INTERVIEW - i-flex to grow with outsourcing, bank demand

By Muralikumar Anantharaman

SINGAPORE (Reuters) - Indian banking software maker i-flex solutions ltd. expects growth in the next 5-6 years to be driven by booming offshoring activities and demand from banks for technology to tackle new capital adequacy rules, its chairman and managing director said on Monday.

i-flex, in which Oracle Corp. bought a 43 percent stake last year, said its employee headcount had risen about 13 percent from the end of September to more than 7,000 as it gears up to meet rising demand for offshoring.

The Mumbai-based firm, with a market value of close to $2 billion, was boosted last week when Citigroup, the world's biggest financial services company, chose its Reveleus solution aimed at helping banks meet capital adequacy norms under Basel II requirements.

"We believe that if this catches on and if we are able to deliver well, then Basel II is like a mini Y2K. There are still a large number of banks who have to start thinking about it, so for the next 5-6 years it's a huge growth market," i-flex chief Rajesh Hukku told Reuters in an interview.

Hukku said that besides Basel II, demand will also be spurred by banks adopting more anti-money laundering and compliance norms.

He declined to say how much the Citigroup contract was worth but said it was a "large, multi-million-dollar deal."

He said South Korea's Woori Bank, an arm of Woori Financial Group (053000.KS: Quote), was already a customer for Reveleus and i-flex was in the process of signing with Japanese and Singaporean banks.

i-flex, a trailblazer among Indian software firms with its flagship Flexcube banking product, has in recent years also built its services business of low-cost software development to cater to booming demand, especially from U.S. financial firms.

It hired more than 1,000 staff in the September quarter and Hukku says the group is currently setting up buildings and computers in India for 17,000 people.

The products and services businesses are split roughly equally in the firm's half-year revenue of 6.3 billion rupees ($143 million).

Flexcube, which now accounts for about 45 percent of i-flex revenue and is sold in 100 countries, was also poised to grow as 80 percent of banks worldwide were operating with old software which would need replacing, Hukku said.

It competes in the segment with Swiss Temenos, British Misys and local rival Infosys Technologies Ltd.

Hukku said i-flex had also recently made a "huge sale" in Asia of a variant of Flexcube for the asset management industry.

He also said the association with Oracle was already beginning to pay.

"Clearly the amount of references they are bringing us is far beyond the reach we had. We have already signed one or two deals, where they brought a customer and we convinced the customer and signed the deal," he said.

The i-flex chairman, while declining to comment on earnings for the December quarter, said costs of hedging a volatile rupee would have a minor impact on the bottom line.

"If we had done no hedging then it would have been very nice but because we were hedged there's actually a negative impact. But it's insignificant," he said.

A Reuters poll earlier this month forecast i-flex would double its net profit to 730 million rupees on a 33.4 percent rise in net sales to 4.07 billion for the October-December quarter. The results are due later this month.

i-flex shares closed up 0.6 percent on Monday after earlier hitting their highest level in more than two years. The stock rose 69 percent in 2005.

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