Before diving into the company analysis and investment opportunity, we should know about CASE Technology which making this stock as Electric Vehicle Multibagger Stock in India.
What is CASE Technology ?
CASE Technology is a combination of four advancements that are coming in the automobile industry. Which is going to give the futuristic shape to the Electric Mobility. C refers to CONNECTED, A refers to AUTONOMOUS/AUTOMATION, S refers to SHARED, E refers to ELECTRIC. CASE Technology is the key driver in bringing EV segment forward. As the EV theme in early stages, we could see the multifold growth in the CASE technology companies such as LTTS, TATA Elxsi, KPIT and many more. Already these companies delivered multibagger returns in past two years, and they become electric vehicle m. ultibagger stocks. though as EV theme is in the early stages still there is lot of scope and possibilities to grow.
In this article we will discuss the company which is already playing key role in establishing CASE in India. And for sure this company will deliver multifold returns in the coming future as this stock is in mega trend that is EV. For sure EV is the future. And this company is the emerging Giant company in both EV and Hydrogen Fuel cell spaces. As entire world is looking these two sectors as alternative for traditional fossil fuels such as Petrol and Diesel.
Now we will look into the powerful 4 alphabets in detail.
C – Connected Mobility:
In the Connected Mobility will establish the connection in between the vehicles as well vehicles will allow us to interact with another. Not only the connection but also they will take place to execute lot of interactive things such as Interactive maps, Navigation, Payments and many more.
A – Autonomous Mobility:
In the Autonomous Mobility vehicles will transform themselves from taking driver’s instructions to driverless. In this transformation, the companies which are working on CASE Technology will get benefited, and they will enjoy high margins from the OEMs. There is different stages of transformation to driverless. Below picture will give you the full details.
S – Shared Mobility:
As per the McKinsey’s report in coming years 20 – 30% of the people will prefer to travel with shared mobility such as OLA & UBER. This demand will increase the role of technology and also we are already seeing that UBER is working on driverless cars. These changes will increase the demand for the CASE technology companies.
E – Electric Mobility:
In Electric Vehicle segments the tech companies plays key role in Battery Optimisation and adding advancements in the vehicle cockpit. As battery optimization crucial for any vehicle to get succeed, this opportunity will help tech companies to grow more.
As compared to India the adoption of EVs is a bit slower than western countries, it would be the additional trigger point as there is a long way to go in India. Also the indian economy still a growing economy, there will be huge opportunity for these CASE technology companies.
Why only Indian CASE Technology companies, not others ?
If you observe the below picture we’ll get a clear picture on why only we should invest in only Indian CASE technology companies. The below picture shows how Chinese, European and Indian companies are maintaining their EBITDA. EBITDA of European and Chinese companies is either falling or freezed, where Indian companies are substantially growing their EBITDA. Anyone can demand for price when they would have successful products, that’s indian companies are getting succeeded in the global automobile Industry.
Strong Supporting Factors:
1.Consumer Preference: The consumer preference that everyone wants to buy a great vehicle that comes with better technology, would lead the OEMs to adopt CASE in their manufacturing strategy.
2. Increased R&D spending : If you observe the past data the global leading OEMs are gradually increasing their R&D spendings towards adoption of CASE in their vehicles as it’s the key consumer preference.
3. Pollution Regulations: Around the world every country wants to control the pollution, and they are bringing stringent pollutions regulations accordingly. As part of this already western countries brought strong set of rules to control fossil fuel vehicles and to push electic vehicles. Again this would be the positive fator for the CASE companies.
4. Adoption from CV segment : Till now we have seen the adoption of CASE technology only in Passenger Vehicle segment. Now Commercial Vehicles segment also started adoption of CASE technology, as already the leading CV OEMs are going to spend huge money in adopting CASE technology.
5. Increased demand for Shared Mobility : According to the McKinsy research report there would be certain demand for Shared mobility in the future. Some 20 – 30% of the people still prefer to travel in car aggregators such as OLA and UBER. Again this would be the another positive factor for the CASE technology companies as aggregators needs to develop their vehicles with advanced features.
