3i Infotech: Getting on its Own Feet

Banking and financial services have been one of the biggest

beneficiaries of information technology and also one of its earliest users.

Consequently, many banks set up subsidiaries to provide IT products and

services. Over a period of time, some of these subsidiaries reached a critical

mass and were ready to be sold as independent entities.

A success story in this type of ventures is that of the Citibank

subsidiaries: one of which was merged with Polaris and the other with i-flex,

which recently was acquired by Oracle. Other foreign banks include Deutsche Bank

and ANZ among others. More recently, SBI also set up a JV with TCS for IT

related services. Mumbai based 3i Infotech also comes from a banking parentage

and has steadily grown to be now taken seriously in the IT world.

3i Infotech, which was established as a back office support and

IT services arm of the ICICI, is now an independent company providing

information technology solutions including applications to the banking,

financial services, and to insurance, manufacturing, contracting, and retail and

distribution industries. It has offices in India, Asia Pacific, Europe, Africa,

the UK, the US and a range of customers like Finansa, AIG, Emirates Bank, RAK

Bank, Hong Leong Bank, SBI Factors, Oriental Insurance Company.

V Srinavasan, the CEO and MD since 1999, is incharge for

developing and implementing strategies and day-to-day operations of the company.

He is a CA with 25 years of experience in finance and computer systems. The

company's current equity stands at Rs 53.32 crore with promoters holding

48.41%, public holding 29.95% and institutional investors holding 21.64%.

For the fiscal year ended March 2006, 3i Infotech reported

revenue growth of 44.48% amounting to Rs 417.81 crore as compared to Rs 289.18

crore in the previous financial year. The net profit for the same was Rs 57.66

crore, up 79% as against Rs 32.11 crore last year.

During the year, 3i Infotech acquired Bangalore-based Datacons a

software products company offering products for the mutual fund segment in the

BFSI segment. It also signed a multi-million dollar deal with Hong Leong Bank in

Malaysia for the implementation of TRITON Loan Origination application software.

The company also acquired FormulaWare, a US-based software company, which

provides Enterprise Resource Planning (ERP) solution for the process

manufacturing industry. 3i Infotech also launched AMLOCK, an Anti Money

Laundering (AML) and Fraud Detection software.

3i Infotech acquired Hyderabad-based SDG Software Technologies,

which offers products for the banking industry and capital markets with a focus

on Surveillance and Fraud Management. 3i Infotech has acquired Bank Alert, an

Anti Money Laundering software, and AWACS system, a surveillance engine.

During the quarter ended September 30, 2006, revenues stood at

Rs 148.9 crore an increase of 11.8% on a q-o-q from Rs 133.2 crore and an

increase of 51.3% y-o-y from Rs 98.4 crore. Software products contributed 47% to

the revenues for the quarter while services contributed 53%. Net profit grew to

Rs 23.2 crore, an increase of 8.4% on q-o-q from Rs 21.4 crore and an increase

of 73.5% y-o-y from Rs 13.3 crore. During the quarter the company added four new

million-dollar clients, increasing the number of such clients to 25.

During the quarter the company acquired G4 Software Technologies

(India), which provides Payments solutions, Back Office Exception Processing

solutions and Business Process Integration services. It also acquired Rhyme

Systems, a UK based asset management software company. It launched the PREMIA

Insurance Broking eXchange (IBX) in association with the Insurance Brokers'

Association of India, which is an IT initiative for the Indian insurance

industry.

3i Infotech also entered into partnership with Oracle, to

develop a Technology Center-of-Excellence for insurance. This partnership will

enable 3i Infotech gain access to Oracle's network of partners in the region.

It also acquired 51% stake in Professional Access, a US-based company with

offshore development centers in India with services in the area of e-commerce

for the BFSI and retail segment. It also entered into strategic partnership with

Optimum Solutions, provider of payroll, human resources, and time and attendance

solutions for both the IBM iSeries (AS/400) and Microsoft Windows platforms.

During the quarter 3i Infotech launched India's first

Insurance Broking Exchange, PREMIA Insurance Broking eXchange (IBX), which will

provide a common pay-per-use platform, where insurance brokers can interact with

insurance companies and customers in order to provide possible insurance cover

to consumers across India.

Based on strong showing in the past six months, 3i Infotech

anticipates revenues between Rs 620 crore to Rs 640 crore for the financial year

ending March 31,2006. We believe that product revenue sales are somewhat lumpy

and expect revenues to grow around Rs 600 crore for the full year. Longer term

revenue and profit growth rates should be around 35-40%.

The shares of 3i Infotech currently trade at Rs 188. We believe

that given the high operating profit margins of this business and a growth path

envisaged by the company, valuations will improve in the near term. Long-term

appreciation of the company's shares largely depends upon the market

acceptance of its product enhancements and ability to raise resources to

increase marketing spends. Outperformer.

Sushanto Mitra



The author is the director, Techcap India



sushanto@techcapIndia.com



The views reflected here are of the author and not of this publication. No
liability is accepted for losses based on the information presented here