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Private equity major ChrysCapital has started 2010 with a busy note, closing a deal in the first week of the year. The PE firm is picking up a stake in mid-cap information technology firm KPIT Cummins Infosystems Limited for upto Rs 112.5 crore. The stake will be picked up through a preferential issue to ChrysCap entity Warhol Ltd (Mauritius) and subject to shareholders and other regulatory approvals. KPIT has called for an extra-ordinary general meeting (EGM) on February 4.

The deal could fetch ChrysCapital upto a 8.95% stake in the company on a post-dilution basis, subscribing to 7,758,621 equity shares of Rs. 2/- each. The deal has been struck at Rs 145 per share, a 1.75% premium to Friday's closing price of Rs 142.5. The firm's share price has reached a 52-week high of Rs 192.9 per share, with the market capitalisation at current price of Rs 142.5 coming to Rs 1,124 crore.

Pune-based KPIT, a product engineering and IT consulting firm focused on industries like manufacturing and automobile, had early investors like Rakesh Jhunjhunwala, IFC and Lehman Brothers. KPIT reported revenues for FY10 at Rs 731.64 crore, a Y-o-Y decline of 7.76% but the net profit increased by 30% to Rs 85.7 crore for the fiscal. For Q2FY11, KPIT reported a 33% increase in revenues to Rs 235 crore and a 12% increase in net profit to Rs 23.75 crore on Y-o-Y basis.

KPIT Cummins started as a financial auditing firm decades before moving into the field of software and in 2002 acquired the IT arm of diversified machinery maker Cummins Inc, which continues to hold nearly a 15% stake in the firm. Since then KPIT Cummins has done eight other acquisitions, with two coming in 2010. It also formed a joint venture with world's second largest forging company Bharat Forge to make and sell a new hybrid technology for automobiles in 2010.

"KPIT is better positioned in the mid-tier Indian IT space to capture growth in spending related to discretionary services such as engineering and enterprise solution due to its domain focus. The company’s revenue growth and profitability growth are expected to outpace that of its peers," said Angel Broking in a report dated December 28, 2010. The report added that KPIT's prospects are good since there is a recovery in the manufacturing sector globally and the automobile sector also expected to return to strong growth.

Also, the company has been able to turn around acquisitions such as Harita TVS (2008) and CG Smith Software (2006) with an over 41% CAGR. Angel initiated a buy recommendation with a target price of Rs 164  on the company. Current investors in the company include Blackstone's India Fund Inc, Cargill Ventures and Blackrock India Equity Fund Mauritius Ltd.

ChrysCapital has made several successful bets on India's IT sector with investments like Mphasis BFL, Spectramind and most recently its $400 million exit from IT bellwether Infosys Technologies. It has also invested in companies like HCL Technologies and Hexaware, among

others.

The PE firm most recently invested Rs 100 crore in Pratibha Industries Ltd, an infrastructure solutions provider in the water management and urban infrastructure space.

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