Shares of KPIT Technologies were down more than 5% on the afternoon of April 3 after JPMorgan Chase & Co initiated coverage with an “underweight” rating and the lowest Street price target of Rs 540, suggesting a 44% decline from current levels.

The brokerage sees two major downgrade catalysts. First, the growth rate of KPIT is expected to fall below 20% after FY2024. Second, Tata Technologies’ IPO announcement reduced the scarcity premium associated with KPIT shares.

The automotive industry, which generates 88% of Tata Technologies’ revenue, is also a core area of ​​focus for KPIT.

According to JPMorgan, KPIT has to win a large number of orders every year to maintain its growth rate of more than 20%, which it sees as a challenge given the cyclical nature of the auto industry.

The brokerage appreciated KPIT’s focus on the fast-growing automotive vertical but said it would wait for an attractive entry point.

KPIT recently announced a partnership with Honda, which its CEO and MD, Kishor Patil says will be the largest in the software-defined mobility (SDM) space.

In Q3FY23, the company reported a 47% year-on-year growth in revenue to Rs 917 crore. It also secured $272 million worth of new deals, up from $142 million in the September 2022 quarter.

The company has 10 ‘buy’, 1 ‘hold’ and 3 ‘sell’ ratings with a price target of Rs 750-1,050. KPIT shares have risen 34% in the past six months and more than 40% in the past year.

The stock was trading 5.28% lower at Rs 876.30 on the NSE at 12:27 pm, while the industry benchmark Nifty IT was down 0.66% at 28,508.30.