i-flex: Acquiring strength

The company's build, buy and ally strategy is giving returns.

The acquisition of Mantas, a Safeguard Scientifics-owned company, is the seventh for i-flex Solutions in its nine years of existence but the company says it still believes organic growth will help it maintain its lead in the banking and financial services industry (BFSI).

"Ninety per cent of our growth is still organic. We have a clear blueprint in terms of acquisitions which are part of our strategic framework. I-flex also has nearly 20 strategic alliances. Ours is a 'build, buy and ally' approach. Going forward, we see organic growth reducing but stabilising around 70 per cent," says US-based R Ravisankar, CEO, International Operations and Business Development.

The Mantas acquistion for $122.6 mn enriches i-flex's anti-money laundering (AML) portfolio. While the whole risk and compliance space is valued at $20 billion a year and expected to grow at seven per cent year-on-year, the domestic market for AML software alone is estimated to be around Rs 200 crore.

Directives by regulatory bodies like Sebi and RBI and awareness about the benefits of AML deployments among financial institutions are added catalysts in this regard.

Mantas has marquee customers in the banking and telecom space. Its acquisition complements i-flex's revenues, Basel-II compliance products and augurs well for its consulting/service business.

It can now offer a comprehensive assessment, deployment and management of risk and compliance solutions to its banking and financial clients, opines T R Madan Mohan, Director, ICT Practice, Frost & Sullivan.

He adds i-flex has spent about $50 million on acquisition of assets from Capco and Castek. While Capco's ORTOS strengthened its risk management portfolio, the Castek investment opened market opportunities in the insurance sector.

For i-flex, which has been witnessing higher topline growth with depressed margins because of increasing sales and employee costs, acquisitions surely have helped in de-risking its business with increased revenues from consulting and services "� especially from non-banking customers.

Demand for products like Flexcube has risen from less than $500 million in 2003/04 to an estimated $850 million in March 2006, according to NASSCOM. But so has the competition "� Temenos, Finacle (Infosys) Bancs and Quartz (Tata Consultancy Services), BCA (SAP), Misys, and the French duo of SAB and Delta Informatique to name a few. There are smaller players too like Cranes, Nucleus and Infrasoft that are nibbling at the BFSI space.

Moreover, there is competition in the sytems integration arena with the likes of Satyam, Accenture, TCS and Wipro. Almost 50 per cent of i-Flex's revenue comes from the services arena currently.

In the domestic market, Finacle accounts for a bare three per cent of Infosys revenue but has nearly 70 per cent market share in India. Wipro Infotech gets 90 per cent of its revenue from Indian operations (it recently struck an $80 million outsourcing deal from HDFC Bank).

TCS earlier won a $40 million system integration deal at state-run Bank of Maharashtra. I-Flex, on the other hand, has a mere five per cent presence (95 per cent of its revenue is from overseas) in India.

Makarand Padalkar, chief of staff, i-flex, explains: "We have over 20 banks, including two PSU "� Canara and Syndicate "� as our clients in India. The reason for not being very successful with PSUs is that the software component of the bid is small compared to the package deal that also includes hardware. Hence, we often can match lower bids." He expects the domestic market share to increase with banks going in for Basel II compliance.

The good news, however, for i-flex is that Oracle will now sell Revelus too according to the new reseller agreement. "Oracle had its own product (Ocsa) which it now replaced with Revelus. Oracle has helped i-flex gain access to top-iter clients," says Ravisankar.

Reveleus has really gained top tier customers like Wells Fargo, Wachovia, CitiBank in the US and Mantas also comes with top-tier customers like ABN AMRO and Merrill Lynch.

Reveleus and Mantas (with around 22 clients) are complementary and analysts opine that cross-selling of products/services between Mantas' and i-flex's clients should lead to higher overall growth.

Besides, i-flex applications have been optimised for Oracle's technology platform, and roughly 90 per cent of Flexcube customers run on an Oracle database.

With Oracle's entry (and now increasing stake to 52.5 per cent plus a 20 per cent open offer), leading banks who viewed Citigroup as a competitor may now be open to adopting i-flex solutions.

However, Citigroup still accounts for 36 per cent of i-flex's total revenue (2005-06) and is reportedly warming up to other vendors too which, in turn, can eat into i-flex's revenue.

Moreover, with Oracle increasing its stake, there's a danger of 'interference' in i-flex's way of running its business. i-flex officials, however, see no such danger. "We do not see any such developement since our vision is remarkably aligned with that of Oracle," says Ravisankar.

Global spread

Revenue in 2006: Rs 1,511.35 crore million "� 28% rise over 2005

World's 1st company to cross 100 installations in less than five years

Cumulatively serviced 642 customers in 123 countries

Products revenue "� 52% of turnover

Services revenue at 48% has benefitted from more acquisitions and cross-selling to its customer base