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Moody's upgrades iGate's corporate family rating [India Business] [Times of India]
[March 19, 2014]

Moody's upgrades iGate's corporate family rating [India Business] [Times of India]

(Times of India Via Acquire Media NewsEdge) COIMBATORE: Moody's Investors Service has upgraded iGate Corporation's corporate family and probability of default ratings (CFR and PDR, respectively) to Ba3 and Ba3-PD from B1 and B1-PD, respectively. Concurrently, Moody's assigned a B1 rating to the proposed $325 million senior unsecured note issue due in 2019.

The rating outlook is stable. The CFR upgrade reflects Moody's expectation that with the reduction of overall debt and the successful integration of the Patni acquisition, iGate will operate at a leverage target below 3 times through 2014 and 2015.

With over $1.2 billion of projected revenue for 2014, iGate has achieved enhanced size and scale that enables the company to compete for larger technology and business process outsourcing (BPO) contracts, Moody's said. Moody's expects the larger scale to lead to consistent 20% operating profit margins with free cash flow exceeding $150 million annually by the end of 2015.

"iGate's Ba3 CFR considers iGate's highly competitive landscape, characterised by larger and financially stronger information technology (IT) services and outsourcing providers and concentrated customer base," Moody's stated. At the same time, iGate is benefiting from a recurring revenue stream from longstanding customer relationships, a record of solid operating performance buoyed by a low-cost offshore labour infrastructure, and very good liquidity, the ratings agency said.

Moody's has projected cash and short-term investments of $280 million by the end of 2014 for the company. "The stable outlook reflects Moody's expectation of high single digit annual revenue growth supported by favourable industry dynamics, in which enterprise clients seek to reduce costs by migrating further to an offshore delivery model," the agency said.

Moody's anticipates adjusted debt to EBITDA (earnings before interest, taxes, depreciation and amortisation) of less than 3 times by the end of 2014 through a combination of debt pay-down and profit expansion.

"iGate's ratings could be upgraded if the company were to achieve double digit organic revenue growth, sustain operating margins at over 20%, generate free cash flow over $200 million, and maintain leverage at 2.5 times," the agency said. "The ratings could experience downward rating pressure if total revenue and profits decrease significantly (by 5%), a major customer defects, or iGate's adjusted debt to EBITDA leverage ratio exceeds 4 times on a sustained basis," Moody's stated.

(c) 2014 Bennett, Coleman & Company Limited

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