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i-flex: Hit by subprime? - Views on News from Equitymaster
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i-flex: Hit by subprime?
Sep 26, 2007

In wake of concerns of the subprime crises spreading to the entire banking and financial services vertical in the US, investors could easily believe that the Indian banking and financial services technology major, i-flex will be hit badly as around 40% of its revenues comes from US and it caters only to the BFSI space. The stock price performance probably indicates this pessimism, as the stock is down almost 30% since its highs just a couple of months back. In this article, we discuss whether these concerns are justified.

  1. i-flex derives 52% of its revenues from products out of which 62% comes from Flexcube, which is its flagship product and has been ranked the top selling banking software for the past few years. Considering that the presence of Flexcube is spread across 130 countries, it has a strong acceptance across the globe. We believe that the product will continue to do well even if the subprime concerns aggravates or the US economy goes slows down, as banks cannot do without a core banking solution. And especially with the product now being marketed by Oracle, which provides technology to most of the top banks in the world, the risks stand reduced for i-flex.

  2. i-flex’s second major product, Reveleus, addresses areas such as governance, risk management and compliance. Financial services companies across the globe and particularly in the US are paying greater attention to these areas due to enactment of Sarbanes Oxley (SOX) Act and Anti-Money Laundering Act. We believe that demand in these areas will continue to surge, which will help Reveleus to maintain a decent traction going forward.

  3. Thirdly, coming to services, the business although focused on the BFSI space, does not caters to large deals in application outsourcing arena (like other IT companies) but is more focussed on BASEL-II implementation and MIFID (Markets in Financial Instruments Directive) services across Europe. The noticeable factor here is that these services are rendered onsite and have some consulting element involved. These will not only boost the company’s onsite revenues but also help its services business move up the value chain.

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