The brokerage has also set a price target of Rs 520, implying a potential downside of 44%, "driven by lower structural margins, risks from single vertical and high client concentration, and excessive valuations".
However, the brokerage expects the highest revenue and earnings growth for the company over fiscal 2023–2025 among its coverage.
Main Growth Drivers For Auto Engineering R&D
There are two main growth drivers for automobile engineering research and development, according to JPMorgan. First, the urgency for automobile original equipment manufacturers to invest in the new age of electric, autonomous, and connected vehicles could drive multi-year deals for service providers. Second, the death of digital engineering talent in in client geographies is driving increased offshoring. "We expect India's offshoring to increase to 33% by fiscal 2023 from 25% in fiscal 2022 and the share of service providers versus captives to rise to 55% from 51%," the brokerage said in an April 1 note.
These tailwinds, the brokerage said, should benefit auto ER&D service companies such as KPIT Tech, Tata ELXSI Ltd., and L&T Technology Services Ltd.
Key Derating Catalyst For KPIT
A growth slowdown to less than 20% beyond fiscal 2024 and the scarcity premium going away with the announced IPO of Tata Technologies are key catalysts for de-rating the company, JPMorgan said.
