US sees trickle of growth, stability: iGATE

Global IT services provider iGATE’s Q2 results fell short of expectations even as it saw a 217.5% jump in net profit to USD 12.7 million on a year-on-year basis while revenues jumped 57.3% to USD 268 million. iGATE CEO Phaneesh Murthy explains the results to CNBC-TV18.

Below is an edited transcript of the interview on CNBC-TV18.  Q: What is your sense about the demand as well as pricing outlook?
A: I think from a demand perspective clearly, we are seeing a certain stability and rise in spending in North America. There are transformative deals happening in the manufacturing sector and BFSI spending has started coming in line with budgets.
So, overall I am starting to see a bit of stability in North America, though there is a cautionary tone around headwinds, which are potentially around the US election season, based on the fact that the US is going to the polls with an 8% unemployment rate and therefore outsourcing will continue to be a major topic around this.
In Europe, we haven't seen anything new happening in the last six months. So, my sense is that in North America we are back to modest growth rates. Q: How do you read the pricing scenario?
A: I think the pricing environment is relatively stable. My sense is that vendors who are part of the customer’s process of consolidation, will only be able to provide business at a slightly lower rate. So, customers are actually not coming back and asking for price cuts. As an offshoot of this, there has been no impact on pricing impact at all.
But it is my feeling that the offshore rates will probably stabilise over the long run. So, therefore companies will probably see a decline in offshore rates over time as the markets get more competitive. Q: What margins do you anticipate? Your gross margin is 37.4% versus 34.7% y-o-y. Has the rupee benefited you?
A: In the last quarter we had two headwinds and one tailwind. In the last quarter, we had a very high one-time visa cost as we all applied for visas in April which impacted our margin by 2%, that will go away from this quarter onwards.
On the rupee front we benefited 1.8% at an average realization rate of 54. Our margins decline 2% due to salary increases. So, net-net on margin point front we anticipate getting back very quickly to 40% gross margin and 25% EBITDA model. Q: Can you give an outline of your hiring plans? Are you looking at dealing any fresh hires?
A: Our fresh hires have always been staged. Since last many years based on our capacity for absorption and training we stagger them out from July to March. At this moment we are not looking at any delays, but we will have to see how the markets evolve in the next one or two quarter.