i-FLEX SOLUTIONS: Making Inroads into Global Markets

If there is one sector where Indian companies have done well in the product arena both at home and abroad, it’s the banking and finance domain. Right from E-X and Tally across to branch automation packages and now to more complex bank-wide packages, such as Finacle of Infosys and Flexcube of i-Flex, there have been quite a few successes.

While ensuring success for an India-specific product in a price sensitive market is not an easy job, marketing Indian products in overseas markets poses challenges of a different kind.

Though overseas markets are not as price sensitive as the Indian market, the ability to match the marketing muscle of global players requires considerable resources and staying power for new entrants. Mumbai-based i-Flex Solutions has already achieved some key milestones in this challenging environment. With signs of revival in the overall IT budgets across banks, i-Flex is now getting ready to take the next step forward–from being an Indian software product company selling largely to Second and Third World countries to being a global product company.

i-Flex was formed as Citicorp Information Technology Industries Limited (CITIL) in 1989 with equity participation by Orbitech, a 100%

subsidiary of Citicorp Techn—ology Services. Currently, Orbitech holds 43% in i-Flex, institutions hold 9%, the Indian public holds 39%, and NRIs and other investors hold the balance 9%.

As of March 2003, the company had offices in 17 locations with 2,400 employees. Its development facilities are spread over 10 centers in India, Singapore and the US.

The company came out with a public issue of Rs 210 crore in 2002 on book building basis. The software products 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 a share. While the issue was oversubscribed, the shares dipped below the offer price soon after listing, but have since outperformed the market remarkably.

i-Flex sells products and provides services to leading banks including its parent Citigroup. i-Flex’s flagship integrated banking back-office transaction product–Flexcube–was ranked as the world’s largest selling back-office banking systems for the year 2002 by International Banking Systems (IBS), UK.

The company achieved 64% of its total consolidated revenues from products with the balance 36% coming from the services segment. i-Flex closed fiscal 2003 with revenues of Rs 635.73 crore and a net profit of Rs 177 crore, up 46% and 71% respectively over the previous year. Citigroup was its major client contributing to 40% to total revenues compared to 44% in the previous year.

The Flexcube suite of products 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 for 149 customers across 67 countries. The company revenue model in the products

segment consists of license fees, implementation fees and annual maintenance contracts (AMC). 

AMC revenues form 16% to 18% of its total revenues. In the full year ended March 2003, i-Flex achieved 44% of product revenues from

license fees and 39% from implementation fees.

Revenues from Citibank formed 28% of product revenues compared to 22% in the previous year. i-Flex’s competitors include Temenos and Misys, which provide products similar to Flexcube. During 2002-03, company also put the analytical and business intelligence modules of Flexcube under a separate banner called Reveleus to position it as a standalone package.

In the services segment, the company 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 to 61% of the total services revenues in March 2003 compared to 43% in the previous year. During 2002-03, the company acquired the Citibank related business of

Silverline.

In the current fiscal, in the first quarter ended June 2003, i-Flex’s revenues rose 42% y-o-y and 13% q-o-q to Rs 186.48 crore whereas net profit was up 37% y-o-y and up 17% q-o-q to Rs 38.67 crore. While product revenue grew 22% q-o-q to Rs 122.21 crore, revenues from services were up 2% sequentially at Rs 64.27 crore. The company added 112 employees and added nine new clients during the quarter in the products business in various regions such as the US, Europe, Latin America, the Middle East and Asia. The company’s receivables position has improved steadily from 126 days of outstanding sales to 86 days in the current quarter. Another notable feature is the steady increase of business from the US, reflecting both the recovery in the markets and the success of i-Flex’s marketing strategy for the US. We believe that this trend will continue well into the next six to eight quarters. At the same time, we believe that the company will have to spend significant resources to compete in developed markets, raising overheads and slowing down profit growth in the short term, but this should lead to a stronger i-Flex in the years to come.

i-Flex realizes the importance of marketing to enter mature markets and expects a jump in marketing expenses. In terms of business, the company is slated to see a sustained increase in product revenues, thanks to Citibank’s decision to implement Flexcube in over 80 countries by 2005. Citibank currently has 33 countries live on Flexcube with five more countries expected to go live in the current fiscal. The company has also entered the US market, which it had been constrained from owing to US regulations that disallowed it from offering services to clients other than its parent Citigroup. i-Flex will face competition with competitors such as Temenos, Misys and Sungard, and this would imply continuous marketing spend in this region. i-Flex also competes with Polaris Software Lab, which recently merged with Orbitech Solutions and sells products in the banking and financial services industry segment.

i-Flex currently trades at Rs 802, discounting the projected March 2004 EPS by 29 times and March 2004 EPS by 22 times respectively. It recently issued bonus shares in the ratio of 1:1 and ex-bonus the company’s share price has risen from around Rs 600 to current levels.

i-Flex is slated to see an increase in product revenues, thanks to Citibank’s decision to implement the company’s flagship product Flexcube in over 80 countries by 2005

The company’s strength is the success of its product, which is now increasingly being deployed in developed markets. In fact, Citibank’s decision to implement Flexcube at its branches across the globe reflects its confidence in the i-Flex product. The company has continued to add new clients in the product segment and its relationship with Citigroup increases revenue visibility. The company’s success in the US and European markets strengthens its ability to maintain revenue-profit growth in the coming years. We believe that the company’s shares will remain high on investor buy lists and continue to outperform its peers in the technology sector. Market Outperformer

Sushanto Mitra is the founder of

Technology Capital Partners.



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