Iris Business Services – Solo Listed Play in the Regulation Niche

23 December 2017

In developed countries, helping businesses comply with laws is very big business. I know because I have published compliance journals in the areas of construction claims and affordable housing (among others) for the American audience.

Out here, the compliance business is scattered. CAs, E-Gov Suvidha centers, and lawyers help companies stay on the right side of the law. But as such, this support is not organized.

Enter IRIS Business Services, wa MSME company listed on BSE, which is seeking to exploit this niche.

Now before you read any further, know that:

(i) I have no holding in the stock

(ii) I do not know the management or promoters. This is the first time I am interacting with them.

(iii) The gist of the interview in one sentence is that you should track the stock and follow its half yearly results, and reconcile what is said in this interview with the actual.

Here we go:

Question:

Your business model please, considering that business markup XBRL providers are aplenty.

Answer:

We have 3 businesses.

COLLECT: Solutions for regulators, most of our money comes from here. Our technology powers the compliance platform for regulators like RBI in India, ACRA in Singapore and so on. 22 regulators in 16 countries are our clients already. That is the count at this stage. This is Enterprise software. Income is one time sale plus AMC. We’re moving it to a SAAS model, 1st such deployment has been successfully carried out in Mauritius

CREATE: Solutions for filers to create submissions that are ready to file. We have 4 products: IRIS GST for GST filings and IRIS CARBON for filings by enterprises are SAAS offerings. iDeal (for banks and financial institutions) and iReport are desk top softwares.

CONSUME: There are two kinds of offerings: Software that we sell to regulators and data that we sell to end users. This business will find its feet in about 12 months.

Jason Voss, Content Director of the CFA Institute said this of us a few years ago: “Separately, the IRIS platform I referred to is a piece of software of which I received a sneak preview. It will do exactly what you are asking about and way, way, way more. It is the most powerful piece of software I have ever seen for financial professionals.”

You also can check out Jason’s comment on this CFA blog.

Two things that came out of this are:

Our platform helped us:

1. Publish our half yearly results in not just English but also Hindi, Gujarati and Telugu. Next time it will be in all 22 languages, our contribution to financial inclusion. It is also a software that we can sell to all listed Indian companies who are interested.
2. Our software can help companies allow users to download financials into an Excel sheet automatically from filings. It can be set up such that the data downloads into your financial model automatically for every company you are interested in. It is a one-time set up that creates an annuity stream.

4 years ago, we made most of our money from “Create” which was then a KPO offering.

Today, we make most of our money from “Collect” this is a nice cash flow business which can cover our non discretionary costs and also gets us into bed with the regulator.

Going forward, the big jump will come from “Create” and “Consume”

For example, yesterday, we announced the launch of our product IRIS Carbon for South Africa, our local partner is EOH, the biggest IT firm in that country. This is an offering from the “Create” stable. Market size: 100000 companies. Price range: B/w US $ 500 – 5000 annually depending on company size. Competition: 11 other providers.

Our competitive edge in South Africa:

1. The regulator has contracted with us for the tech platform to receive the filings.
2. Our partner EOH has a presence in 130 locations across South Africa

 Question:

What is the monthly or yearly recurring expense you have to pay for data access in different countries?

Answer:

In our data business, we don’t buy any data from any data provider at this time but this will change next year when we start investing more in that business.

Question:

Why did your sales fall in 2016-17? Did you lose any clients? If yes, why.

Answer:

Until 4 years ago, we were primarily a KPO. A US client (Merrill Corp) would ship files of their clients to us, we would convert them into XBRL using our own tools and send them back for filing to the US SEC.

With automation, we knew that this business would soon fold up, so we exited the business totally, causing revenues to fall steeply from a high of close to Rs 70 cr. That’s when we switched to products and rejigged the business totally. So sales did not fall just last year, it has been falling over the last 4 years.

Now we are turning around as the order book will show. 

Question:

Some of the risks that you mentioned are associated with the business were capital sourcing and cost competitiveness. How have you addressed these since 31 March 2017?

Answer:

What is happening is that as we seem to have more wins than our global peers, they have started competing with us on price and price alone. Secondly they are also much better funded than us.

By leveraging Indian cost structures to develop products, we hope to stay ahead of the competition. What we need to do is to build a war chest to take on global competition. For that our financials have to first improve, I suppose.

Question:

Your debt as on 31-3-17 was 12 crores, and per your presentation you have repaid 3 crores from the IPO proceeds.

You are now left with 9 crore debt. At 11.5% interest, your interest outgo is 1 crore per annum. Now, assuming you have arrested the fall in sales and have steadied ship, it still leaves you with a loss for 2017-18. Am I correct?

Answer:

Our order book is getting healthier, so we have arrested the fall in sales, yes. Over the last 4 years, falling sales in the wake of change in the business model took its toll on the company.

The good thing about where we have now reached is that it should not be too difficult to cover our non discretionary expense which is basically costs on account of staffing, finance, utilities and other overheads.

I must hasten to add however that the nature of the products business is such that projecting revenues is slightly hazardous as I am sure you can appreciate. Our focus is to increase the share of recurring revenues so that investors get comfort.

On the debt side, there is a bank loan and there was the short term borrowing of Rs 3 crore which we have cleared.

Question:

Have you got your SaaS software valued by an independent and accredited firm?

Answer:

No we have not. Perhaps you could tell me how you think the company may benefit from such an exercise.

(Interviewer’s note: perhaps a software evaluation will lend comfort to investors until financials improve).

Question:

Your sales are 27 crores and your debtors stand at 7.7 crores. That’s an unusually long debtor credit cycle. Can you explain why?

Answer:

It is typically 3 months, but truth be told, exceptions are those who pay on time.

Question:

Your building is on lease. What are the terms?

Answer:

The office is located at Vashi station in Navi Mumbai, we bought it from the previous occupant who had bought it from CIDCO whose typical contracting terms is a long lease instead of an outright sale

Question:

When do you see your subsidiaries turning around?

Answer:

Our subs are basically because we are often required to have a local entity for contracting purposes. Singapore is the only place where we have staff for sales and delivery. More recently, we have staffed up the US office as well with a sales person.

Conclusion

Though Iris Business Services has a very exciting business model (RegTech) and it partners global financial firms such as Deloitte Haskins, KPMG, etc. to serve their clients, it makes sense for investors to track its order book, half -yearly results (MSMEs are allowed to file half yearly results) and news announcements.

Any sign of a turnaround should be taken as a clue to invest, especially given the management’s comments that the order book is healthy and growing. Till the company starts delivering profits, track the company because of its unique and interesting business model.