iGate: Safe landing

Adequate hedging helped the company offset rupee impact in the September quarter

iGate Global Solutions, the first IT services company to announce its September 2007 quarter results, has posted fairly good numbers. The company reported a 260 basis points q-o-q growth in operating profit margins to 15.8 per cent, despite an insipid 0.7 per cent rise in operating revenues, in rupee terms.

The growth in operating margins has come on a 1.5 per cent expansion in volumes, with offshore volumes growing 2.4 per cent. Though onsite volumes declined 1.6 per cent, it was compensated by a 0.9 per cent increase in billing rates. In the case of offshore, billing rates were stable.

The rupee has appreciated nearly 0.7 per cent against the dollar in the last quarter, but adequate hedging helped the company to offset the impact. In contrast, in the June 2007 quarter, a surging rupee had resulted in iGate's operating profit margin declining 210 basis points q-o-q to 13.2 per cent.

Meanwhile, the senior company management highlighted that the revenue growth was sluggish in the September 2007 quarter, given its exposure to the US mortgage market.

The contribution from the mortgage business to revenues declined from 7 per cent in the June quarter to 5.5 per cent in Q2. The company also improved its utilisation rate by 100 basis points to 76 per cent.

The company has managed to control costs quite well - direct costs have reduced by 1 per cent, while selling, general and administrative expenses were 7 per cent lower, which helped in the better profitability.

Going forward, the iGate management is optimistic of ramping up its revenue growth in the short term as recent orders in diverse sectors such as manufacturing and financial services (excluding US mortgage business) will start yielding results.

However, for the medium term, the management struck a cautionary note by highlighting that they expect the total IT budget of American companies to remain more or less flat on a y-o-y basis, owing to the problems in the US mortgage market.

Nevertheless, the stock rose 7.1 per cent to Rs 340 on Wednesday after a 20 per cent increase on Tuesday. The stock is likely to remain in action as the US parent, which has over 81 per cent stake in the Indian entity, plans to delist the stock from the domestic bourses.

Prism Cement: Leveraging Demand

Prism Cement has highlighted the buoyancy in the sector in its September 2007 quarterly results, despite steps by the government early in the year to keep a check on prices. Prism's performance has improved on all parameters - volume growth, per tonne realisation and profitability.

The company's operating profit (excluding other income, depreciation and amortisation) improved an impressive 64.3 per cent y-o-y to Rs 73.35 crore in the September 2007 quarter, while its net sales improved 21.1 per cent to Rs 193.1 crore. Operating profit margin also expanded 1,000 basis points y-o-y to 38 per cent in the quarter.

For the financial year ended June 2007, Prism's operating profit margin grew 1,670 basis points y-o-y to 43.1 per cent. Meanwhile, in the September quarter, the company's despatches were 5.73 lakh tonne compared with 5.24 lakh tonne in the corresponding year-ago period.

Realisations worked out to Rs 3369.8 per tonne in the quarter compared with Rs 3,043.1 per tonne a year earlier. Investors appear to have factored in the improved performance of the company in the last quarter, with the stock rising 34 per cent over the past three months compared with a 22 per cent increase in the Sensex.

Prism Cement, like other players, is expected to leverage improved demand conditions in the post-monsoon season. On Wednesday, the stock gained 3.5 per cent to Rs 65 and trades at 8.5 times its trailing 12-month earnings, which is not expensive.