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Although many of the cutting-edge applications of auto technology are still in development, the market potential and demand for these technologies are undeniable. From electrification to autonomous driving, all these applications have the potential to entirely change the way vehicles work and usher in a new age of land mobility.
KPIT Technologies is the only tier 1 technology company in India that has gone all-in on the auto technology sector and has fully focused its resources and capabilities on developing this technology niche. KPIT identifies itself as an independent software integrator for global automotive leaders.
In 2018, KPIT merged with Birlasoft and immediately spun off to form two separate companies - an IT company and an automotive technology company. The IT business is now under Birlasoft while all the auto technology business is now solely under KPIT.
The majority of the company’s business involves passenger cars, which accounted for 63% of revenues, while commercial vehicles accounted for 22% of revenues in the last quarter of Fiscal Year 2022. The company’s business is export-dominated with 33% of revenues coming from the USA, 34% from the EU, 20% from Asia, and 13% from the Rest of the World.
The company already has a presence in all the major auto-producing economies in the world like the USA, Germany, South Korea, China, Japan, and 8 other nations. It already counts some of the world’s leading automakers like BMW, GM, Cummins, Honda, and others as its customers. This is a big strength for the company as its wide global presence and association with many global players already, establishes its credentials as a global auto technology company and makes winning new customers and contracts easier for them.
The biggest strength of the company is its domain-specific focus on the auto technology space, whereas competitors are focusing on other spaces. The future of the automotive tech industry is very bright with every area of a car becoming a potential area for technological disruption.
So, what is our view on company valuation?
KPIT has seen a rise in its share price of 400% in the last 3 years. The Company currently trades at a P/E (TTM) of around 50 times while in terms of EV/EBITDA, KPIT is trading at close to 27 times.
The growth of the company is expected to maintain its current momentum with the global auto sector getting back on track after the COVID-19. KPIT can be expected to maintain a robust revenue growth rate of 20-25% while the company’s addressable market grows. Investors can look into the company more seriously if it becomes available at a significantly lower valuation than current levels.
As for the risks to this analysis, the company faces tough competition not only from ER&D companies worldwide but also from international automakers. It may also face competition from global giants like Sony & Apple in the future when they step into the auto sector.
So, would you invest in KPIT Technologies? Share your views in the comments section and like the video if you liked our analysis.
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