iGate doubles profit in Q2

iGate Global Solutions, an IT services company, has more than doubled its net profit to Rs 22.9 crore (about $5.8 million) in the second quarter of 2007-08, from Rs 10.1 crore in the corresponding period last year.

The mid-size software company, 81.1 per cent owned by US-based iGate Corporation, said the growth was made possible by operational efficiencies that reduced direct costs.

Its profit was boosted by other income of Rs 2.7 crore. However, revenue was almost flat at Rs 201 crore in the quarter against Rs 203 crore in the previous corresponding period, which showed that the firm was not able to win large outsourcing deals in competition against bigger players.

Earnings from hedging

iGate's CEO Phaneesh Murthy said the company had made sufficient provision for hedging to minimise the impact of the rising rupee.

"We had long-term hedge deals of 2-3 years tenor contracted to manage the expected rise in the rupee. In fact, we were able to isolate the impact. We started hedging since last quarter and have more than $54 million (more than Rs 200 crore) in hedges," he said.

Consequently, the company earned Rs 1.6 crore through exchange gains. It also earned Rs 1.1 crore as interest from various investments.

Other operational expenditure was reduced to Rs 34 crore in the quarter from Rs 39.4 crore in the previous corresponding period. Direct costs were also reduced to Rs 135 crore from Rs 143.2 crore.

"We reduced direct costs by improving operational efficiencies and through better offshoring practices. The offshore volume contribution has risen to 78 per cent from 72 per cent. Utilisation has also gone up to 75 per cent. All this helped us grow margins strongly," Murthy said.

Operating profit was up by 58.5 per cent to Rs 31.7 crore in the second quarter. The top line for the quarter stood at Rs 200.8 crore, marginally less than the Rs 202.6 crore in the corresponding quarter last year. The number of million dollar clients has gone up to 29 from 26 in this period.

Few new customers

Commenting on revenue earnings, Murthy said the company was not able to get new customers.

"We could add only three clients during the quarter. However, we have closed the second quarter with a healthy order book giving us optimism for revenue growth," he said.

The company has appointed Hari Murthy, a former colleague of Phaneesh Murthy at Infosys, on the board of directors to drive business. He has been appointed head of sales and marketing.

"Hari was with Hexaware in the US before joining our company. He specialises in new accounts and we expect more orders to follow," Murthy said.

Earnings per share grew to Rs 7.25 from Rs 3.26 in the same quarter previous year. The company has a cash reserve of $34 million (about Rs 136 crore).

Sub-prime has no effect

On a sequential basis, net profit is up by 60 per cent and the top line has grown marginally.

Company executives said the disturbances in the US sub-prime market had a minimum effect on earnings as it had reduced exposure to the mortgage industry.

Murthy pointed out that the company served only two large customers in the mortgage industry. "Now the mortgage sector contributes only 5.5 per cent to our overall revenue, from 7 per cent earlier."

By the end of the quarter, the company had employed close to 6,000 people. It expects to employ another 600-800 by the end of the financial year.

iGate is awaiting clearance from the Karnataka government to expand office space. The company intends to commence construction of another building within its existing campus at Whitefield, Bangalore.

The new building has been designed to accommodate 3,500 people.