i-flex: Scaling new frontiers...

In adding another feather to its cap, i-flex's flagship product, Flexcube, has been ranked the number one selling banking solution in the world in 2003 by IBS, UK. This comes second year in running for the company that has brought much recognition to the 'Made-in-India' tag through 'Flexcube'. The company has gained significantly from the consolidation that is taking place in the global banking and financial services industry. Let us take a look at the company's performance in recent times.

Being product-focused has resulted in high levels of volatility in i-flex's financial performance and this is indicated in the graph above. This is because of the fact that there is usually a time lag (usually 6 to 18 months) between i-flex entering into a contract with a client and implementing the entire product suite at the latter's site. Apart from impacting revenues, this affects the company's margins as it has to make huge investments in marketing and branding the product. Currently, i-flex derives more than 60% of its revenues from 'Flexcube' and this is set to increase in times to come. This would not only mean large investments in promotional activities but also greater addition to profits, as incremental revenues would directly flow to the bottomline.

The company, however, does not seem to be resting on the past laurels of 'Flexcube' that has 170 customers to its name and a presence in over 75 countries. i-flex has been quite successful in graduating from one product to another. Earlier, the company had successfully migrated from 'Microbanker' to 'Flexcube'. Now, i-flex's portfolio also includes 'Revelues', a treasury product that already boasts of IMF (International Monetary Fund), among others, as its major client. The increasing penetration of 'Flexcube' in the US markets has further aided i-flex's cause. It is to be noted that i-flex's entry into the US markets was delayed due to a regulation that barred the company from seeking business from non-Citigroup entities till FY01. The revenue share from the US region now stands at around 40% and growing.

At the current price of Rs 685, the stock is trading at a P/E multiple of 23x our FY05 estimated earnings. While the price fairly values the growth that the company is likely to witness in the next one year, a higher growth would depend on i-flex's ability to increase its penetration in the face of competition from both global and local players. Growth would also be determined by how the company moves on to newer products or upgraded versions of the existing ones.