i-FLEX SOLUTIONS LTD

Business Policy and Strategic Management

Submitted to

i-FLEX

SOLUTIONS LTD

Company Description : i-flex is a leading software vendor for the banking and financial services vertical. It provides technology products, custom applications and services, consulting services, IT infrastructure services, and KPO services focused specifically on the financial industry. The companys product suite comprises FLEXCUBE, DAYBREAK, Reveleus, CASTEK, and recently acquired Mantasbehavior detection platform. Its core banking product, FLEXCUBE has been ranked world's No. 1 selling core banking solution for four years in a row since 2002 by the UK-based International Banking Systems (IBS). i-flexs services business, focused on BFSI segment, has also grown rapidly and currently contributes ~42% to the total revenues. The company employs over 11,000 people and its revenues for the past twelve months (TTM) stood at INR 17. bn (USD 433 mn. We have serviced over 825 customers in more than 130 countries through our portfolio of products and services. i-flex's de-risked revenue model continues to deliver consistent results despite changing global economic conditions. The company

is not overly dependent on any one country or geographical region and has a diversified revenue stream from a widespread customer base.

Corporate Structure : Oracle Global (Mauritius) Ltd., Foreign Promoter of the Company, holds 67,481,698 shares aggregating to 80.58% of the total paid up capital of the company as on December 31, 2007. Shareholding of the following category as of December 31, 2007 is: Foreign Promoter (Oracle Global (Mauritius) Ltd. 80.58% FII & FMF 1.18% ESPS Trust 0.49% Others 17.75%

FII & FMF 1% ESPS Trust 0% Others 18% Foriengn Promoters 81% Foriengn Promoters FII & FMF ESPS Trust Others

Industry Computer software Industry P/E ROC Reg. 53666 Incorporatio No. n Year Ownership Private (Foreign) Registered office address 10-11, S D F 1, Seepz, Andheri (East), Mumbai - Maharashtra Tel no. 56762000 Fax no. 28292767 ISIN Code BSE Demat Code BSE Listing group NSE Scrip Code Face value (Rs) Beta Listed On INE881D01027 532466 A I-FLEX 5 0.845 Bombay , National

18.25 1989

Company Background Citicorp Overseas Software Ltd.(COSL), was Citibank's Indian software subsidiary which wrote software in India for Citibank's global operations. In 1992, Citicorp Information Technology Industries Ltd.(CITIL) was spun off from COSL. Citibank had invested USD 400,000 in CITIL for a 41 per cent stake and sold the remaining shares to CITIL employees and to those from another Citibank unit. In 2000, CITIL was renamed as I--flex solutions. In 2002, I--flex made an initial public offering and listed its shares on the BSE and NSE. In 2005, Citibank's 41 per cent stake in I--flex was sold for USD 593 million to Oracle. Later, through a series of purchases Oracle increased its stake to 81 per cent. As on 31 March 2007, I-flex operates as a subsidiary of Oracle Global (Mauritius), Ltd. The deal combines Oracle's strength as a software vendor with a global footprint and significant onsite sales, account management and domain expertise, with I-flex's strong financial services domain and offshore experience. I--flex has two major business segments - the product segment and the service segment. The product segment deals with product licensing, customization, implementation and support. Service segment includes providing customized software and consulting services. Customized IT solutions are offered to the financial institutions under the brand name PrimeSourcing. The company has recently launched Knowledge Process Outsourcing (KPO) services. Its two wholly owned subsidiaries, Iflex processing services and Equinox Corporation, were responsible for the company's

Enabling transformation in financial services i-flex solutions, majority owned by Oracle, is a world leader in providing IT solutions to the financial services industry. With the experience of delivering value-based IT solutions to over 825 financial institutions over 130 countries, i-flex helps customers build competitive advantage through next-generation technology while they, simultaneously, adhere to the stringent demands of a dynamic regulatory environment. Together, Oracle and i-flex solutions offer financial services institutions the world's most comprehensive and contemporary banking applications and technology footprint that addresses their complex IT and business requirements

i-flex solutions: offering a comprehensive platform for the financial services industry

The FLEXCUBE suite of products FLEXCUBE for Islamic Banking FLEXCUBE Private Banking Suite FLEXCUBE Investor Services FLEXCUBE Lending Suite Analytics GRC framework Enterprise Risk Management offering Customer Insight Analytics Insurance PrimeSourcing

