Synopsis: KPIT Technologies’ 35 percent stock correction reflects near term growth moderation, macro uncertainty and delayed client spending rather than structural weakness. With strong positioning in core automotive software, easing valuation concerns and management confidence in H2 and FY27, the long term growth narrative remains intact.
KPIT Technologies has seen its stock fall over 35 percent over the months, cooling off the strong optimism that once surrounded the automotive software player. This decline has come even as the company continues to win work and remains deeply linked to long-term trends shaping the future of vehicles.
With valuations now more grounded and questions emerging around near-term growth, investors are left wondering whether this phase reflects a deeper shift in the business or simply a temporary pause in a longer journey?
What Went Wrong?
KPIT Technologies’ sharp stock price correction of nearly 35 percent has not been driven by a single adverse event. Instead, it reflects a combination of slowing earnings momentum, global macro disruptions, and structural changes underway within the automotive software ecosystem. While the company continues to win deals and invest for the long term, several near-term headwinds have weighed on growth visibility and investor confidence.
Sharp Deceleration in Earnings and Revenue Growth
The most immediate concern for investors has been the visible slowdown in KPIT’s earnings and revenue growth trajectory. After delivering exceptional growth in the previous two years, FY25 marked a clear inflection point.
In FY23, KPIT reported revenue growth of 38.34 percent, followed by an even stronger 44.77 percent growth in FY24. However, in FY25, revenue growth moderated sharply to 19.93 percent, less than half of the previous year’s pace. While a near-20 percent growth rate remains healthy in absolute terms, markets had already priced KPIT as a high-growth automotive technology play, making this deceleration more painful for valuations.
The slowdown became more visible at the quarterly level. In Q2 FY25, KPIT posted year-on-year revenue growth of 22.70 percent, which fell sharply to 7.90 percent in Q2 FY26, entering single-digit territory. This sequential moderation raised concerns that the slowdown was not temporary, but instead point to deeper structural pressures on client spending.
Compounding this, organic constant currency growth turned muted, with certain quarters even reporting marginal degrowth, reinforcing the perception that deal wins were not translating into immediate revenue conversion.
Impact of US-China Tariff Tensions and Weak European Auto Environment
KPIT derives a substantial portion of its revenue from the United States and Europe, regions that have been at the epicentre of recent geopolitical and economic disruptions. The ongoing US-China tariff tensions have significantly altered global automotive supply chains, investment decisions, and cost structures.
Uncertainty around tariffs has forced OEMs to rethink manufacturing footprints, supplier networks, and regional sourcing strategies. As a result, engineering budgets have come under pressure, particularly for discretionary and long-cycle software programs. Many OEMs chose to pause or defer large transformation initiatives until macro clarity improves.
Europe, meanwhile, has faced a particularly challenging environment. Sluggish economic growth, weak vehicle demand, rising energy costs, and tighter regulatory pressures have squeezed profitability for European auto manufacturers.
This has directly impacted spending on external engineering services, especially high-cost, multi-year software programs where near-term returns are less visible. For KPIT, this translated into slower ramp-ups, deferred decision-making, and reprioritisation of client budgets, despite continued engagement and pipeline activity.
OEMs Reworking Supply Chains and Delaying New EV Programs
Another major factor behind KPIT’s recent underperformance has been the reassessment of electrification and software roadmaps by global OEMs. Over the past year, several automakers have delayed new EV launches, extended timelines for software-defined vehicle platforms, or temporarily halted large engineering programs.
OEMs are increasingly focused on stabilising current production programs, fixing execution issues, and improving cost efficiency rather than aggressively investing in next-generation platforms. This shift has particularly affected middleware, operating systems, and large-scale platform engineering projects, areas where KPIT had meaningful exposure.
In several cases, clients either discontinued older programs, delayed new ones, or consolidated multiple vendors into fewer, more outcome-based engagements. While KPIT has adapted by offering more holistic, AI-led solutions, this transition has caused near-term revenue cannibalisation, where traditional services revenue declined faster than new solution-led revenues could scale.
Rising Competitive Pressure from Chinese OEMs, Especially BYD
The rapid global expansion of Chinese automotive players, led by companies such as BYD, has added another layer of pressure on Western OEMs. Chinese manufacturers have aggressively entered European markets with competitively priced EVs, benefiting from scale, vertically integrated supply chains, and cost advantages.
This has compressed margins for European and US OEMs, forcing them to tighten spending across the board. High-cost engineering projects, long-duration software programs, and experimental initiatives have been among the first casualties of this margin pressure.
As Western OEMs focus on defending market share and restoring profitability, spending decisions have become more conservative. For engineering service providers like KPIT, this has meant delayed contracts, smaller initial deal sizes, and slower-than-expected revenue ramp-ups, even when strategic partnerships remain intact.
Disconnect Between Deal Wins and Revenue Conversion
Despite continued deal wins in areas such as digital cockpit, validation, after-sales diagnostics, and autonomous systems, investors have been unsettled by the lack of immediate revenue reflection. Part of this is due to KPIT’s strategic shift from pure services to solution-led and platform-based engagements, which typically have longer gestation periods.
