About the Company

Intellect Design Arena is a global leader in Financial Technology for Banking, Insurance and other Financial Services. It is positioned at the forefront of the digital transformation that global banks are looking for in a connected world. Intellect’s robust iDigital platform enables products across four distinct lines of businesses: Global Consumer Banking (iGCB), Risk, Treasury & Markets (iRTM), Global Transaction Banking (iGTB), Central Banking and Insurance (Intellect SEEC). Deep banking domain expertise, coupled with investments of Rs 800 Crores over the last ten years in developing the world’s first full spectrum of banking products has made Intellect the company with one of the most advanced technologies for financial institutions with global businesses.

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Q3 FY20 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 193.6 238.9 -18.96% 188.76 2.56% 566.55 738.6 -23.29%
PBT -36.36 22.53 -261.38% -13.32 -172.97% -50.19 12.93 -488.17%
PAT -36.36 22.53 -261.38% -13.32 -172.97% -50.19 131.5 -138.17%

 

Consolidated Financials (In Crs)
  Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % 9MFY20 9MFY19 YoY%
Sales 327.92 379.61 -13.62% 338.09 -3.01% 1018.56 1110.98 -8.32%
PBT -7.83 15.49 -150.55% -15.44 49.29% -19.6 96.9 -120.23%
PAT -10.67 13.54 -178.80% -16.13 33.85% -23.4 89.7 -126.09%

Detailed Results

  1. Consolidated revenue from operations fell 13.6% YoY while the same figure fell 14.17% YoY in $ terms.
  2. License revenue for the quarter fell 44% YoY while AMC revenue for the quarter grew 8% YoY.
  3. Cloud Revenues for the company grew 50% YoY.
  4. Gross margins were at 46.58% which is down 190 bps YoY.
  5. In Q3, deals worth $5 million were received but were not added to revenues due to pending documentation. This is expected to be recognized in Q4.
  6. Net days of sales outstanding came at 132 days in the current quarter. The investment into product development for Q3 stands at Rs 28.72 Cr.
  7. Collections for Q3 rose by Rs 22 Cr QoQ to Rs 334 Cr.
  8. The company had 6 wins in Q3 with one large digital transformation deal. It also did 17 implementations in the quarter.
  9. The current funnel for the company is at $536 million which come to roughly Rs 3817 Cr.
  10. Average deal size in Q3FY20 was $2.3 million or Rs 16 Cr vs $1.9 million or Rs 13 Cr last year.
  11. The company has 41 destiny deals in Q3FY20 vs 36 last year. These deals have an average size of $5.6 million or Rs 39 Cr.
  12. License based order backlog is Rs 1125 Cr. SaaS and Subscription-based order backlog is Rs 825 Cr including the GeM project.
  13. Repeat revenue from existing customers stood at 92% in the current quarter.
  14. Cash and cash equivalents were at Rs 121 Cr while net debt for the company was reduced by Rs 9 Cr in Q3.

