Motilal Oswal sees 34% upside in this ER&D stock, but says ‘sell’ its two Tata Group peers

Brokerage firm Motilal Oswal has initiated coverage on three engineering, research, and development (ER&D) companies — KPIT Technologies, Tata Technologies, and Tata Elxsi.The brokerage wrote in its note that three structural forces are reshaping the global mobility landscape. First, the shift toward CASE (connected, autonomous, shared, electric) mobility is accelerating the role of software in vehicles. Second, OEMs are moving from decentralised architectures to centralised domain controllers, paving the way for software-defined vehicles (SDVs). Third, regulatory mandates for greener mobility are compelling automakers worldwide to invest in electric powertrains and sustainability-focused innovations.

Despite the recent moderation in capex cycles among Western OEMs, the long-term outlook remains robust, Motilal Oswal said.

Asian OEMs are pivoting toward hybrids and localised strategies, while global players are increasingly recognising software as the next competitive frontier. This environment provides strong tailwinds for specialised engineering service providers with deep domain expertise, co-development capabilities, and global delivery footprints.Motilal Oswal has a ‘Buy’ rating on KPIT Technologies, with a price target of ₹1,600, implying an upside potential of nearly 34% from current market levels.

According to the brokerage, KPIT’s core strengths lie in embedded software development, E/E (Electrical/Electronic) architecture, and middleware consulting, which together account for over 80% of its revenue.
With strategic relationships across more than 25 OEMs and Tier-1 suppliers, KPIT is well-positioned to capitalise on rising software complexity in modern vehicles.The company’s revenue has grown from $304 million in FY20 to $691 million in FY25 (an 18% CAGR), and is estimated to reach $1 billion by FY28E, reflecting a 15% CAGR over FY25-28E. EBIT margins are expected to expand from 17.1% in FY25 to 19.0% in FY28E, driven by scale benefits and contributions from acquisitions like Caresoft, which is projected to account for 5% of revenue.

Motilal Oswal has initiated coverage on Tata Technologies with a ‘Sell’ rating and a price target of ₹580.

The brokerage cited Tata Tech’s relatively lower margin profile due to its high mechanical engineering exposure, client concentration risks, and modest growth visibility, despite having end-to-end engineering capabilities.

For Tata Elxsi, Motilal Oswal also assigned a ‘Sell’ rating, with a price target of ₹4,600. The brokerage pointed to near-term growth headwinds in Europe and in its Healthcare/Media verticals, as well as a less favourable risk–reward profile at current valuations.

It further said that although a high offshore mix supports profitability, margins have come under pressure in recent quarters due to muted revenue growth, elevated go-to-market (GTM) spending, and pricing resets in large renewals.

While a sharp decline appears unlikely, structural headwinds could limit margin recovery to levels well below the historical peaks of 27-28%.

Motilal expects EBIT margins for Tata Elxsi to recover gradually to 21.1% by FY26E. Meanwhile, revenue growth is expected to moderate to an 8% CAGR over FY25-28E, compared to 18% over FY20-24.