Software maker iGate to delist from bourses

Software maker iGate to delist from bourses
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First Published: Thu, Oct 11 2007. 01 20 AM IST

iGate Global Solutions CEO Phaneesh Murthy
iGate Global Solutions CEO Phaneesh Murthy
Updated: Thu, Oct 11 2007. 01 20 AM IST
Mumbai: iGate Global Solutions Ltd, a mid-sized software services company, announced its plans to delist its shares from Indian stock exchanges in a move that its CEO Phaneesh Murthy said was an effort by the company’s parent iGate Corp. to clean up the “capital structure” of the company. He added that the company’s parent would “hold on for the value build-up”.
That would mean that the parent wants to buy back all shares of iGate Global it does not currently own (around 18.1% of the company’s total equity) because it considers them undervalued, and wait for the company to grow and add more value before possibly considering a share sale. On Wednesday, shares of iGate rose by more than 10% to touch an intra-day high of Rs350 before closing at Rs339.50. This came on the back of a 20% rise on Tuesday. iGate Corp. continues to be listed on the Nasdaq.
iGate said that it would buy back shares through the reverse book-building process, which means that current owners dictate the price at which they will sell to the firm. The rise in share prices could also mean that the firm ends up paying a premium to delist. According to Indian rules, a firm that wishes to delist has to offer to buy back all shares; however, not all shareholders need to turn in their shares (some do retain their shares because they expect the firms that are delisting still remain a good investment); a firm can delist if it owns more than 90% of its shares.
Institutional investors such as DSP Merrill Lynch and Citigroup also hold shares in iGate Global.
iGate Global made the announcement regarding delisting at a conference where it declared its results for the second quarter ended September. While revenue for the quarter remained flat at Rs202.6 crore, its profit more than doubled to Rs22.9 crore on the back of improved employee productivity, lower sales and administrative costs, and more work moving to India. Murthy admitted that revenues were an area of concern. The company also said that its Ebitda (earnings before interest, taxes, depreciation and amortization) margins, a measure of operating profitability, improved from 9.9% in the second quarter of 2006-07 to 15.8% in the July-September quarter. It ended the year to March with revenues of Rs748.44 crore and a net profit of Rs49.05 crore.
That would have disappointed Murthy, who joined the company in 2003 and set out to prove that his performance at Infosys Technologies Ltd, where he was head of sales and marketing, was no fluke. Murthy had helped Infosys grow revenues from $2 million in 1993 to more than $700 million by the time he left—an exit that was brought about by a sexual harassment suit against him that Infosys later settled.
Murthy, whose five predecessors at iGate Global had together lasted five years, spoke to Mint on the road ahead for the company. Edited Excerpts:
Expectations were huge when you joined iGate. Have you achieved the goals that you set out to?
iGate Global Solutions CEO Phaneesh Murthy
I think we achieved a lot of things, but there are things we have not achieved. At least on the revenue and client side, we are not where we would like to be. But (we have achieved) a lot of other things on (issues such as) leadership, HR, good execution, a campus, culture.
So your energy went in organization building than on sales?
That is quite likely. That is one of the challenges we had. We had a head of sales, but we also did a lot of organization building. If I look back, we did four or five major transformations at the same time. Earlier, we did a lot of sub-contract work for large system integrators; now we don’t. Most of our customers were small companies; now more than 91% business comes from Fortune 1,000 firms. The GE business has come down from 44-45% to less than 25% of our revenues. Our customer concentration has changed. From earning 90% of revenues offshore with 70% people being onsite, we have now changed the mix towards 78% offshore.
What are the challenges facing iGate?
I don’t think too many challenges. Grow revenues, focus on efficient execution and (we have to) continue to manage sales, general administration costs.
Are you comfortable with the margins you are earning?
We had said we would have operating margins of 15% this year; we have done that. Now the effort is to have Ebitda of 20% by March 2009.
Will you look at inorganic growth to boost revenue?
We will certainly be open to inorganic growth options. Now that we have a strong culture in iGate and a set of processes, that could be a possibility.
What does the delisting mean?
There will be no difference in the way we would be working, except that the company that is 100% owned by some other shareholder, as opposed to 81.9% owned by them.
Last quarter, we had won a number of deals, many of them in the Itops (integrated technology and operations) area. So I am actually feeling more and more bullish. Sometimes I have done little hard thinking to see whether the model is right; now everybody is saying the model is right.
You have said that IT spending in the US will be flat next year...
My sense is that there will be a little bit of slowdown and then there will be a pick-up. That (lull) could be between November and February.
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First Published: Thu, Oct 11 2007. 01 20 AM IST
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