Iris Business Services: Business Model and Marketplace

Disclosure: I’m long in Iris Business Services and therefore have a vested interest in the stock doing well

The Marketplace In Which Iris Business Services Operates In

To understand Iris Business Services and its potential, you first need to understand the marketplace it operates in:  

There was a time when documents were submitted to financial and other regulators and governments in the form of Word, Excel, PDF, CVS, JSON, etc. These file formats were not machine-readable (that means they could not be read and then analyzed by computers). Because these documents were not machine-readable, the financial and regulatory world was prone to delayed information, hardly any analysis, frauds, misreporting, and the data collected had no practical use.

In comes a language called XBRL which is completely machine readable. If data is submitted in XBRL, machines can read and analyze it (using machine learning or AI software), analyze it on the fly, and exercise tighter controls, thereby cleaning up the economy and making their country investable and transparent. 

This is what governments all over the world desire. That data is collected in time and analyzed immediately and acted upon. XBRL is preferred over 6 continents and the usage is growing by the day. Deloitte and many other services firms call it the future of reporting.

And, when governments want data in a certain format, companies have no option but to comply.

While there are many XBRL professionals, there are a handful of companies that offer XBRL-enabled regulation and compliance technologies/software on the cloud (SaaS). 

Iris is one such company that owns cutting-edge products on the cloud that help governments collect data in machine-readable format, companies to create and submit data in the format that governments desire (XBRL), and individuals and other entities to consume the submitted data for analysis and research.

Iris Business Services: Business Model

Iris has 3 revenue-generating businesses – Collect, Create, and Consume. 

Iris’s Collect Business (About 35% of revenues)

Iris helps governments and regulators collect data by developing customized solutions (software/tools). The governments and regulators send prominent companies (like Iris) a RFP (Request for Proposal).

After Iris bids, the order may or may not materialize.If it does, Iris makes the software development fee and then gets the AMC, wherein revenue recurs over the long term. Aside from customized software development, Iris also has 3 SaaS products in the Collect part of its business:

  1. IRIS NOAH, which helps regulators manage and modify taxonomies (In Iris’ context, taxonomy is the logical and scientific process of arranging data into groups).
  2. I-FILE, an electronic disclosure platform to help regulators collect pre validated data.
  3. BUSHCHAT, a validator that ensures data is of desired quality before it flows into the regulatory platform. 

This business is volatile in nature and many orders can arrive suddenly and some months may not witness any business at all. A typical contract can range anywhere between INR 25 lakhs or millions of USD depending on the scope of the job and the regulator’s needs.

Iris has entrenched itself deeply in this part of the business and its clients include governments, central banks, and stock exchanges around the globe, including RBI, Qatar Financial Center, NSE, BSE, SEBI, Bank of Mauritius, and many more regulators around the world. Iris is present in 30 countries and its client list includes more than 30 regulators.

Iris’s Create Business (About 57% of revenues)

The Create section of the business helps enterprises (companies and other entities) stay in compliance by submitting data, as required by their country’s regulators, in the required format (XBRL). 

The demand for such products on the cloud is exploding as more and more countries mandate companies to submit information in machine-readable form. 

Iris owns the following products in this space:

  1. IRIS CARBON: A SaaS app/tool (with XBRL /iXBRL layer integrated into the platform) that helps enterprises/companies create & generate compliance submissions to the regulator. This is the product that can help Iris generate multi billion $$$$ (and that’s just in India) going forward. It competes head to head globally with Workiva, which is the global leader in this space.

    Now, you will be amazed to learn that Iris Carbon rates almost equal to Workiva in customer satisfaction as per G2, the most trusted and reliable software rating service in the world. Check the graph below (the source is linked above):

    The X-axis represents customer satisfaction while the Y-axis represents market presence. As you can see, Iris Carbon rates almost equal to Workiva on the customer satisfaction scale but Workiva has a massive market presence. Workiva’s annual turnover is  $550+ million while Iris’s annual turnover is just $9 million. Imagine what can happen as Iris starts catching up!!

    Another thing to note is that Iris’s intangible assets (existing and under development) are just Rs 5 crores. This includes all their SaaS products. I cannot imagine the valuation that these tools will command in a marketplace that’s as hot as this! Workiva has a market capitalization of $5.71 billion while Iris’s market cap is just $19.7 million and both own similar products.
  2. IRIS CARBON DISCLOSURE MANAGEMENT: A Office 365-based SaaS tool (Iris has a partnership on this with Microsoft) that allows clients to create effective compliance reports (Annual, ESG , Internal reports, etc)
  3. IRIS GST: Helps Indian companies create GST filings.
  4. IRIS iDEAL: Helps banks and financial institutions generate and schedule their XBRL submissions to the central bank.

Iris’s Consume Business (About 8% of revenues)

The Consume part of Iris’s business offers the following products:

  1. ePASSBOOK: A web-based ledger that helps retail investors with financial planning.
  2. WRITECLICK: A tool that generates automated news and research reports from structured data inputs.
  3. PERIDOT: A mobile app that helps Small businesses check their customers’ risk profile by verifying their tax compliance status.

Besides the products, Iris also provides customized solutions in the regulation technology space (RegTech) for regulators and companies. I haven’t taken these services into account while discussing the business verticals above.

Given the fast-expanding marketplace driven by the need to tighten controls, the fact that Iris has developed solid products that are giving its global competitor a run for its money, and Iris’s impressive and growing client list, I believe that some marketing push on a global scale will help Iris scale up tremendously. Another thing to note is that Iris plans to hire more domain experts to enrich their products. In the software world, brains are everything and if Iris adds to its existing roster of domain experts, it will likely go to the next level.

I believe that these good things, and more, will happen over the medium-long term. I consider Iris to have huge multibagger potential, which is why I am invested  in it.

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