IRIS Business Services: Navigating Growth Through Strategic Investments in H1 FY26

IRIS Business Services Limited, a prominent player in the RegTech and SupTech space, recently announced its financial results for the second quarter and first half of fiscal year 2026. The company reported consolidated revenues of 57.49 crore for H1 FY26, marking a 10% year-on-year growth. However, profitability metrics showed a significant decline, with EBITDA falling by 56% to 4.13 crore and Profit After Tax (PAT) decreasing by 66% to 2.21 crore compared to H1 FY25. This divergence highlights a period of strategic investment and realignment for the company, as management focuses on long-term growth drivers.

The company's performance reflects a deliberate shift towards strengthening its core RegTech and SupTech offerings. The SupTech segment emerged as the primary revenue driver, contributing 32.85 crore (57.14%) to the total revenue in H1 FY26. The RegTech segment, while undergoing significant investment, contributed 18.25 crore (31.74%), and the nascent DataTech segment added 0.89 crore (1.55%). The remaining 5.50 crore (9.57%) came from other operations. Management emphasized that the decline in profitability is a direct consequence of increased investments in sales, marketing, and product development, particularly within the RegTech segment, to capture market share in an expanding global market.

Here is a financial summary of IRIS Business Services Limited's H1 FY26 performance:

Strategic Focus and Segment Performance

The company's strategic direction is clearly defined by its three core verticals: SupTech, RegTech, and DataTech. The SupTech segment, which provides digital supervision platforms for regulators, continues to be a strong performer. IRIS secured two new significant logos in H1 FY26: the Qatar Central Bank and the Qatar Tax Authority. This expansion into direct tax return offerings is expected to build expertise in new verticals, mirroring their success in deposit insurance management. Management expressed optimism for decent growth in this segment.

In the RegTech segment, which includes IRIS CARBON and IRIS IDEAL, the company is making substantial investments. IRIS CARBON, a SaaS-based document authoring and compliance reporting platform, saw its Annual Recurring Revenue (ARR) grow by 14% in H1 FY26. The company has an internal target to achieve 35% ARR growth for CARBON this financial year. This growth is driven by expanding offerings in non-mandate areas and deeper enterprise reporting. IRIS IDEAL, an automated bank reporting solution, experienced a revenue drop due to delays in purchase decisions by prospective banks, though management is cautiously optimistic about these decisions materializing in the latter half of the year.

The DataTech segment, primarily focused on IRIS Peridot for MSMEs, is currently in a pre-revenue phase. However, it represents a significant long-term opportunity. The company is building a unified digital ecosystem for MSMEs, backed by government Memorandums of Understanding (MoUs), to empower India's 6 crore+ MSMEs with access to information, finance, markets, and community. A lending layer is planned for pilot introduction by late November or early December, which could unlock significant monetization avenues.

Here is a segment-wise revenue and EBITDA comparison for H1 FY26:

Note: Total revenue from segments does not match consolidated total revenue due to 'Others' category not explicitly shown in segment-wise breakdown for H1 FY25 and H1 FY26 EBITDA is sum of individual segment EBITDA.

Capital Allocation and Future Outlook

Following the divestment of its TaxTech business to Sovos for 151.2 crore, IRIS Business Services has significantly strengthened its balance sheet. The company now holds approximately 170 crore in cash and investments, with net worth increasing to 189 crore from 76 crore as of March 2025. Management has articulated a clear capital allocation strategy, prioritizing organic growth through investments in existing business lines. While inorganic acquisitions are not ruled out, the immediate focus is on building the business organically to achieve sustained ARR growth and eventually improve margins.

The company is also actively pursuing opportunities in ESG Sustainability reporting, a strong global trend. They have developed an MVP product and are in advanced stages of discussions with customers and partners. Despite a slowdown in ESG mandate rollouts in some regions, IRIS is adapting by focusing on value creation beyond mandates. The management's tone remains balanced, acknowledging current challenges while expressing confidence in their strategic direction and the long-term potential of the RegTech and SupTech markets. The company believes it is on a strong footing to create conditions for sustained growth and higher value creation in the coming years.