i-flex is amongst those few Indian software companies that have tasted significant global success. i-flex, incidentally, makes the world's most popular banking software product called 'Flexcube'.
But the journey to this exalted status has not been very smooth for i-flex. After years of robust growth, 2003 was not an encouraging year. Sales and profitability flagged. Despite having established its presence in the United States, the company is yet to make big bang client acquisitions in one of the most lucrative and competitive markets of the world.
But things are getting back to an even keel now and last quarter numbers were heartening and the company signed up a record $22.5 million license fee in the quarter.
Deepak Ghaisas, CEO India Operations and CFO, i-flex spoke with Sanjay Krishnan about the company and the outlook going ahead.
How different is the market today for a predominantly product company like i-flex when compared to a few quarters ago?
Each region in the global market shows different characteristics at different points in time.
Banks in Europe have looked very keen recently to replace their core legacy systems, countries like Malaysia are going a bit slow while big markets -- like the US -- are still in a 'wait and watch' mode.
As quarters go by, the traction and momentum for i-flex seems to be improving overall.
What do you think are the biggest challenges a product company faces in taking the next big leap forward?
The main challenge that a product company faces is to ensure constant investment to enhance the functionality, technology and scalability of their products. This is an iterative process where a lot in inputs are received from the market by the product company and vice versa.
We have, for instance, developed a solution approach for bigger banks that are not ready to accept a 'bank in a box.'
i-flex has had a rich and varied experience of operating in different cultures and meeting implementation challenges in a global market. We need to unlock the value of this experience.
i-flex as a company has experienced considerable success with its flagship Flexcube. What next?
Flexcube is an umbrella brand, not one product. There are multiple products that come under it and we will continue to add more products under its ambit because we use a BAA model. What this means is that we either build products, acquire them, or align with companies that posses them to enrich the overall Flexcube offering.
In the recent past, we have introduced Reveleus, a product in the business intelligence area, and also acquired Daybreak, a product for asset lending in consumer banking.
How well is Reveleus your BI/Datawarehousing product suite doing? How many installations have happened since its launch in 2002?
Reveleus is more a business intelligence and analytical applications suite than a data warehousing solution. We see an impressive momentum gathering on this product offering with Reveleus' Mortgage Analytics being deployed at a leading North American Mortgage Lending Organization. Reveleus' Basel II Solution has recently been chosen by Ta Chong Bank in Taiwan and the BMO Financial Group, among the largest financial institutions in North America, to accelerate their Basel II compliance efforts.
Currently 20 financial institutions have chosen various analytical applications from the Reveleus suite. There is unanimity in the analyst community that over the next decade analytics and business intelligence solutions will be key drivers for banks.
Are there plans to hive off Reveleus into a separate company and attract outside investments into it?
No, we do not have any such plans.
What is the kind of investment i-flex makes into product development on an annualized basis. What will be the investment this year?
Overall, both in products and our PrimeSourcing division, we spend around 12 per cent of our revenue in R&D.
How successful has been i-flex's foray into the US market? Are you disappointed with the pace at which you have grown in the highly competitive American market or are you satisfied? If so, why?
The characteristics of the US market are quite different from those in rest of the world. It is certainly occupied by the established local players currently. The need to replace legacy system in that region is not so 'urgent' as we thought it initially to be.
But, we think we have the right strategy in place in terms of our offerings in the market and we are making steady and firm progress.
i-flex bought into a Canadian firm, Castek Software, recently. What synergies do you expect and how do you see the relationship going forward?
As we always said we are focused on the financial sector. It has three components banking, capital markets and insurance. We already cater to two of these and Castek allows us to get in to the area of insurance. We believe that Castek has excellent IPR and domain expertise in this niche area. This fits in perfectly with our overall strategy to address the insurance market.
When will i-flex become the largest shareholder in Castek? Is there a milestone-linked roadmap to this? Kindly give details.
There is a roadmap. What we have now bought is options that will allow us to become the single largest shareholder in Castek. Internally we have set time limits as how we intend to progress in exercising these options.
Where do you see i-flex three years down the line? Do you see consolidation happening in the banking industry and product companies acquiring other similar companies?
We expect the banking sector in each region to respond or evolve differently. In some economies consolidation and re-polarisation will take place, in other parts there will be merger by mortality and in some regions there will be need for new banks, not just brick and mortar banks necessarily, but in many cases virtual banks.
I am sure global product companies will respond appropriately in terms of their offerings in each of these situations.
How is your software services division growing and how do you see it ramping up going ahead?
Our Software services division -- PrimeSourcing - has shown spectacular growth of 69 per cent in the last financial year and its margins have improved. Last year alone our headcount went up two-thirds and we increased the size and number of our facilities in India.
We have already crossed 5,000 mark in terms of employees. We see merit in expanding this business not only because it smoothens the quarterly curves on our top and bottom line but it enables de-risking and enhances the possibility of cross-selling products and solutions.
Last year's ramp up in our infrastructure and resources in a very short time and our customer's confidence have given us that we can scale up as the need arises.