Narrative build by JPM is completely baseless. KPIT is completely different from all other Automotive suppliers like Tata Elxsi, LTTS or even Tata Technologies.
The following are the main differences
- KPIT is mainly focusing on OEMs(Hight margin, high risk , very difficult to enter ) but other are focusing on Tier-1(low risk but any SW compony can enter in to this space).
- KPIT enjoy monopoly in some engineering activities at EOM level.OEM don’t have the skill and the European and US Tier-1 are very expensive. That’s why KPIT is adding more and more OEMs in recent times.
- Once an OEM is added revenue will increase only after 2-3 years close to SOP( development cycle is arond 2-4 years now).
- Win additional big project is relatively easy once they prove their capabilities
I think it will take minimum 10 years for Tata Elxsi, LTTS and Tata Technologies to compete with KPIT in the OEMs core engineering space.Others are quite happy with low quality work as they can execute such activities with relatively freshers (1-2 years experienced ) hence the margin is very high.
D:Invested at very low level (average 45)
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