KPITTECH

Faces Revenue Hit from Auto IT Cuts, Eyes Recovery via New Deals and Caresoft Expansion

, a midcap IT firm specializing in automotive software, reported muted Q2FY26 performance as OEM clients deprioritized legacy programs, leading to a $65 million revenue impact. While near-term growth is subdued, KPIT is banking on new deal wins and strategic pivots to offset the slowdown. - Revenue Impact & Client Trends: - $45M of the $65M revenue hit came from clients in the US, Asia, and Europe cutting older programs. - Organic constant currency revenue declined 2.3% sequentially, though total CC revenue grew 0.3%. - Q3FY26 is expected to be flat-to-slightly positive, with Q4 likely to see stronger growth as new deals ramp up. - Deal Wins & Conversion Challenges: - Q2FY26 TCV rose 12% YoY to $232M—seventh straight quarter above $200M. - Book-to-bill conversion has weakened, with double-digit leakage over the past four quarters due to shorter-tenure, development-linked contracts. - Margins & Cost Pressures: - EBIT margin fell 60 bps QoQ to 16.4%, below consensus of 16.7%, impacted by forex losses and Caresoft amortization. - Caresoft acquisition is expected to support commercial vehicle segment expansion. - Strategic Shift & Valuation: - KPIT is transitioning from pure services to AI-driven, IP-led solutions. - Despite a 17% YTD stock decline, valuations remain elevated at 37x FY27 PE (Bloomberg). - Industry Outlook: - Elara Securities expects KPIT’s revenue growth to moderate from its FY22–25 CAGR of ~25%, reflecting broader auto industry challenges. - Output recovery from Q4 and strategic repositioning could support medium-term resilience. KPIT’s near-term headwinds from OEM budget cuts and revenue leakage are real, but its strong deal pipeline, commercial vehicle push, and AI/IP-led strategy offer potential upside. Execution and margin discipline will be key to sustaining investor confidence.