i-Flex Solutions: A New Beginning

A successful product story is rare for an Indian company. Indian strength has

been ‘coding’ with almost all the Indian IT companies engaging software

programmers in developing and maintaining software applications. The majority of

the products developed from India have either lacked market understanding or

have had insufficient resources required to market those products. Keeping this

in mind, the performance of i-Flex Solutions Ltd (i-Flex) deserves rounds of

applause.

Mumbai based i-Flex’s flagship integrated banking back office transaction

product–Flexcube has been ranked as the world’s second largest selling

wholesale back-office banking systems in the International Banking Systems (IBS)

UK Sales League Tables for 1999, 2000 and 2001. i-Flex’s recent closure of

fresh contracts and an excellent order book are encouraging signs considering

the fact that most IT companies have been facing tough times.

Fact Sheet

Website: www.iflexsolutions.com 10-11, SDF-1, SEEPZ, Andheri (East) Mumbai 400 096 Tel: +91 22 — 829 0170 Fax: +91 22 — 829 2767 Area of specialization: Software Product and services in the area of Banking and Financial Industry Revenues (March 2002): Consolidated Rs 435.72 crore ConStandalone Rs 415.03 Offices: India, US, UK, Germany, Netherlands and Singapore Listing (stock exchanges): Bombay, NSE Face Value: Rs 5 per share Current Market Price: Rs 570 52 Week High/Low: Rs 629/433 BSE Code: 532466 NSE Code: i-FLEX

i-Flex recently came out with a public issue of Rs 210 crore on book building

basis. The software product and services company, which focuses on the niche

banking and financial services industry, offered 3.96 million shares of Rs 5

each at Rs 530 per share. While the issue was oversubscribed, the shares dipped

to below the offer price but have gained recently with the announcement of new

client additions. i-Flex was formed as Citicorp Information Technology Ltd in

1989 with equity participation by Orbitech Ltd, a 100% subsidiary of Citicorp

Technology Services. Currently, Orbitech holds 43% in i-Flex, promoters and

others hold 36%, the employees trust holds 8%, Financial Ventures Mauritius

holds 2% and 11% is held by the public.

i-Flex achieved consolidated revenues of Rs 435.72 crore in the full year

ended March 2002, out of which 60% came from the products segment and the

balance from software services. In products, the company garnered around 98% of

the revenues from its FLEXCUBE Suite of products, which consists of a range of

packaged solutions for banks and financial services companies in the area of

back office, transaction processing, business intelligence, analytical

application and Internet-based solutions. i-Flex has installed FLEXCUBE with

almost 105 customers around 49 countries. While Citigroup accounted for 23% of

product revenues in 2002, its other clients include DBS Bank, Rabo Bank

International, Shinsei Bank, UBS Warburg, HDFC Bank and Bank of Baroda. i-Flex

added 6 new customers for FLEXCUBE in the first quarter ended June 2002

In the services segment, i-Flex provides custom software development,

deployment, maintenance and support services as well as business and IT

consulting services.  The company provides both offshore and onsite

services. Citigroup and its entities contributed 75% of the total revenues in

March 2002 compared to 82% in the previous year. i-Flex has eight development

centers located in Mumbai, Bangalore, Pune, and Chennai and more than 2000

employees.

Going ahead, the company plans to expand its marketing reach, enter the ASP

business, and enhance its current product suite. Its relationship with Citigroup

will provide it with revenue visibility as Citibank plans to install the product

in over 80 countries by 2005. The company has entered the US market, where it

was restrained by the US regulations that disallowed it from offering services

to clients other than its parent company Citigroup. The key issue however

remains the dependability on just one product suite, which competes with some of

the strong players in the international and domestic market. The merger of

Polaris Software Lab and Orbitech Solutions, which incidentally is a 100%

subsidiary of i-Flex’s major shareholder Orbitech Ltd, would increase the

competition in the market. Moreover, the overall services segment remains

competitive and is witnessing a severe rate cutting due to the slowdown.

In the first quarter ended June 2002, i-Flex’s revenues rose 44% to Rs

130.97 crore whereas net profit was up 50% to Rs 28.16 crore though revenues was

up by 3% sequentially whereas the net profit declined 13% sequentially. Product

revenue grew 11% q-o-q but services revenues declined 7% q-o-q due to billing

pressure. The company added 103 employees and added 12 new clients during the

quarter. The company received orders from German based Deka Bank and three banks

in Egypt. i-Flex’s foray into the US market is yielding results with the

International Monetary Fund and an order from North Carolina Department of the

State Treasurer, USA to replace its core banking legacy system with Flexcube.

While i-Flex’s receivables days declined from 158 days in March 2002 to 128

days in June 2002, they are still considerably high considering the average

billing cycles of other software companies.

i-Flex currently trades at Rs 612 discounting the projected March 2003 EPS by

17 times and March 2004 EPS by 14 times. The stock was listed at Rs 549 during

end-June 2002 and declined to touch a low of Rs 433 in end July 2002. i-Flex’s

strength is the success of its product in the international market and its niche

in the banking and finance domain. The company has continued to add new clients

in the product segment and its relationship with the Citigroup increases revenue

visibility. With Citibank’s plans to install the product in over 100 countries

in the next four years, i-Flex’s entry into the US market and recent client

acquisitions in Europe, the company will be able to sustain and build up on the

revenue growth. The dependence on Citibank remains a concern in terms of

discount in billing rates and delay in receiving payments. Moreover, considering

i-Flex’s business model, it would be impractical to rate its valuations on the

basis of its quarterly performance. i-Flex has recovered over the past month

after the closure of new contracts and with the announcement of the second

quarter result by Infosys. We expect re-rating of the technology stocks in the

mid-term. Market Outperformer

Sushanto Mitra 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