KPIT Technologies turns volatile after going ex-date for demerger

The stock hit an intra-day low of Rs 123, falling 18 per cent from its early morning high of Rs 150 on the BSE.

Shares of KPIT Technologies turned volatile, swinging 18 per cent during the intra-day trade on Thursday on BSE, after the stock turned ex-date for the demerger.

KPIT Technologies gained 10 per cent to Rs 150, after opening at Rs 136 on the BSE. It fell 18 per cent from its early morning high and touched a low of Rs 123 in the intra-day trade so far.

At 12:14 pm, the stock was trading 3 per cent lower at Rs 132, recovering 7 per cent from day’s low on the BSE. The trading volumes on the counter surged multiple-fold with a combined 44.38 million equity shares changed hands on the NSE and BSE so far. On Wednesday, the stock had ended at Rs 218 on the BSE.

KPIT Technologies demerged its engineering division into a separate entity KPIT Engineering. The company has fixed January 24, 2019, as the record date for the purpose of determining the eligible shareholders of the company entitled to receive the said equity shares of KPIT Engineering.

KPIT in January last year had announced a merger with BirlaSoft and a simultaneous splitting off of the enlarged company into IT and Engineering Services.

BirlaSoft (a privately-held IT-services company) shareholders are getting 22 shares of KPIT for every nine of BirlaSoft. KPIT Technologies shareholders will receive one share in the KPIT Engineering for every one share held in the company.

“Within the next few months, the KPIT promoters (likely to own 14 per cent in the enlarged entity) will buy out the Birla promoters’ stake (likely to own 28 per cent in the enlarged entity) in KPIT Tech in lieu of their 28 per cent stake in Birlasoft. At the company level, the KPIT promoters’ stake in KPIT Tech will likely go up to 40 per cent (with some additional pledge requirements, on our calculations) with no cross-holdings in Birlasoft,” analysts at Anand Rathi Share and Stock Brokers said in company update.

The brokerage firm has revised its target multiple to 14x FY21e EPS (from 15x FY21e earlier). The lower multiple reflects the more-than-expected weakness in IT and margins, and lower FCF generation. The December quarter is the last quarter for consolidated earnings; hence, from the next note, we will be splitting our estimates between the two companies, it added.