Shareholders give iGate CEO warm welcome

For an executive at a company whose stock is selling for less than a cup of Starbuck's latte, Sunil Wadhwani maintained his humor and managed the improbable at Friday's annual meeting of iGate Corp. - an enthusiastic ovation from shareholders.

Chief Executive Wadhwani convinced his audience at the Greentree Radisson hotel that iGate is poised to ride the next wave of information technology spending by Fortune 2000 companies - whenever it comes.

'If you generate positive cash flow, you can ride through anything,' he said.

Once Wall Street comes to understand the corporate structure iGate adopted more than a year ago - that of an operating company whose subsidiaries are focused on emerging technology niches and growing profit margins - the patience of its shareholders will be rewarded, he said.

Yesterday, shareholder confidence in Wadhwani seemed reinforced when he said that he and iGate co-founder Ashok Trivedi own 60 percent of the company, and neither has sold a single share since the company was founded in the late 1980s.

In November, both invested $2.5 million each in iGate shares at around $6 each, more than double what they're trading at now.

'That's why my wife is not a happy camper right now,' Wadhwani dead panned to hearty shareholder laughs. More seriously, he said, 'I have more tied up in net worth (in iGate stock) than anyone else. I am the ultimate long-term investor.'

Fifteen months ago, iGate stock raced to a high near $70 a share before the start of the Nasdaq market's slide. It closed up 9 cents yesterday at $2.40.

More than ever, technology is the driver for earnings at major companies, Wadhwani said.

'Whether it's Wal-Mart in retailing, whether it's Citibank in banking or GE on the manufacturing side, virtually every one of these industry leaders uses technology as a competitive weapon. Wal-Mart has become as big as they have because of the tremendous logistics systems they have developed using technology.'

As each new wave of technology appears, companies 'need help from consulting firms like us to help them implement, because they don't have the expertise themselves.'

Wadhwani said iGate has weathered downturns twice before in its 12 years, in the late 1980s and early 1990s.

Despite losing money in 2000, the company projects cash earnings per share of about 3 cents in the current quarter. For the full year, it expects cash earnings per share of 12 cents to 15 cents.

Wadhwani pointed to the company's revenue growth since 1993 when the company had sales of $65 million, to 2000, when revenues neared $500 million. This averages to a 33 percent compound annual growth rate, with an average operating profit margin of 9.3 percent in that time.

Although 2000 saw operating margins at negative 5 percent, he said the first quarter of 2001 has shown the company is regaining its traction with a margin of negative 1 percent.

iGate is riding out the slowdown by plowing earnings into debt reduction. Wadhwani said the company was dangerously close to reaching the limit of its $50 million credit line with PNC Financial Services Corp. last year, but has now reduced its indebtedness to $10 million.

iGate, the former Mastech Corp., was born in March 2000, right before the Internet bubble burst, transforming itself from an information technology staffing company to a holding company of IT services companies - a move that confused Wall Street analysts.

This year, iGate has simplified its structure by shutting down its venture capital arm and selling subsidiary PTI for $23 million, which yielded a $17 million profit.

Now iGate is focused on developing the 11 other companies in its portfolio and strengthening relationships with customers like General Electric, its largest. Six of iGate's subsidiaries perform project work for GE, highlighting the benefits of iGate's ability to cross-sell between its different companies.

To further reduce distractions, Wadhwani has sworn off acquisitions. 'I don't expect (an acquisition) for the remainder of the year, and beyond that only on a selected basis,' he said.

iGate is outperforming its peers, said Tim Slevin, an analyst with Parker/Hunter Inc., in a recent report. 'Actually, by maintaining flat revenues for three years, iGate has done quite well,' he said.

He cautioned that the longer it takes for a recovery in the IT consulting industry, the tougher it will be on iGate's subsidiaries.

Slevin has raised his recommendation on iGate stock from market perform to accumulate, but with a warning that the stock is for high-risk investors only.