This Small Cap Multibagger IT Stock Climbs Over 190% In 1 Year: Should You Buy?

KPIT Technologies Ltd is a small-cap IT firm with a market capitalization of Rs 15,532.99 crore. On the NSE, the company's shares rose from Rs 194 on April 28, 2021 to Rs 574 on April 28, 2022, 3:07 pm IST, a multibagger return of 196 per cent in a year. The stock has declined -5.47 per cent year to date (YTD) but has gained 86.23 per cent in the previous six months. The stock has climbed 4.72 per cent in the previous five trading days and today it closed at Rs 570.50, down -16.05 (2.74%) from its previous closing price of Rs 586.55.

The company announced quarterly results on Wednesday, confirming that its revenue from operations was Rs 651.77 crore in March 2022, up 20.62 per cent from Rs 540.33 crore in March 2021 and that net profit was Rs 78.88 crore in the quarter ended March 2022, up 50.36 per cent from Rs 52.46 crore in the year-ago period.

ICICI Securities has given the stock a "REDUCE" rating with a target price of Rs 526, despite the stock having a good results. The brokerage has said "KPIT reported a decent set of results with tad miss on revenues but strong beat on margins. Reported revenue growth of 4.1% QoQ tad below our estimates of 5.1% QoQ $ & in cc term 5.2% QoQ & 21% YoY. Growth was largely led by Autonomous & Connected domains across commercial vehicles (8% QoQ) & passenger cars (2.4% QoQ). By geography, growth was led by North America and Asia growing 8.8% QoQ each while Europe declined 2.4% QoQ. Starting 4QFY22, KPIT committed to disclose quarterly bookings going forward. They announced a US$74mn large deal win with a European OEM."

"Total deal win TCV for Q4FY22 stands at US$125mn. EBIT margin for the quarter came in at 13.9%, a beat vs our estimate of 13%, despite supply side constraints and fresher additions. Increased offshoring during the quarter aided margins. EBITDA margins stood at 18.6% for Q4 & improved 300bps YoY to 18% in FY22. Management expects the offshoring to continue to improve further in FY23 which will offset the impact of wage inflation & supply side constraints. We build in EBITDA margins of 18.5% and 18.8% for FY23E and FY24E, respectively," said the brokerage.

"Given the strong order book & deal pipeline, KPIT has guided for FY23 revenue growth to be 18-21% CC YoY with volume growth in range of 25% & guided margins in range of 18-19% (vs18% in FY22). Revenue guidance of KPIT is ahead than ER&D peers like Cyient (13-15%) & LTTS (13.5-15.5%). KPIT is the only company in our ER&D coverage to expand margins in FY23. We had already factored this in our estimates and our estimates largely remains intact," the brokerage has claimed.

According to ICICI Securities "KPIT, a pure play automotive software integrator, is well positioned to benefit from increased R&D spend on CASE (connected, autonomous, shared, electric) vehicles given its deep domain expertise in niche areas such as L3-L5 autonomous driving, vehicle-to-anywhere connectivity, electrification platforms and charging infrastructure. Revenues grew 19.5% YoY in FY22 and we expect the momentum to continue led by: 1) increased CASE R&D spend by clients and wallet share gains; 2) potential to scale up new-age EV clients (Lucid, Rivian, Nio, etc.); 3) additional opportunities arising from work with semiconductor companies on improving hardware-to-software integration. We expect revenue growth of 19.1%/20.7% YoY for FY23E/FY24E."

"KPIT currently trades at 38x FY24E P/E for FY22-FY24E EPS CAGR of 23%. We believe, at current levels, the stock is fairly valued and see limited upside hereon. We revise our target price to Rs526 (prior: Rs535), valuing the company at 34x FY24E EPS. Maintain REDUCE," the brokerage has highlighted.