Equity L/S Analyst | Forensic Accounting | India, Yellowstone Equity

Ankit Agrawal, CFA

Equity L/S Analyst | Forensic Accounting | India

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Yellowstone Equity

Providing unbiased and independent research on Indian equities to global institutions and individual investors


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Regulatory Disclosure: 
Note that Ankit Agrawal (Proprietor of Yellowstone Equity) is a SEBI registered Research Analyst (Registration No.: INH000007216). Registration granted by SEBI and certification from NISM in no way guarantee performance of the intermediary or provide any assurance of returns to investors. Investment in securities market are subject to market risks. Read all the related documents carefully before investing.

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Equity Bottom-Up

<ul>
<li>Despite a tough macro environment, KPIT posted decent earnings in Q1FY27. As opposed to expectation of -1% YoY de-growth, KPIT posted 0.1% growth in constant currency (CC) terms.</li>
<li>QoQ, de-growth in revenue was -3.6% vs -5.0% guided. EBITDA margin compressed from earlier 20%+ levels to 17.2% due to operating de-leverage. Deals wins however were strong at $257mm.</li>
<li>Macroenvironment has been tough for OEMs mainly due to competition from Chinese OEMs both in China and in Europe. Furthermore, tariffs and war led inflation have worsened the situation.</li>
</ul>


Despite a tough macro environment, KPIT posted decent earnings in Q1FY27. As opposed to expectation of -1% YoY de-growth, KPIT posted 0.1% growth in constant currency (CC) terms.
QoQ, de-growth in revenue was -3.6% vs -5.0% guided. EBITDA margin compressed from earlier 20%+ levels to 17.2% due to operating de-leverage. Deals wins however were strong at $257mm.
Macroenvironment has been tough for OEMs mainly due to competition from Chinese OEMs both in China and in Europe. Furthermore, tariffs and war led inflation have worsened the situation.


<ul>
<li>
<a href="https://www.smartkarma.com/entities/kpit-technologies-ltd" target="_blank" data-smartkarma-citation="entities:35189:1" rel="noopener">KPIT Technologies (KPIT)</a>'s management has been saying over the past couple of quarters that the near-term demand disruption has been temporary and it will translate into strong medium-term demand.</li>
<li>This was corroborated by Tata Technologies' management on its recent earnings call. While Tata Technologies is not a pure-play peer of KPIT, its outlook on demand environment provides important cues.</li>
<li>While the R&amp;D spending continues to be cautious, it is being prioritized towards programs that accelerate product launches, improve efficiency and reduce cost, and support the transition to software-defined products</li>
</ul>



KPIT Technologies (KPIT)'s management has been saying over the past couple of quarters that the near-term demand disruption has been temporary and it will translate into strong medium-term demand.
This was corroborated by Tata Technologies' management on its recent earnings call. While Tata Technologies is not a pure-play peer of KPIT, its outlook on demand environment provides important cues.
While the R&amp;D spending continues to be cautious, it is being prioritized towards programs that accelerate product launches, improve efficiency and reduce cost, and support the transition to software-defined products


KPIT Tech: Important Cues on Demand Environment from Tata Tech Earnings Call

<ul>
<li>KPIT raised its full-year FY24 revenue growth guidance to 37%+ from 27-30% earlier, led by a strong Q2FY24 performance. EBITDA margin guidance has been also raised to 20%+ from 19-20%.</li>
<li>Despite wage hike impact of 250bp, EBITDA margin came in at 20%, at the upper end of the 19-20% FY24 guidance. Operating leverage and realization improvement helped offset the impact.</li>
<li>With the strong Q2 performance, we are upgrading our FY24 PAT estimate to INR 580cr+ vs INR 550cr+ earlier and FY25 PAT of INR 730cr+ vs INR 700cr+ earlier.</li>
</ul>


KPIT raised its full-year FY24 revenue growth guidance to 37%+ from 27-30% earlier, led by a strong Q2FY24 performance. EBITDA margin guidance has been also raised to 20%+ from 19-20%.
Despite wage hike impact of 250bp, EBITDA margin came in at 20%, at the upper end of the 19-20% FY24 guidance. Operating leverage and realization improvement helped offset the impact.
With the strong Q2 performance, we are upgrading our FY24 PAT estimate to INR 580cr+ vs INR 550cr+ earlier and FY25 PAT of INR 730cr+ vs INR 700cr+ earlier.


