KPIT Technologies sees H2 recovery as AI-led products broaden automotive ER&D growth

Investment View and Valuation

In its July 30, 2026 result update, ICICI Securities retained its HOLD rating on KPIT Technologies Limited, a pure-play automotive engineering research and development services company. The broker remains constructive on KPIT Technologies' long-term opportunity in AI-led Products & Solutions, but maintains a balanced near-term stance because of slower growth, continuing uncertainty among European passenger-vehicle OEM clients and a slower expected margin recovery.

ICICI Securities values the company at 20 times FY28E EPS to arrive at a target price of Rs 640.

Weak Q1FY27 Performance

KPIT Technologies reported weak Q1FY27 performance. Revenue was US$176.8 million, down 4.4 per cent quarter-on-quarter and 0.6 per cent year-on-year in US dollar terms. In constant currency, revenue declined 3.6 per cent quarter-on-quarter and rose 0.1 per cent year-on-year. Rupee revenue was Rs 1,675 crore, down 2.1 per cent sequentially and up 8.9 per cent year-on-year.

The decline reflected sudden spending reductions and programme-level actions at certain large European passenger-vehicle OEM customers, broader stress among European and Japanese OEMs, competition from Chinese automotive OEMs and US tariffs.

Passenger vehicles, which represented 78 per cent of the revenue mix, declined 2.4 per cent quarter-on-quarter and 5.1 per cent year-on-year to US$138.1 million. Commercial vehicles, representing 19 per cent of the mix, fell 12.2 per cent sequentially but grew 29.1 per cent year-on-year to US$34 million.

The US, accounting for 30.5 per cent of the mix, grew 10.5 per cent sequentially and 4.0 per cent year-on-year. Europe accounted for 49.7 per cent of the mix and grew 1.2 per cent sequentially and 11.4 per cent year-on-year. Japan, Korea and China declined 25.0 per cent sequentially and 29.7 per cent year-on-year. South-East Asia, India, the Middle East and Africa declined 41.1 per cent sequentially, partly because Q4FY26 included a significant product sale.

Reported EBITDA margin declined to 16.2 per cent as the revenue decline occurred without sufficient time for cost optimisation. PAT was affected by a Rs 16.3 crore forex loss and a Rs 14 crore share of loss from Qorix, where losses increased because of revenue postponement. Headcount was 12,303, down 217 sequentially.

Management Outlook and Recovery Drivers

Management expects Q2FY27 revenue to be broadly similar to Q1FY27 because the full effect of European programme reductions will flow through, implying a weak H1FY27. Nevertheless, management expects sustainable profitable growth in H2FY27 and meaningful sequential growth in Q4FY27.

The identified recovery drivers include:

• Ramp-up of recent wins and wallet-share gains.
• New OEM relationships, newer passenger-vehicle OEMs, trucks and off-highway opportunities.
• Growth in Products & Solutions and in the US, Korea and India.

Management expects margins to improve progressively through revenue recovery, mix improvement and AI-led productivity. It has retained its FY29 medium-term EBITDA-margin aspiration of 22 to 24 per cent.

New Engagements and Products & Solutions

KPIT Technologies won US$257 million of new engagements in Q1FY27, down 26.4 per cent sequentially but up 6.6 per cent year-on-year. Wins covered connected and autonomous domains, digital cockpit, after-sales, cybersecurity, powertrain, vehicle engineering and middleware.

The broker views the healthy Products & Solutions pipeline and diversification into new OEMs, trucks and off-highway as supportive of medium-term visibility. Beacon underpins offerings including N-Dream, i-DART, Technica and Cymotive. N-Dream's AirConsole entered India through Tata Motors Passenger Vehicles' Sierra.ev during the quarter.

Revised Financial Estimates

ICICI Securities reduced its FY27E and FY28E US dollar revenue estimates by 4.7 per cent and 4.9 per cent, respectively. Its revised estimates are as follows:

Key Risks

• A slower-than-expected recovery in revenue growth.
• Lower-than-expected margin expansion.