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i-flex: YoY performance saves day - Views on News from Equitymaster
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  • Nov 20, 2002

    i-flex: YoY performance saves day

    i-flex, the Citi group promoted financial products and software services major, announced encouraging September quarter results recently. While its QoQ performance had been lacklustre, its YoY performance was remarkable. On a QoQ basis, the company's topline and bottomline grew by a marginal 3% and 2% respectively. The bottomline growth was aided to a considerable extent by the doubling of other income. If the other income effect is removed, then net profits would have actually fallen by 6% on a QoQ basis.

    (Rs m) 1QFY03 2QFY03 Growth 1HFY02 1HFY03 Growth
    Net Sales 1,324 1,360 2.7% 1,810 2,684 48.3%
    Other Income 31 62 97.9% 55 93 71.2%
    Expenditure 825 872 5.7% 1,153 1,697 47.2%
    Operating Profit (EBDIT) 500 488 -2.3% 657 988 50.3%
    Operating Profit Margin (%) 37.7% 35.9%   36.3% 36.8%  
    Interest 0 0 - 0 0 -
    Depreciation 30 33 11.7% 58 63 8.2%
    Profit before Tax 501 517 3.1% 654 1,018 55.8%
    Extraordinary items 0 -2 - -20 -2 -
    Tax -59 -66 11.8% -75 -125 66.4%
    Profit after Tax/(Loss) 442 449 1.6% 559 892 59.5%
    Net profit margin (%) 33.4% 33.0%   30.9% 33.2%  
    No. of Shares 34.2 34.2   34.2 34.2  
    Diluted Earnings per share* 51.8 52.6   32.7 52.2  
    P/E Ratio   13.1     13.2  
    (* annualised)            

    Operating profits fell QoQ, leading to a consequent fall in operating margins. There was a marked increase in travelling expenses, a major cause of the 180 basis points decline in operating margins. Other cost heads like employee costs, selling and distribution expenses and general and administration expenses had actually declined. However, on a YoY basis there has been an marginal improvement in operating margins.

    The highlight of the September quarter results has been the YoY performance. Revenues have gone up by 48% mainly on account of robust client additions and a 5% increase in billing rates in the September quarter. Apart from the products division, the company has been able to expand its consulting business by adding 9 new customers. Having said that, a strong parentage i.e. that of Citi group, ensures a healthy flow of new orders both in the products and services division. The i-flex management has been progressively trying to decrease dependence on the the parent.

    In the current quarter, the company has been able to convince the International Monetary Fund (IMF) and North Carolina Dept. of State Treasurer to use its core banking product, Flexcube. This has led to a significant increase in the licensing income of the company in the September quarter. Despite the global slowdown, the company is expected to grow its revenues at a healthy rate, as it has an efficient marketing and publicity network spread across 16 countries (that probably explains the jump in travelling expenses). The Citi parentage will also ensure stability to an extent.

    At Rs 687 the stock is trading at a P/E of 13x its annualised 2QFY03 earnings. A strong support from its parent has ensured a steady flow of orders for its banking product Flexcube. This relationship is likely to continue benefitting i-flex in the forseeable future. As part of its efforts to delink its business model from the parent, the company is trying to boost its revenues from its consultancy and software services divisions. While valuations are likely to see support due to encouarging results (YoY basis), the QoQ trend is worrying. The long term trend is likely to be dependent on the ability of the company to independently garner revenues in the financial vertical.



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