<ul>
<li>KPIT reported a strong Q4FY26 suggesting that the demand is reviving back allaying macroeconomic concerns. Deal wins came in at an all-time high of $349mm.</li>
<li>KPIT's Q4FY26 revenue grew at 1.8% QoQ in constant currency (CC), higher than the 1.5% we projected. Growth was led by off-highway and trucks followed by cloud-based connected services.</li>
<li>KPIT has been pivoting towards solutions and products, whose contribution to revenues is expected to grow at 30%+ CAGR. 21% of the total pipeline is already from solutions and products.</li>
</ul>


KPIT reported a strong Q4FY26 suggesting that the demand is reviving back allaying macroeconomic concerns. Deal wins came in at an all-time high of $349mm.
KPIT's Q4FY26 revenue grew at 1.8% QoQ in constant currency (CC), higher than the 1.5% we projected. Growth was led by off-highway and trucks followed by cloud-based connected services.
KPIT has been pivoting towards solutions and products, whose contribution to revenues is expected to grow at 30%+ CAGR. 21% of the total pipeline is already from solutions and products.


KPIT Tech: Investor Day and Earnings Update

<ul>
<li>
<a href="https://www.smartkarma.com/entities/kpit-technologies-ltd" target="_blank" data-smartkarma-citation="entities:35189:1" rel="noopener">KPIT Technologies (KPIT)</a>'s competitors like <a href="https://www.smartkarma.com/entities/tata-elxsi-ltd" target="_blank" data-smartkarma-citation="entities:13949:1" rel="noopener">Tata Elxsi</a> and <a href="https://www.smartkarma.com/entities/l-t-technology-services-limited" target="_blank" data-smartkarma-citation="entities:23601:1" rel="noopener">L&amp;T Technology (LTTS)</a> have reported improving demand in the automotive segment which suggests that KPIT's Q4FY26 earnings could come out strong.</li>
<li>Both Tata Elxsi and LTTS reported positive growth in their automotive vertical after a streak of negative growth for the past few quarters.</li>
<li>Even the impact of AI is going to be limited in the automotive segment, as solutions in automotive vertical are mission-critical and highly regulated; however, KPIT's stock has declined significantly.</li>
</ul>



KPIT Technologies (KPIT)'s competitors like Tata Elxsi and L&amp;T Technology (LTTS) have reported improving demand in the automotive segment which suggests that KPIT's Q4FY26 earnings could come out strong.
Both Tata Elxsi and LTTS reported positive growth in their automotive vertical after a streak of negative growth for the past few quarters.
Even the impact of AI is going to be limited in the automotive segment, as solutions in automotive vertical are mission-critical and highly regulated; however, KPIT's stock has declined significantly.


KPIT: Q4FY26 Earnings Preview - Growth Is Reviving | AI Impact Overdone in the Stock Price

India

KPIT Technologies Limited is a global technology company specializing in software solutions for the automotive and mobility industry. The company provides embedded software, artificial intelligence, and digital solutions, focusing on next-generation technologies like autonomous driving, electric mobility, connected vehicles, and vehicle diagnostics. Headquartered in Pune, India, the company was founded in 1990.

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KPIT Technologies (KPITTECH IN)

KPIT: Growth to Recover by H2FY27

While the automotive industry is going through a tough time due to competition from Chinese OEMs, KPIT is likely to do well in the medium-term led...

Ankit Agrawal, CFA

KPIT Tech: Important Cues on Demand Environment from Tata Tech Earnings Call

Tata Tech's management witnessed what KPIT's management has been saying over the past 2 quarters - the near-term demand disruption has been...

Ankit Agrawal, CFA

KPIT: Raises Its Full-Year FY24 Guidance

Post the strong Q2FY24 performance, KPIT has upgraded its FY24 revenue growth guidance to 37%+ YoY vs 27-30% earlier. EBITDA margin guidance has...

Ankit Agrawal, CFA

KPIT Tech: Investor Day and Earnings Update

KPIT has been pivoting towards solutions and products which is slated to grow at 30%+ CAGR. Led by increase in complexity with AI adoption, demand...

Ankit Agrawal, CFA

KPIT: Q4FY26 Earnings Preview - Growth Is Reviving | AI Impact Overdone in the Stock Price

KPIT's growth has been muted over the last year due to macroeconomic concerns but it is now reversing. Also, led by AI impact, the stock has seen...

Ankit Agrawal, CFA

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