“Lower than expected, lower than we hoped for” was the way that iGATE president and CEO Phaneesh Murthy described revenue growth for US-headquartered but India-centric iGATE. Q3 headline revenues (to 30th Sept.) grew by 2% yoy to $271m, about 1% higher than the prior quarter. Murthy attributed the slowdown to longer decision-making cycles and slower project ramp-ups. The story was even bleaker in Europe, with headline revenues flat yoy.
The good news was that operating margins are a now a shade under 20%, over 5 points higher yoy and almost 2 points higher than the prior quarter. Murthy believes he can drive profitability higher still, though with moribund growth and a margin headwind as new major contacts ramp up, this will not be a shoo-in.
Adding to the margin pressure will be a corporate branding roll-out which sees iGATE running a “CEO professional golf style tournament” in the US co-sponsored by Forbes and NYSE. Depending on the investment – which was not revealed – this might be a punt worth taking. If Murthy can convince a handful of ‘Forbes 500’ CEOs to give iGATE a whirl alongside their incumbent offshore suppliers (and that’s a big ‘if’), they may be able to short-circuit – or at least shorten – the sales process and gain entry into more top-tier accounts.
After taking a measured risk on a step-jump in size by acquiring Patni, I can understand the sense of urgency that Murthy must feel about getting iGATE growing again. With a resurgent Mahindra Satyam offering yet another alternative to the Top 5 offshore players (see Mahindra Satyam back to growth), and with little if any growth in the services market, it’s all down to taking share from his competitors. But Murthy will have to resist the temptation to win the business ‘at any price’.