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Mr Phaneesh Murthy

Vishwanath Kulkarni

Bangalore Oct. 10 Pittsburgh-based, Nasdaq-listed iGATE Corporation announced its plans to delist its Indian subsidiary iGATE Global Solutions (IGS) on Wednesday. Business Line caught up with Mr Phaneesh Murthy, CEO, IGS, to understand the rationale behind the delisting move and on the market conditions in the US.

What prompted iGATE Corp to come up with delisting plan for IGS, especially when the company has turned around?

We are in the final stages of the capital restructuring process that started three years ago. iGATE Corp feels it’s worthwhile to delist the company in IGS because there is still some confusion on the two stocks. Also the returns are superior on Nasdaq and our primary clients are in North America. Given all this, we have to decide on which listing to keep. We ended up in a scenario where we felt that it’s better to keep the US listing. This allows us to give our employees the stock options, build assets in the US and helps us create a higher profile in the US. We have scheduled an EGM for November 13 and if approved, the book building process will start and the pricing will be based on the SEBI guidelines. There are 5.9 million shares outstanding and iGATE Corp aims to buy those shares. In addition, there are 1.3 million vested options. And the plan is that we will probably offer a conversion on the options and then offer to buy-out those shares.

Is delisting a pre-cursor to any possible sell-out of IGS?

No. I don’t think so. The promoters are extremely committed to the company. They are very patient investors and have done a phenomenal job. I know how much work we have put in bringing the company to this level. I have made an open offer that anytime promoters want to sell, I will buy with private equity backing. This is my long-standing offer. Anytime, anybody wants to sell, I am willing to get some private equity guys together and buy the company. But I am not sure that I agree with you automatically that delisting is a pre-cursor to possible sell-out. I think delisting is more to do with value extraction and value creation and to simplify the structure. I feel simple structures create more value.

Your revenue growth has been very sluggish. Are you exploring any inorganic growth options to boost your revenues?

Sluggishness in new client addition is a cause of concern for us. We have not performed well in sales. To maintain our growth pace, we were supposed to add 8-10 large clients every quarter, but we have never done that. That’s why I have brought in Mr Hari Murthy as chief sales and marketing officer to strengthen our sales team.

What’s your assessment of the US IT spending in 2008?

I feel US IT spends in 2008 will be flat compared to that of 2007, which were up 2-3 per cent over 2006. All those 2-3 per cent came from discretionary projects. To that extent there will be cut back in projects in 2008.

But are you getting any feelers to that extent, say in terms of cut back in projects?

Yes, we are getting feelers in some areas of financial services. We have seen some cut back in projects because of the fact that clients feel budgets are not supportive. When you believe that the next year’s budget is going to be less than this year’s budget, some projects have to get cut or how else do you make the budget lesser. The impact of this is likely to be felt in the November to February period.

How are you bracing yourselves for a slowdown?

We are diversifying our revenue base by focusing on Canada, Europe, Australia and Japan.

What about the Indian market? Are you looking at it seriously?

We are doing some infrastructure management in India right now to clients like ING. Some of it will be based on how well that work progresses as we continue to expand. But the continuing problem is in a resource constraint model, you won’t be able to get the maximum value for the limited resources you have.

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