Cummins will up Kpit stake to 14.9%

Pune firm will use proceeds for general growth purposes

MUMBAI: Cummins, one of the principal customers and shareholders of mid-sized information technology firm Kpit Cummins, is looking to raise its stake in the latter to a shade below 15% from about 13% currently.

Pune-based Kpit Cummins plans to use the funds for general growth purposes.

Kpit Cummins, in the past, has raised funds from several financial institutions like Leyman Brothers, Cargill Ventures and IFC. Hence it is surprising that it has opted to raise money from Cummins and not from any other financial institution and that, too, with a ceiling limitation of not breaching the open offer limit of 15%.

“Cummins was interested in increasing its stake but not to the point which could breach the open offer trigger limit. The offer size would be around $5.5 million.” Sanjay Sinha, head business development, Kpit Cummins, said.

On October 17, when the board of Kpit Cummins meets to take on record July-September quarter results, it will also consider issuance of shares on preference basis to Cummins. Cummins holds a 13.1% stake in the company, and is its anchor client, accounting for close to 40% of the revenues.

Under the agreement between them, Cummins has the option to raise its holdings in tranches if its revenue contribution touches 48%, 51% and 56%.

In the past, Kpit has acquired companies to increase the share of non-Cummins revenue below the trigger limit. Under its 2010 vision, Kpit is aiming to reduce Cummins dependency to 25%.

Sinha said the money raised would be used for organic and inorganic growth purposes. “We don’t have an acquisition target yet but it is always good to have the money rather than scout for it when you have an acquisition opportunity,” he said.

Being focused on manufacturing, the company has been spared the sub-prime blues. “Financial services account for only 9-10% of our revenues. We do work with capital market and are not exposed to the mortgage industry. Some of our clients have an exposure to sub-prime indirectly but our business has not been impacted,” he said.

Like all exporters, a strong rupee has also hurt the margins of Kpit Cummins. US accounts for almost 57% of its revenues and hence a 10% dollar depreciation against the rupee this calendar has strained its margins.

Sinha said the company was countering the Forex threat by a mix of actions like increasing internal efficiencies, price hikes and hedging. As of the quarter ended June, it had an hedged position worth $35 million.