JPMorgan continues to remain 'underweight' on KPIT Technologies Ltd. due to its high valuation.
The brokerage finds the company's 52-times one-year forward PE valuation expensive. The valuation does not fully bake in the risks from the single vertical presence, high client concentration, and lower structural margins, the brokerage said.
It has given the company a price target of Rs 540 for March 2024 versus Wednesday's closing price of Rs 1,084.35, implying a downside potential of 50.20%.
Honda-SCSK Partnership
A couple of weeks ago, one of KPIT's large clients, Honda Motor Co., announced a partnership with Japanese IT services company SCSK Corp. for the software development of vehicles. The nature of this work is similar to the deal won by KPIT in March 2023.
As a part of the deal, SCSK will increase the number of people assigned to Honda to 1,000 by 2030. KPIT had mentioned that, as part of its deal, it expected to increase the number of people to 2,000 by 2030.
"Our channel checks have indicated that KPIT was the exclusive partner for the programme, but this deal with SCSK indicates Honda is diversifying the vendor base," the brokerage said in a report on Thursday.
As Honda's wallet share is split between at least two vendors now, it can limit the upside for KPIT to expand its scope of work with Honda, JPMorgan said.
Shares of the company fell 1.61% to Rs 1,066.90, compared to a 0.03% rise in the benchmark NSE Nifty 50 as of 11:35 a.m.
The relative strength index is at 51.05, implying that the stock is neither overbought, nor oversold.
Of the 12 analysts tracking the company, six maintain a buy, two recommend a 'hold', and four suggest a 'sell', according to Bloomberg data. The average 12-month consensus price target implies a downside of 8.9%.
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