iGate results stoke IT optimism

Company posts 44% jump in net profit; says transformational deals are coming back

Nasdaq-listed information technology (IT) services company iGate on Thursday reported better-than-expected numbers in the first quarter of 2013, reviving hopes for the IT outsourcing industry.

The US-headquartered company, which has significant delivery presence in India, reported a 44 per cent jump in its Q1 net profit at $34.8 million, compared with the corresponding period last year.

The firm’s revenues grew by four per cent to $274.9 million, compared to the Q1 of 2012, marginally ahead of the consensus estimates of $272 million. The gross margin at 38.1 per cent dropped by 200 basis points (bps) compared to the same quarter last year, which the company attributed to higher visa-related costs.

Phaneesh Murthy, CEO of iGate, said while the growth in Q1 was quite broad-based, the firm had been able to add some “quality new names” as clients. More important, unlike last year, clients are sticking to their budgets this year, reflecting in their spending.

“Overall demand at this point of time looks more interesting than what was seen last year. While last year we found clients’ spending was trailing their budgets, this year they are keeping track of it,” Murthy said during an analysts’ call.

He added, “We are also actually starting to see a fair number of customer willing to start transformation initiatives. That is a fairly interesting trend because that traditionally has been the bread and butter of the Indian IT services industry. That could signal the coming back of relatively large projects over time.”

During the quarter, iGate added 10 new clients including six Fortune 1,000 customers. Eight of the new client acquisitions happened in North America, while two were added in Europe, the Middle East and Africa region.

The company also said the deal pipeline was healthy and the deal conversion rate had improved. Murthy said the company was chasing deals worth $3.5 billion.

Murthy said the company would expand its sales and marketing capabilities in North America and Europe. During the past four months, iGate has added about 40 people to its sales and marketing team.

In the quarter under review, the company also added around 650 people, taking the employee strength to 28,204.