Shares of KPIT Tech, a technology company specialising in providing product engineering solutions to the automobile and mobility sector, fell on Thursday after brokerage firm JPMorgan projected a downside of as much as 50 percent in the stock over the next 12 months.
The firm has an underweight rating on the stock with a price target of Rs 540, which is half of its current market price.
JPMorgan explained its rationale by saying that it sees limited upside to the stock as one of its key clients - Honda Motor Co. has begun to diversify its vendor base. A few weeks earlier, Honda announced a partnership with Japanese IT services company SCSK Corp. for software development for vehicles.
The two companies had said that they would work in the areas of operating system for next generation electronic architecture, electrified power trains, automated driving, advanced safety and in-vehicle infotainment.
The brokerage noted that this arrangement was quite similar to a deal won by KPIT Technologies in March 2023 when it announced its partnership with Honda in the area of software-defined mobility (SDM).
Channel checks had indicated that KPIT Technologies was an exclusive partner for the programme, but the new deal with SCSK indicates that Honda is now getting more vendors, said JPMorgan.
“Important thing to note here is that the wallet share of Honda is now split between at least two vendors that can limit upside for KPIT to expand its scope of work and wallet share,” JPMorgan said in its note.
Shares of KPIT Technologies are trading 1.9 percent lower at Rs 1,064.50. The stock has doubled over the last 12 months as auto makers increased their investments in new-age technologies. The stock is flat over the last one month.
KPIT Technologies will announce its results for the first quarter ended June 2023 on Tuesday, July 25.
