KPIT Technologies dips after client files suit against arm

Stock dips 8% to Rs 174 on BSE in early morning trade, recovers to end 5,4% down at Rs 179

KPIT Technologies today dipped eight per cent to Rs 174 on the Bombay Stock Exchange in early morning trade, after the company announced on Monday that Copart Inc. has filed a suit against its unit, Sparta. Copart claims it is entitled to seek damages amounting to not less than $50 million for, among other things, breach of contract, fraudulent inducement and negligent misrepresentation.

"Copart also prayed for other relief such as indirect damages, punitive damages, attorney's fees, etc for an unquantified amount," KPIT Technologies said in BSE filing. BSE LINK 

The stock however recovered and was down 5.4 per cent at Rs 179 at close on the BSE.

The company in a statement said: "Recently, Copart amended its suit to seek fresh claims for damages for, among other things, misappropriation of its trade secrets and has added the Company and its subsidiary, KPIT Infosystems Inc, as parties to the dispute. While the service of the process on the Company is yet to happen, we are making this present announcement as a measure of abundant precaution. KPIT has made adequate provision against the amount receivable from Copart."

"We continue to see structural improvement in the company over the last 4 quarters. The company has already taken strong measures to improve contract structuring and negotiations over the last few quarters. We see the impact of the same not yet captured in the financial performance of the company. Moreover, Accenture legal battle with Copart had been settled off the court at less than $2 million. We retain KPIT as our preferred pick in the sector and recommend buying on declines," points out a note from IDFC Research.

Daljeet Kohli of Indianivesh in his report said, "The company has already written-off all the receivables related to Copart and adequate provision is already created for claims.

As a result, we do not see any major financial impact going-ahead due to this on-going legal battle. However, the company have to bear the lawyer and other legal charges, which could be in the range of $1.0-1.5 million (Rs.66-99 million | Rs 0.35 to Rs.0.53 per share) per year till the time issue is not resolved."

The company, meanwhile, said that Sparta Consulting its subsidiary was hired by Copart to design a replacement for its enterprise resource planning (ERP) system. Thereafter, Copart hired Sparta to build the new system between between 2011 and 2013. The contract was terminated by Copart" without cause", said the company in a statement.

Under the relevant contractual provision, Copart invited Sparta to provide the amount it was owed for the services performed and completed as of the termination date. Sparta responded to Copart's request with a detailed analysis of the amount it believed it was owed and it requested a response from Copart.

Following a dispute between the parties on the amount of fees payable to Sparta, Copart filed a suit against Sparta alleging that it is entitled to seek damages amounting to not less than $ 50 million for, among other things, breach of contract, fraudulent inducement and negligent misrepresentation.

Sparta filed a suit against Copart seeking damages for, among other things, breach of contract, promissory estoppel and unjust enrichment.