iGate profit declines 9%; margins may face stress

Written by PTI | New Delhi | Updated: Apr 11 2014, 15:17pm hrs
IgateThis is against a net profit of $34.8 million in the corresponding quarter last fiscal, iGate said. Reuters
Outsourcing services firm iGate today reported a 9 per cent fall in net profit for the first quarter ended March 31, 2014 due to currency fluctuations, visa fee and also as it rationalises its client structure.

The New Jersey-headquartered firm's net profit stood at USD 31.6 million for the January-March quarter of 2014 fiscal against USD 34.8 million in the year-ago period. iGate follows January-December as fiscal year.

iGate, however, posted a 10 per cent growth in income at USD 302.2 million in the reported period, against USD 274.9 million in the January-March 2013 quarter helped by growth in North America and Europe.

North America accounts for 77 per cent of the revenues followed by Europe at 16.5 per cent and the remaining from rest of the world.

Margins of the NASDAQ-listed firm may face under pressure in the April-June quarter this fiscal as it plans to complete the rationalisation of its strategic client base, continue its hiring activities and also due to the scheduled wage hikes.

Upbeat on the growth in Europe, iGate President and CEO Ashok Vemuri said: "Europe is seeing a good traction in the traditional IT spending space as well as in retail, automobile and Hi-Tech among others. However, Western Europe still seems to be not out of the woods."

When asked about the firm's plans for Europe, Vemuri told PTI: "Going ahead the firm is concentrating on the UK, Nordic countries and Germany. We may even go for a small acquisition in these geographies, especially Germany.

"Our consideration for acquisition is either to acquire some capability for example in digital, analytics or mobility space and the other is the European aspect where we need to build a certain capability in some geography."

Earlier speaking to reporters in a conference call, Vemuri said iGate will give wage hike to its employees in the April-June quarter -- 8-10 per cent in India and 2-4 per cent at other places -- which will have an impact on the firm's margins.

Besides, the firm is in the process of weaning away from non-strategic clients. During the first quarter iGate closed down 16 such accounts.

"We have completed about 80 per cent of tail programme management and the rest will be achieved as we go forward," Vemuri said.

The company added nine new customers during the first quarter, which included seven from North America and two in Europe.

Segment-wise, two deals came from the BFSI segment, retail & CPG, healthcare & life sciences and Manufacturing, each, while one deal was secured in the services segment.

iGate's headcount grew by 1,102 people to 30,835 at the end of March 31, 2014 and the firm expects to continue hiring as it anticipates to meet demand for deals going ahead.

The company successfully secured financing to redeem its USD 770 million 9 per cent Senior Notes through a combination USD 325 million of new 4.75 per cent senior notes due in 2019 and bank financing.

"This refinancing is expected to yield significant cost savings over the coming quarters. However, rupee fluctuation due to forex headwinds will be a concern, as we continue to grow our profits," iGate CFO Sujit Sircar said.

The firm expects to save about USD 50 million is savings on an annual basis.

Going ahead, Vemuri said: "Overall market conditions appear to be favourable across the board. With our healthy pipeline, along with timely rollout of investments in people and solutions, we believe we are well positioned for sustainable growth."

He added that pricing is expected to be fairly stable, but there could be significant pressures on pricing on large deals as there could be desperate bidding from large firms.

"There is very little scope of increase in pricing in traditional IT business," Vemuri said.

iGate expect "modest" sequential revenue growth in the April-June quarter. However, it expects growth to pick up in the second half of the year.

The firm is in final stages of starting its university in Pune, which will operationalise in the second quarter.

Besides, it is in the process of setting up an office in Switzerland, where it has many big clients. iGate will also set-up an office in Germany by the end of second quarter or early July-September quarter.

The company spent USD 16 million on capital expenditure in the January-March quarter and expects to spend close to USD 55 million in the entire 2014 fiscal.

Earlier it had given a guidance of spending USD 300 million on capex in three years starting 2014.