Investor Conference Call Highlights

  1. The research and engineering costs have gone up from an annual run rate of Rs 90 Cr to Rs 132 Cr in Q1. This figure has been going down and in Q3 it was at an annualized rate of Rs 124 CR.
  2. The management has stated that the credit card platform is ready to be deployed on cloud in India and Chile on a subscription basis.
  3. The company also has its cloud-based lending platform ready to be deployed in India and the Middle East.
  4. The company has seen that IDC and GTB have crossed revenues of more than Rs 1000 Cr since 2015. Payments and liquidity have reached more than Rs 500 Cr and Lending and Treasury have generated more than Rs 300 Cr since 2015.
  5. The company has close to 240 customers currently.
  6. The company also completed a 3-day event with bankers from the industry in Cambridge University.
  7. The management is seeing an acceleration of deals moving towards the SaaS model. In IDC, open banking and open architecture are features being demanded which is well suited to this platform.
  8. The company is also seeing the rise of digital banks.
  9. Deal closure is taking almost 8-9 months as compared to 6 months earlier.
  10. The company is chasing 7 deals in IDC in Q4.
  11. In IDC Central Banking, the company is closing on 2 deals which are expected to be big-ticket items.
  12. In the lending platform, the company is seeing good traction in EU, Middle East and Asia Pacific. This is especially true for loan origination product in this segment.
  13. The management has stated that increased M&A activities in US banking space have been a major cause of delay in deal completion for the company in FY20.
  14. The management believes that the current deal structures shall result in at least 19% growth in AMC in the coming year.
  15. The management expects the new platforms should have good sales reception in the near future with more cross-sell opportunities rising with existing customers.
  16. The management has mentioned that margins have suffered a bit as the majority of the costs for the SaaS model are front-loaded. But these margins are expected to normalize in the near future.
  17. The company has also seen 100% customer retention for its AI ML products.
  18. The margin profile for GCB is set to improve as traction rises. GTB and GCB margin profiles are expected to be equal in the next year.
  19. The margins for the SaaS products will stay low until September ’21.
  20. The management saw the rate of rising in SaaS deal values was slow and customers are asking for cloud services but are not necessarily ready to pay or accept the charges. Thus the management decided to not ignore small deals and pivot from its earlier guidance of chasing big deals only.
  21. The company is expecting 20% EBITDA margin levels in FY21.
  22. The management has mentioned that the company will see more cost reductions in the future.
  23. The management sees the core businesses of the company to be in the performance stage. The cash flows for the company will turn positive if the company has sales of $ 50-55 million.
  24. The total receivables have come down to Rs 592 Cr from Rs 614 Cr in the last quarter.
  25. The GeM business is expected to do better in the coming year. The company expects this business to grow by 50%+ in the next year.
  26. The company is planning on 6 more products in the next 5 years and it will keep on its product portfolio of 12 products in total.

Analyst’s View

Intellect Design Arena is a fast-rising disruptor in the digital transformation space for financial institutions. The company’s products are well received all over the world which is evidenced in the diverse set of geographies and financial institutions that they cater to. The current quarter was not good for the company with the company incurring losses at the PBT level. The company was again unable to recognize revenues of $5 million that it has received because of pending documentation. This is a result of the expansion of the contract completion cycle for the company. The company has seen good growth in some of its newer segments like SaaS. It remains to be seen whether the company will get back to the growth path as fast as the management has proposed or whether there will be any other headwinds that will put pressure on the company. Nonetheless, given the acceptance of the company’s products in all kinds of financial institutions worldwide and its high customer retention rate and accelerated implementation time for its projects, Intellect Design Arena remains a stock to watch out for in the financial software industry.


 

 

Q2 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 188.76 263.64 -28.40% 184.18 2.49% 372.94 499.7 -25.37%
PBT -13.32 50.53 -126.36% -0.5 -2564.00% -13.82 106.79 -112.94%
PAT -13.32 50.53 -126.36% -0.5 -2564.00% -13.82 109 -112.68%

 

Consolidated Financials (In Crs)
Q2FY20 Q2FY19 YoY % Q1FY20 QoQ % H1FY20 H1FY19 YoY%
Sales 338.09 395.92 -14.61% 352.55 -4.10% 690.64 737.37 -6.34%
PBT -15.45 38 -140.66% 3.67 -520.98% -11.77 81.43 -114.45%
PAT -16.14 32.24 -150.06% 3.4 -574.71% -12.74 76.17 -116.73%

 

Detailed Results

  1. Consolidated revenue from operations fell 14.6% YoY while the same figure fell 14.8% YoY in $ terms.
  2. License revenue for the quarter fell 54.3% YoY while AMC revenue for the quarter grew 16.6% YoY.
  3. The company recorded 9 digital wins with 4 large transformation deals in the quarter.
  4. Net days of sales outstanding after taking customer advances came at 126 days in the current quarter. The investment into product development for Q2 stands at Rs 28.36 Cr.
  5. The current order backlog in GeM is at Rs 400 Cr while order backlog in other cloud deals is at Rs 375 Cr.
  6. The current funnel for the company is at $524 million which come to roughly Rs 3685 Cr.
  7. Average deal size in Q1FY20 was $2.4 million or Rs 16.88 Cr vs $1.8 million or Rs 12.66 Cr last year.
  8. The company has 41 destiny deals in Q2FY20 vs 35 last year. These deals have an average size of $6.2 million or Rs 44 Cr.
  9. License based order backlog is Rs 1100 Cr. GeM project order backlog is Rs 400 Cr while other cloud deals backlog is Rs 300 Cr.
  10. Repeat revenue from existing customers stood at 98% in the current quarter.
  11. A total of 14 implementations were completed in the quarter including Abu Dhabi Islamic Bank and Raiffeisenlandesbanks.
  12. The company has also won a big deal with an Indian market leader for iGCB. Overall iGCB has a pipeline in excess of $45 million for H2FY20.
  13. iGTB has a funnel over $90 million for H2FY20. Intellect SEEC has registered a pipeline of over $ 20 Mn for Xponent, Digital Underwriting platform powered by AI & ML.

