KPIT Technologies may sell minority stake to PEs

MUMBAI: Promoters and two private equity (PE) shareholders of mid-market software services provider KPIT Technologies have begun negotiations with PE and strategic investors to sell a significant minority stake in the company, four people with knowledge of the development said.

“The shareholders are in talks with PE and strategic players for a stake sale,” a person with direct knowledge of the deal said. “The discussions have now veered around the valuation of the company,” the person said.

“The stake sale talks also involve the stake held by the private equity investors. The company and the investors are demanding around 25-30 per cent premium to its current price,” another person with direct knowledge of the deal said.


Ravi Pandit, the chairman and group CEO, denied any stake sale plans. “We do not have any plans to sell stake,” he said Pandit termed talk of stake sale as rumours. On Monday, KPIT share price rose by 2.73 per cent to close at .`178.75 on the BSE.

Pune-based KPIT Technologies, which provides software services to automotive and manufacturing companies, has a market value of Rs3,467 crore. The three promoters own around 22.5 per cent, while PE fund ChrysCapital owns 13.77 per cent and CX Partners 5.67 per cent.

“The company is scouting for acquisitions in Norway and Scandinavian countries and can use the capital raised for acquisitions,” an investment banker said.

With blue chip software majors such as Tata Consultancy Services, Infosys, Wipro, HCL and Cognizant beyond reach, investors, both strategic and financial have been chasing mid-market IT companies. Last year global private equity fund Barings Asia purchased Hexaware Technologies for Rs2,500 crore (the sum of the initial stake purchase plus open offer).

KPIT, which started as a financial auditing firm, diversified into software services with the purchase of Cummins Inc’s IT business in 2002. Later the company — promoted by Ravi Pandit, its managing director Kishor Patil and its chief technology officer Shirish Patwardhan — purchased eight companies in the past decade to grow to its current size.

In 2012, Cummins pared its stake in KPIT to focus on its core business and KPIT changed its name from KPIT Cummins to KPIT Technologies in 2013.

“KPIT has niche capabilities in the automotive sector and it is hard for any other company to build these capabilities in a very short term,” an analyst with a foreign brokerage said. “So from that sense, it is a very attractive company.” He cannot be quoted as he is not authorised to speak to the media.

The automotive sector contributes over 35 per cent to KPIT’s revenues, while manufacturing, utilities and others accounted for the rest. In terms of capabilities, engineering services contributed about 20 per cent to revenue, while SAP and business transformation units provided the rest. The company reported revenues of $109.7 m for the fiscal quarter ended December 31, 2013. The company has plans to reach $1 billion by 2017.

“With the global economy recovering, sectors such as IT-ITeS are the biggest beneficiaries. We will see a lot of interest for niche services provider rather than for plain vanilla software services provider,” said Vikram Hosangady, partner and head private equity transactions advisory services at KPMG India.