This mid-cap fell 60% from peak. Yet, it's business as usual

Summary: Once the market’s favourite growth story, KPIT Technologies has seen a massive 60 per cent fall from its peak, becoming one of the worst mid-cap stocks of FY25-26. However, its financials are still firm and clientele remains intact. So, why is the stock falling? We find out.

Once, KPIT Technologies could do no wrong. At its peak, the stock traded at over 80 times earnings, carried by a simple, compelling story: cars were becoming software-first, and KPIT was writing that software for BMW, Honda and Volkswagen.

Today, it trades at roughly 25 times earnings and has fallen nearly 60 per cent from its peak, becoming one of the worst-performing mid-cap technology stocks of FY25-26. Revenue, meanwhile, keeps climbing. Clients haven't left either. So what exactly is the market punishing?

What KPIT actually does

A modern car runs on roughly 100 million lines of code, more than a commercial aircraft. Every time lane assist engages, an EV charges, or a dashboard reconfigures itself, software is making it happen. KPIT writes, tests and integrates that software, with the bulk of its work in advanced driver assistance systems (ADAS): the sensors and algorithms that let a car see, warn, and sometimes act.

The underlying market is real. The global automotive software space is expected to grow around 10 per cent annually through 2030. McKinsey projects ADAS-equipped vehicles could account for 52 per cent of global car sales by then, up from 36 per cent today. The tailwind exists. Whether KPIT captures its share of it is the harder question.

The paradox

Strip out acquisitions, and KPIT's organic growth has actually turned negative, down 2.3 per cent in Q2 FY26 and just under -1 per cent in Q3 FY26. That's a sharp reversal from 18.7 per cent constant-currency growth for FY25 as a whole. Four things explain it.

First, European automakers, squeezed by weak demand, Chinese competition and the cost of electrification, have trimmed or delayed software-defined vehicle programmes. KPIT's electrical and middleware work bore the brunt.

Second, KPIT is deliberately sacrificing near-term revenue. With 62 per cent of contracts now fixed-price, AI tools mean fewer engineers are needed for the same work. Revenue dips. Costs fall faster. Margins hold. This decoupling of revenue from headcount is intentional.

Third, automakers have pushed next-generation vehicle launches back by one to two years. Since KPIT's most valuable work sits early in the development cycle, a meaningful slice of its pipeline is temporarily on pause. When those launches eventually compress, so will the engineering timelines — and spending will surge.

Fourth, the pain is concentrated. Just three to four large clients cut spending by roughly Rs 550 crore in FY26. Total contract value has dropped from Rs 2,380 crore in Q4 FY25 to Rs 1,717 crore in Q3 FY26.

Through all of this, EBITDA margins have held at 21 per cent — identical to FY25. Revenue has also achieved record highs.

Can the moat hold?

The structural pressure on KPIT's clients is real. European automakers take up to four years to roll out new software features. Chinese rivals do it in 21 months. That gap is already showing: Chinese EV brands are approaching 10 per cent of European sales in early 2026.

This speed deficit creates urgent demand for exactly the kind of specialised help KPIT offers. The more immediate challenge is supplier consolidation, as automakers concentrate spending among fewer, deeper partners. That creates short-term friction but rewards survivors with larger wallet share and stronger relationships.

The lesson from going it alone is already written. Volkswagen spent roughly Rs 1.3 lakh crore and five years on CARIAD, its in-house software unit, only to suffer delays, leadership exits and postponed launches. The industry won't forget that quickly. KPIT, notably, has held or expanded its wallet share across nearly all of its top 25 accounts throughout this period.

Where does the stock stand today?

KPIT's derating looks dramatic in isolation. Across the engineering R&D sector, it looks more like a reset. LTTS peaked at 73 times earnings in 2022 and trades at 28 times today. KPIT peaked at 87 times. That was the aberration, not the current multiple.

At today's prices, the valuation looks roughly fair, supported by a visible pipeline, a five-year revenue CAGR of 22 per cent, and client relationships that have deepened rather than broken. Nothing is broken. But nothing is accelerating either.

The stock won't re-rate meaningfully until organic growth turns clearly positive and next-generation vehicle programmes show up in the revenue line. The growth is delayed, and how long that delay stretches is the only honest uncertainty left.

Want more in-depth, actionable stock insights?

Subscribe to Value Research Stock Advisor and get access to more detailed insights on stock analysis, performance and analyst-backed recommendations. So that you know whether a stock is fairly valued and whether its growth story is slipping or still intact.

Explore Stock Advisor today