Investor Conference Call Highlights

  1. The management has conceded that they will have to face volatile fluctuations in revenues due to the erratic nature of a software products business.
  2. The management has identified two major risk factors: predicting the closure of the last deal and the adoption of current revenue.
  3. The management has stated that one large deal got deferred so it impacted revenues significantly.
  4. Three deals converted to cloud deals but were not recognized yet because there isn’t any precedent on how to record it in accounting standards. If these deals were recognized as legacy deals, then revenues would have risen significantly.
  5. The company’s rationalization efforts have borne fruit and costs have gone down by Rs 10 Cr as compared to costs last year (excluding ESOPs of Rs 4 Cr).
  6. The management expects cost savings of Rs 18 Cr in the next quarter.
  7. The company was able to complete a large deal delivery in around 6 months almost 6 weeks ahead of schedule which signified the company’s efficiency in delivering implementations.
  8. The management has maintained that the deferred revenues are still in the pipeline.
  9. The company expects the Intellect SEEC pipeline to grow in the near future and some of the deals for these products may come in in Q4FY20.
  10. The management maintains that their key investments into product development have helped them establish 3 major accomplishments:
    • The products are 86%-92% RFP compliant so implementation costs are very competitive among similar market participants
    • All products are cloud-ready and are using cloud-native technologies.
    • The company has built FABRIC data services that use AI/ML for sophisticated data analytics and other services.
  11. The focus for the next 6 quarters will be to use tier 1 customer solutions for tier 2 and tier 3 customers.
  12. The license fee that got deferred in this quarter is > $10 million.
  13. The management has acknowledged that the migration of iGCB to the cloud may keep revenues from this segment muted till FY21.
  14. The management has stated that they don’t need to go ahead with a capital raise at this time.
  15. The company has closed on update on one large iGTB deal and the other update will take place in Q3.
  16. The cycle time for most deals in the UK is getting extended due to Brexit and general uncertainties.
  17. The company is deploying 50% of current deals on the cloud.
  18. The management has clarified that their main products of iGTB and IDC are already cloud-native so they are not facing any problems for configuring for the cloud specifically.
  19. The expenses recognition for both license based and cloud-based models is the same. Only the revenue recognition is different.
  20. In the contextual banking platform, the company has 4 companies who should come live in the next 2 quarters.
  21. The management is defining their focus for the rest of the year to be maintaining margins and achieving EBITDA growth of 35% in FY20.
  22. Q3 is widely expected to be more cost-efficient than in previous quarters.
  23. The management has guided that Q4 should be cash flow positive.

Analyst’s View

Intellect Design Arena is a fast-rising disruptor in the digital transformation space for financial institutions. The company’s products are well received all over the world which is evidenced in the diverse set of geographies and financial institutions that they cater to. The current quarter was not good for the company with the company incurring losses at the PBT level. The main concern here is the volatility of the product revenues and deferment of deals that have caught the company off guard. The company has an impressive pipeline of deals and have also initiated a good amount of deals in the quarter but their actual cycle time for these deals to get approved and generating revenues is getting longer and this poses a risk to the company which is still not cash flow positive on a yearly basis yet. However, the technological expertise of the company and the wide acceptance of their diverse range of products across all segments of the finance industry is what makes Intellect Design Arena an undervalued stock with good potential, despite the variability in revenues and profit booking.


