The challenge

KPIT Technologies went through a very complex structure of merger and demerger in 2018 and the new company started in January 2019. The management set a target to become a debt-free company by the following year, and to bring improvement in days sales outstanding (DSO) and discipline in the overall management of receivables management.

As a listed entity, KPIT Technologies is expected to optimise working capital and enhance various value drivers for shareholders. This is a real challenge, given its limited vantage as a separate legal entity.

KPIT’s Treasurer, Mandar Kulkarni, looked at financial levers to drive working capital efficiency and identified improving its DSO as a path to achieve that. To optimise its group-wide working capital, KPIT wanted to reduce its DSO on a consolidated basis. This meant enhancing cash flows across its different subsidiaries in various geographies simultaneously.

The other objective was to maintain the adequate liquidity in the multiple geographies so that the entities can manage their cash flows independently.

The solution

Working in close cooperation with its appointed banks, KPIT was able to tailor a solution fit-for-purpose solution; a multi-jurisdiction, multi-debtor, non-recourse accounts receivable purchase (ARP) programme for its US and German subsidiaries (around ten debtors that are mostly unlisted corporations).

The US$35m-plus programme allowed KPIT to improve its cash conversion cycle and achieve optimal working capital efficiency. KPIT is now adding geographies that will eventually cover 75% of its global business turnover.

In addition, the ARP solution covered multiple KPIT locations involving multiple debtors. Multi-debtor due diligence included the assessment of its contracts and ledgers, in various languages.

Customised agreements also had to be compatible with local laws and had to be enforceable in Singapore. Given the time differences between the US, Germany, India and Singapore, customised workflows to ensure the exchange of information and transactional documents now run smoothly.

Best practice and innovation

To align with KPIT’s financial reporting cycle, KPIT and DBS had to work within a very tight timeframe of 30 days to originate, structure and implement the ARP programme across multiple jurisdictions and for multiple debtors.

Due to the large volume of invoices, KPIT and DBS arranged for the ARP via a summary invoice listing, rather than submitting individual hardcopy invoices. This provided KPIT with the ability to scale up this programme easily and quickly, supporting its overall business expansion across markets.

While KPIT has implemented this solution for Germany and the US, the group was also looking to extend this programme to the UK, Japan and India. Singapore was selected as the offshore location to structure this solution, taking into consideration the most optimal framework from a tax, documentation and operational perspective.

This was unprecedented in both the global scope and tight timeframe to deliver on KPIT’s group objectives.

To overcome these challenges, various workstreams were created to concurrently address credit, legal, and operational aspects of implementing this programme across the multiple countries.

Key benefits

• The non-recourse ARP programme for KPIT’s US and German subsidiaries helped KPIT reduce its DSO by up to 75 days.
• Unlocked up to US$20m of working capital within 30 days for its business expansion without having to utilise other higher-cost sources of funding.
• A complex multi-jurisdiction, multi-debtor ARP deal executed efficiently with a path to scalability across other markets such as UK and Japan.
• The end-to-end origination-to-execution was completed within a record 30 days.