I-Flex: "High On Oracle"

The acquisition of I-flex by a large global software
corporation seems to suggest that finally India has made it to the global
software products arena even though it is through an acquisition. This is a
trend that should encourage software companies and entrepreneurs to develop IPR,
which can be acquired by other companies over a period of time. As Asia emerges
as one of the largest IT markets, products developed even for these markets
could be valuable additions to the portfolio of global corporations.

Unfortunately, few large Indian software services companies
want to move in this direction and have left the area wide open for small and
medium sized companies to explore opportunities in this area. There are already
a handful of such companies like Aftek, Cranes and Subex who have created
products that have made significant progress in global markets. Mumbai-based i-flex
Solutions, which is one of the largest product companies in India, has clearly
shown the path to success in this direction.

i-flex is a provider of a range of core banking solutions,
analytics products and value-added services to banks and financial institutions
globally. Over 595 customers including 200 financial institutions use its
products and its footprint spreads across 115 countries. i-flex's portfolio of
software products includes FLEXCUBE, ranked the world's #1 selling core
banking solution by International Banking Systems (IBS-UK); Reveleus, an
advanced business analytics application; and Daybreak, an enterprise consumer
lending suite. i-flex also provides software development and business process
outsourcing services to the financial services industry and employs over 6,200
globally. It was ranked as the largest seller of banking software by IBS in
2002, 2003 and 2004. FLEXCUBE has also been ranked among the top two retail back
office banking systems by the London based Retail Banking Systems (RBS) for
2001.

i-flex had come out with a public issue of Rs 210 crore in
2002 on book building basis. The software product and services company, which
focuses on the niche banking and financial services industry, offered 3.96 mn
shares of Rs 5 each at Rs 530 per share. Its share price gained recently on
announcement of Oracle acquisitions and new client additions. Orbitech, a 100%
subsidiary of Citicorp Technology Services, formed i-flex as Citicorp
Information Technology Limited in 1989 with equity participation. It has
recently sold its entire stake to Oracle Global (Mauritius). Currently, Oracle
Global (Mauritius) along with Oracle Corporation holds 43% rest being held by
FII's 14%, Foreign companies 1%, Employee Trust 5.5% and Public 36.3%.

i-flex achieved consolidated revenues of Rs 1138.5 crore in
the full year ended March, out of which the products segment contributed 53% to
revenues while software services contributed the balance. The net profit for the
year 2005 was Rs 232.4 crore against Rs 179 crore achieved in the previous year
registering an annual growth of 30%.

i-flex posted excellent results for the quarter ended
September 30, 2005 with a topline growth of 38% with revenue for the quarter ended
September 30, 2005 at Rs 359.3 crore as compared to Rs 260.6 crore for the
corresponding quarter during the previous year. On a sequential basis, revenues
grew by 38%. Operating profits for the quarter stood at Rs 63.3 crore against Rs
48.4 crore last year, up by 30.8% on annual basis. The net profit for the
quarter stood at Rs 53.1 crore against 37.1 crore in the same quarter last year,
up 42.4%.

Product revenues for the quarter stood at Rs 172 crore, up
31% over the same period last year, constituting 48% of total revenues. The
services line of business achieved sales of Rs 187 crore with a growth of 42% on
an annualized basis. On the basis of geography, USA contributed the highest, 49%
of total revenue as compared to 53% last quarter.

During the quarter, the company added 1047 employees, being
the highest addition in any quarter, taking total staff strength of the group to
6200.

The acquisition by Oracle of Citigroup holding in the company
will assist i-flex's products to penetrate the North American market which has
been a missing link for the company until now, leveraging Oracle products and
solutions presence in most of the top 25 North American banks. This access
coupled with the cost effectiveness of i-flex solutions could be a wining
combination in the coming years. Apart from this, i-flex could also get other
outsourcing business from Oracle, which is now being outsourced to third party
vendors.

Based on the organic growth of the company as well as the new
opportunities ushered in by the Oracle acquisition, we estimate company revenue
to grow between 25-30% in the next two years. Margins are likely to be at 27% in
FY 2006 as compared to 26% last year, as the company benefits from its improved
scale of operations.

i-flex currently trades at Rs 1140 at 26.8 times FY 2006 and
25 time FY 2007 earnings. Since the Oracle acquisition announcement, its share
price rose sharply limiting the scope for further appreciation. The current
price has factored in some upside linked to this and hence we believe that while
the stock will continue to appreciate it will now be in line with the rest of
the technology stocks. Market Performer.

Sushanto Mitra The
author is the founder of Technology Capital Partners

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