If you have the conviction that the company has future growth prospects to grow then you can hold it
@paramjeetsingh, No, I am not booking profits at ATH. If I were, I would have already sold my KPIT. I am also not using any stop loss.
I simply track the company’s performance. My selling criteria is only triggered when there is a change in fundamentals. I even ignore valuation for small and midcap stocks. I am mentally prepared to sell even if it means a 40% loss from ATH due to a fundamental reversal. That’s my style, in accordance with my nature (dharma).
That’s where the Technicals chart helps. Fundamentals tell you the story but your entry, adding more, and exit criteria can be based on the technical chart. Use indicators like Vstop, 30 EMA, and PS on a Monthly and Weekly chart. Having a system in place is better than not having one to ride the journey peacefully.
Only concern is the valuation. Markets can react sharply even if results go down slightly. Syngene bad a good result but fell sharply because management guidance changed from high teen to low teens.
While there is no denying the fact that KPIT has been a star in the entire ER&D category since last many quarters, we should not forget the fact that its due to their business model only concentrated on the automotive sector which is having huge tailwinds and expected to continue for some more time. Rest of the players like LTTS, Tata Elxsi are diversified and not focused on only one segment. Automotive segment of all ER&D players is growing at a healthy pace QoQ but their other segments impact the overall growth which is not the case with KPIT.
While other ER&D Companies are posting flattish Growth, KPIT stands tall in this League. I want to Emphasize here that, the Capabilities which are developed by KPIT and its recent acquisitions provide a very qualitative view of what are the intentions of the company. The management is able to sense the need of providing V&V Platform (key focus area) and also other sw solutions for the current transition from ICE to EV or Hybrid.
Being from an Automotive Industry, the way KPIT is currently positioned, it seems the company is aiming at a One Stop Solution of Sw Development using Autosar, Unit Testing, Unit Level Integration, System Testing & System level integration of all Auto components which require a Sw Driven Control.
Point here is, use of Sw in EV’s is increasing not to just provide a excellent PowerTrain like was the case with ICE, but to provide differentiated User Experience that comes from integrated software.
Major parts of EV are Software (functions, OS, Middleware), Integration, V&V, ECU’s, Sensors, Power Electronics, other electronic Components.
Having said that, Major Expenditure is towards the top braket i.e. Sw, Integration, V&V.
This decides the time to market for a Project.
Now lets take an Example of Maruti. If a Maruti car (Swift), if the company needs to build an EV Swift Car, the most important part will be to develop a Sw Model suitable for all Different ECU’s (like Motor, Drive, EDU’s, BMS etc). Even though somehow the company manages to create a Sw the major challenge lies in the integration of this Sw will all Auto Componets (ECU’s). This is were KPIT is currently focussing on, which is building a Platform for Autocompanies to have a Integration and V&V Service available to reduce the Time to market.
Next comes the SDV (Autonomous Driving). Like where Tesla is currently operating, its very difficult for other OEM’s to catch Feature quality of Tesla cars. Millions of computations per sec in a Control System. This cannot happen without excellent Intergration of Products. (One example is the
Lately they are also colaborating with Chip Manufactures which will also be a key differentiator going ahead.
Management talks about, onboarding a Cutomer and then adding value to such a extent that they become a Deep Pocket client and then using Platforms to further expand in their other Projects.
They have also started to onboard clients from OffHighway segments, CV’s which talks about being a differentiator not only in Passenger vehicles but using PV Expertise to expand into other product segments. Moreover with the compliance standards like ISO-26262 and ASPICE, Sw Development is becoming more complex and process driven. One small Failure of Hw Sw Integration can delay a project by 6-9 months. As its easy to do changes in the Sw (within a short time) but very difficult to do changes in PCB’s i.e. HW where the V&V and Integration platform will be a key differentiator.
Holding since 2 years. Biased
In an interview of KPIT management, Mr Patil said that currently the software cost in EV is just 4/5% compared to the cost of vehicle.
He said that in the next ten years the software cost of the ev vehicle will 50% of the cost of ev vehicle.
Does this mean that the TAM for this particular stock is as huge as may be 100x in the next 10 years ? Say software cost currently is 5% and EV vehicles are just 3/4% of the market ?
Just a question in my mind ,kindly correct me where am I going wrong .All opinion are welcome
Disc: invested from 3 years and intend continue to hold for long
It is correct to say that the TAM for this “sector” is 100X in next 10-15 years.
This sector is going to attract intrest of other players as well. Just need to track how KPIT sails through. The analysis of all the future concalls of KPIT is must to keep track.
Disc. Holding from 2 digit valuation and intend to hold for long term.
Can you help with any extensive reads for the same ?
It’s difficult to put in more money into KPIT unless you know the reasons and the area where it will increase beyond 10x also
“ Kotak says ‘Sell’ stock, target price Rs 940”
What next for KPIT ?
Would still head north or fall ?
Few months back, JP Morgan came out with sell call with target price of 540. Stock price tanked on that day but never looked back. But this time it can be bit different. Since KPIT ran up a lot in last fortnight due to Tata Tech IPO related euphoria about ER&D sector, stock may give up these gains. But I believe it is a long term story and has a long runway for growth.
Disclosure - invested for last 3 years and hence heavily biased. Transactions in last 2 weeks.
Yes earlier only KPIT and Tata Elxsi where the two main players in ER&D space, L&T technology was serving to some client, but this space was not their focus, now with Tata Tech IPO, investors have more option to invest in this space and hence the stock is infact correcting. given the current valuation of KPIT which is on the higher side.
Disclosure: i have exited completely from my holding a day back, so i could be biased, will renter later
At a price target of 940 we are looking at a FY’24 PE of ~50 - which is almost half the current valuation. Additionally, management is upbeat on growing revenues at 25-30% CAGR going forward. Don’t understand these absurd price targets especially when they say the price target is because they don’t have a nuanced understanding of what KPIT does
Tata Tech (which was spun out of Tata Motors) is part of the Tata group which owns JLR and Tata Motors. Many large OEMs will be vary of using an entity related to a competitor.
I agree valuations are high, but the total addressable market (TAM) is large and KPIT seems to have critical mass. I also like the series of acquisitions they have done viz. Technica, FMS, Somit Solutions, and the tie-ups Qorix with ZF and recently AirConsole. This gives the potential to increase the wallet share of OEM software spending even more.
software cost in EV is just 4/5%
It is not just software in an EV, but a lot of services are also moving online from selling a car, servicing, recovery, value-adds, and car sharing/hire. All these also require software platforms.
In addition to software KPIT also provides test and validation platforms. For a software defined vehicle, this is absolutely critical.
Plus execution has been flawless and investor communication is great.
Yes I agree on all the points, Valuation is what i was not comfortable with, I asked myself would i be buying KPIT at this price and the answer was NO so left it, i rode the wave and i am out , it was a difficult decision, the day after i sold it i was cursing myself now that i have to pay 10% LTCG tax, so basically i sold for 10% below the market price
when this report came , i parted 20% of my holding and felt cheated the stock bounced in 2 days