While this model improves margins and long-term client stickiness, it also results in front-loaded investments and delayed monetisation, contributing to short-term revenue softness and earnings volatility.
Why the Impact Appears Temporary
Despite the sharp correction in KPIT Technologies’ stock price, the underlying reasons point more toward timing-related and macro-driven disruptions rather than any permanent impairment to the company’s business model or competitive positioning. Management commentary, client behaviour, and industry dynamics suggest that the current slowdown is largely transitory, with multiple structural growth drivers still firmly intact.
Client Delays, Not Client Losses
One of the most important takeaways from recent concall discussions has been management’s repeated clarification that there has been no loss of clients or large cancellations of strategic relationships. Instead, the slowdown has been driven by client-side delays in decision-making, program ramp-ups, and execution timelines.
KPIT continues to work with global automotive OEMs and Tier-1 suppliers across the US and Europe, regions that together account for a majority of its revenue. While these clients have slowed discretionary spending and deferred certain large programs, existing contracts remain intact. In many cases, OEMs have opted to stretch project timelines, split programs into smaller phases, or delay go-lives, rather than terminate engagements altogether.
This distinction is critical. A delay impacts near-term revenue recognition, but it does not erode long-term revenue visibility or client relevance. As macro conditions stabilise and OEM confidence improves, these delayed programs have the potential to resume, leading to operating leverage for engineering service providers like KPIT.
Core Technology Focus Areas Remain Long-Term Growth Engines
KPIT’s exposure is concentrated in high-value, mission-critical automotive software domains, including Advanced Driver Assistance Systems (ADAS), Battery Management Systems (BMS), over-the-air (OTA) software updates, digital cockpits, and cloud-connected vehicle platforms.
These are not optional or experimental initiatives. They form the core architecture of next-generation vehicles, regardless of whether they are electric, hybrid, or software-enhanced internal combustion platforms. Even as EV adoption faces short-term moderation in certain markets, spending on software-defined vehicles continues to remain a strategic priority.
Management has highlighted that OEMs may defer launches, but cannot abandon these programs, as regulatory requirements, safety standards, and consumer expectations continue to rise. Features such as OTA updates, connected diagnostics, advanced infotainment, and software-led differentiation are increasingly non-negotiable.
As macro headwinds ease, spending in these areas is expected to re-accelerate, positioning KPIT to benefit disproportionately due to its deep domain expertise and long-standing OEM relationships.
Vehicle Development Cycles Limit the Ability to Stop Programs
A key structural factor supporting KPIT’s long-term outlook is the nature of automotive product development itself. Vehicle platforms are typically planned four to six years in advance, with software architecture decisions locked in early in the lifecycle.
Once an OEM commits to a platform roadmap, it becomes extremely difficult and costly to halt development midway without jeopardising future product launches. While execution timelines can shift, platform programs rarely get scrapped outright, especially those linked to safety, compliance, or core vehicle functionality.
This implies that much of the current slowdown reflects timing mismatches rather than demand destruction. Programs that are being delayed today are likely to return as revenue contributors over the next few quarters, creating a recovery-led growth phase once execution resumes.
EV Slowdown Is Cyclical, Not Structural
Concerns around a slowdown in electric vehicle adoption have weighed heavily on auto and auto-tech stocks globally. However, management has reiterated that while EV growth may moderate in the near term due to affordability, charging infrastructure, and policy-related challenges, the transition itself is irreversible.
Global regulatory pressure to reduce emissions, combined with long-term cost parity expectations, ensures that electrification remains the direction of travel. KPIT’s positioning is particularly resilient because its offerings are not limited to EV-only platforms but extend across hybrid, software-defined, and connected vehicle ecosystems.
This diversification reduces dependence on pure EV volumes and allows KPIT to participate in broader automotive digitisation trends, even during periods of uneven EV adoption.
Valuation Reset Has Reduced Downside Risk
From a valuation perspective, KPIT’s stock has already undergone a meaningful correction. The price-to-earnings multiple has compressed sharply from around 86 times earnings at its peak to approximately 42 times, reflecting a significant de-rating.
While still trading at a premium, this valuation is more aligned with high-entry-barrier automotive engineering and software services, where deep domain knowledge, long sales cycles, and regulatory complexity limit competition.
The multiple contraction suggests that much of the near-term risk has already been priced in, reducing the probability of further sharp downside unless fundamentals deteriorate materially.
Institutional Ownership Remains Stable
Shareholding trends further support the argument that the correction has been orderly rather than disruptive. While Foreign Institutional Investors (FIIs) have reduced their stake, this selling has been absorbed by Domestic Institutional Investors (DIIs), indicating continued confidence from long-term domestic capital.
Public shareholding has remained broadly stable, suggesting no panic-driven exit by retail investors. This ownership transition reflects a change in investor mix rather than a loss of conviction in the business itself.
Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on tradebrains.in are their own, and not that of the website or its management. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution while investing or trading in stocks. Trade Brains Technologies Private Limited or the author are not liable for any losses caused as a result of the decision based on this article. Please consult your investment advisor before investing.
