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Axis Securities Report
KPIT Technologies Ltd. reported revenue of Rs 1,199 crore in Q2 FY24, up 9.3% QoQ and 8.4% QoQ (in constant currency terms) which stood above our expectations.
The company’s operating profit stood at Rs 192 crore, reporting an encouraging growth of 10% on a QoQ basis. This was also above our expectations.
KPIT’s operating margins remained flat at 20% despite of wage hike in this quarter, which is commendable. The company’s net profit for Q2 FY24 stood at Rs 141 crore, registering a growth of 5% on a QoQ basis.
Outlook
From a long-term perspective, we believe KPIT is well-placed for encouraging growth, given its multiple long-term contracts with the world’s leading brands.
Its improved revenue visibility gives us confidence in its business growth moving forward. We believe that KPIT has strong client engagement and ability to deliver its technical expertise.
We also expect the company to prove itself as one of the fastest-growing companies in Indian IT services moving forward.
Valuation and recommendation
We assign a 43 times price/earnings multiple to its FY26E earnings of Rs 34.9/share to arrive at a target price of Rs 1,500/share, implying an upside of 23% from the current market price. Hence, we recommend a 'Buy' rating on the stock.
Key risks to our estimates and target price
The demand environment is uncertain because of the potential threat of recession from the world’s largest economies.
The rising subcontracting cost and cross-currency headwinds may impact KPIT’s operating margins negatively.
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