An Emerging Star

The technology sector is one where stars are made and unmade everyday. In a
sector where technology changes ever so often and markets have learnt to be
quick, the fate of even large companies can change over a few years if not
quarters. Indian companies, though not at the bleeding edge of technology still
have to face some of the impact of the ever-changing face of technology
business.

Unique Approach

In the early eighties, most Indian companies were focused on the onsite
markets and few bothered to get projects to India. Over a period of time, most
of the onsite companies either closed down or were acquired by other companies
that had offshore development centers. Similarly, going forward as the offshore
model stabilizes we are quite likely to change the business model of leading
Indian software services companies to generate greater value addition and to
enhance their competitive advantage.

Among the companies that have a unique approach to the risks involved in
technology business is Mumbai-based 3i-Infotech. It has a mix of product and
services as well as domestic and overseas market exposure which minimizes the
overall risk and could tremendously help the company to emerge as a star during
a period where the Indian economy is growing and a falling dollar is rubbing off
the sheen from some software majors.

Knowing the Company

Founded as a back office support and IT services arm of ICICI in
1993 and hived off as 3i Infotech, it now is an established player in providing
information technology (IT) solutions including applications, for banking,
financial services and insurance, manufacturing, contracting, and retail and
distribution industries. It also provides a range of services, such as
enterprise application integration, system integration, managed services,
business process outsourcing, and e-Governance. It has offices in India, Asia
Pacific, Europe, Africa, the UK, and the US and a range of customers across
India and overseas.

V Srinavasan, the CEO and MD since 1999, is incharge of 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 paid
up equity stands at Rs 562.99 crore with promoters holding 46% and 22% public
holding, 4% FII, 20% FI, and 8% non-promoters.

For the fiscal year ended March 2007, 3i Infotech reported revenue growth of
56.84% amounting to Rs 655.3 crore as compared to Rs 417.8 crore in the previous
financial year. The net profit for the same was Rs 96.5 crore, up by 92.8% as
against Rs 50.2 crore last year.

During the year, 3i Infotech acquired Bangalore-based Datacons; signed a
multi-million dollar deal with Hong Leong Bank in Malaysia; acquired FormulaWare,
a US-based software company; and 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. It has acquired bank alert,
anti money laundering software and AWACS system, a surveillance engine.

The company reported excellent performance for the fourth quarter ended March
31, 2007 with consolidated revenues to Rs 210.2 crore showing an increase of
75.2% on a y-o-y basis. On a sequential basis revenues grew by 58% and the
service business grew by 28.3% to Rs102.6 crore whereas the product business
grew by 17.4% q-o-q to Rs107.6 crore. The company has reported a growth of 22.5%
q-o-q and 75.2% y-o-y. The net profits for period reached Rs 32.2 crore up by
83.7% from the same quarter last year and 16.7% from the previous quarter.

During the quarter, to aid its inorganic growth strategy, the company
successfully raised Euro 30 mn in April 2007 through its third FCCB issue. The
company also commenced its BPO services in the Middle East. 3i Infotech will
focus on fund accounting service in the Middle East and African Mutual Funds
sector that is estimated to have over 600 operating funds and expected to grow
rapidly in the coming years.

The reducing dependence on ICICI as well as increasing new client
acquisitions bodes well for the future. 3i Infotech expects revenue for FY
2007-08 in the range of Rs 1,000-1,100 crore and an EPS range of Rs 20.1—21.5 on
a fully diluted basis.

3i-Infotech shares currently trade at Rs 312 discounting its earning of FY
'08 by twenty-one times based on the post 1:1 bonus EPS of the company.
Considering the improving operating margins of the company and increasing
contribution of products to revenues of the company, we continue to retain our
positive outlook to the stock.

Outperformer!

Sushanto Mitra

The author is 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