Board approves the Composite Scheme of Merger & Demerger, Effective Date Jan 15, 2019
YTD Q3FY19 Constant Currency Revenue growth of 9% over YTD Q3FY18
Q3FY19 Constant Currency revenue de-growth of 1.7% Q-o-Q
Pune, January 15, 2019: KPIT (BSE: 532400; NSE: KPIT), a global technology company specializing in providing IT Consulting and Product Engineering solutions and services to Automotive, Manufacturing, Energy and Utilities companies, today reported its consolidated financial results for the third quarter and nine months ended December 31, 2018.
Highlights for the quarter ended December 31, 2018
USD Revenues grow 5.5% Y-o-Y, decline 2.3% Q-o-Q
₹ Revenue grows 16.27% Y-o-Y, decline of 1.63% Q-o-Q
Net Profit for the quarter registers a Y-o-Y growth of 3.63 %,
Operational EBITDA for YTD Q3FY19 at 13.8%, reported margins at 12.9%
Management Comments
Commenting on the performance of Q3 FY19, Kishor Patil, Co-founder, CEO & MD, KPIT said, "The Board has adopted the Composite Scheme of Merger and Demerger with Jan 15, 2019 as the Effective Date. We look forward to the exciting journey of focus and value creation in both the entities viz. Birlasoft in Enterprise Digital IT and KPIT in Automotive Engineering and Mobility Solutions. Though the current quarter revenue was affected by lower billing days and completion of a couple of large projects in IT, we are on track as regards the annual revenue guidance and are well ahead of the operational margins guidance."
Sachin Tikekar, President and Board Member, KPIT said, "We focused on the business familiarization and people integration for the IT Business and are reasonably satisfied with the results. Though this quarter was soft due to seasonality, our pipeline continues to be healthy. As we get ready to start a new journey, we believe both KPIT and Birlasoft look forward to the enthusing opportunities ahead."
Quick Summary
CHANGE IN THE FORMAT OF PUBLISHED RESULTS:
The format of the published results for KPIT has undergone a change this quarter in line with the regulations as per applicable law. The National Company Law Tribunal (NCLT) approved the composite scheme of merger and demerger and the written order for the same was received on December 18, 2018. Hence the results for the quarter, in the standard publish results format, are published only for the continuing business, which is Business IT and only the Profit Before Tax, Tax and Profit after Tax numbers are published for the discontinued business, which is the engineering business being demerged.
The snapshot of the results is as follows:
Details Unit Total Engineering Business IT
Revenue $ M 149 70 79
Revenue ₹ M 10,613 4,976 5,637
Reported EBITDA ₹ M 1,382 640 742
Merger/Demerger Expenses ₹ M 3 1 2
Operational EBITDA ₹ M 1,385 641 744
Reported EBITDA % % 13.0% 12.9% 13.2%
Operational EBITDA % % 13.1% 12.9% 13.2%
Details (YTD Q3FY19) Unit Total Engineering Business IT
Revenue $ M 452 200 252
Revenue ₹ M 31,540 13,916 17,624
Reported EBITDA ₹ M 4,076 1,542 2,534
Merger/Demerger Expenses ₹ M 283 94 189
Operational EBITDA ₹ M 4,359 1,636 2,723
Reported EBITDA % % 12.9% 11.1% 14.4%
Operational EBITDA % % 13.8% 11.8% 15.4%
The overall constant currency revenue during the quarter showed a decline of 1.7%. Business IT revenues were down 7.5% whereas engineering showed a growth of 5.7%. During the quarter, there was a loss of average 1.5 billing days per person due to furloughs and holidays. This had a negative impact of around 2.5% on IT revenues. We completed 2 large projects during the quarter, one of which was the largest implementation project delivered by us. The lower billing on these 2 projects during the quarter as compared to the last quarter had a negative impact of 3.5% on the IT Revenues. Engineering revenues continued their momentum during the quarter.
The operational EBITDA during the quarter was lower by 212 bps, largely due to revenue decline. In IT, the fall in operational margins was largely in proportion to the revenue fall, though some margin recovery was visible due to reduction in onsite employee costs. The engineering operational margins were up during the quarter leveraging the revenue growth.
At the beginning of the year, we had given a guidance of constant currency revenue growth of 8% - 10% and operational EBITDA ranging between 11.5% - 12.5%. With constant currency revenue growth of 9% in the first 9 months and operational EBITDA at 13.8%, we are ahead of the margin guidance and within the revenue growth guidance as at end of Q3FY19.
Update on proposed merger-demerger:
A quick refresh: On January 29, 2018, we announced a transaction of merger and demerger involving KPIT and Birlasoft. Birlasoft is a part of the USD 1.6 billion diversified CK Birla Group.

