iGATE hit by subprime
The company reported a flat topline compared to the previous quarter due to a substantial drop in its revenue from the subprime lenders in the US.
By Amit Bhandari & Ranjit Shinde, TNN |
iGATE’s Q407 results bring out a new line of concern for the Indian IT industry, which was grossly ignored earlier. The company reported a flat topline compared to the previous quarter due to a substantial drop in its revenue from the subprime lenders in the US.
iGATE provides application verification and assessment services to the mortgage lenders in the US. It generates over 10% of its revenue from this line of business. Most of its clients lend money to the riskier class of borrowers. With rising defaults in subprime business, new funding has practically come to a standstill. This has resulted into loss of revenue for iGATE from such clients. Moreover, the company’s revenue in rupee terms was 2.1% lower than the dollar revenue following stronger rupee.
Operating margin of the company during Q4, however, was unaffected by this as the company was able to cut costs. Direct costs were down 2.3% quarter-on-quarter since the company could shift some portion of its onsite work to more cost-effective offshore sites. Indirect costs fell even sharply by 7.4% with increased utilisation of resources. As a result, operating margin significantly improved from 12.7% in the prior quarter to 15.3%.
The company continued to remain heavily dependent on the US market with three-fourths of the revenue coming from this region. It derived 73% of revenue from more profitable offshore activities. This gives the company an edge over its peers who generate more than half of the revenue from onsite work.
The company has expressed caution over its performance in Q108 following the subprime-lending crisis. Also, it has announced salary hike of 15% for offshore and 2% for onsite employees. This means, it will be a tough task for the company to retain its operating margins in the next quarter.
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