Q&A: Phaneesh Murthy, CEO, iGate Patni

iGate Corporation’s third quarter results showed the financial strength of the company for the first time after its integration with Patni Computer Systems. In an interview with Bibhu Ranjan Mishra, CEO Phaneesh Murthy discusses key achievements of the combined entity. Edited excerpts:

So finally, the numbers are there. Are those the ones you were aspiring for when you went out to buy Patni?
Revenues and profits were on expected lines. We also saw a strong uptick on margins because of the smooth integration. Many people stay away from mergers and acquisitions (M&As) since they think integration is challenging and difficult. We have shown that as long as you work hard and smartly, you can have a very smooth integration.

But have your gross margins not come down, compared with a year-ago quarter?
In the previous quarter, our gross margin was 34 per cent, which has improved to 37 per cent this quarter. Before the acquisition of Patni, iGate reported an Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 24-25 per cent. Patni’s Ebitda margin was in the range of 14-15 per cent. Now, our combined Ebitda is 21per cent and we have articulated to make it about 25 per cent by June 2013.

What levers are you using to achieve that?
We are doing better bench management, utilisation and selling more high-value services and encapsulating more solutions and intellectual properties within the organisation to deliver those services. We are also using a lot of technology to deliver our works rather than just people.

But interest costs on loans are eating away all the good show.
We have taken a $770-million loan for five years and the interest cost on that is roughly $70 million a year, which is over $17 million a quarter. So, that will continue.

You have joined the billion dollar club. Has it helped you bag more clients?
It is much easier now to get responses from customers. It has given us more credibility and a lot more depth and breadth in expertise, as a result of which we are able to offer more services to the customers.

You have added six Fortune 1,000 clients last quarter? Has your scale helped you pitch for bigger clients?
Of the 24 clients we added last quarter, six were Fortune 1,000 clients. I would like to double the number. I want to have 60 per cent of the new clients in Fortune 1,000 category.

You are one of the few companies who have huge exposure to financial services sector. How does the demand outlook from those clients look like?
iGate (before the acquisition of Patni) used to get over 65 per cent of its revenues from financial services sector. After the integration, it now accounts for a quarter of our revenues. Financial services market will continue to remain a challenge. I think in financial services, spending in 2011 was lower than the actual budget for 2011.

So, do you expect a budget flush from financial services customers in the fourth quarter?
No. I think their budgets have being re-evaluated. Anyway, the fourth quarter seasonally is always a poor quarter because of the higher number of holidays.

What about the insurance sector?
We have now included insurance with healthcare to make it a single vertical. This is because we are working with a number of healthcare insurance companies. Insurance and healthcare is our largest vertical now with a contribution of 28-29 per cent to our revenues.

How much are your top clients contributing at the moment? And what is the revenue you derive from the largest client now?
Our top five clients contribute about 37 per cent of our revenues and the largest one contribute roughly about 11-12 per cent.