The merger of KPIT and Birlasoft will create a USD 700+ Million entity which will immediately demerge into two separate companies:
  • KPIT Technologies (USD 270+ Million revenue company, post-merger), a global leader in Automotive Engineering and Mobility Solutions, which will evolve from the existing Engineering business of KPIT.
  • Birlasoft (a USD 475+ Million revenue company, post-merger), a new Digital Business IT Services company, focusing on the mid-tier IT space formed by combining Birlasoft with the KPIT's IT business
The NCLT (National Company Law Tribunal) directed EGM for seeking shareholder approval for the Merger Demerger Scheme was scheduled on August 29, 2018. The shareholders overwhelmingly approved the scheme for the merger of KPIT with Birlasoft and the simultaneous demerger of KPIT Engineering business into a new company, to create two new public companies.

The Mumbai Bench of NCLT vide its order dated November 29, 2018 has approved the composite scheme. The written order was received by KPIT on December 18, 2018. The appointed date for the scheme is January 01, 2019 and the effective date is January 15, 2019. Thus, Q4FY19 will be the first full quarter of independent quarterly reporting by KPIT (KPIT Engineering Business) and Birlasoft (Birlasoft + KPIT IT Business).

In view of the NCLT approval, the major milestones for the effectiveness of the NCLT approval are as follows:
Sr. Key Milestone / Action Likely Date / time-period
1. KPIT Investor Conference Call for Q3FY19 January 16, 2019, 1600 hrs.
2. Record Date for issuing KPIT shares to Birlasoft Promoters as a consideration for merger of Birlasoft into KPIT. January 15, 2019
3. Allotment of Shares to Birlasoft Promoters January 18, 2019
4. KPIT (to be renamed as Birlasoft) shares to start trading ex-engineering January 24, 2019
5. Record Date for issuing KPIT Engineering (to be renamed as KPIT Technologies) Shares* to every shareholder of KPIT (to be renamed as Birlasoft) in the ratio of 1:1 January 25, 2019
6. KPIT Technologies name change to Birlasoft (India) Ltd. 1st week of Feb, 2019
7. KPIT Engineering to change name to KPIT Technologies Ltd. 2nd week of Feb, 2019
8. KPIT Technologies Ltd. (Engineering) to get listed on NSE and BSE March 2019
*KPIT Engineering Shares will be frozen in the respective demat accounts of the shareholders and can be traded only from the first day of listing of KPIT Engineering.
Business split post merger and demerger:
As we are progressing toward the actual merger/demerger, it is important to understand the split of the businesses and the resultant businesses of individual entities. Hence we are repeating the business split information this quarter also.
The Engineering Business (KPIT Technologies post demerger) will mainly focus on Automotive Vertical with embedded software, digital technologies (cloud, IoT, analytics), mobility solutions and application life cycle management as the primary practices.
The Business IT Business (Birlasoft Ltd. post demerger) will mainly focus on the Manufacturing, BFSI and Media Verticals with ERP, digital technologies, product life cycle management, ADM and IMS as the primary practices.
The following diagram reflects the businesses as they would shape up post completion of merger and demerger.
kpit-birlasoft-merger-demerger
Services Update
Vertical Update
Technology Update
  • We have filed 5 patents during the quarter in areas automotive (ADAS) domain, Autonomous Vehicle, Fuel cell and Electric Vehicle. We had filed for 58 unique patents as of end of Q2FY18. In the interim we have dropped 23 of our unique patent filings. Thus, as of Q3FY19 we have filed for 40 unique patents (33 with complete specifications and 7 with Provisional specifications)
  • We were also granted 1 patent during this quarter taking the total count of granted patents to 46 across geographies (The same patent if granted in 2 geographies is counted as 2 granted patents). The details of granted patent in Q3 FY19 is mentioned below:
Patent Number Patent Title Country Domain
IN302847 Method of Converting Vehicle into Hybrid Vehicle India Hybrid
Customer Highlights
  • A global car-maker chose KPIT for its expertise in the Autonomous Driving space; considering our comprehensive AD and ADAS solutions.
  • An American multinational corporation providing specialized service and solutions in the Oil & Gas industry chose KPIT for a JD Edwards rollout project.
  • A North American based, global provider of engineered industrial solutions and aftermarket solutions to various industries chose KPIT for a CPQ & JD Edwards integration project.
  • A leading multinational Bus-maker engaged with KPIT in the eMEDS space.
  • A leading Tier1 selected KPIT as its strategic engagement partner in the Vehicle Systems space.
  • The India operations of a retail giant, headquartered in Denmark chose KPIT for SAP Migration, AMS projects.
  • KPIT won a major deal with a leading Tier1 in the Powertrain space.
  • KPIT won a major telematics deal with a leading German Commercial Vehicle (CV) OEM for hardware, in India.
  • A North America-based analytical solutions provider chose KPIT for an AMS project.
  • KPIT was selected by a renowned America-based franchised distributor of a Japanese automotive brand, for an SAP S/4HANA implementation project.
  • An American software company specializing in software for CRM, digital process automation chose KPIT for an SAP Ariba implementation project.
Financial Update