TDMS (Technology Deployment and Management Services) i-flex Consulting i-flex BPO More about i-flex solutions

The FLEXCUBE suite of products The i-flex portfolio includes FLEXCUBE, a complete banking product suite for retail, consumer, corporate, investment and internet banking, consumer lending, asset management and investor servicing, including payments (SWIFTNet and SEPA). Since its launch in 1997, over 350 financial institutions in over 120 countries have chosen FLEXCUBE. FLEXCUBE enables banks to standardize, optimize and transform their processes. The latest release, FLEXCUBE 10.0, helps financial institutions respond faster to market dynamics and define and track processes, while ensuring compliance. The suite is also equipped with SWIFT 2007 enhancements and supports SEPA payment processing. Islamic Banking is fast emerging as an alternative source of banking, with the products and services offered being fundamentally different from that of conventional banking. FLEXCUBE for Islamic Banking, is a Sharia-compliant product and a solution for both Islamic and conventional banks. The FLEXCUBE Private Banking Suite, is a comprehensive solution

for private banking, giving wealth managers a unified view--and analyses--of their customers' wealth across asset classes, alongside the added benefits of performance tracking and improved customer relationship management. FLEXCUBE Investor Services helps fund management companies, transfer agency service providers and fund distributors design innovative products and offer efficient investor services to their customers. The lending space also has a new solution, the FLEXCUBE Lending Suite,which is an integrated customer-centric solution that addresses every lending requirement, beginning from origination, to servicing to collections. The product suite manages multiple lending products through an enterprise-wide consumer lending platform.

SOFTWARE INDUSTRY ANALYSIS :

 Over the past decade, the Information Technology (IT) industry has become one of the fastest growing industries in India, propelled by exports (the industry accounted for more than a quarter of Indias services exports in 2004-05). The key segments that have contributed significantly (96percent of total) to the industrys exports include Software and services (IT services) and ITenabled services (ITES) i.e. business services. Over a period of time, India has established itself as a preferred global sourcing base in these segments and they are expected to continue to fuel growth in the future. IT spending in the US has grown unabated during the last few years. As per IDC, the worldwide information technology industry comprising hardware, software, IT services and BPO had aggregate revenues of US$ 1,579 bn in 2006. Globally, IT services (including BPO) account for majority of the IT revenues with a share above 55%. India's market share, with estimated exports of US$ 31 bn (FY07), stands at a mere 2%. As such, the growth potential for the sector continues to be immense. The strength of the Indian software industry is indicated by the fact that export revenues have grown at a CAGR of 34 % during FY04 to FY07. Indias IT industry can be divided into five main components, viz. software products, IT services, engineering and R&D services, ITES (IT- enabled services) and hardware. Export revenues will continue to drive revenues as seen in the past. Amongst the export revenues, project-based services accounted for more than 50% of the Indian IT services exports. Multi-year annuity based outsourcing agreements are however will increase the revenues from the annuity based projects. However, the majority share of the project based revenues is going to continue on the back of custom application development (CADM) and application management.

Cost leadership has been the competitive edge of the Indian software sector over the last few years, this seems to be threatened now by MNCs who are replicating the Indian outsourcing model and setting up bases in the country. Going forward,

the advantage of low employee costs could peter out and the sector could get commoditised. Increased competition within the segment could lead players to ramp up selling and marketing expenses in order to acquire new customers and improve the market share, which in turn will lead to further pressure on margins. Increasing competition, pressure on billing rates and increasing commoditisation of lower-end application development and maintenance (ADM) services are among the

key reasons forcing the Indian software industry to make a fast move up the software value chain. The software services segment of the industry continues to grow by leaps and bounds. However, growth in the domestic market has been relatively staid. Given that India is among the fastest-growing economies in the world and the burgeoning IT budgets of India Inc., focusing on the domestic market will definitely be an opportunity to take advantage of.

Key Points Supply

Abundant supply across segments, mainly lower-end, such as ADM. Lower in higher-end areas like IT/business consulting, but competition is very tough.

Demand

IT is spending expected to grow at 6% CAGR over the next 3-4 years, and growth is buoyant in fast-growing economies such as India and China. Europe also shows promise. Demand largely depends upon the state of the global economy and willingness of corporations to go in for new software services and greater discretionary spending rather than consolidating existing systems.

