Indiainfoline - Interview
June 2006
Mr. Sunil Nikhar, President & Mr. Nandlal Bhatkar, CEO, Pyxis Systems
Pyxis Systems is an Integrated Solutions provider for Derivatives Risk Management and provides consulting/ IT Services to banks / FIs & Corporate . It is the first Indian company in the derivatives market space, which is principally occupied by foreign multinationals. The company operates three lines of businesses viz. Software Products for Financial Derivatives Industry, Consulting and IT Services in Financial Derivatives Space and BPO (Business / Knowledge Process Outsourcing) for mid and back office operations for Bank / FIs, Hedge Funds and corporates dealing in derivatives. Pyxis has recently completed the development of a state-of-the-art software system called ‘RisKompass’ for derivatives deal capture/valuation and risk management. Pyxis says it enjoys a 40% cost advantage with a development centre in India combined with highly experienced and capable consultants.
Mr. Sunil Nikhar, President, Pyxis Systems, brings in rich and diverse sets of skills from the derivatives and information technology domain. Prior to his current position, he was CEO of Ascent Computing Group, Inc USA. Ascent was acquired by Chinadotcom in 2003. Sunil has worked with several reputed companies such as IBM Corporation, Matsushita, Sony Corporation, TransAmerica, Glaxo Pharmaceuticals etc. in various technology and management roles. Sunil holds a B.Tech and M.Tech in Computer Science and Engineering from the Indian Institute of Technology (IIT), Mumbai, India. Sunil also has an MBA (PGDM) from the IIM, Ahmedabad.
Mr. Nandlal Bhatkar, CEO, Pyxis Systems, has been successfully running Origin Risk Management (www.origin-rm.com), a leading derivatives consulting firm, since October 2001. Origin is a leader in providing training, front office pricing tools and consulting for the finance sector. A few of Origin's clients include American Express Bank, Reliance Infocomm, State Bank of India , and several other leading banks. Nandlal headed a structured derivatives team for American Express Bank in Singapore , where he oversaw the Bank's operations in the Asia Pacific region from 1996-2000. Nandlal holds a Bachelor of Chemical Engineering from University of Mumbai and also has an MBA (PGDM) from IIM, Ahmedabad.
Replying to Anil Mascarenhas of India Infoline, the promoters of Pyxis Systems say the costs related to technology and professionals in the field of derivatives have continued to escalate.
Walk us through the changes we have witnessed in recent years in the risk management segment. Globally, what kind of growth are we witnessing?
Ever since the inception of over-the-counter derivative markets, we have witnessed a steady upward trend in the volume and complexity of the derivatives instruments. However, their demand for flexibility with ever increasing complexity and expansion of asset classes on which derivatives contract are based, pose a serious challenge to the technologies currently used to track them.
The phenomenal growth of the derivatives market has attracted major financial players to this field. The last decade has witnessed major innovations and developments in the structuring and engineering of financial derivatives products that the financial institutions sell to their clients.
However, the costs related to technology and professionals in the field of derivatives have continued to escalate, making it imperative for enterprises to reduce their operating costs from the front to back office.
How has the trend been in India as far as derivatives is concerned?
Derivative products made a debut in the Indian market during 1998 and overall progress of derivatives market in India has indeed been impressive.
The Indian equity derivatives market has registered an "explosive growth" and is expected to continue its dream run in the years to come with the various pieces that are crucial for the market's growth slowly falling in place.
Over the counter derivatives market in Interest Rate and Foreign Exchange has also witnessed impressive growth with RBI allowing the local banks to run books in Indian Rupee Interest Rate and FX derivatives. The complexity of market continues to increase as clients have become savvier, demanding more fine tuned solution to meet their risk management objectives, rather than using the vanilla products.
Besides Rupee derivatives offered by the local players, RBI has also allowed the client to use more exotic products like barrier options. These products are offered by the local bank on back-to-back basis, wherein they buy similar product from market maker from the offshore markets.
The complexity of derivatives market has increased, but the growth in deployment of risk management systems required to manage such complex business has not grown at the same pace. The reason being, very high cost of such system and absence of any local player who could offer the solution, which could compete with product offered by the international vendors.
