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i-flex: Other income aids bottomline
Jul 25, 2008

Performance summary
  • Topline grows by 23% YoY during 1QFY09. Growth aided by the product segment, which recorded sales growth of 30% YoY.
  • Operating margins contract by 2.6% YoY in 1QFY09.

  • Bottomline grows by 187% YoY during 1QFY09 aided by a sharp rise in other income.

  • Adds 14 new customers and 547 employees during the quarter. Attrition rate declined from 21% in 1QFY08 to 20% in 1QFY09.

  • Board approved the change of name to ‘Oracle Financial Services Software Limited’.



Consolidated financial performance snapshot
(Rs m) 1QFY08 1QFY09 Change
Sales 5,133 6,318 23.1%
Expenditure 4,440 5,629 26.8%
Operating Profit 693 689 -0.5%
Operating Profit margin (%) 13.5% 10.9%  
Other income (81) 639  
Depreciation 164 138 -15.9%
Profit before tax 447 1,190 165.9%
Tax 79 128 62.3%
Share of profit in associate (1) (6)  
Minority Interest   (1)  
Profit after tax/(loss) 367 1,055 187.2%
Net profit margin (%) 7.2% 16.7%  
No. of shares (m)   83.8  
Diluted earnings per share (Rs)   58  
P/E ratio (x)*   23.2  

What has driven performance in 1QFY09?
  • i-flex recorded a topline growth of 23% YoY during 1QFY09, which was mainly a result of strong performance of the products division. This business, which contributed to almost 60% of the consolidated revenues, grew its sales by 30% YoY during the quarter. Growth for the products business was led by 35% YoY increase in implementation fees (which formed 60% of product revenues). As regards to the services business, sales grew by 16% YoY during the quarter. Since a large part of the services business comes from the BFSI (Banking financial service and insurance) segment, the company has indicated of witnessing some pressure on account of subprime related issues in the US markets.

    Segmental analysis

      Products   Services  
    (Rs m) 1QFY08 1QFY09 Change 1QFY08 1QFY09 Change
    Revenue 2,792 3,634 30.2% 2,197 2,544 15.8%
    Cost of revenue 1,392 1,788 28.5% 1,615 1,807 11.9%
    Selling and marketing expense 459 826 80.2% 60 189 213.0%
    General and administration expense 263 283 7.5% 172 183 6.4%
    Total cost 2,114 2,897 37.1% 1,847 2,178 18.0%
    Operating margins 24.3% 20.3%   16.0% 14.4%  

  • i-flex ramped up its business in the EMEA (Europe, Mid-East and Africa) and Asia-Pacific regions. The company’s revenue from Europe and Asia-Pacific grew by 47% YoY and 22% YoY during 1QFY09.

    Geographical breakup of revenues
      1QFY08 % of total 1QFY09 % of total Change
    US 1,988 39% 1,988 31% 0%
    Middle East India & Africa 688 13% 840 13% 22%
    Asia -Pacific 847 17% 1,092 17% 29%
    Europe 1,572 31% 2,314 37% 47%
    Latin America and Caribbean 38 1% 85 1% 123%
    Total 5,133   6,318   23%

  • i-flex’s operating margins contracted by 2.6% YoY during 1QFY09, largely due to cost increases in both the product business and service business. The operating margins for product segment contracted from 24.3% in 1QFY08 to 20.3% in 1QFY09. Margins for the service business contracted from 16% in 1QFY08 to 14.4% in 1QFY09.

  • i-flex’s net profits grew by 187% YoY during 1QFY09. The expansion was largely driven by increase in other income, which grew on account of higher interest income and forex gains.

What to expect?
At the current price of Rs 1,355, the stock is trading at a multiple of 14.3 times our estimated FY10 earnings. We shall update this analysis post receipt of further details from the company.

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