i-flex Solutions: Gaining consulting edge

Acquisition of Capco is good strategic fit for i-flex

since Oracle bought a controlling stake in it, i-flex Solutions has made its first acquisition "" of Capco's Singapore-based subsidiary. Capco is a provider of business and technology consulting, processing services and technology solutions to the financial services industry.

While i-flex has not revealed the size of the deal, Capco will be a good strategic fit for the company, say analysts. i-flex has a consulting arm which provides IT strategy, technology, process and quality consulting to financial services companies in areas such as anti-money laundering, Basel-II compliance and business process. Capco also provides integrated consulting, processing services and products.

According to the management, while i-flex has been strong in the core banking area, Capco brings domain expertise and relationships in capital markets "" investment banks, asset management companies and hedge funds "" which will open a new area for i-flex.

So, this acquisition will strengthen i-flex's consulting practice and the company will gain greater access to Asia Pacific and Japan. Customers in the region will also have greater access to i-flex's consultants, who will be based locally.

The Asia Pacific region accounted for 16 per cent of i-flex's total revenues in the September 2006 quarter, spread almost equally between products and services.

In the quarter, the company announced a major win in Japan, and the management believes it is still in the very early stages and can gain more penetration in the market, which could be substantial.

Oracle completed its open offer for i-flex on December 23 at a price of Rs 2,100. Against the targeted 28.39 million shares, the company has received a lower number, all of which will be accepted. On the back of the offer, the stock has run up nearly 25 per cent since mid-November.

At its current price of Rs 1,974, it trades at around 40 times FY07 estimated earnings and 30 times FY08 earnings, and is one of the most expensive tech stocks.

JSW Steel: Fighting input costs

Domestic steel company JSW Steel hiked prices of galvanised steel by Rs 1,500 a tonne to Rs 50,000 a tonne levels. Once again, the rise was owing to higher prices of zinc "" the key input.

The price of this non-ferrous metal has jumped 19 per cent over the past three months to around $4010 a tonne on the LME. Zinc, say analysts, accounts for about 20 per cent of the total production cost of galvanised steel.

According to analysts at domestic brokerages, the fact that the global deficit of refined zinc supplies was pegged at 460,000 tonne by the end of CY06 compared with 339,000 tonne at the end of CY05 has resulted in higher prices of the metal.

Earlier, local steel companies had hiked prices of galvanised steel in November by Rs 1,000-3,500 a tonne depending on the variety.

Senior executives at JSW said domestic demand for galvanised steel was growing in the range of 10-13 per cent, thanks to strong demand from the construction sector. JSW Steel saw its operating profit margin improve 830 basis points, y-o-y, to 33.5 per cent in the September 2006 quarter.

Thermax: China investment

Thermax is investing $8 million (Rs 36 crore) to set up an absorption chiller manufacturing facility in China. The senior company management said the Chinese market currently accounted for about half of the $600 million global market for absorption chillers.

Thus, the investment in the neighbouring country is expected to ensure that Thermax is located close to major customers.

Absorption chillers are used largely as chilling solutions in the industrial and commercial sector, including malls and offices, provided the key input of a piped gas network is readily available, say analysts.

In FY06, Thermax witnessed its absorption chiller business grow 53.4 per cent, y-o-y, to Rs 8.5 crore, which is a small proportion of its consolidated income from operations at Rs 1,625 crore. The senior management also said they chose China because of lower production costs in that country.

Thermax is also investing Rs 175 crore in Gujarat to ramp up its production capacity in the boiler and heater segment. This segment has been growing at over 40 per cent over the past three years, given the strong demand conditions from user industries such as steel, cement and refining, say analysts.