Barriers to entry

Low in the ADM segment, which is prone to relatively easy commoditisation. In high-end services like IT/business consulting, where domain expertise creates a barrier. The size of a particular company/scalability also creates barriers to entry, as these firms have built up long-term relationships with major clients and to take business away from them is not easy.

Bargaining power of suppliers

Low, due to intense competition (oversupply), particularly in the lower-end ADM space. Low differentiating power is also another reason. High, at the higher end of the value chain.

Bargaining power of customers

High, mainly due to intense competition among suppliers/vendors. However, it is lower in higher-end services like consulting and package implementation.

Competition

Competition is global in nature and stretches across boundaries and geographies. It is expected to intensify due to the attempted replication of the Indian offshoring model by MNC IT majors. TOP

Financial Year '07 Indian IT services exports (excluding revenues earned from the export of software products, engineering and R&D services, ITES and hardware) are estimated to have grown at a CAGR of 35%, from US $7.3 bn in FY04 to US$ 18.1 bn in FY07. Export revenues from IT outsourcing engagements are led by application management services, which grew at a CAGR of 23% from US$ 2.3 bn in FY04 to US$ 4.3 bn in FY07. Revenues of the leading players in the segment grew in the range of 30% to 32% in FY07, driven by increased thrust on offshore outsourcing. The ITES-BPO industry continued to grow at a scorching pace, with India retaining its market leadership position in this space. The movement up the value chain continues in this space as well, as companies move from voice-based services to non-voice services. The sector is estimated to have grown at over 32% in FY07, to reach US$ 9.5 bn. Domestic market (including software, IT services, ITES-BPO and hardware grew by 23% in FY07 to US$ 15.3 m. Hardware contributed 51% of the total domestic revenues, while IT services contributed 35%. The broad trend in the industry globally is that the deal sizes are getting smaller. This has suited the Indian industry perfectly, as they do not as yet have the capabilities, scale and resources to execute huge billion dollar deals. On the other side, most Tier-I companies walked away with the high profile deals and the gap between Tier-I and Tier-II

companies widened in FY07. TOP Prospects Over the next 3-4 years, the total global spending on IT is expected to grow at a CAGR of 6%. The services spend (IT services and ITESBPO) is expected to grow faster as compared to the other segments. In particular, the offshore outsourcing story is expected to continue to play out, as firms look for quality work done at optimum cost. The integration of IT-BPO contracts is expected to become more common, as clients look out for end-to-end service providers. Companies like Infosys, TCS, Wipro, Satyam, HCL Technologies and MphasiS, all of which are also into BPO, will benefit from this trend. IT being a resource-intensive industry, human resources will play a major role in times to come. Attrition rates will have to be managed by the companies In order to preserve margins, firms will have to maintain workforce at optimum level, improve utilization rates and control selling, general and administrative expenses. Billing rates are expected to be stable, with the major clients giving no leeway on any possible increases. The increases are by and large coming from the new clients. Given that new clients contribute less than 10% to overall revenues for most IT companies, this will not have any major impact. Higher rates will be a factor of the business mix. As IT companies move higher up the value chain, they will get better billing rates for services such as consulting. Rupees appreciation against the US dollar and other major currencies is expected to remain a major concern for Indian IT companies having significant offshore presence. Coupled with this, higher employee costs is expected to take a toll on the companies profitability levels.

Major future Trends affecting the Industry Increasing Labor costs Moving up the value chain

India's Top 10 BPO firms Consolidation Manpower Shortage Outsourcing Backlash Engineering Services Outsourcing (ESO), Avionics and other opportunities.

