KPIT Tech shares hit by downgrades, target price cuts. What JPMorgan and other brokerages said

Several brokerages, including JPMorgan and others, downgraded their ratings and slashed target prices for KPIT Technologies shares after the company issued a weaker-than-expected preliminary Q1 FY27 business update, which sparked a 17% crash in the stock price on Wednesday.The shares of the company plunged to a fresh 52-week low of Rs 559.2 apiece on Wednesday. The stock is on track to record the worst single-day drop since the COVID-19 crash in March 2020.

In an exchange filing released on Tuesday, KPIT Tech said that it expects the financial performance for the April-June quarter of the ongoing financial year 2027 to be lower than previously expected, due to a sudden drop in revenues in the last few weeks. It expects a decline of 1% in reported revenues for Q1 FY27 as compared to Q1 FY26 (YoY), primarily due to sudden actions by some European OEMs triggered by their recent profit warnings or adverse business outlook, it added.

KPIT Tech said that as a result, its operating profitability (EBITDA Margin) and the net profit margin for Q1 FY27 would decline sequentially, proportionately higher than the revenue decline, since there is no window for cost optimisation during this short period. “While the H1FY27 performance would be unsatisfactory, the fundamentals of our business remain strong,” it added.


Also read: KPIT Tech shares tumble as company expects Q1 revenue decline, sharp hit to margins

“This impact was not seen coming earlier and has been realised only in the recent weeks. Such sudden actions are a short-term phenomenon. In the long run, cost-cutting measures by clients would imply more outsourcing and offshoring with more automation led by our products and solutions, which is already indicated by the said clients and evidenced earlier during COVID & similar circumstances,” KPIT Tech added.

JPMorgan on KPIT Tech

JPMorgan downgraded its rating on KPIT Tech to ‘Underweight’ and reduced its target price to Rs 550 apiece from Rs 700 apiece. The latest target price implies a downside potential of more than 18% from the stock’s previous closing price of Rs 671.55 apiece on the NSE.

Analysts at JPMorgan noted that the company issued a profit warning in which it highlighted that Q1 FY27 revenue and margin performance will be much lower than its earlier expectations. JPMorgan believes that this mainly reflects the profit warning earlier this month from its BMW account, as well as issues at Volkswagen.

BMW is KPIT Tech’s largest client, representing 12% of revenues. With a weak start to Q1 FY27 and no signs of sequential growth until Q4 FY27, JPMorgan believes that FY27 will be the second successive year of organic revenue decline for KPIT Tech. It cut its revenue estimates by 5-8% and margins over FY27-29E, driving 9-22% EPS cuts. It also cut the stock’s target PE multiple from 21x to 17x.

JM Financial on KPIT Tech

JM Financial double-downgraded the stock from ‘Buy’ to ‘Reduce’ and slashed its target price to Rs 620 apiece from Rs 860 apiece. The latest target price implies a downside potential of nearly 8% from the stock’s previous closing price.

The domestic brokerage believes that the implications extend beyond a muted Q1 FY27. More importantly, this pushes the recovery further out, and FY27 will likely be a soft year, in its view. “We lower our FY28–29 estimates by 12–13% and lower our multiple to 20x FY28E EPS (24x earlier) given muted near-term outlook. We agree that client pressures will likely lead to more outsourcing in the long run, which may benefit KPIT; however, near-term pain will likely continue, and earnings estimates are susceptible to further downside, in our view,” JM Financial added.

Also read: Why KPIT Tech shares crashed 15% today | The BMW & Volkswagen connection explained

Equirus on KPIT Tech

Equirus Securities downgraded its rating on the shares of KPIT Tech to ‘Add’ and reduced its target price to Rs 715 apiece, implying a 6.5% upside potential. The domestic brokerage said that the incremental challenges emerged due to a cyclical slowdown caused by tough macro conditions, which were elevated due to the Iran war and its impact on energy and commodity prices. SCM issues and inflation, besides tariff-related issues and competitive pressure, especially from Chinese OEMs, impacted the growth prospects of many Western and Japanese auto OEMs (especially in Europe) in the past.

In Equirus’ view, KPIT already started taking some measures to address some of these challenges by not just diversifying its sales base (from PV to adjacencies including trucks, off-highway, micro mobility, beyond western or Japanese markets etc.) but it is also quickly pivoting to AI led solution and delivery (largely based on FP) to help Western world OEM to compete efficiently by remaining their strategic partner of choice. “In our view, despite increasing growth challenges, it is looking to spend 3-5% of its sales on R&D in the coming years, which will make it one of the biggest beneficiaries of AI-led SDV spend,” it added.

“In our view, the above incremental cyclical challenges will right-shift KPIT’s growth and margin aspirations rather than lowering its TAM. This can have an impact on its valuation multiple in the near-to-medium term…We continue to remain structurally positive on KPIT’s growth and margin prospects in the long term,” Equirus further said.

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(Disclaimer: Recommendations, suggestions, views and opinions given by the experts are their own. These do not represent the views of The Economic Times)