In Q1FY07, iGATE Global Solutions's (iGS) revenue grew 8.5% qoq (to Rs1.82bn), which is higher than our expectation of 6.5% qoq growth. Offshore volume growth in IT services at 4.5% qoq was lower than 7.6% qoq growth reported in the previous quarter.However, rupee depreciation helped 6% qoq growth in IT services revenues. Decline in EBITDA margins by 255bp on account of salary increase was much higher than our expectation of 175bp decline owing to overruns in couple of projects and provisions for property tax to be paid on leased land in Bangalore.The management has indicated a strong pipeline going forward and maintained its guidance of 15% EBITDA margins by end-FY07. iGS added 4 clients in the quarter.We have downgraded our FY07E EBITDA margin assumption by 40bp to 12%, resulting in EBITDA downgrade of 3%. We believe that decent growth in the coming quarters and margin expansion should lead to a re-rating - at 0.8x FY07E EV/ Sales, risk reward remains favorable - reiterate Outperformer.An SSKI Research report.