Analysis of major software companies in India:

Amidst ongoing credit and economic crisis in the US and signs of slowdown in technology spending, Indian IT companies announced decent results for the first quarter of this fiscal. The undertone though remained cautious. The combined topline of the 4 biggies (TCS, Infosys, Wipro and Satyam) grew by 6% QoQ, mainly on account of higher volume and stable pricing. Although these companies did not witness any pricing pressure during the quarter, sporadic issues related to the same (pricing) did crop up in management talks. Managements also indicated of some delays in decision making from the clients side due to restructuring happening there in wake of the financial troubles faced by their companies. Indian IT: Consolidated performance* Consolidated financial snapshot Consolidated Consolidated (Rs m) 4QFY08 1QFY09 Change Sales 187,714 199,220 6.1% Expenditure 140,272 150,919 7.6% Operating profit (EBDITA) 47,442 48,301 1.8% Operating profit margin (%) 25.3% 24.2% Other income 3,069 3,204 4.4% Interest 2,113 1,954 -7.5% Depreciation 3,582 3,804 6.2% Profit before tax 44,817 45,746 2.1% Tax 6,371 5,273 -17.2% Minority interest 139 100 -28.0% Equity in earning of affiliates 99 106 7.4% Profit after tax/(loss) 38,406 40,479 5.4% Net profit margin (%) 20.5% 20.3% * Consolidation of results of Infosys, TCS, Satyam and Wipro

 Coming on to the profitability, the same witnessed a 1% QoQ decline during the quarter. This can largely be attributed to higher salary and visa costs, which are generally first quarter phenomena. The depreciation of rupee against US dollars (rupee depreciated 8% against the US dollar in last 6 months) though pared some pressure off the margins. The consolidated bottomline grew by 5% QoQ during the quarter, impacted by a contraction in operating margins. Lower interest and tax expenses though aided this growth. What to expect? Although the IT sector registered a muted performance during 1QFY09, the picture looks satisfactory when one visualizes the same in the backdrop of financial crisis in the US, which has taken some sheen off technology spending and offshoring. This view was shared by managements of most of these companies. Going forward, the strategy of de-risking business from the US markets is expected to continue as companies focus their energies more in new geographies like the UK, Europe, Middle East and Asia Pacific. Caution will however remain the buzzword in the short to medium term.

ANALYSIS OF i-FLEX SOLUTIONS : I-FLEX is a leading software vendor for the banking and financial services vertical. It providestechnology products, custom applications and services, consulting services, IT infrastructure services, and KPO services focused specifically on the financial industry. The companys product suite comprises FLEXCUBE, DAYBREAK, Reveleus, CASTEK, and recently acquired Mantas behavior detection platform. Its core banking product, FLEXCUBE has been ranked world's No. 1 selling core banking solution for four years in a row since 2002 by the UKbased International Banking Systems (IBS). i-flexs services business, focused on BFSI segment, has also grown rapidly and currently contributes ~42% to the total revenues. The company employs over 11,000 people

and its revenues for the past twelve months (TTM) stood at INR 17. bn (USD 433 mn) Investment Theme i-flex is a clear leader in the Indian financial services space. Its strong product portfolio has an extremely comprehensive range of solutions for the financial services industry. Besides developing a strong product suite, the company has been constantly expanding its capabilities through organic and inorganic routes. However the company has shown consistent lackluster performance on the operational side especially in S, G & A costs management. KEY RISKS Key risks to our investment theme include: (a) Open purchase offer by Oracle corp., (b) sustained slowdown in the US BFSI segment,, and (c) significant appreciation of rupee against US dollar, Euro,

and GBP. SHARE HOLDING PATTERN :

-Flex Solutions Ltd. Industry : Computers - Software BSE Code : 532466 NSE Code : I-FLEX Business Group LTP (Rs.) ISIN No : Citibank Group : 1,276.25 (-0.09%) [NSE] : INE881D01027 Face Value/M Lot P/E Ratio Market Cap : 5.00/1 : 26.02 : 10,690.81 Cr

You can view the latest three shareholding pattern for the company under two broad categories (Promoter & Non Promters)

Share Holding Pattern as on : Face Value

Foreign Promoters Sub Total

30/06/2008 31/03/2008 31/12/2007 5.00 5.00 5.00 No. Of Shares % Holding No. Of Shares % Holding No. Of Shares % Holding PROMOTER'S HOLDING 67481698 80.57 67481698 80.58 67481698 80.58 67481698 80.57 67481698 80.58 67481698 80.58 NON PROMOTER'S HOLDING Institutional Investors 1830320 2.19 1556107 59887 0.07 85093 203599 0.24 189382 2093806 2.50 1830582 Other Investors 648634 0.77 554215 2508893 3.00 2528717 1482065 1.77 1585065 494866 0.59 451244 5134458 6.13 5119241 9041979 10.80 9315920 83751941 100.00 83747441

