has grown into a leading automobile software company with an international presence.

The company works with prominent auto OEMs and Tier 1 players by providing software development and integration services to build software-defined vehicles. Its strong workforce of over 7,200 people spread globally helps auto companies to implement next-generation mobility technologies.

The integrated product offerings of KPIT include prototype development, software development, validation, and testing in the following areas: conventional powertrains, Autonomous Driving (AD) and Advanced Driver Assistance Systems (ADAS), and vehicle engineering & design.

In addition to this, its broad suite of cloud-based solutions for intelligent cockpits, connected vehicles, cloud & analytics, and diagnostics enables the company to provide end-to-end solutions in the automotive and mobility space.

The auto-tech company operates 7 engineering centers across the globe. More than 25 OEMs and tier 1 strategic partners trust KPIT for its 75+ platforms, tools, and accelerators. 

We got a good understanding of the business and scale of operations of the company. In the next section, we’ll learn from where it earns revenues for our fundamental analysis of KPIT Technologies.

Geographical Segments

Americas and UK & Europe each contribute to roughly 40% of the revenues of KPIT while the balance 20% of income accumulates from the rest of the world. The table below presents the share of different geographical segments in the revenue of the company for the last two fiscals.

Geography202320222021
AmericasTBA3942
UK & EuropeTBA4041
Rest of WorldTBA2117
(figures in %)

Industry Overview

The global automotive market grew slowly at a CAGR of 3.6% over the last five years. In the years to come, the growth is expected to decline further to an annualized rate of 2% by 2030 because of car-sharing, e-hailing, and a variety of other factors. In contrast to the market as a whole, EV (electric vehicles) sub-segment has been growing at a fast pace. For instance, EV sales doubled to 4.6 million units in the calendar year 2021.

Even though the automobile industry has been a slow mover, the adoption of technology to build software-defined vehicles (SDVs) has taken a pace. There is a general uptrend in Connectivity, Autonomous, Shared mobility and Electrification (CASE), and centralized architecture for creating electronic terminals of vehicles that can be continuously upgraded. 

Along with these developments, the automotive software (SW) and electrical and electronic components (E/E) market is projected to rise at a CAGR of 7% from $ 238 billion to $ 469 billion during the 2020 and 2030 periods. 

Furthermore, the software applications, OS, and middleware in the automotive industry are expected to rise at a much faster-annualized rate of 11% as leading OEMs make a digital push and ramp up their investments in this space.

We’ll now move to learn about earnings growth for our fundamental analysis of KPIT Technologies.

KPIT Technologies – Financials

Revenue & Net Profit Growth

KPIT Technologies reported a net profit of Rs 276 crore in FY22 on revenues of Rs 2,432 crore. The company has yet to report its Q4FY23 and full-year FY23 results. On a positive note, it’s trailing twelve months (TTM) after the quarter ending December 2022 income and profit exhibited growth with Rs 356 crore profit after tax on income of Rs 2,999 crore.

Furthermore, figures for FY20 and later periods vary a lot against those of FY19 because of the merger of the IT services business of KPIT with Birlasoft. Later, the combined entity was demerged into KPIT Technologies (automotive engineering and mobility solutions) and Birlasoft (digital business IT services). 

Overall, the bottom line and top line figures both have been on an uptrend.

The table below presents the operating revenue and net profit of KPIT Technologies for the last four financial years.

Fiscal YearOperating RevenueNet Profit
2023TBATBA
20222,432276
20212,036147
20202,156148
201964155
(figures in Rs Cr)

Margin Analysis

Following the re-organization, the margins of the company fell in FY20 and remained subdued in FY21 due to dampened demand because of the Covid-19 led-pandemic. The operating and net profit margins considerably improved to 15% and 11% in FY22 respectively.

The table below shows the operating margin and net profit margin of KPIT Technologies for the last few years.

Fiscal YearOperating MarginNet Profit Margin
2023TBATBA
202215.011.3
20219.37.2
20209.76.8
201916.98.6
(figures in %)

Return Ratios: RoE and RoCE

The automotive services company reported a return on capital employed (RoCE) and return on equity (RoE) of 22.3% and 20.9% in FY22. Its return ratios have considerably improved over the few years after the re-organization and growth in earnings.

The table below shows the growth in return ratios: RoCE and RoE of KPIT Technologies over the last four fiscals.

Fiscal YearRoCERoE
2023TBATBA
202222.320.9
202113.212.1
202017.814.0
201910.55.6
(figures in %)

Having learned about the earnings growth, margins, and return ratios; we’ll now move on to study the debt of the company for our fundamental analysis of KPIT Technologies.

Debt / Equity Ratio

We shall keep this section short as KPIT Technologies is a debt-free company with a high-interest coverage ratio of 25 times. And not just that, it has maintained its nil debt-to-equity status for a considerable number of years.

Future Plans Of KPIT Technologies

So far we looked at previous years’ data for our fundamental analysis of KPIT Technologies. In this article, we’ll try to understand what lies ahead for the company and its investors.

  1. KPIT Tech. agreed to acquire a majority stake in PathPartner, a Bengaluru-based product engineering and R&D company in the advanced technology space.
  2. In addition to this, the company acquired a 25% holding in Future Mobility Solutions (FMS), a provider of software and feature development services in autonomous driving, ADAS, vehicle safety, and other areas. 
  3. Furthermore, it also acquired 4 entities of Technia Group for a total consideration of Rs 640 crore last year. The companies pioneer in automotive production-ready system prototyping technology.

Fundamental Analysis of KPIT Technologies – Key Metrics

We are almost at the end of our fundamental analysis of KPIT Technologies. Let us take a look at the key metrics of the tech-mobility stock.

CMP₹850Market Cap (Cr.)₹23,400
EPS₹12.70Stock P/E67
RoCE22.3%RoE20.9%
Promoter Holding39.5%Book Value₹51
Debt to Equity0.00Price to Book Value16.8
Net Profit Margin11.3%Operating Profit Margin15.0%

In Conclusion

As we conclude our fundamental analysis of KPIT Technologies, we can say that KPIT Technologies has been a frontrunner in a fast-growing sub-segment. As it lies at the nexus of the automobile and technology industries, it gets to benefit from developments and growth in both fields. Furthermore, its global presence in terms of client base and workforce provides it with good diversification.

In the future, quarterly earnings growth and deal wins are two metrics that investors of KPIT can track. However, at 67 P/E, do you think the company is over-valued? Or is it a high-growth stock? How about you let us your input on the stock in the comments below?

Stay updated on the latest Stock Market News and Corporate Actions NSE with Trade Brains Portal, while also keeping an eye on the Top Gainers Today in NSE with our Stock Heatmap feature


Start Your Stock Market Journey Today!

Want to learn Stock Market trading and Investing? Make sure to check out exclusive Stock Market courses by FinGrad, the learning initiative by Trade Brains. You can enroll in FREE courses and webinars available on FinGrad today and get ahead in your trading career. Join now!!