I agree that the valuation is quite rich. But that is the combination of a large TAM and KPIT’s consistent track record of meeting revenue and margin guidance. I think the stock price should keep up with the guided 30% growth over the next year, plus a potential bonus from margin improvement over the next year. Obviously, there is a downside risk of failing to meet these.
- New OEM addition will be difficult for KPIT (All low hanging fruits are already in )
They have 60 OEMs already as clients. They have repeatedly said that they want to focus on their top 25 clients. I doubt they are actively looking for new clients. Their focus is to widen and deepen existing relationships
- Most of the big OEMs are tightening their wallet, switching integration activities in house which is KPITs core business.
Most OEMs are still hardware companies at heart. Moving to producing software at scale will take years and they will rely on third parties. I don’t think many have got their act together. If you look at the first generation of electric cars from large OEMs (like Merc and VW) their in-car software usability is woeful as compared to Tesla.
- KPITs diversification and acquisition are not in their core expertize area ( In those domains there are better players globally).
Which acquisition you don’t like? I thought the Technica acquisition was a masterstroke. Plus the advantage of trading at 70x multiples means they can buy other companies and still be earnings accretive.
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