Mutual Funds and UTI Banks Fin. Inst. and Insurance FII's Sub Total Private Corporate Bodies NRI's/OCB's/Foreign Others Directors/Employees Others Sub Total General Public GRAND TOTAL

1.86 0.10 0.23 2.19 0.66 3.02 1.89 0.54 6.11 11.12 100.00

921971 69990 349158 1341119 479906 3174777 1583065 475243 5712991 9207133 83742941

1.10 0.08 0.42 1.60 0.57 3.79 1.89 0.57 6.82 10.99 100.00

FINANCIAL PERFORMANCE OF i-FLEX :

I-Flex Solutions Ltd. Rs. Crore (Non-Annualised) Total income Gross sales Indirect taxes Net sales Export income Other & extra-ordinary income Other income

Mar 2003 12 mths 625.16 0 0 614.12 0 0.24 11.04

Mar 2004 12 mths 801.99 0 0 788.13 0 0.24 13.86

Mar 2005 12 mths 1164.5 0 0 1138.6 0 0.24 25.9

Mar 2006 12 mths 1511.36 0 0 1482.3 0 0.24 29.06

Mar 2007 12 mths 2097.66 0 0 2060.94 0 0.24 36.72

Mar 2008 12 mths 2444.21 0 0 2380.24 0 0.24 63.97

Profit on sale of investments Extra-ordinary income Profit on sale of assets Tax refunds Provisions written back Other extra-ordinary income Change in stock Total expenses Raw materials, stores, spares & purchase of finished goods Raw materials, stores & spares Purchase of finished goods Salaries and wages VRS expenses Total other expenses Power & fuel Royalties, technical know-how fees, etc. Rent & lease rent Advertising expenses Marketing expenses Outward freight/other distribution expenses Travel expenses Loss on sale of investments Other expenses Extra-ordinary expenses Impaired assets Loss on sale of assets Other extra-ordinary expenses PBDIT Interest expenses Depreciation PBT Provisions and contingencies Total i_tax provision Corporate i_tax/direct taxes Fringe benefit i_tax Deferred taxes (Debit) Less Deferred taxes (Credit) Other provisions and contingencies Net profit PAT net of P&E Paid up capital Reserves Earnings per share(basic) Earnings per share(diluted) Status of investor's complaints Complaints outstanding at the begining of the period Complaints received during the period Complaints settled during the period

0 0 0 0 0 0 0 454.03 0 0 0 0 0 413.87 0 0 0 0 87.1 0 0 0 326.77 0 0 0 0 211.29 0 15.07 196.22 25.09 25.09 25.09 0 0 0 0 171.13 171.13 18.66 787.86 0 0

0 0 0 0 0 0 0 623.2 0 0 0 0 0 565.45 0 0 0 0 115.86 0 0 0 449.59 0 0 0 0 236.54 0 5.07 231.47 52.68 52.68 52.68 0 0 0 0 178.79 178.79 37.37 914.48 0 0

0 0 0 0 0 0 0 932.1 0 0 0 0 0 838.5 0 0 0 0 152.8 0 0 0 685.7 0 0 0 0 326 0 30.9 295.1 62.7 62.7 62.7 0 0 0 0 232.4 232.4 37.4 1107.9 0 0

0 0 0 0 0 0 0 1273.71 0 0 0 0 0 1156.08 0 0 0 0 200.9 0 0 0 955.18 15.54 0 0 15.54 339.74 0 46.04 293.7 56.05 56.05 50.55 5.5 0 0 0 237.65 253.19 38.14 1341.54 31.45 30.62

0 0 0 0 0 0 0 1725.38 0 0 0 0 0 1618.49 0 0 0 0 239.55 0 0 0 1378.94 0 0 0 0 479.17 0 65.3 413.87 41.59 41.59 34.26 7.33 0 0 0 372.28 372.28 41.64 2320.2 47.05 45.76

0 0 0 0 0 0 0 2028.62 0 0 0 0 0 1913.42 0 0 0 0 269.75 0 0 0 1643.67 0 0 0 0 530.35 0 70.59 459.76 44.17 44.17 32.6 11.57 0 0 0 415.59 415.59 41.87 2735.16 49.66 49.58

