Shares of KPIT Technologies tumbled on Monday after JP Morgan initiated coverage on the auto software solutions company with an 'underweight' rating.

The stock fell as much as 17.85% and closed 12% lower at ₹814 apiece on the National Stock Exchange (NSE).

JP Morgan has set a price target of ₹520 on the counter, implying a potential downside of 44% on its closing price on Friday.

The foreign brokerage cited lower structural margins, risks from single vertical, high client concentration, and excessive valuations for its price target.

KPIT's growth is likely to fall below 20% beyond fiscal 2024 and the scarcity premium going away with the announced IPO of Tata Technologies are key catalysts for de-rating the company, JPMorgan said.

According to the brokerage, KPIT will have to win large orders every year to keep its growth above 20%.

This comes days after the company announced its partnership with Japanese carmaker Honda. "KPIT Technologies announced their partnership with Honda to realize the journey of Honda's Software-Defined Mobility (SDM). With Honda's next-generation software architecture and control-safety technology and KPIT's deep domain & software expertise in the areas of Autonomous Driving, Vehicle Electrification, In-Vehicle Infotainment systems and Platform Software, Honda will continue to provide various services and enhanced value to customers around the world in the future," the software firm said in a stock exchange filing in March.

KPIT has worked closely with Honda for the last eight years. The partnership in mid-to-long-term will expand to over 2,000 software and vehicle system professionals from KPIT across the globe to power Honda's Software-Defined Mobility (SDM) roadmap until the year 2030 and beyond, Kishor Patil, CEO of KPIT, had said.

KPIT has two decades of experience in automotive and mobility software, cross-domain competencies, global scale, and ecosystem of alliance partners, along with the expertise in developing Software Defined Vehicles (SDV) roadmaps for several industry leaders.

"Honda is well respected for its DNA of Innovation, Excellence, and Quality. KPIT echoes Honda's core principles, creating a solid foundation for a long-term, strategic partnership. Our broad experience in developing SDV roadmaps for several industry leading car and truck makers coupled with an ecosystem of Alliances gives us the confidence to create something unique for Honda," Sachin Tikekar, president & joint managing director, KPIT had said.

In November 2022, KPIT Technologies was selected by Renault Group as a strategic software scaling partner for its next-generation software-defined vehicle platform.

KPIT Technologies reported a 49% rise in total income to ₹938 crore for the third quarter of FY23, up from ₹754 crore in the September 2022 quarter. Its net profit also rose 44% to ₹100 crore in Q3, compared to ₹70 crore in the same quarter last fiscal. Its profit stood at ₹83 crore during the September quarter.

JP Morgan KPIT

KPIT shares tank 12% as JP Morgan sees 44% downside