Dec 01, 2016 12:20 PM IST | Source: CNBC-TV18

Partnership with MicroFuzzy to be internally funded: KPIT Tech

Kishor Patil, MD & CEO, KPIT Technologies said the partnership would be funded through internal accruals. The cash balance with the company currently stands at Rs 400 crore.

KPIT Technologies announced a strategic stake today in an automotive engineering services company MicroFuzzy, headquartered in Germany.

The fixed consideration will be euro 9.3 million and the total consideration will include additional variable consideration, which will be based on achievement of certain financial parameters over the next four years, said the company in its press release.

Throwing more light on this development, Kishor Patil, MD & CEO, KPIT Technologies said this partnership would be funded through internal accruals. The cash balance with the company currently stands at Rs 400 crore, said Patil.

Patil said, the German company operates in clean energy electric vehicle space, which would help them build on that segment. Margins of the German company, too, are in line with KPIT, he said.

He is also upbeat about maintaining growth momentum in the second half of the fiscal because there are areas like automotive engineering and digital which has shown strong momentum.

The partnership with MicroFuzzy would give KPIT access to around 150 plus specialised engineers.

Below is the transcript of Kishor Patil’s interview to Ekta Batra and Reema Tendulkar on CNBC-TV18.

Reema: If you could give us some details about MicroFuzzy. What would be the revenues, the margins of the company and also what the variable consideration for the deal is? You have indicated what the fixed consideration is, but if you could give us more colour on the variable compensation?

A: Just to go back as the automotive engineering which is our major area of business and the highest growth potential business. In that, the clean energy is where the new energy companies is a very important segment for us and MicroFuzzy basically works in this area. They have delivered one of the pioneer programmes in electric vehicle validation as well as certain developments in some certain technology and products. So, being specifically in the German markets and will pioneer, that is what interests us to really build on this fast growing market.

As we always do, it is a new market, it is a company, so basically, it is a long-term partnership and the compensation actually is always based on the revenue and the profitability over the next 3-4 years. So, that is how we have structured the deal. So, fundamentally, we believe that anyway the current margins are in line with KPIT’s total margins. So they are in the same range. So we expect this to really help us build in this emerging market of electric vehicle. That is how we are looking at this.

Ekta: Second half is expected to be stronger than the first half. And your guidance had also maintained that maybe the growth momentum should improve in the coming quarters, in the second half of the fiscal. What are you facing on the ground currently in terms of all of the changes that we have seen since Q2 got over?

A: There are areas where there is momentum and there are areas which are not growing as much. But we believe that naturally the second half will be better than H1 for sure and people will start seeing some growth momentum in certain specific area. And we believe that while the markets have been choppy here and there, but in certain areas like automotive engineering as well as the digital and some of these areas, people will see some of that momentum. We are very positive about momentum in these areas.

Reema: At least when we last spoke to you, the cash in the books was close to about Rs 24 crore. The payout that you will be making, the fixed component will be close to Rs 70 crore. Could you tell us how the deal will be funded?

A: There is some mistake at your end. Our cash balance is much higher. Our cash balance would be up about closer to Rs 400 crore plus. As well as, as you know, last month, we actually spun off one of our smaller businesses which gave us similar revenues of cash out of that deal. So, we will internally fund this acquisition of the equity stake.

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