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iGATE Corporation Message Board

  • bgrueneberg bgrueneberg Jan 18, 2013 2:52 PM Flag

    Valuation

    It seems to me that any business with steady revenue and earnings growth, and positive operating and free cash flow levels ought to be selling at a P/S of at least 1, which IGTE is not. However, debt levels look high. Any comments on that?

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    • I just bought this stock yesterday (at 17.01) after the great earnings report so I am very new to the company. I agree that the balance sheet is pretty ugly, but with the earnings and growth, it is surely worth $19-25. In a market like this, we'll be there very soon.

    • All of the below is just a quick look at numbers online from Yahoo and Fidelity, but with the recent quarter just completed, things may change, and I would think, for the positive.

      Debt is high, but cash on hand and other short term assets covers payables and current portion of long term debt about 3 times over.

      The PE is substantially lower than the 5-year average for the company and low for the IT Services industry. Same with Price to Sales. Industry average P/S for IT Services according to Fidelity is 5.07, wheres IGTE P/S is 0.92.

      Cash Flow growth rate is more than double the sector average. Revenue Growth rate also exceeds its peers.

      Margins, however, are below average, as are ROS, ROA etc, but ROE beats its peers. (Low ROA and high ROE is due to the leveraging effect of the debt.)

      As long as they can service the debt they should be good. Current ratio is good at 3.24.

      Need to keep an eye on cash flow.

    • IGTE is a very interesting story. Investors need to focus the core religion in owning this stock to wait for the final victory. What's the core religion on this stock? 1) The CEO is a earlier pioneer in Infosys. He personally, if not architected, experienced the major phase of INFY's growth period. In acquiring Patni, I don't think that he is only aiming to be an average Joe. 2) ITOP will be a differentiator that leads the companies integrating IT and BPO operation. Last three major contract awards ($500 millions?) are all ITOP related. I am a layman. But it seems to me, the companies, if choose to convert to ITOP need to abandon their structure entirely. So that makes their decision process elongerating. But fruit will come. Investors need to give them time, not trade quarter to quarter basis.

      DEBT: IGTE has a heavy debt load after they acquired Panti. They are paying near 9% interest on this loan. The earliest date IGTE is able to pay off this debt is early of 2014. Because of this effect of paying-off high-interest loan, IGTE's EPS will be leapfroging from $1.58 FY2012 to $1.66 FY2013 to $1.98 FY2014 inspite much lower revenue growth estimated.

      Investors are frequently confused on how to invest on debt-loaded company. First act, they usually penalized valuation that's where IGTE sits now. But stock could move up due to 1) abiliity to pay off the loan or convert to lower-interest 2) low PE 3) growth. You may look at HBI or NXPI as best example for how a leveraged company turns debt into positivity. Both HBI and NXPI stroke a clear roadmap on interest payment reduction. NXPI further demonstrated an above-industry growth rate.

      Pipeline: I think I heard pipeline were $3 billions last quarter. This quarter, they increase it to $3.5 billions. This is near 3.5 times of annual revenue. But unlike previous quarters, they didn't sum up the opportunities (at this CC) near to materialize into a real contract (with the exception of second $200 millions contract award at signing stage). So, we are not sure how soon, how many of them will be moving into real contracts. Therefore, some analysts are still babbling about slow growth at IGTE. At little below 7% growth rate in 2013, this is considered as below-industry growth rate. Some analysts like IGTE due to valuation and pipeline potential; some hate IGTE due to slower growth rate. Investor just need to pick your camp to make your own IGTE choice. As myself, I believe 1) playing numerical game is silly, short-term view. 2) you have to believe in ITOP's unique strategy to believe in this pipeline 3) Give them time 4) debt paying-off is a extra gift.

      The street is extremely obssessed with PEG story. That's how they always keep CTSH at highest valuation, how they jumped up INFY once they realized INFY's growth not as bad as they think, how they wait for two-years to finally endorse VRTU's high growth rate (the endorsement is only 1/2 there). So, as soon as IGTE shows up the ability of converting pipeline massively into contract, IGTE will fly IMPO.

      BTW, the management in this CC does show up a significantly positive tone than last CC. Good luck.

 
IGTE
36.41+0.18(+0.50%)Aug 28 4:00 PMEDT

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