 

Notes from Annual Report 2018-19

Management Discussion Analysis

  • The company is operating a suite of products in three main verticals in the finance industry which are Retail & Corporate Banking, Treasury & Capital Markets, and Insurance Industry. They are:

  • The company’s transaction banking business has over 80 clients with 90 installations predominantly in growth markets.
  • The company has another product called WealthQube which is targeted at wealth managers, private bankers, advisory firms and IFAs. The company promises a 20% rise in productivity and revenues from their product and have established a good foothold in growth markets.
  • Intellect SEEC is another product addressing the digital and data needs of insurance carriers both through products and offering data as a service model. The product also has an AI-powered underwriting platform. The product has been adopted by leading insurers in the USA.
  • Lastly, the company also operates a government e-marketplace portal (GeM) as a managed service along with a consortium of partners where they get fees based on transaction value. The portal has crossed Rs 20,000 Cr in GMV and is expected to rise even further as more state govt, departments and public sector enterprises come on board in the future.
  • All in all, the company has 240 active customers across 70 countries. In the transaction banking space, the company has 80 clients which is just about 25% of the 300+ players in this space worldwide highlighting good foothold and acceptance in this sector.
  • The company attributes the following factors for their phenomenal growth in the last 4 years:
    1. Increasing win-rate
    2. A higher share of wins in advanced markets
    3. Increased license realization
  • In the last 6 quarters, the company has amassed an overall deal pipeline of over $ 500 million with order backlog from license and subscription deals coming in at Rs 1800 Cr. 85% of total revenues were derived from repeat customers, highlighting the strength of the company’s business.
  • The company is looking to institute cost moderation measures which have seen sales, marketing, and admin costs go down to 31% of revenues from 43% two years ago. They also want to keep research & engineering costs under 15% of revenues.
  • The company identifies these companies as major competitors:
    • GTB (Global Transaction Banking): Finastra, Infosys.
    • Consumer Banking: Temenos (T24), Infosys (Finacle), Oracle Financial (Flex Cube), Finastra
    • Treasury & Capital Markets:
      • Capital Cube: Calypso, Murex, Finastra, FIS
      • Capital Alpha: Fidessa, Flextrade
      • Capital Sigma: Calypso, Vermeg, Temenos, TCS
    • Insurance: Guidewire, Fineos, iPipeline
    • Wealth & Asset Management: Temenos, Avaloq, Misys, Additiv, Edgeverve, Sage

Financial Performance in FY18-19

  • Consolidated revenues for the year grew 36% YoY bringing up revenue growth over the last 4 years to a CAGR of 24.62%.
  • The consolidated revenues grew 25.5% in dollar terms.
  • The license revenue grew 67% YoY while the AMC revenue grew 17.55% YoY.
  • 65% of all revenues originated from advanced markets.
  • The company has also reduced SG&A costs to 31.21% of revenue from 35.22% in FY18 and 43.62% in FY17.
  • Research, engineering and development costs are now at 14.91% of revenues as compared to 17.18% last year.
  • The company achieved $ 947,000 per deal this as compared to $ 579,000 per deal last year.
  • The gross margin was sustained at 49.46% for the previous year.
  • The company also won 47 deals including 13 large digital transformation deals in FY19.
  • The previous quarter also has good YoY revenues growth of 31.26% in rupee terms and 19.83% in dollar terms.
  • The average from the top 20 accounts grew to Rs 42 Cr this year from Rs 18 Cr last year.
  • The company’s research and development costs have also gone down to 14.9% from 17% last year showing better throughput from lower investments. R&D costs have gone up in absolute terms to Rs 30 Cr this year from Rs 23 Cr last year.
  • The company has also signed 4 ‘destiny’ deals with large American insurers based on machine learning and big data. The company claims to have established itself as a clear leader in the domain of AI and machine learning for commercial insurance.
  • The company maintains that they have increased pricing power due to their brand and their previous performance which is evident from the increased average that they have pulled from the top 20 customers mentioned in the first point in this segment.

Current Deals

The current funnel is around Rs 3580 Cr where Rs 3275 Cr is accounted by 133 opportunities. Average deal size in these opportunities is Rs 16 Cr ($2.3 million).

The company currently has 41 destiny deals in Q1FY20 with average destiny deal size at Rs 41 Cr ($5.9million).

Exhibits

 

 

Analyst’s View

Intellect Design Arena is an emerging player in the financial technology space. They have successfully built a robust suite of products helping them cater to any and every financial institution no matter the function or sector. The company’s products have found acceptance across a wide variety of geographies from the advanced markets of US, UK, Japan to growth markets in India and Latin America. This highlights the versatility of their product customizations and their expertise in handling the various compliance requirements and regulations in diverse geographies. The company has now entered the product payoff phase and is expected to generate long term value in the years to come.


