Visa costs pull down iGate net in March quarter of FY14

Says no significant rise in client budgets but spending patterns favourable

Information technology services company iGate on Thursday posted a nine per cent drop in net profit for its financial first quarter ended March 31, even as it sounded upbeat about the deal funnel and ‘increasing traction’ from Europe.

The Nasdaq-listed company reported $34.8 million in net profit for the quarter as against $33.1 mn in the same period the previous year, primarily because of a hit of $7.5 mn due to visa costs. It said investment in some other areas also added to the costs.

In the quarter under review, iGate reported $274.9 mn in revenue, an increase of around 10 per cent on a year-on-year basis while almost flat sequentially.

It said it was expecting the profits to be under pressure in the second quarter as well, owing to a planned pay rise of seven to eight per cent in the April-June quarter4.

“In the past quarter, we had a cost of $7.5 mn with regard to visas. As we continue to see a ramp-up in our business in the US, we had to bear that. Next quarter also we will have a cost, which we are yet to quantify, essentially because of wage increases,” said Ashok Vemuri, president and chief executive officer.

He said the company’s focus on verticalising the organisational structure and enhanced enterprise capability was helping to maintain growth.

Vemuri also said although there was no significant increase in clients’ budgets, the spending priorities were favourable, with an increase in focus on areas such as digital, mobility, business process outsourcing and productised applications or platforms.

During the quarter, the company added nine clients, including seven from North America and two from Europe. Vemuri said the company was now only focusing on areas it considered strategic, exiting all other areas.

On pricing, he said the company was "seeing significant competitive pressure" in large deals; in areas of productised applications, iGate still enjoyed a premium. “Pricing is fairly stable overall and we expect to see that going forward,” Vemuri added.

iGate added 1,100 people during the quarter on a net basis, to 30,835. The company is setting up a large centre in Pune to centralise its training with an aim of onboarding the freshers more effectively.