Rahul Jain sees challenging FY27 for KPIT despite strong deal pipeline

KPIT Technologies‘ latest business update has reignited concerns over the company’s near-term growth outlook, with analysts pointing to project-related setbacks and a slower-than-expected recovery despite a healthy deal pipeline. While management continues to expect improvement in the second half of FY27, the Street remains cautious about how quickly new wins can offset the impact of recent programme closures.

Rahul Jain from Dolat Capital believes the current weakness is more execution-specific than an indication of a broader structural slowdown.

“In their Q4 call also, they highlighted that there are two SDV programmes they were working on. We are seeing some conclusion, which was unexpected for them. Despite very strong deal wins, it would be difficult for those wins to translate quickly enough to cover the fall from these two programmes. As a result, Q1 looks challenging, and they have also indicated that things might improve only in the second half of the year. Based on our calculations, they are unlikely to see a positive year in FY27,” he said.

Profitability could come under pressure

The weaker revenue outlook also raises questions over KPIT’s ability to maintain its FY27 EBITDA margin guidance of 20.5% to 21.25%.

According to Jain, currency movements remain one of the few supportive factors, but margins could still face pressure if growth continues to disappoint.

“Growth could be a challenge for profitability in general, so that is always a concern. The only supporting factor currently is the currency, which is at least accretive. If they are able to manage costs and the currency remains supportive, profitability can stay within the indicated range. But if it turns out to be a declining year, sustaining those margins will also be challenging,” he said.

Not necessarily a sector-wide problem
While KPIT derives significant business from global automotive clients, including BMW, Jain believes investors should avoid drawing broad conclusions for the entire engineering research and development (ER&D) space.

He noted that performance has often differed across companies despite operating in similar markets.

“We have seen in the past that there has been disparity, with KPIT doing well while others were not, and vice versa. I would not extrapolate this to the broader ER&D space. However, certain OEMs are facing challenges and issuing profit warnings. That could affect several vendors across both IT services and ER&D. I would not directly correlate it, but it is a painful situation where many companies could gradually feel the impact,” he said.

Markets may remain sceptical about H2 recovery
KPIT’s shares have already corrected sharply over the past year, making investors increasingly cautious about management’s expectation of a second-half recovery.

Jain acknowledged that while the company’s sizeable order wins provide some comfort, execution remains the key challenge.

“It is difficult to believe that things could turn around very quickly. The only supporting argument is the nearly $349 million worth of deals, which indicate that new wins are coming in. It is more about managing the transition in existing accounts while scaling business from newer clients. Last year they also spoke about entering the Chinese market, and they have already secured one customer there. If they execute well with Chinese OEMs, that could become an important growth driver and improve the exit trajectory,” he said.

Estimate cuts likely
Following the latest developments, analysts are reassessing their earnings expectations for FY27, with meaningful downgrades now appearing likely.

Jain indicated that current projections are significantly below earlier expectations, while the upcoming quarterly commentary will be crucial in determining whether the recovery narrative remains intact.

“We do not have a precise FY27 outlook yet. But based on our assessment, there is at least a 7-8% reduction compared with the numbers we were building earlier, which is a meaningful change in estimates. We now look forward to management’s commentary on how things are progressing, how the deal wins are shaping up, and how the non-affected parts of the business are performing during the Q1 call. At this point, the impact could be around 7%,” he said.

With revenue visibility weakening and recovery pushed further into the fiscal year, investors are likely to focus closely on KPIT’s first-quarter earnings for signs that fresh deal wins are beginning to compensate for the slowdown in existing programmes. Until then, market sentiment towards the stock is expected to remain cautious.