iGate Global Outperformer – ICICI Research

iGate Global reported a flat topline at Rs 210.1 crore as compared to the previous quarter on account of financial closures in the US market coupled with a 210 bps Rupee impact and higher offshoring. However EBIDTA margins were a big positive surprise expanding by 268 bps as compared to the previous quarter (15.3% vs our estimates of 13.9% for the current quarter) on account of higher offshoring (onshore : offshore effort at 25:75 in Q4 vs 27:73 in Q3), lower direct costs and SG&A (Selling, General & Administration expenses).

The company’s ITES business accounting for 10% of its revenues was hit by the slowdown in the sub-prime mortgage market in the US (ITES witnessed a 5.3% decline in revenues during the quarter), and the management indicated a possibility of sluggishness in revenues during the first quarter of FY08E. This is a temporary aberration that could rebound during the second quarter of FY08E and continue to be bullish on the stock going forward with the margin expansion story intact. ICICI reiterates a BUY with a price target of Rs 610 achievable over the next 15 to 18 months. Download the report here.