iGate Global Q2 net doubles, to delist by Dec

Despite recording an almost flat growth in revenue, Bangalore-based iGate Global Solutions - an IT services company - has managed to double its profit to Rs 22.9 crore during the second quarter of FY08 as compared to the corresponding quarter last financial year (Rs 10.1 crore). The company attributed the profit growth to operational efficiencies, including reducing its direct costs.

iGate CEO Phaneesh Murthy said the company had made sufficient provision for hedging to minimise the impact of the rising rupee against the US dollar. "We had long term hedge deals of 2-3 years tenor contracted to manage the expected rise in rupee. In fact, we were able to isolate the impact. We started hedging since last quarter and have more than $54 million in hedges," he added.

Consequently, the company earned Rs 1.6 crore through exchange gains. It also earned Rs 1.1 crore as interest from various investments. The other operational expenditure was brought down from Rs 39.4 crore to Rs 34 crore.  The direct costs were reduced from Rs 143.2 crore last quarter to Rs 135 crore this quarter thereby enhancing the profit significantly.

"We reduced the direct costs by improving the operational efficiencies and through better offshoring practices. The offshore volume contribution has risen to 78% from 72%. The utilisation has also gone up to 75%. All these helped us grow margins strongly," he added.

The operating profit went up by 58.5% to Rs 31.7 crore this quarter. The topline for the quarter stood at Rs 200.8 crore, marginally less when compared to Rs 202.6 crore recorded during the corresponding quarter last fiscal. The number of million dollar clients went up to 29 from 26 in FY07Q2.

Commenting on the earnings, Murthy said the company was not able to grab 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 of iGate Global Solutions to drive business. He has been appointed head of sales and marketing.

"Murthy was with Hexaware in the US before joining our company. He specialises in new accounts and we expect more orders to follow," Murthy said. The earnings per share grew to Rs 7.25 from 3.26 in the same quarter previous year. The company has a cash reserve of $34 million (Rs 136 crore).

On a sequential basis, the net profit is up by 60% and the top line has grown marginally. The company officials said the disturbances in the US sub-prime market had minimum effect on the earnings since it had reduced the 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% to our overall revenue. Earlier, it was more than 7%," he added. 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 fiscal.

iGate is awaiting clearance from the Karnataka government to expand the 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.

The company also announced plans to delist its offshore subsidiary in India - iGate Global Solutions - from the Bombay, National and Bangalore stock exchanges. The iGate stock on BSE closed the day at Rs 339 a share - up 7% over yesterday's close. The market is expecting the buy back offer to be in the range of Rs 400-450 per share.

The move is aimed at putting an end to the confusion over two stocks and concentrating more on the North American markets. "A majority of our clients are in North America. It will be better for us to keep the US listing (Nasdaq). It will create a higher profile for the company and assets for the employees," Phaneesh Murthy said.

iGate Global Solutions can be delisted after iGate and its affiliate iGate Inc acquire over 90% of iGate Global Solution's common stock. iGate and iGate Inc currently own 81.1% of iGate Global Solutions. The buy out of the shares (18.9 %) is expected to be completed by December if the proposal is approved. Of the 18.9% shares, 5.7% is held by three institutions, 3.5% by the senior executives of the company and the balance is distributed between the employees and public. The delisting will be done in accordance with the Sebi guidelines through a shareholder-led reverse book building process.

iGate reserves the right not to effect the delisting if the final price is not acceptable to its Board of Directors, the company said.