iGate beats profit estimates, sees contract delays continuing

Last Updated: Fri, Oct 12, 2012 15:30 hrs

By Sruthi Ramakrishnan

REUTERS - Outsourcing company iGate Corp posted a higher-than-expected quarterly profit as margins increased, but warned clients were delaying contract renewals and it had dropped a "relatively large" client in the third quarter.

iGate shares jumped 9 percent premarket after the company said its third-quarter profit had doubled, but fell back sharply after it updated its outlook on a conference call. They are flat at $17.75 in morning trade on Friday on the Nasdaq.

The company was growing but lagged peers, especially considering its acquisition last year of a large Indian outsourcing firm, Patni Computer Systems, Noble Financial Capital Markets analyst Vincent Colicchio said.

The company's third-quarter revenue rose 2 percent to $271.1 million, but lagged analysts' expectations of $277.2 million.

"They beat earnings on good cost management, but I think the rationale of the acquisition was to improve revenue growth momentum. (We) have not really seen that yet," he said.

Business outsourcing, especially in retail, finance, manufacturing and healthcare, has been growing as companies seek to cut costs.

iGate, which has most of its operations in India, said net income doubled to $28.3 million, or 27 cents per share, in the third quarter from $14.3 million, or 10 cents per share, a year earlier.

Excluding items, iGate earned 46 cents per share, beating analyst expectations of 37 cents per share, according to Thomson Reuters I/B/E/S.

iGate said economic weakness was behind the delays in contract renewals that were a cause of concern.

"Decision making cycles are a little longer than what we had anticipated but more importantly, contracting cycles are taking a lot longer than what we had anticipated, even if the decisions are made," Chief Executive Phaneesh Murthy said on a conference call.

IGate said it won two $100 million-plus deals in the third quarter.

"If you look at the size of deals we are winning, we do anticipate that next year will be a better year. How much of a better year, is really very difficult to call now," Murthy said.

The company said revenue in the current quarter will be hit by the loss of a mortgage services client that had been spending about $4.5 million per quarter, although it added that the business had "zero margin."

The Fremont, California-based company, which also develops software, said volatile currency rates remain a cause for concern.

India-based rival Infosys Ltd reported a 24 percent rise in profit for the quarter ended September on Friday, but cut its full-year earnings forecast, citing concerns about currency market volatility.

(Editing by Don Sebastian and Sreejiraj Eluvangal)

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