iGate - Married to Patni - Dolat Capital

Demand slow in near term: Management has indicated delays in contract renewals and elongated client decision making in its recent quarterly release, resulting in below expected revenue growth. It is finding challenges in the European market and constant pricing decline in the onsite efforts.

Outcome based pricing model: It has launched a "mulit-million dollar" advertising campaign that urges corporations to shift their outsourcing model from a 'T&M efforts' based one to one based on 'outcomes based pricing'. It has been pressing for this model for quite some and expects some shift in renewal deals in its favor based on this model.

Sales strategy: It is devising various sales strategies such as hosting CEO Golf tournament in Jan'13, designing commercial ad to push its outcome based revenue model, hiring senior sales from large global firms - (hired managing partner at Accenture to Head its NA operations accounting 80% of its revenue) to take on the competition in the challenging environment.

Integration still underway: In CY11 it acquired Patni Computers, company twice its size. However; it has not been able to gain any momentum on large deal wins or business in general with a mere 2% growth on its fully consolidated quarterly revenue run rate of about USD 265mn clocked in Q3CY11. It has recently integrating sales team of both the firms and has done tail trimming by cutting about 70 clients (not renewing the deal) that are less profitable or strategic to its business, and would lead to certain business loss in the short-to-medium term.

View: We believe the company has taken short and risky route to scale up to a billion mark and now stuck amidst its integration and key client sales strategy. It has been innovating to enter large deals and has been successful in getting 3 in current fiscal but need some concentrated effort to emerge strong high growth player. We maintain our Neutral stance on its plans and expect it to be market performer.

Source : Equity Bulls

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