Ashok Vemuri outlines strategy for iGate
4 min read . Updated: 10 Oct 2013, 10:38 PM IST
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For the quarter ended September, iGate posted net profits of $31.9 mn, and its revenue rose 8.2% to $293.4 mn
Bangalore: New iGate Corp. chief executive Ashok Vemuri on Thursday gave an early glimpse of his plans for the next three-six months, including creating a new vertical to tap into the US healthcare outsourcing market and making a stronger push for consulting revenue, after the Fremont, California-based company’s quarterly results exceeded market expectations.
Vemuri said iGate would take at least three-four more quarters to return to strong double digit growth that would be at par with Indian IT industry lobby Nasscom’s expectations. Nasscom expects software exports revenue to grow 12-14% for 2013-14.
On Thursday, the company posted strong results, with net profits of $31.9 million, compared with $28.3 million a year ago for the September quarter. Revenue rose 8.2% to $293.4 million and gross margin improved to 41.4% from 39.8% a year ago.
Analysts were expecting revenue at $289.29 million, according to Bloomberg estimates. IGate said it booked $350 million of new fresh business from new clients during the quarter.
The company is also setting up two new delivery centres in North America—Halifax, Canada and Sterling, Virginia (US)—to serve big-ticket clients in the region, Vemuri said.
“We have to be on site as we need to be closer to the client. These are transactions where our being near shore is critical to their progress," the former Infosys veteran said on a post-earnings conference call with analysts. Vemuri said the company planned to make a big push for clients in Continental Europe, especially France and Germany, and shore up the company’s client delivery capabilities. “We’re a mile wide and inch deep—I want to convert that to a mile deep and inch wide," Vemuri said. “There are certain service lines and verticals that we believe are maybe not the right ones for us to operate, including certain geographies. So we’re taking a hard look at some of the businesses we’re in."
“We are going to convert healthcare into a specific vertical and invest in that. We believe that’s a huge opportunity," he added. The US healthcare outsourcing market is estimated to be over $20 billion, according to Everest Group.
Vemuri said iGate had no plans to cut down on hiring, as it had a relatively high utilization rate of 77-78% during the quarter, and is also in the process of ramping up its offices in Bangalore and Pune. “We have literally run out of space. Before we hire all these people, I have to make sure we can seat them somewhere," Vemuri said. He added that the company would also be cautious about signing new deals. “We don’t want to get into situations where we’re signing long-tenure deals in order to boost our order bookings, which will not necessarily reflect in our quarterly earnings. So we will be fairly cautious about the kind of deals that we sign," he said.
Vemuri, however, said that the company could see a weaker Q4, owing to the completion of some projects and fewer working days during the quarter due to the holiday season. But he remained upbeat about the near future, citing a strong deal pipeline and improved client spending.
“We expect modest sequential growth in the fourth quarter, especially when compared to our third quarter," Vemuri told analysts.
“I think it’ll be a little difficult to put a date on when we will return to (industry leading) growth. We’re also focused on creating a stronger consulting business—a combination of all of that and some of the recent deals we’ve signed, and our pipeline, should bring us back to where we want to be in hopefully three-four quarters," said Vemuri, who joined iGate last month after 15 years at Infosys Ltd.
The company, which follows an outcome-based pricing model, said it added eight new clients during the quarter.
“They got a ramp up from big deals they signed in the second quarter," said an analyst at a US-based brokerage who did not want to be named. “Certainly looks like a good quarter for them. They had some headwinds from Canada, but they’re growing through it. So it looks like things have stabilized for them."
Over the past six months, iGate has faced a number of setbacks, most notably in May when its then CEO Phaneesh Murthy was sacked for failing to disclose a relationship with a subordinate employee.
In April, the Canadian government began an investigation into a report that said the Royal Bank of Canada, the country’s largest bank, was using temporary foreign workers from iGate to replace permanent existing staff. The news eventually triggered a temporary halt in fresh outsourcing projects from Canada’s banking and financial services sector. After Murthy’s departure, iGate struggled to fill the position of CEO for several months, as a number of candidates who were approached for the top job declined, citing concerns over the company’s huge $700 million debt, unsettled tax claims and lawsuits filed against it.
IGate’s shares closed up 1.7% at $27.59 each on Wednesday on Nasdaq, before the results were announced.
