3i Infotech held a conference call to discuss third quarter results. Mr V Srinivasan, MD & CEO alongwith others in the management addressed the call.
Highlights of the call
- For FY09, the Company has maintained its guidance of revenues at around Rs 2200 – 2300 crore, a growth of 82.5 – 90.8% over FY08 with fully diluted EPS of between Rs 14 – 14.50 i.e. net profit of about Rs 241.36 – 249.98 crore up 36.7 – 41.6% over FY08.
- The guidance implies that Q4FY09 would have revenues of Rs 521.12 – 621.12 crore up 48.9 – 77.5% on y-o-y basis and net profit of Rs 49.84 – 58.46 crore up 2.1 – 19.7% on y-o-y basis.
- The market demand has become sluggish. However, for the Company, its focus for banking & insurance products is on Asian countries where the impact has not been so severe at present and has been able to book deals. In BPO, the company is into cheque processing and back office data entry etc., which have not been impacted and there is some stickiness. In IT Services, the company is into e-commerce, transaction processing etc. which is not much impacted by the current economic conditions.
- Eventhough, the general environment is bad, the Company will be able to maintain growth in Q4FY09 and maintain their guidance. It is difficult to guide on FY10 numbers. However, the growth achieved in earlier years would not be possible.
- The sales cycles have become longer. But the Company is not seeing much impact currently.
- The Indian market has been hit hard and the management believes it will take some time for registering high growth. The growth would be flat to stable. Budgeting would get over by mid-March 2010.
- The effective tax rate has dropped to 3% for the quarter against 7.5% in the sequential quarter. The Company has revised its tax provisioning in the US and the tax rates would be not be so low but would stabilize and lower levels from earlier.
- Regulus had revenues of Rs 156 crore up 1% on q-o-q basis for the quarter with net margins of 5%.
- Software development cost is 10% of revenues.
- Interest cost was high for the quarter on the back of higher debt on books also impacted by the depreciation in rupee. The Company has FCCBs of US$ 160 million and loan for Regulus acquisition of US$ 85 million. The balance is debt in INR.
- The Product revenues were down on q-o-q basis by 5% on the back of cross currency headwinds with UK being a large contributor for product revenues.
- Of the product revenues, 25% is license fees, 50% is implementation and 25% is maintenance. For IT Services, 50-60% of revenues are annuity. In transaction processing about 80-90% is annuity.
- The Order Book at the end of the quarter was Rs 1419 crore up from 1372 crore executable over the next 12 months. OF the order book product is 30%, services is 35% and BPO is 35%. The share was one-third each in the sequential quarter.
- The average realized rate for the quarter was Rs 45/US$ against Rs 43/US$ in the sequential quarter.
- The Company started the year with 7700 employees including 300 sales support and at the end of quarter it has 8500 employees.
- The Company serves the BFSI industry. For the Asian Market, the Company serves the insurance products and banking products to regional banks. The Company has not seen any major decline. In the US &UK market, the company sells cheque-processing software and does cheque processing in BPO. The number of cheques processed has remained same. Also, the new software sale is not happening but there are maintenance contracts. In the UK market, the Company also sells mutual fund software.
- In BPO, for India, the Company does data entry and cheque processing using its own IPR. The volumes would not grow substantially going forward. In the US, the Company does check processing and document printing. The management believes that the volumes will not grow but will not decline as well.
New Initiatives
- The company has undertaken 3 new initiatives: Kiosks, Taxsmile and Elegon (JV in China). The additional expenses for the quarter on new initiatives was Rs 14.22 crore up from Rs 7.04 crore in the sequential quarter and for the 9MFY09 it was Rs 26.16 crore. OF the expenses, Kiosks would be about 60-70%, Elegon has start-up costs and for Taxsmile the expenses would come in Q1FY10.
- The Company has won e-governance deal for few states for government services to citizens for implementation of 12000-13000 kiosks. The Company has commissioned 3000 kiosks and by December 2009 all 12000 kiosks will be operational.
- The Company has launched e-Mudhra, an initiative to roll out digital signatures to retail.
- The normal capex for the Company is Rs 15-20 crore for full year. However, for the Kiosk business would need capex of Rs 100 – 125 crore in the next 12 months. The Company has raised debt for Kiosk business.
- Taxsmile is an online income tax return filing portal. Last year it had 6 lakh visitors and had filed about 50,000 returns. However, there was some problem regarding signatures wherein people had to file the returns physically as well. However, now with the digital signature product, the Company would take care of that problem.
- Elegon is a JV in China to market 3i Infotech products in China. The Company has already transferred the IPR and marketing rights into the JV