Buy iGATE Global: Edelweiss

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Buy iGATE Global: Edelweiss

Broking house, Edelweiss Research is bullish on iGATE Global Solutions and has recommended buy rating on the stock.

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iGATE Solutions BSE | NSE 01/01/70 Are Mutual Funds betting on iGATE Solutions?

Broking house, Edelweiss Research is bullish on iGATE Global Solutions and has recommended buy rating on the stock.

Edelweiss Research report on iGATE Global Solutions:

iGATE's Q4FY07 results were ahead of our expectations. Revenues at INR 2.1 bn were muted (sequentially flat), but net profit of INR 226 mn, up 41.7% Q-o-Q and 379.8% Y-o-Y, was ahead of our estimates. EBITDA margins for Q4FY07 stood at 15.3%, the highest since Q3FY01. This quarter completes a strong turnaround story for the company through FY07; profits grew nearly 200% in FY07, with EBITDA margins of 11.4% in FY07 (up 180bps from the FY06 level). Most importantly, the company has established a robust clientele which we believe, is likely to sustain its growth at healthy levels going forward.

We believe that iGATE's trajectory of EBITDA margins is likely continue to exhibit an uptrend and will be sustainable in the range of 16%-18% over the next two years. This, coupled with decent outlook on the IT-services business, is likely to translate into an EPS growth of 57.1% over FY07-09. 

We have revised our EPS estimates for FY08E and FY09E downwards by 8.8% and 3.3% respectively on account of weakness seen in the company's iTOPS revenue segment. At CMP of INR 385, the stock trades at a P/E of 14.2x and 9.8x for FY08E and FY09E earnings respectively. The company's valuation on EV/EBITDA and EV/revenue for FY08E continues to be attractive at 7.4x and 1.2x, respectively. At a PEG of 0.25 we see the current valuations compelling. We maintain our 'BUY' recommendation on this stock.