KPIT Tech shares fall most in three years after JPMorgan projects 44% downside

Shares of KPIT Tech fell as much as 13 percent on Monday after brokerage firm JPMorgan expected the stock to fall as much as 44 percent over the next 12 months citing slowing growth and a reduction in scarcity premium post the announcement of the Tata Technologies IPO.

JPMorgan initiated coverage on KPIT Tech with an underweight rating and a price target of Rs 540, implying that shares may nearly halve from current levels.

The firm has cited two major de-rating catalysts to explain its rationale - One, the company's growth is likely to fall below 20 percent beyond financial year 2024 and that the announcement of Tata Technologies' IPO has reduced the scarcity premium associated with the stock.

Tata Technologies gets 88 percent of its revenue from the auto sector, which is also a core focus area for KPIT Tech.

JPMorgan in its note wrote that the company will have to win large orders every year if it has to maintain its growth above 20 percent in the years to come. However, it sees this as a challenge as the auto industry is a cyclical one and that it will be too optimistic to give KPIT the benefit of doubt.

Although the brokerage likes KPIT's focus on the fast-growing auto vertical, it would want to wait for an attractive entry point. Shares of KPIT Tech have risen nearly 30 percent so far this year and are trading near their 52-week high.

KPIT Tech’s organic revenue could continue to grow at a 20 percent rate over the upcoming 2-3 years, MD & CEO Kishor Patil had told CNBC-TV18 during an interaction on March 20.

Shares of KPIT Tech are trading 12.7 percent lower, the biggest single-day drop since March 2020 to Rs 807.75.