KPIT Tech: There is an ever-changing environment for the climate. Increasing green energy can help cut carbon emissions by limiting fossil fuels. Many cities have been witnessing the rise in trend of temperatures across the globe and have been reaching new highs. For these shifts, the people should themselves be involved in the transformation for the future. Reducing carbon emissions is one way to limit the damage to the environment.

Governments across the world are trying to fund these industries to prosper and companies are jumping to acquire those opportunities to monetise. In this article, we will look at KPIT Technologies, which operates in the automotive software industry.

Company & Business Overview Of KPIT Tech

KPIT Technologies was founded by Ravi Pandit and Kishor Patil, which offers IT Consulting and Product Engineering solutions and services to the automotive, manufacturing, energy, and utility industries. The majority of KPIT Tech’s revenue comes from engineering services, such as design engineering, embedded software development, and license and product sales. They have 68 patents in their portfolio. KPIT software is installed in over 10 million vehicles, and 25+ OEMs serve as key partners. The total contract value in Q4 FY24 was about $261 million. 

KPIT Tech’s business is involved in embedded software solutions, which include writing or developing software according to the needs of the client product and integrating those with the hardware to function. It is useful to even identify any issues or problems in the system or the product regarding its performance. 

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Even developing features like controlling music, navigation and sometimes connecting to the internet. Most of the vehicles need sensors, cameras, and processors, which can help enhance the riding experience for the users. These are some of the aspects of business in which KPIT is involved.  

Most foreign automobile companies outsource their work to gain specialised expertise without investing more money in R&D. It is cost-effective for automobile companies and allows them to integrate software or other developments into their products more quickly, giving them an advantage over their competitors.

What is the need for a transition from internal combustion engines to electric vehicles?

ICE vehicles emit harmful gases like carbon dioxide, contributing to global warming and air pollution, which affects our health and the planet’s well-being.

Electric vehicles offer a cleaner, greener alternative. They run on electricity, which means zero or negligible emissions. EVs are more efficient, converting more of their energy into movement, resulting in fewer resources burned, less waste, and a reduction in the use of crude oil.

With efforts regarding the environment, there is a need for innovation and progress. Electric vehicles represent the future of transportation, embracing cutting-edge technology and paving the way for smarter, more sustainable cities. They offer quieter rides, smoother acceleration, and lower maintenance costs, promising a better driving experience for everyone.

Industry Outlook Of KPIT Tech

The disruptive forces in the automobile industry, known as ACES (autonomous driving [AD], connected vehicles, powertrain electrification, and shared mobility), have gained substantial traction. The COVID-19 epidemic and its aftermath have expedited the future of mobility, with significant implications for customer preferences, technological uptake, and regulation. New players continue to enter the electric vehicle (EV) market, with several commanding larger valuations than traditional OEMs.

Automotive manufacturers and suppliers are spending considerably on software and electrification. By 2030, the worldwide automotive software and electronics industry will be worth $462 billion, reflecting a 5.5 percent CAGR from 2019 to 2030.

In comparison, the global automotive market for passenger cars and light commercial vehicles (LCVs) is expected to increase at a 1% compound annual rate over the same time, from 89 million units in 2019 to only 102 million units in 2030. 

As a result, the future of mobility is undergoing a significant transition, driven mostly by various forms of urban access control measures such as outright bans on internal combustion engine (ICE) vehicles and greater usage of non-ownership models such as car sharing and micro-mobility. Aside from that, other disruptive technologies, such as urban AD, are changing the dynamics of the industry. Automotive businesses focus on software and electronics since they will define the industry’s next paradigm change. 

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Financials and segments Of KPIT Tech

In FY24, KPIT Tech reported operating revenue of Rs. 4,871.54 crore, a 44.76% increase from Rs. 3,365.03 crore in FY23. Net profits increased by 54.70% YoY, from Rs. 386.86 crore in FY23 to Rs. 598.51 crore in FY24. 

Employee costs contributed approximately 63.88% in FY24, compared to 64.04% in FY23. KPIT Tech has improved its employee cost-to-revenue ratio. In FY24, the interest cost has increased by 70% YoY. However, the company was able to increase EBITDA by approximately 20% in the most recent Q4 FY24. 

In FY24, KPIT Technologies’ revenues came from operations in the Americas (23.87%), the United Kingdom and Europe (40.79%), and the rest of the world (35.32%).    

Passenger vehicles in FY24 have generated approximately 80.24% of revenue, with commercial vehicles accounting for the remaining 19.75%. In FY24, KPIT Tech’s revenue is derived from Feature Development and Integration (61.90%), Architecture and Middleware consulting (19.53%), and Cloud-based connected services (18.57%). 

Particulars/ Financial Year2019-202020-212021-222022-232023-24
Revenue (Cr.)₹2,156₹2,036₹2,432₹3,365₹4,871
Net Profit (Cr.)₹148₹147₹276₹387₹599
RoE (%)14.71%13.04%21.96%26.13%27.70%
RoCE (%)16.78%14.23%23.26%27.03%32.22%

Key Metrics Of KPIT Tech

Here are some of the key metrics of KPIT Technologies.

ParticularsAmountParticularsAmount
CMP₹1,506.85Market Cap (Cr.)₹40,645
Stock P/E (TTM)68.64EPS (TTM)₹21.60
RoE (%) (TTM)27.71%RoCE (%) (TTM)32.53%
Promoter Holdings (%)39.27%Public Holdings (%)22.55%
Debt to Equity Ratio (TTM)0.15Price to Book Value (TTM)18.92
Current Ratio (TTM)1.44EV to Sales (TTM)8.25

Future Outlook Of KPIT Tech

  • KPIT sees substantial headroom for growth in the automotive industry as OEMs want to create lifelong relationships with customers, provide immersive digital experiences, increase business efficiencies, reduce product costs, increase the speed of new product launches, and collaborate more with cloud and semiconductor companies.
  • For FY25, KPIT expects revenue growth of 18-22% in constant currency terms and EBITDA margin of 20.5%+. Revenue growth will be broad-based across practices and geographies.
  • KPIT plans additional technology investments in cross-practice offerings, AI adoption, stronger Asia focus, strategic partnerships, and collaborations in FY25.
  • There will be a focus on leadership development, competency building, productivity improvement, and a new ESOP scheme to strengthen long-term incentives for employees.
  • KPIT aims to deepen strategic relationships with clients by building proactive solutions to enhance value delivery, especially in areas like electrification, autonomous driving, connected vehicles, and software-defined vehicle programs.
  • Over the long term, KPIT sees opportunities in adjacencies outside of automotive in the overall mobility space, such as industrial/farm equipment, though the headroom in automotive remains quite large.
  • KPIT is committed to environmental and social sustainability goals and being a responsible corporate citizen through community service initiatives around environment, energy, and education.

Conclusion

As we near the end of the article, we will look at KPIT Technologies in brief. KPIT Tech has been able to grow its revenues and profits significantly over the past 5 years. The growth guidance has also highlighted how the company is optimistic about the demand from their automotive clients for software development and product improvements.

KPIT is even considering entering the industrial and farm equipment markets, indicating that the company is looking for horizontal growth opportunities. In recent times, KPIT Tech has been looking to develop sodium-ion batteries. The future for EVs is in a slow transition. What are your thoughts on KPIT Technologies latest developments? Let us know your views in the comments section below.

Written by Santhosh

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