HSBC has downgraded its rating on KPIT Technologies Ltd. from “buy” to “hold” and has also reduced its price target for the stock to ₹2,000 from the previous target of ₹2,160. This new target suggests a potential upside of 8.5% from the stock’s closing price on Monday.
In its analysis of the Midcap IT sector, HSBC noted that the market is currently placing more emphasis on growth than on cash generation. The brokerage highlighted that KPIT Technologies has outperformed the sector in recent years, driven by increased spending on Software Defined Vehicles (SDV) and electrification, especially by European automotive companies.
However, HSBC expressed concerns about potential risks to KPIT’s growth. The brokerage believes that research and development spending by many original equipment manufacturers (OEMs) may slow down. While KPIT could see increased business from Asian and US clients, HSBC warned that this might not fully offset the slowdown.
Additionally, competition in the sector is intensifying, with companies like L&T Technology Services, Tata Technologies, Infosys, and Cognizant posing challenges. As a result, HSBC expects KPIT’s growth rate to decrease to around 15%, which is still strong but lower than the consensus expectation of 20% and below its 34% growth rate over the past three years.
Despite these concerns, KPIT’s stock has remained relatively stable over the past month, with a 2.5% increase. The stock is up 23% for the year 2024 and has gained 60% in the last 12 months.