Q1 2020 Updates

Financial Results & Highlights

Standalone Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 184.1 236* -21.99% 254.1 -27.55%
PBT -0.5 56.25 -100.89% 13.47 -103.71%
PAT -0.5 58.4 -100.86% 5.5 -109.09%

Consolidated Financials (In Crs)
Q1FY20 Q1FY19 YoY % Q4FY19 QoQ %
Sales 352.5 341.4** 3.25% 401.2 -12.14%
PBT 3.6 43.4 -91.71% 43.2 -91.67%
PAT 3.4 43.9 -92.26% 41.5 -91.81%

*Contains other income of Rs 41 Cr

**Contains other income of Rs 42 Cr

Detailed Results

  1. Consolidated revenue from operations grew 14.4% YoY while the same figure grew 10.3% YoY in $ terms.
  2. License revenue for the quarter grew 41% YoY while AMC revenue for the quarter fell 8% YoY.
  3. The company recorded 5 digital wins with 2 large transformation deals with iGTB in Vietnam and the Bank of Mongolia.
  4. Net days of sales outstanding after taking customer advances came at 119 days in the current quarter. The investment into product development for Q1 stands at Rs 29.45 Cr.
  5. The current order backlog in GeM is at Rs 400 Cr while order backlog in other cloud deals is at Rs 300 Cr.
  6. The current funnel for the company is at $515 million which come to roughly Rs 3580 Cr.
  7. Average deal size in Q1FY20 was $2.3 million or Rs 16 Cr vs $1.8 million or Rs 12.5 Cr last year.
  8. The company has 41 destiny deals in Q1FY20 vs 34 last year. These deals have an average size of $5.9 million or Rs 41 Cr.
  9. License based order backlog is Rs 1128 Cr. Repeat revenue from existing customers stood at 88% in the current quarter.

Investor Conference Call Highlights

  1. There were 3 deals whose license revenues were not recognized in this quarter due to incomplete paperwork within the quarter deadlines. Thus these deal revenues will be recognized in the next quarter.
  2. The company is winning good deals against major competitors and the opportunities in digital transformation are increasing.
  3. Out of their 4 core business, 3 are already on the growth track.
  4. The company has also started to promote operational excellence by shifting down responsibilities one level down. For example, the duties and responsibilities of a VP are being shifted to the people below him in order to contain costs for growth.
  5. The company is also shifting the design and packaging of the product from the USA to India as it is feasible now due to the maturity of the product. Doing this helps the company moderate salary costs while ensuring sufficient quality of their product.
  6. The company is focusing on reducing the number of opportunities while increasing delivery efficiency of these opportunities. Thus the company is comfortable at the current funnel and will not be pursuing other opportunities desperately to ensure proper attention and service quality to existing customers.
  7. The realization of AMC contracts is 24-30 months and so the realization of revenues is expected to come after a few quarters at least.
  8. The services revenue is expected to come up in Q3 and Q4 onwards.
  9. In other income, the company got around Rs 13 Cr for sales of land.
  10. The management advises that QoQ changes in revenue do not properly reflect the performance as the recognition of revenue from projects is not uniform.
  11. The company is confident of achieving their revenue growth target as most of their deals are originating from North America and Asia and they are less vulnerable to immediate macro events like Brexit.
  12. The company’s accounts in the UK are from deep clients like Lloyds and HSBC and they do not expect any decline from this geography. The company is not very concerned about new businesses as most of its revenues are derived from repeat customers who have stayed loyal.
  13. The company expects to maintain its R&D expenditure for the year at the current pace.
  14. The company is comfortable at the current levels of cash generation and cash burn and is not going to raise additional cash unless there is any big deviation from current projections.
  15. The company has maintained that its data set quality is higher than its competitors.
  16. The company had achieved 24% growth last year despite the IDC business not contributing. Now that this business line has started delivering, the company is confident of achieving its proposed guidance targets.
  17. The traction for IDC is mainly in Africa and the Middle East. One of the IDC deals is also in the UK and this expected to go live in 2-3 months and push this business line in the UK and EU.
  18. The management sees that there will be more cloud migration for corporate banking and the company’s products are cloud ready and they are prepared for the trend to follow.

Analyst’s View

Intellect Design Arena has been a consistent performer in the digital transformations space for financial institutions. This is evident from their rising average deal revenue and their high repeat customer revenue. The company has refined its project funnel to ensure that they provide good service and adequate quality to their customers. The company is now seeing it’s business lines turn into reliable earners and growth promoters. The company’s results for this quarter has not been as expected due to the lumpiness of project revenues and their schedule. It remains to be seen whether the company will be able to maintain its growth targets with its current capabilities. Nonetheless, Intellect Design Arena remains a stock to watch out for, mainly due to their market reputation and expertise and their high customer retention rate despite the varied geographic distribution of their customers.