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

0 0 0

Complaints outstanding at the end of the period Dividend rate Dividend type

0 0

0 0

0 0

0 0

0 0

0 0

BALANCE SHEET COMPARISON OF i-FLEX

Mar ' 08 SOURCES OF FUNDS Owner's Fund Equity Share Capital Share Application Money Preference Share Capital Reserves & Surplus Loan Funds Secured Loans Unsecured Loans Total USES OF FUNDS Fixed Assets Gross Block Less : Revaluation Reserve Less : Accumulated Depreciation Net Block Capital Work-in-progress Investments Net Current Assets Current Assets, Loans & Advances Less : Current Liabilities & Provisions Total Net Current Assets Miscellaneous expenses not written Total Note : Book Value of Unquoted Investments Market Value of Quoted Investments Contingent liabilities Number of Equity shares outstanding (in Lacs)

Mar ' 07

Mar ' 06

Mar ' 05

Mar ' 04

41.87 0.03 0.00 2,770.75 0.00 0.00 2,812.65

41.64 40.17 0.00 2,316.66 0.00 0.00 2,398.47

38.14 0.00 0.00 1,324.59 0.00 0.00 1,362.73

37.44 0.00 0.00 1,087.75 0.00 0.00 1,125.19

37.37 0.00 0.00 929.18 0.00 0.00 966.55

403.02 0.00 222.61 180.41 131.02 723.41 2,249.11 471.31 1,777.81 0.00 2,812.65 719.19 4.22 165.46 837.47

323.27 0.00 173.95 149.32 127.07 609.22 2,141.24 628.37 1,512.87 0.00 2,398.48 604.99 4.21 187.53 832.89

281.89 0.00 118.49 163.40 58.14 41.35 1,590.39 490.55 1,099.85 0.00 1,362.74 38.04 3.36 80.11 762.88

212.78 0.00 80.63 132.15 8.56 42.54 1,343.88 401.95 941.93 0.00 1,125.18 39.23 3.46 6.90 748.80

157.96 0.00 66.13 91.83 11.36 54.79 1,058.55 249.98 808.57 0.00 966.55 54.79 3.59 9.86 747.40

INTERPRETATION

 i-flex Solutions (i-flex) Q3FY08 results were below expectations. Revenues, at INR 6.2 bn, were up 7.6% Q-o-Q and 11.2% Y-o-Y, while net profits, at INR 1.07 bn, were up 22.1% Q-o-Q and down 4.1% Y-o-Y. The products business, at INR 3.6 bn, grew 10% Q-o-Q, in line with expectations, with major contribution (75%) from implementation and AMC fees; license fees accounted for only 24% of product revenues, showing a moderate growth trend. The lower proportion of high margin license fee contribution resulted in significantly lower net profits for the quarter than our expectation. The license fees tank is about USD 81.2 mn, almost flattish from USD 80 mn in the previous quarter. The services business has underperformed in Q3FY08 with revenues from this segment growing a modest 6% Qo- Q. While EBITDA margins improved by 490bps to 21.5% vis--vis 16.6% in the previous quarter, they still lag 22.6% posted in the corresponding quarter of the previous year. i-flexs services business is an under performer with margins being a concern and volatile. Though Q3FY08 EBITDA margins have improved, we believe consistency coupled with more sustainable growth across business lines is still missing, while KPO business, with negative EBITDA, is yet to bear fruits. The company saw superior growth in FY07 on the back of products catering to regulations such as Sarbens Oxley (SOX), Basel II, and Anti-Money Laundering. We believe growth has moderated as most of the big financial institutions and banks are in a matured phase of implementing these solutions. Added to this, sub-prime and credit related issues in the BFS segment in the US throw an uncertainty dimension in terms of new license sales. Adjusting for the much weaker-than-expected product sales on back of U.S subprime concerns and EBITDA volatility, we have revised our EPS estimates marginally for

