Consolidation in the Indian software sector has been among the highest in the country and has been critical in the ability of companies to compete with other global players. Acquisitions have been focused initially to gain a foothold in the US and European markets. In recent times it has been directed toward either gaining a specific domain expertise or increasing scale of operations.

Among the companies that have used acquisitions as a tool to create their position in the market, both in India and abroad, is Mumbai-based 3i Infotech.

3i Infotech was created in 1999 as the back office support and IT service arm of ICICI and has come a long way in becoming a strong contender in services and product-based technology companies. ICICI holds 40% of the companys equity while the public holds 21.06%; FIIs and FIs hold 33.4% while the balance is held by others.

The company is uniquely placed in the banking, insurance, mutual funds, and capital market with various products and services like managed services, business intelligence, BPO, and consulting among others, offered across the US, the UK, South Asia, Asia Pacific, and other emerging markets.

For the fiscal year ended March 2007, 3i Infotech reported a revenue growth of 56.84% amounting to Rs 655.32 cr as compared to Rs 417.81 cr in the previous financial year. The net profit for the same period was Rs 103.75 cr, up by 80.62%, as against Rs 57.44 cr last year.

During the year, Allied Insurance of Maldives chose the companys insurance product, PREMIA, to automate its operations. The company is also working with the government of Goa to implement the states integrated information infrastructure (I-3) project. Credit Guarantee Corporation Malaysia Berhad (CGC), one of Malaysias leading development financial institutions, chose the companys KASTLE universal lending solution to empower its business operations. On the e-governance front, the company recently partnered with Financial Information Network & Operations (FINO), to provide financial services using common service centres (CSCs) in Haryana and Karnataka. The company forayed into registrar and transfer (R&T) and fund accounting services for the mutual funds sector.

On an acquisition spree year, 3i Infotech acquired Datacons, a Bangalore-based software products company offering products for the mutual funds segment. Datacons has an annual revenue of $5 mn and 250 employees. The company also acquired G4 Software Technologies (India). 3i Infotech also acquired a 51% stake in Professional Access with a right to acquire the rest 49% over a period. Professional Access is a US-based company with offshore development centres in India specializing in the area of e-commerce for the BFSI and retail segment. The company also added to its suite of products a workflow and document imaging software and associated services business through 100% share purchase of Stex Software Technologies and through a business purchase of Genesis Imaging and Allied Technologies. 3i Infotech acquired Rhyme Systems, a provider of asset management solutions in the UK, and a 60% stake in KNM Services, a service provider of cheque truncation for banks.

The company reported excellent performance for the third quarter ended December 31, 2007 with consolidated revenues up to Rs 317.25 cr, showing an increase of 85% on a y-o-y basis as compared to Rs 171.64 cr in the corresponding quarter last year. The net profit grew to Rs 48.46 cr compared to Rs 39.65 cr achieved in the same quarter last.

During the quarter, the company was selected as the service centre agency (SCA) by Gujarat setting up common service centres in two zones. The company also forayed into China by signing a non-binding MoU with Yucheng Technologies. The company recently unveiled its expansion plans in Chennai and has announced the launch of its first international data centre (IDC).

Continuing the spree of acquisitions, 3i Infotech acquired J&B Software, US, and its subsidiaries. 3i Infotech would pay a consideration of $25.25 mn for the transaction.

The shares of 3i Infotech trade at Rs 101. We believe the company will continue to acquire both IP and non-IP businesses leading to an integrated technology company. Outperformer.

Sushanto Mitra
The author is director, Techcap India
sushanto@techcapIndia.com
The views reflected here are of the author and not of this publication. No liability is accepted for losses based on the information presented here

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