KPIT Technologies: On the growth curve

The stock of KPIT Technologies (KPIT) has risen more than 10 per cent in the last seven to eight days, as it delivered a strong 6.4 per cent sequential growth in revenues in dollar terms. The company’s key product engineering services led the way, with revenues increasing by 12 per cent sequentially in this space.

Key verticals such as automotive and manufacturing expanded at a faster pace compared to the overall revenue growth rate, indicating broad-based traction for KPIT. It has guided for 8-10 per cent revenue growth for FY-19, which appears to be a tad conservative, though the range is higher than the expected rate for the IT industry (7-9 per cent).

 

KPIT is expected to exceed its guidance. The merger with Birlasoft and the subsequent demerger to two separate entities focused on IT services (Birlasoft) and engineering services (KPIT Technologies) is expected to happen by the end of this fiscal. The merger-demerger is expected to bring in significant synergies for the two entities.

At 22 times the trailing 12-month earnings, the KPIT stock is certainly not cheap and would need to deliver well past its guidance to justify valuations.

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