FY08E and FY09E downwards ~3% to INR 45.05 and 5% % to INR 50.9, respectively based on Indian GAAP. i-flexs cost management has been unimpressive; S,G&A costs still remain high at >25% of revenues and EBITDA margins are volatile even on an expanding revenue base. The topline growth has not translated into a sustainable bottom line growth, as the latter grew at just half the rate of 36% CAGR during 2004-07. At CMP of INR 1,095, the stock is trading at P/E of 24x and 21.5x on our FY08E and FY09E earnings, respectively. We are maintaining our ACCUMULATE recommendation on the stock for the above given reasons. The only positive trigger we see at current levels for the stock is open purchase offer by Oracle. India Equity Research | IT Result Update I-FLEX SOLUTIONS INR 1,111 Margins improve, but lack consistency i-flexs EBIDTA margins have been very erratic, both across product and services segments. While product line margins are trending towards the 27-30% range, services business margins have been in the downward mode since the past four quarters. We expect them to trend up in the 14-15% range in the near term. This should result in overall EBITDA margins of 20-22% for FY08E.

RATIO ANALYSIS :
RATIO ANALYSIS OF i-FLEX
( Rs crore)

Mar ' 08 Per share ratios Adjusted EPS (Rs) Adjusted cash EPS (Rs) Reported EPS (Rs) Reported cash EPS (Rs) Dividend per share Operating profit per share (Rs) Book value (excl rev res) per share (Rs) Book value (incl rev res) per share (Rs.) Net operating income per share (Rs) Free reserves per share (Rs) Operating margin (%) Gross profit margin (%) Net profit margin (%) Adjusted cash margin (%) Adjusted return on net worth (%) Reported return on net worth (%) Return on long term funds (%) Long term debt / Equity Total debt/equity Owners fund as % of total source Fixed assets turnover ratio Current ratio Current ratio (inc. st loans) Quick ratio Inventory turnover ratio Dividend payout ratio (net profit) Dividend payout ratio (cash profit) Earning retention ratio Cash earnings retention ratio Adjusted cash flow time total debt Financial charges coverage ratio Fin. charges cov.ratio (post tax) 49.73 56.93 49.06 56.26 54.38 335.85 335.85 214.09 330.85 Profitability ratios 25.39 22.03 22.38 25.98 14.80 14.60 15.54 Leverage ratios 100.00 4.96 Liquidity ratios 4.77 4.77 4.72 Payout ratios 100.00 100.00 Coverage ratios 2,411.19 2,283.87 Component ratios

Mar ' 07 42.85 49.64 42.58 49.37 48.38 283.15 283.15 186.38 278.15 25.95 22.31 22.31 26.01 15.13 15.03 16.26 100.00 5.50 3.41 3.41 3.39 0.03 0.03 99.97 99.97 2,491.57 2,329.48

Mar ' 06 32.07 37.16 31.56 36.65 5.00 39.14 178.63 178.63 151.24 173.63 25.88 22.51 20.34 23.94 17.95 17.67 21.25 100.00 4.79 3.24 3.24 3.23 18.11 15.60 82.18 84.62 1,374.92 1,171.28

Mar ' 05 27.63 31.18 26.39 29.95 5.00 34.20 150.27 150.27 120.57 145.27 28.35 25.41 21.25 25.10 18.38 17.56 22.79 100.00 4.94 3.34 3.34 3.34 21.60 19.04 79.37 81.72 2,323.94 1,842.01

Mar ' 04 25.57 26.05 23.53 24.01 3.50 29.77 129.32 129.32 91.58 124.32 32.51 31.98 24.89 27.56 19.77 18.19 24.92 100.00 4.33 4.23 4.23 4.23 16.78 16.44 84.56 84.85 825.83 607.17

Material cost component (% earnings) Selling cost Component Exports as percent of total sales Import comp. in raw mat. consumed Long term assets / total Assets Bonus component in equity capital (%)

0.15 96.88 0.30 74.17

0.35 96.31 0.28 74.58

0.53 96.05 0.12 81.43

0.36 97.51 0.10 82.96

0.50 97.84 0.12 83.11

ANALYSIS OF EPS

FOR THE FOLLOWING YEARS *(EQUITY CAPITAL BASE - 83,747,441 shares)

YEAR 20052006 20062007 20072008

EPS

32.08

42.59

49.07

 INTERPRETATION OF RATIOS EPS shows earnings of the company that can be allocated to per share holding. In this case the EPS has shown rise consistently over the years, as we can se from Fig(1) the EPS has grown by 15 % in current year as compared to previous year. So in this we can see that the company is heading towards giving good returns To the shareholders from the stock market Current Ratio gives the firms ability to repay the short term obligations. In this case the current ratio is maintained above three which is near to the industry Standards. So in this case the company can easily repay the liabilities easily and can maintain its operations.

