Motilal Oswal Financial Services (MOFSL) has initiated coverage on three IT stocks – KPIT Technologies with a ‘Buy’ rating, and Tata Technologies and Tata Elxsi with ‘Sell’ ratings.
For KPIT Technologies, MOFSL identifies it as a pure-play automotive ER&D partner focused on enabling SDV adoption for major OEMs. KPIT’s revenue has grown significantly from $304 million in FY20 to $691 million in FY25, projecting a further increase to USD 1 billion by FY28. The EBIT margins are anticipated to rise from 17.1% in FY25 to 19.0% in FY28, aided by scale benefits and strategic acquisitions like Caresoft. MOFSL has initiated coverage with a “BUY rating and a target price of Rs 1,600, valuing KPIT at 40x FY27E EPS – implying a PEG of ~2x on a ~19% EPS CAGR over FY25-28E.”
Tata Technologies (TTL) faces different challenges, leading MOFSL to assign it a “Sell rating with a target price of Rs 580, valuing TTL at 28x FY27E EPS – a 30% discount to KPIT’s 40x (~2x PEG).” TTL’s focus on mechanical design and on-site delivery results in lower margins compared to companies engaged in high-value software services. However, its joint venture with BMW is performing well, aiming to enhance expertise in automotive software and SDVs.
Tata Elxsi, a leader in automotive, media, and communications, faces “near-term speed bumps” according to MOFSL. The firm’s automotive segment, which contributes significantly to revenue, experiences margin pressures due to muted growth and pricing resets. MOFSL “expect EBIT margins to recover gradually to ~21.1% in FY26E.” However, structural challenges may limit margin recovery to levels below historical peaks.
MOFSL has initiated coverage of Tata Elxsi with “a Sell rating and a target price of Rs 4,600, valuing TELX at 32x FY27E EPS – an ~20% discount to KPIT’s 40x (~2x PEG).” This assessment reflects growth headwinds in Europe and less favourable risk-reward considerations at current valuations.
MOFSL’s assessment also highlights key trends shaping the global mobility landscape. “Three structural forces are reshaping the global mobility landscape: 1) The shift toward CASE (connected, autonomous, shared, electric) mobility is accelerating the role of software in vehicles; 2) OEMs are moving from decentralised architectures to centralised domain controllers, paving the way for software-defined vehicles (SDVs); 3) Regulatory mandates for greener mobility are compelling automakers worldwide to invest in electric powertrains and sustainability-focused innovations.”
Despite enthusiasm for electric vehicles encountering hurdles, Asian OEMs are adapting by pivoting towards hybrids and localised strategies. This environment offers opportunities for specialised engineering service providers with domain expertise and global delivery capabilities.
MOFSL further notes that “enthusiasm for electric vehicles (EVs) has hit a snag, and with it, the companies’ ability to invest heavily in SDVs in recent quarters.” This trend affects the capital expenditure cycles across the industry, yet the long-term outlook remains promising as global players increasingly recognise software as a critical competitive edge.
MOFSL’s insights provide a comprehensive overview of the opportunities and challenges these companies face, underscoring the evolving landscape of the automotive and ER&D sectors.