Multibagger Stock: KPIT Tech delivered 265% returns in 2 years, gained 2900% in 4 years; is the rally set to continue?

KPIT Technologies (KPIT), a leading global pure-play engineering, research, & development (ER&D) services company, has seen its shares skyrocket in a brief time, rewarding shareholders handsomely.

Over the last two years, the shares have climbed from ₹517 apiece to the current trading price of ₹1,882, translating into a massive gain of 265%. Looking further back, the stock has delivered an impressive return of nearly 2900% in 4 years. During Friday's trade, the stock touched a fresh all-time high of ₹1,928 apiece, coming closer to the ₹2,000 mark.

Domestic brokerage firm Axis Securities predicts that the stock is likely to cross the ₹2,000 mark in the near future. The brokerage has recently upgraded its rating to 'buy' and revised its target price to ₹2,100 apiece, citing the company's robust growth prospects.

Era of software-defined vehicles

Automakers are strategically aiming to capitalise on substantial revenues generated through software-enabled services. The emergence of electric vehicles (EVs) and autonomous vehicles presents promising opportunities for original equipment manufacturers (OEMs) to explore new avenues of earning.

The global automotive industry is anticipated to witness a significant surge in the adoption of electric vehicles (EVs) and the implementation of CASE (Connected, Autonomous, Shared, and Electric) technologies. The demand for non-internal combustion engine (ICE) vehicles is projected to be promising.

Amid this backdrop, the global automotive software and electrical and electronic components (E/E) market is expected to reach USD 462 billion in CY2030, growing at a rate of 5.5% annually, according to estimates.

The automotive sensor market is set to double from CY2019 to CY20307, driven by the rising demand for advanced driver-assistance systems (ADAS) and autonomous driving (AD) sensors, particularly LiDAR, cameras, and radars.

This growth reflects the increasing focus on software and electronics in vehicles, with electronic control units (ECUs), software development, power electronics, and sensors leading the way. OEMs are recognising the potential through the inclusion of software content and additional features.

Sweet spot

Axis Securities highlights that technological upgrades in the automotive industry are creating multiple growth opportunities for the company. The introduction of semiconductors, software-based driver assistance systems, and CASE (connected, autonomous, shared, and electric) technologies creates tremendous growth potential for software partners in these verticals.

The brokerage points out the company's strong vertical focus on the automotive industry, aiming to capitalise on the current demand and transformation within the industry. 

It says the company had collaborated with over 12 of the top 20 automotive OEMs globally, providing software and technology services in areas such as connected vehicles, autonomous driving, shared mobility, vehicle diagnostics, and electrification.

The brokerage underscores the company's strategy to focus on select strategic OEMs and Tier-1 suppliers by deeply mining these relationships. As overall ER&D spending continues to be concentrated among top-tier companies, this strategy is seen as optimal for driving growth.

Each of the company’s top customers is selected through the Global Account Management (GAM) framework, which evaluates their importance in the overall mobility ecosystem, the level of relationship and commitment, strategic fit for practice offerings, and quality of engagement.

In an environment of high disruption, KPIT believes it is imperative to collaborate with clients expected to remain relevant in a changing business landscape. Therefore, KPIT’s client evaluation framework is crucial to its success moving forward.

According to the brokerage, the UK is witnessing higher cost optimisation deals with faster decision-making. Increasing demand for ER&D services and strong execution capabilities are helping KPIT grow with accelerated revenue growth momentum. The management is confident about maintaining this momentum over the long term, backed by a robust deal pipeline. 

Disclaimer: The views and recommendations given in this article are those of individual analysts. These do not represent the views of Mint. We advise investors to check with certified experts before taking any investment decisions.