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| IT firm KPIT Cummins Infosystems (formerly known as KPIT Infosystems) has acquired PANEX Consulting, a Houston-based SAP consulting firm, for $1.70 million.
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| The company reported a turnover of Rs 24.83 crore for the first quarter ended June 30, 2003, a growth of 61.8 per cent over the corresponding quarter previous year.
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| During the quarter, KPIT's net profit rose 197.4 per cent to Rs 2.77 crore. The stock is presently trading at Rs 220, at a P/E of 19x.
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What is the rationale behind the merger with PANEX?
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| The key focus areas of KPIT Cummins are manufacturing and banking and finance. Our implementation services are currently restricted to Oracle applications.
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| Since SAP is one of the major enterprise resource planning (ERP) solutions in both manufacturing and banking and finance sectors, the acquisition fills a strategic gap in our service offerings.
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| Over the last few months KPIT Cummins and PANEX have successfully bid for and gained projects with HP. The work we have done together to date reflects an excellent cultural fit.
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| Post-merger, KPIT Cummins would also share key relationships with clients such as HP, Hercules and Accenture. This would help us reduce time-to-market in the SAP segment.
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| We will also be able to offer outsourcing services to major customers in the areas of manufacturing and banking and finance. The marketing expertise of the PANEX team will be an additional asset.
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What were the financial details of the deal?
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| KPIT Cummins proposes to buy 100 per cent of PANEX in cash and stock. The valuation of PANEX has been agreed at $1.7 million.
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| This would be payable over three years as $300,000 in cash and 394,000 equity shares equivalent to $1.4 million.
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| This would be payable over a period of three years. KPIT Cummins will pay $558,000, including $100,000 in cash and $458,000 in equity stock, upfront. The remaining would be paid in equal installments.
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What would be the first full year impact of the PANEX merger?
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| During the first financial year of operation, PANEX will contribute roughly $7 million in topline and $400,000 in bottomline.
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How is your synergy with Cummins working out?
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| Both KPIT and Cummins had their own objectives which have been met successfully. KPIT wanted to make manufacturing a stronger vertical, accelerate growth and create strong competencies which have helped it position itself in the offerings part. Cummins was in the process of offshoring their IT services.
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| It was looking to outsource some core processes, activities, strategies and strategic IT applications to a group company so that they could have the twin benefits of outsourcing and maintaining the knowledge within the group.
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Manufacturing was contributing 18-20 per cent to KPIT
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