Dividend payout ratio is also satisfactory and it will have a positive impact on the Share price of i-Flex

SHAREPRICE PERFORMANCE :

I-Flex Solutions Ltd.

Finance year Trading date : : Mar 2008 19-Aug-08

Share price performance Market price (Rs.) EPS (Rs.) CPS (Rs.) BV per share (Rs.) : : : : 1282.55 54.539126 61.295932 346.771 3.7894 Face value (Rs.) Beta P/E (times) P/B (times) Market capitalisation (Rs. Crore) : : : : : 5 0.845 23.5161452 3.69855037 10743.5861

Turnover : (Rs. Crore) Financial indicators (Rs. Crore) Net worth Equity capital Borrowing GFA : : : :

2812.65 41.87 0 534.05

Total assets Sales PAT PAT/Sales (%)

: : : :

3283.96 1792.97 410.87 22.9156093

Capitalisation ratios Bonus equity/eq. cap (%) Free reserves/eq. cap (%) Mkt. cap/eq. cap+prem (%) Enterprise value (Rs. Crore)

: : : :

74.181992 6617.5066 1089.3149 10743.586

Mkt. cap/ent. val (%)

: :

100

Debt equity ratio Current ratio

: :

0 4.36799559

Yield analysis Yield (%) Pay out ratio (%)

: :

0 0

Dividend cover Div./Net worth (%)

: :

Error 0

Stock returns & volatility 1 Month Returns (%) Volatility (%) High price (Rs.) High price date Low price (Rs.) Low price date -7.128892 6.7173872 1474 4/8/2008 1265 19/08/200 8 3 Months -12.31626444 14.11823928 1569 7/7/2008 1155 12/6/2008 24/03/2008 6 Months 21.04095885 13.38312864 1569 7/7/2008 892 24/03/2008 12 Months -32.67277356 14.80798285 2096.9 30/08/2007 892

Beta is important tool to analyse the volatility of the stock with reference to the stock market. In this case Beta is 0.84 : which is less than 1 . So we can interpret that the shares of iflex Will be more volatile then the stock market i.e with the change in stock market there will be relatively more change in the stock price of the i-flex.

BUSINESS PLAN FOR i-FLEX : Purpose of the plan

1. To create new growth areas in telecom and retail sector as these are the fastest growing segments requiring technological assistance 2. To de risk the business module which is heavily depend on BSFI segment 3. To create a diversified technological company in the coming 5 years servicing various verticals in the technology field.

Road to achieve
Growth would be in two major directions namely 1. Organic growth 2. Inorganic growth Organic growth: Retail vertical is totally unexplored by I-flex as of now hence, a new vertical for retail technology will be started by the company. I-flex is growing at 11.2% p.a. Hence, the new technology (retail vertical) should ideally grow at around 18-20% as this is the general industry average for this vertical. Human resource for this new segment will come at a premium from established players in the segment namely Tech. Mahindra. Hence, cost on human resource would be higher than industry average for this industry vertical.

Inorganic growth
i-flex to reduce its dependency on banking segment should go in for the acquisition for sasken technologies Bangalore which is a leading telecom software player. Market capitalization of sasken is 378cr. And the stock in the past 52 weeks has ranged from a high of 550-122. it is currently trading at rs 127 per share. Hence, the company could be an ideal acquisition target for i-flex. Sasken has revenue of 168 cr and net profit 40cr . Hence to pay approx 10 times the earning of sasken for i-flex will not be a burden for i-flex, more over sasken zero debt company . Sasken is growing at 22 % per annum ,but is not considered to be a large scale software developer due to its inability to scale up operations. Hence Sasken would be a good buy for i-flex as the marketing expertise and higher reserves of i-flex could be utilized in scaling operations.

MARKETING STRATIGIES : Integration of Sasken and i-flex marketing to rationalize cost .

 Creation of awareness about the added muscle of telecom & retail vertical in the international market as well as domestic market and thus building a strong brand with an estimated budget of Rs 100cr. Creating the dominante position in Indian market to develop software and hardware maintenance as Indian market is fastest growing for telecom and retail is also booming.

i-FLEX SOLUTIONS LTD