In Q4FY07, iGATE Global Solutions’s (iGS) revenues declined 0.3% qoq to Rs2.10bn (rupee appreciation shaved off 2% growth), which was in line with our estimates. Volume growth in IT services was 2.4% sequentially. Offshore billing rate increased marginally by 0.5% qoq, while 2.9%qoq increase in onsite billing rate was on account of onsite consulting assignments. Higher billing rates coupled with offshorization (47.5% offshore v/s 46.3% in last quarter) and 133bp saving in SG&A led to 265bp improvement in EBITDA margins to 15.3% - higher than our expectation of 14% margins. iGate added six clients in the quarter including four Fortune 1000
customers. The company expects sluggishness in ITOPS revenue (10% of total) from loan fulfillment processes due to US non-prime mortgage meltdown. Owing to expected decline in ITOPS revenue and sharp rupee appreciation we have downgraded earnings estimates for FY08 and FY09 by about 9%. The stock has risen 12.2% YTD out performing the NSE IT index (down 6.3%) and the Nifty index (down 2.6%). With the expected poor growth in revenues and modest upside to EBITDA margins (160bp end-FY08 compared to end-FY07), at 15.8x FY08E and 12.1x FY09E earnings, we downgrade the stock to Neutral.