Revenue Update

Our $ revenue for the quarter stood at $149 Million, a Q-o-Q decline of 2.32% and Y-o-Y growth of 5.52%. In ₹ terms, revenue declined by 1.63% Q-o-Q while there was a growth of 16.27% Y-o-Y to ₹10,613.18 Million.
Amongst SBUs, On the engineering side there was a significant 6.4% Q-o-Q growth in PES SBU while P&P SBU declined by 9.9% sequentially. However, DT, IES, SAP showed a sequential decline of 5.1%, 2.4% and 18.1% respectively.
Among geographies, Europe registered Q-o-Q growth of 13.08% while US & APAC declined by 6.13% and 9.86% respectively.
In terms of industry verticals, there was a sequential growth of 2.76 % in Automotive vertical whereas Energy & Utilities vertical declined by 9.89 % and Manufacturing vertical declined by 6.28% on a Q-o-Q basis.
The 20 top strategic accounts constituted 49.87% of the total revenues and sequentially grew by 0.78%. Similarly, the 40 top strategic accounts constituted 64.1% of the revenues and had a Q-o-Q decline of 2.38%.
*All the revenue growth numbers mentioned under revenue update are in equivalent $ terms.

Profitability

The realized rate for the quarter was ₹71.23/$ against ₹70.73/$ in Q2 FY19.
The operating margins for the quarter were 13.1% as against the reported margins of 13.0%. The operational EBITDA during the quarter was lower by 212 bps, largely due to revenue decline. In IT, the fall in operational margins was largely in proportion to the revenue fall, though some margin recovery was visible due to reduction in onsite employee costs. The engineering operational margins were up during the quarter leveraging the revenue growth.
The other income was significantly lower during the quarter as compared to last quarter. This is a cumulative effect of translation of foreign currency denominated assets and liabilities, the realized gain on debtors and the realized loss on forward contracts, among other factors.
Summarized Representative Cash Flow
Details Rs. Million
Cash Profit for Q3 FY19 933
Working Capital Adjustments (1,159)
Cash Generated from Operations (225)
Fixed Assets (292)
Balance Cash Flow (518)
Investment in Subsidiary (150)
Debt Repayment (117)
Total Increase/(Decrease) in cash balance (785)
Total Net Cash balance as at Q3 FY19 end (2,644)
  • The Cash Balance as at December 31, 2018 stood at ₹5,311 Million (₹6,096 Million as on September 30, 2018).
  • The DSO were at 84 days, at the quarter end.
  • As on December 31, 2018 our total debt stood at ₹2,667 Million (₹2,793 Million as of September 30, 2018) comprising of ₹868.57 Million of Term Loan and ₹1,798.43 Million of Working Capital Loan.
  • Thus, the Net Cash Balance as at December 31, 2018 stood at ₹2,644 Million (₹3,303 Million as on September 30, 2018).
Income Statements
Conference call details
Conference name
:
KPIT Q3 FY2019 Conference Call
Date
:
Jan 16, 2019
Time
:
1600 Hours (IST)
 
Conference call details
Primary number
:
+91 22 6280 1325/ +91 22 7115 8226
Local access Number
:
+91 70456 71221
Toll free Number
:
USA- 1 866 746 2133
UK- 0 808 101 1573
Singapore- 800 101 2045
Hongkong- 800 964 448
About KPIT Technologiess

KPIT (BSE:532400, NSE: KPIT) is a global technology company specializing in providing IT Consulting and Product Engineering solutions and services to Automotive, Manufacturing, Energy & Utilities and Life Sciencescompanies. Together with its customers and partners, it creates and delivers technologies to enable creating a cleaner, greener and more intelligent world that is sustainable and efficient.

Forward Looking Statements

Some of the statements in this update that are not historical facts are forward-looking statements. These forward-looking statements include our financial and growth projections as well as statements concerning our plans, strategies, intentions and beliefs concerning our business and the markets in which we operate. These statements are based on information currently available to us, and we assume no obligation to update these statements as circumstances change. There are risks and uncertainties that could cause actual events to differ materially from these forward-looking statements. These risks include, but are not limited to, the level of market demand for our services, the highly-competitive market for the types of services that we offer, market conditions that could cause our customers to reduce Their spending for our services, our ability to create, acquire and build new businesses and to grow our existing businesses, our ability to attract and retain qualified personnel, currency fluctuations and market conditions in India and elsewhere around the world, and other risks not specifically mentioned herein but those that are common to industry.

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