What is your current turnover and profit? You spoke about a $18-20mn turnover. By when do you hope to achieve the same? What are the factors which will drive your growth?
Since it’s a new company we did not have any revenue so far. In the fiscal year 2006-2007, we plan to close 4 to 5 clients which will bring us close to $2.2mn. We plan to achieve a revenue base of $18-20mn in the next three years.
The business lines will expand into Productized services, ASP based offerings and KPO for mid-office and back-office for derivatives related activities to the global market players including Hedge Funds.
We feel the KPO will drive the revenue faster in the coming years
Tell us more about your KPO services? How many clients do you have here?
KPO division of Pyxis provides support for handling mid-office and back-office processes. Today, Pyxis has a trained pool of talented professionals with an expert knowledge of derivatives. The training division provides constant training to the staff to keep them up to date with the knowledge and also train professionals for undertaking specific tasks related to mid and back office.
Using the KPO services, both financial institutions and corporate can achieve significant cost savings through reduction in high cost manpower requirement and on the time spent on such activities.
Your present manpower strength. Any plans to ramp up. By how much and where?
Pyxis was started in November 2004 and has a team of 45 professionals currently in Pune. The team will be expanded to 120 professionals by March 2007 with sales offices in US and Europe.
Derivatives have turned to be more risky on account of high speculation. Your views on how effective it has been in risk management?
Derivatives allow the end user to unpackage risk in any financial instrument and allows the management of each of the risks individually. Thus it provides great flexibility in managing risk. It is due to derivatives that today a bank lending money say in HongKong can securitise it and using derivatives convert it into say USD short term instrument and sell to investors in the US. Derivatives has converted rigid financial instrument into "Lego" blocks kind of structure, allowing one to change certain aspects of the instruments, without having to change the actual underlying instrument.
However, the same instrument can be used for trading. The risk associated with derivatives is that the user may not know how the changes in various market parameters (like yield curve, Fx rates, Volatilities etc) impacts the value of these instruments. This is a very critical risk and risk management software are built to address this issue.
When do you see more Indians being active in the derivatives market space?
Derivatives on equity markets have been around for a few years. However, we believe that the smaller operators in the market are not very derivatives savvy ( you can see options being used for taking directional views). This is primarily due to the knowledge gap. Only if operators get more serious about the training needs, they are likely to operate within the current framework.
However, the larger institutions have realized this and have been imparting training to their staff. This is the reason why the OTC market, where corporates and banks are the key players, is lot more mature and advanced than the exchange traded market (especially when it comes to small and medium size operators).
What is the revenue break up between Software, Consulting and BPO. Going ahead how would the break up be in terms of percentage?
We envisage the revenue split from software, consulting and BPO in the ratio of 30:30:40 in the long run.
You’ve recently developed RisKompass. Does it integrate seamlessly with third party derivatives back-office etc?
RisKopmass is created with the knowledge that it will be getting integrated with various third party derivatives back offices. RisKompass uses XML and FpML to achieve this task.
You speak of a 40% cost advantage. How do you mange the same?
The cost advantage on the product side is mainly due to our lower operating cost vis-à-vis our competition. Pyxis also invests heavily in training its employees.
You have an analytics library. Is it only for internal use?
The analytics library gives us a competitive edge over others, it helps us providing and customizing solutions as we want, however we want it…. In summation we and our client can decide the model and its flavor of implementation rather than some readymade model that we have to work around
Who are the promoters? What is the shareholding pattern?
Pyxis was founded in November 2004 by two IIM Ahmedabad alumni and technocrats, Nandlal Bhatkar (ex- international derivative structurer / trader / consultant) & Sunil Nikhar (IT entrepreneur and founder of Ascent Computing Group, New York which was acquired by chinadotcom in 2003).
You are speaking with venture capital funds. How much do you plan to raise? What would the funds be utilized for?
We are planning to raise $2mn through VCs or Angels. The money will be used for expansion of team and expanding marketing efforts in US and Europe
Any plans to tap the capital markets? When?
Right now we plan to grow with the help of VCs and Angel investors. In another 3 -4 years we may look at tapping the capital market. |
