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IGate decides to spin off staffing services business

IGate decides to spin off staffing services business
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First Published: Wed, Feb 27 2008. 11 31 PM IST

Moving up: Phaneesh Murthy has been named the new chief executive of iGate Corp. (Photo: Hemant Mishra/ Mint)
Moving up: Phaneesh Murthy has been named the new chief executive of iGate Corp. (Photo: Hemant Mishra/ Mint)
Updated: Wed, Feb 27 2008. 11 31 PM IST
Bangalore: The Nasdaq-listed iGate Corp., which delisted its Indian subsidiary iGate Global Solutions Ltd from local stock exchanges late last year, said on Wednesday that it would spin off its staffing services arm which is essentially a body-shopping business with low profit margins.
The staffing business is handled by firms such as iGate Mastech and RPOworldwide.
The business will either be sold or transferred through a tax-free transaction to shareholders of iGate Corp. The company has retained investment bank Credit Suisse Securities (USA) Llc. to assist with the transaction.
“The staffing business will no longer be part of iGate Corp and accounts (of the two businesses) will be separated from the current quarter,” said Phaneesh Murthy, who has been named the new chief executive of iGate Corp., in a telephone interview from the US.
Mint had reported on 9 January that iGate may spin off its staffing business.
Moving up: Phaneesh Murthy has been named the new chief executive of iGate Corp. (Photo: Hemant Mishra/ Mint)
This spin-off will mark the end of the capital restructuring process that began in iGate in 2003 and, according to Murthy, who was previously CEO of iGate, “will make clear where we want to make investments, going forward.”
“We will now end up with a clean structure like that of Cognizant (Technology) or Syntel, where the company will be listed in the US with delivery operations in India,” Murthy added.
As part of the delisting process, about one-fifth of iGate Global’s 6,500 employees in India have been issued US-stock options, Murthy said.
IGate, which serves customers such as General Electric, Royal Bank of Canada and the United Bank of California, has also been exploring options to set up a near-shore delivery centre in Mexico in the third quarter of 2008.
“We may begin with about 100 people in Mexico,” Murthy said, adding that he is yet to see any evidence of a slowdown in technology spending in the US, the largest market for IT services. “Customers continue to spend on technology and are focusing on cutting their operational costs,” Murthy said.
He added that for every dollar spent on technology, about $4-5 are spent on running the operations.
Murthy had said earlier that IT budgets of customers for 2008 would be flat or marginally higher than that of 2007 and that iGate has been signing new customers at billing rates that were 4-5% higher. Of the $1.5 trillion IT outsourcing market, only $60 billion has been tapped, Murthy said, adding there was plenty of room for growth. “We are not concerned about the possible slowdown (in the wake of a credit crisis and a recession in the US),” he claimed.
IGate Global Solutions registered revenues of Rs609.50 crore and a net profit of Rs66.20 crore for the nine months ended 31 December.
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First Published: Wed, Feb 27 2008. 11 31 PM IST