Nasdaq-listed IT firm iGate reported a 9% decline in net profit to $31.6 million for the first quarter ended March 31, 2014 as against a net profit of $34.8 million in the corresponding quarter last fiscal, the company said in a statement.
Ashok Vemuri, president and CEO of iGate, attributed the fall in profit mainly to a one-time cost of $7.5 million for US visas as the company continues to see a ramp up in its North America business. This net profit decline is also expected to drag in the second quarter results as well due to investments in areas like capex, IT infrastructure, hiring of resources and building platforms and solutions.
However, Vemuri was content that the return on investment in these activities was faster than expected, as could be seen in the EBITDA of $75.2 million, as compared to $65.5 million in the corresponding quarter last year.
The company posted a 10% increase in net income at $302.2 million in the reported period, against $274.9 million in the January-March 2013 quarter.
This was mainly on account of favourable growth in North America and Europe, even as depreciation in the Canadian dollar (a geography where it has significant presence) erased 0.9% of the company's topline.
"Overall, the net impact of forex headwinds of the dollar, Euro and INR appreciation was $1.4 million," remarked Vemuri.
iGate also continues to see strong growth from banking and financial services, manufacturing and retail, although insurance in North America is lagging.
During the quarter, the company added nine new customers, while dis-engaging 16 non-strategic clients, that is part of its tail accounts exercise. While this exercise has had minimal impact on the company, the process is 80% complete, with 20% yet to be completed during the next quarter, according to management.
Going forward, Vemuri said it was looking at setting up a centre in Germany by third quarter, a potential business area in product engineering in manufacturing and financial services, with UK and Switzerland contributing to a good deal pipeline.
While stating that the new verticalised structure started last year was complete and showing initial success, iGate management said headcount grew by 1,102 people to 30,835 persons at the end of March 31, 2014. Going forward, the company intends to add 6,000 new people during the fiscal.
The company's utilisation stands at a comfortable level of 76%, 1-2% lower than last quarter on account of seasonality. However, Vemuri emphasised that all freshers were undergoing training, and none were on the bench.
During the quarter, iGate secured financing to redeem its $770 million 9% senior notes through a combination of $325 million of new 4.75% senior notes due in 2019 and bank financing. iGate's current debt stands at $1.2 billion, which is expected to come down due to the refinancing starting May.
A senior note is a debt security, or bond, that takes precedence over other unsecured notes and must be repaid in the event of bankruptcy.
"This refinancing is expected to yield significant cost savings over the coming quarters. However, the rupee fluctuation due to forex headwinds will be a concern, as we continue to grow our profits," iGate CFO Sujit Sircar said.