(Rs m) | 4QFY04 | 4QFY05 | Change | FY04 | FY05 | Change |
Net sales | 2,093 | 3,586 | 71.3% | 7,881 | 11,386 | 44.5% |
Expenditure | 1,465 | 2,318 | 58.2% | 5,655 | 8,384 | 48.3% |
Operating profit (EBDITA) | 628 | 1,268 | 101.9% | 2,227 | 3,001 | 34.8% |
Operating profit margin (%) | 30.0% | 35.4% | 28.3% | 26.4% | ||
Other income | 18 | 121 | 572.2% | 139 | 259 | 87.1% |
Depreciation | (47) | 99 | -310.6% | 51 | 309 | 510.3% |
Profit before tax | 693 | 1,290 | 86.1% | 2,315 | 2,951 | 27.5% |
Tax | 146 | 252 | 72.6% | 527 | 627 | 19.0% |
Profit after tax/(loss) | 547 | 1,038 | 89.8% | 1,788 | 2,324 | 30.0% |
Net profit margin (%) | 26.1% | 28.9% | 22.7% | 20.4% | ||
No. of shares (m) | 76.9 | 77.1 | 76.9 | 77.1 | ||
Diluted earnings per share (Rs)* | 28.4 | 53.9 | 23.2 | 30.2 | ||
P/E ratio (x) | 20.0 | |||||
(* annualised) |
Services revenue growth (on a YoY basis) was aided mainly by an increase in volumes. As far as billing rates are concerned, management has indicated in the conference call that by and large, throughout the year, billing rates remained stable. In 4QFY05, i-flex added 16 customers in the products and services businesses totally. The company has been showing good traction in its product business, with three big order wins during FY05 from tier-1 financial institutions. The tank size of i-flex has, for the first time, hit the US$ 50 m level. This, when compared to US$ 27 m three years ago, shows the strong pace of growth that the company has maintained and the big strides taken during the period.
(Rs m) | FY04 | % of total | FY05 | % of total | Change |
Products | |||||
Revenue | 4,794 | 60.8% | 5,979 | 52.5% | 24.7% |
OP | 2028 | 80.9% | 2347 | 68.2% | 15.7% |
OPM | 42.3% | 39.2% | |||
Services | |||||
Revenue | 3085 | 39.2% | 5,347 | 47.0% | 73.3% |
OP | 479 | 19.1% | 1092 | 31.8% | 127.8% |
OPM | 15.5% | 20.4% | |||
Total | |||||
Revenue | 7,879 | 11,386 | 44.5% | ||
OP | 2508 | 3439 | 37.1% | ||
OPM | 31.8% | 30.2% |
Margin blues: i-flex has added a net of 2,540 employees in the last year, which is the largest YoY addition in its history. The results can be clearly observed, as there has been a considerable rise in employee costs, which have increased as a percentage of revenues from 40% during FY04 to 47% during FY05. This is the main factor that has impacted margins for FY05, which have fallen by 230 basis points. However, for 4QFY05, the picture is completely different. Margins have expanded by as much as 540 basis points due to the scorching pace of revenue growth aided by a lower than proportionate rise in expenditure. As regards segmental margins, product margins fell by 310 basis points, but services margins expanded by an impressive 490 basis points, powered by the strong revenue growth.
Lower margins, higher depreciation restricts net profit growth: Apart from the contraction in operating margins, higher depreciation has dented net profit growth during FY05. However, it must be seen in the context of the fact that net profit growth is 30% YoY, which is good by most standards, but revenue growth is 45%, and therefore, net profit growth has been restricted relative to revenue growth, which is clearly much higher. However, during 4QFY05, net profit growth has been a scorching 90%, aided by considerably higher operating margins and other income.
1QFY05 | 2QFY05 | 3QFY05 | 4QFY05 | |
Sales growth (%, YoY) | 22.2 | 36.8 | 44.0 | 71.3 |
Operating margins (%) | 23.0 | 22.0 | 21.9 | 35.4 |
Profits growth (%, YoY) | 8.9 | (16.3) | 27.4 | 89.8 |
Products (YoY, %) | 6.0 | 13.5 | 27.8 | 24.7 |
Services (YoY, %) | 52.6 | 72.0 | 67.9 | 73.3 |
The company announced the availability of Flexcube on Oracle's 10G infrastructure software that has been designed specifically for grid computing, which is likely to reduce the total cost of operations and improve profitability for clients.
The company has signed a marketing agreement with Fundtech Ltd., providers of technology solutions to the global financial services industry, to offer total payment solutions to financial institutions around the world.
i-flex Solutions has appointed ComputerLand SA as "Privileged Partner" for sales and implementation of Flexcube in 16 countries, including Poland, Russia, the Baltic republics and Ukraine.
We shall soon update our research report on the company.