cleaning) to generate training data sets for autonomous driving applications and enabling V2X communication. Pure-play ESPs such as KPIT need investments in these areas as compared to broad-based IT services providers, to participate in such opportunities,” Kotak said.
The report by Kotak Institutional Equities highlights the unrealistic growth expectations embedded in the stock price of KPIT Technologies Ltd. Despite a significant year-to-date increase, the stock fell 6% in Tuesday’s trade, prompting Kotak to recommend selling the stock with a target price of Rs 940.
Analysis Point: The report raises concerns about the rich valuation of KPIT Tech shares, trading at 59 times FY2025E earnings per share. It questions the elevated growth expectations of 20% over a period of 10 years, as well as the implied absolute revenue size of $2.6 billion by FY2033. Kotak’s fair value estimate of Rs 940 implies a multiple of 34 times on FY2025, indicating a significant overvaluation of the stock.
Furthermore, the report emphasizes the need for a more nuanced understanding of the automotive clients’ ERD spends to forecast the evolution of the addressable market over the long term. It also points out that KPIT Tech shares have seen a 36% increase over the past month without any fundamental catalyst, suggesting an unjustified market response.
Future Outlook Point: Looking ahead, the report discusses the shift in technology architecture for automotive models, highlighting the potential opportunities for pure-play ESPs like KPIT to invest in software development, cloud-native applications, data analytics, and V2X communication. However, it emphasizes the need for careful consideration of the market dynamics and the excessive valuations before making investment decisions.
In conclusion, the report by Kotak Institutional Equities serves as a cautionary analysis of the unrealistic growth expectations and rich valuations of KPIT Tech shares. It provides valuable insights for investors to consider before making any investment decisions, especially in the context of the evolving automotive technology landscape.
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