By conglomerating all above factors, we can understand that the coming years and the trends that are coming in the automobile industry are the big positives for the CASE technology companies such as TATA Elxsi, LTTS and KPIT. Also the indian companies are getting succeed in the industry as they are maintaining very good EBITDA margins growth compared to other global companies.
KPIT Technologies Ltd
Company Overview :
As compared to other peer group companies in the same space such as TATA Elxsi and LTTS, KPIT Technologies would be the better company to invest, if you are interested in participating CASE Technology growth as KPIT focuses only on Automobile automation where as Elxsi and LTTS also focuses on other verticles. KPIT is holding leadership position in the market in various segments such as telematics, ADAS, Electric Powertrains and Etc. Currently this company has 6400 employees and this company hiring employees as they are forecasting their growth and demand.
This company is currently working on to provide solutions for Autonomous driving & ADAS, Electric & Conventional Powertrains, Connected Vehicles, Vehicles Diagnosis and Vehicle Engineering and many more towards CASE Technology.
Business Strategy :
KPIT Technologies is following very interesting business strategy to grow their share in the market. The strategy name is T25 strategy. In the part of this strategy KPIT focuses on top 25 global OEMs as the top 25 global OEM’s R&D spending is 87% of the total R&D spending. So that we can understand that the T25 strategy is very effective and will definitely gives the better margins for the company. You can also find the management interviews about their future plans and strategies.
Clients of KPIT :
KPIT Technologies has a very huge client base, that too many of them from the top 25 OEMs. The clients are Volkswagen, BMW, Daimler (Mercedes Benz), Honda, Cummins, Paccar and many other companies.
Big Update : KPIT Technologies is also working on Hydrogen Fuel Cell technology, Also getting appreciations for the work they are doing. So we can understand that KPIT is not only the company for CASE but also for Hydrogen Fuel Cell technology.
Financials :
If you look into the company’s revenue breakup, they are generating 30% from Electric Powertrains, 20% from Autonomous Driving Technology, 10% from Connected Vehicle segment, 10% existing vehicle’s powertrains and 30% from Vehicle diagnosis and Vehicle Engineering & designing services. As we have already discussed there will be high margins for the companies which are working on L3, L4 and L5, will get better margins as compared to L1 & L2. And entering into L3, L4 & L5 is not that much easy, as they are heavy entry barrier segments. But KPIT generating more than 80% of the revenues from L3, L4 & L5. If you look into geographical revenue breakup, 67% from USA and Europe.
KPIT has strong and efficient management and this company is very strong both fundamentally and financially. This company is almost debt free company. If you look at return ratios ROCE is 14% and ROE is 12.6%. in coming years we might see the expansion in the return ratios. Currently they are maintaining 11.3% of margins, might grows in coming years.
Challenges/Negatives :
- As KPIT is focusing only on automobile, the slowdown in auto industry will impact the company’s margins and returns.
- We should observe the latest technologies that are showing interest by the customers
- As KPIT is product based IT company, we might see the volatility in the company’s profitability.
- If any new technology grabs the customer interest, that was not from KPIT, will impact the company.
- As KPIT focusing only on Top 25, any financial issues or bankruptcy in any OEM, that might impact the KPIT severely.
Conclusion :
KPIT Technologies, The emerging EV giant company. We have explained all the details such as company overview, financials, clients, positive factors and challenges along with various data factors. Now here is the big question, that should we invest now or not ? Catching exact valuation of such kind of stocks would be very difficult, so that investing in SIP mode would be the better option to pick up this stock. And we are confident that this company has a calibre to become a Electric Vehicle Multibagger Stock. This stock is currently trading at 547.
Disclaimer : All stock suggestions and analysis are purely based on my personal view. Before investing into any stock, please do your own research, else take a suggestion from your financial advisor.
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