New orders could put KPIT Tech on the road to recovery

ET Intelligence Group: The stock of KPIT Technologies has fallen by 24% over the past three months compared with a 4% gain in the BSE Infotech index. The sharp underperformance by the mid-tier IT exporter can be attributed to weakness in demand from global automotive sector. The company offers software solutions in areas including autonomous driving, advanced assisted driving, and electric powertrains. It reported 29% sequential and 32% year-on-year drop in the June quarter net profit amid engineering budget cuts and delayed project execution by some of the major automobile companies in Europe. Though the company expects a recovery in the second half of the fiscal year amid new deal wins, the September quarter performance is expected to be weak. Analysts have lowered the earnings per share (EPS) estimates by over 25% for FY27.134576873Some of the automotive clients in the European region, a major market for KPIT with around 50% share in revenue, delayed project ramp ups. Geopolitical and tariff related uncertainties, rising commodity prices, and competitive pressure from low-cost countries forced original equipment manufacturers (OEMs) to reduce tech spending. This affected the company's top line, which declined by 4.4% sequentially to $176.8 million. Operating margin (EBIT margin) contracted by 360 basis points to 12.3% from the quarter ago following higher subcontracting costs and provisions towards acquisitions.Read more: D-Street stocks are breaking long-held supports as selloff deepensThe company management expects margin to improve in subsequent quarters, aided by revenue mix and productivity gains due to the use of artificial intelligence (AI) tools.The company continued to book new orders, adding $257 million in total contract value (TCV) of new deals. It was 6.6% higher year-on-year but lower than $349 million in the previous quarter. While the new deal wins in the June quarter raise hopes for a gradual recovery, the September quarter performance is expected to stay subdued.Read more: Nifty sees worst September series in 25 years. What does October hold?"Program ramps and deal starts were pushed out, keeping near-term revenue growth subdued," noted Anand Rathi Share and Stock Brokers in a sector report, adding that the full Europe impact is expected in the September quarter and margin recovery hinges on revenue improvement. The broker has reduced the EPS growth estimate to 8.1% from an earlier 12.3% for the FY26-28 period. It has a target price of ₹661, implying a 29.6% upside over Tuesday's closing price of ₹509.