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

Broking house, ICICI Research has recommended an outperformer rating on iGate Global Solutions with a price target of Rs 610 over the next 12 to 18 months.

 

ICICI Research report on iGate Global Solutions:

 

Performance Chart iGate Global Solutions has evolved from an onshore centric player to an integrated end-to-end offshore centric IT solutions provider. With a strong delivery engine and business matrices that match the best in the industry, it is well placed to reap the benefits in the form of revenue and profit growth, aided by an expansion in margins. We initiate coverage on the company with an OUTPERFORMER rating.

 

KEY TRIGGERS

 

Focus on Fortune 1000 clients to boost realizations

 

The company has embarked on a strategy to focus on Fortune 1000 customers. These customers currently account for 85% of revenues and are billed at significantly higher rates. We believe that this would boost sales realizations as the contribution to revenues from these customers increase.

 

Cost-cutting to improve margins

 

The company plans to lower employee expenses by reducing lateral hires and stepping up recruitment of freshers. This initiative is likely to boost gross margins on an ongoing basis. We estimate gross margins to grow from 32% at the end of FY07E to 34% by the end of FY08E. We expect operating margins to grow from 13.9% at the end of FY07E to 18.6% by the end of FY09E as the company benefits from higher leverage of SG&A on a higher revenue base.

 

Possible acquisition could act as a trigger

 

iGate plans to make an acquisition to add domain expertise in the banking, financial services & insurance (BFSI) vertical to create differentiated transaction-based service offerings for its IT-enabled services (ITES).

 

VALUATIONS

 

At the current price of Rs 350, the stock discounts its FY08E EPS of Rs 24.8 by 14.1x and FY09E EPS of Rs 40.7 by 8.6x. We find these valuations extremely attractive for a company whose earnings are likely to grow at CAGR of 85% over FY07-09E. On an EV/EBIDTA basis, the stock trades at 5.1x FY09E earnings. We rate the stock an Outperformer with a price target of Rs 610 over the next 12 to 18 months. Our target price is based on a DCF valuation and discounts its FY09E EPS of Rs 40.7 by 15x.