 


Q4 2019 Updates

Financial Results & Highlights

                                                                Standalone Financials (In Crs)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 254 232 9.48% 239 6.28% 993 707 40.45%
PBT 13 35 -62.86% 23 -43.48% 143 35 308.57%
PAT 5.6 34 -83.53% 23 -75.65% 137 33 315.15%

                                                                Consolidated Financials (In Cr)
Q4FY19 Q4FY18 YoY % Q3FY19 QoQ % FY19 FY18 %  Change
Sales 401 316 26.90% 380 5.53% 1512 1114 35.73%
PBT 43 28 53.57% 15.5 177.42% 140 64 118.75%
PAT 41.5 27 53.70% 13.5 207.41% 131 57 129.82%

Detailed Results

  1. Consolidated revenues for the year grew 36% YoY bringing up revenue growth over last 4 years to a CAGR of 24.62%.
  2. The consolidated revenues grew 25.5% in dollar terms.
  3. The license revenue grew 67% YoY while the AMC revenue grew 17.55% YoY.
  4. 65% of all revenues originated from advanced markets.
  5. The company has also reduced SG&A costs to 31.21% of revenue from 35.22% in FY18 and 43.62% in FY17.
  6. Research, engineering and development costs are now at 14.91% of revenues as compared to 17.18% last year.
  7. The company achieved $ 947,000 per deal this as compared to $ 579,000 per deal last year.
  8. The gross margin was sustained at 49.46% for the previous year.
  9. The company also won 47 deals including 13 large digital transformation deals in FY19.
  10. The previous quarter also has good YoY revenues growth of 31.26% in rupee terms and 19.83% in dollar terms.
  11. Q4 License revenue grew 42% YoY while Q4 AMC revenues grew 15% YoY.
  12. The company also won 8 deals in the last quarter among which were 3 large digital transformation deals.
  13. The company now boasts license based order log of Rs 1135 Cr and subscription based order log of 695 Cr.
  14. Repeat Revenues from existing customers stood at 85.1% for FY19.

Investor Conference Call Highlights

  1. The average revenue from top 20 accounts grew to Rs 42 Cr this year from Rs 18 Cr last year.
  2. The company has 240 clients across 91 countries.
  3. The company has also improved operational efficiency significantly, which is evident from the reduction of SG&A costs to 31% of revenues as compared to 35% last year and 43% in FY17.
  4. The company’s research and development costs have also gone down to 14.9% from 17% last year showing better throughput from lower investments. R&D costs have gone up in absolute terms to Rs 30 Cr this year from Rs 23 Cr last year.
  5. The company still has 35+ high value active pursuits with 6 of them in the Rs 50 Cr+ segment, 14 in Rs 30 to 50 Cr segment and 19 in Rs 20 to 30 Cr segment.
  6. The company has also signed 4 ‘destiny’ deals with large American insurers based on machine learning and big data. The company claims to have established themselves as a clear leader in the domain of AI and machine learning for commercial insurance.
  7. The company maintains that they have increased pricing power due to their brand and their previous performance which is evident from the increased average that they have pulled from the top 20 customers mentioned in the first point in this segment.
  8. For the coming year, the company has identified establishing IDC as the next revenue driver as one of the main goals.
  9. The company expects gross margins to rise to 60%+ once AMC segment starts kicking in. This is the target that they are looking for in the next 2 years.
  10. The company is looking to reduce their SG&A costs to around 28% of revenues.
  11. The company has explained that they are focusing on a few flagship clients in the insurance side for their machine learning and big data application is mainly because the quality of data that these big players provide is invaluable to developing world class models.
  12. The management sees the growth of the AMC division at 40% to 50% for the next couple of years.
  13. The company is expecting a window of 10% of tax in the next 2 years as compared to 6.5% last year.
  14. The capex outlook for the coming year is around Rs 120 Cr on product capitalization with an additional Rs 30 to 40 Cr.

Analyst’s View

Intellect Design Arena has been a consistent performer in the digital transformations space for financial institutions. This is evident from their rising average deal revenue and their high repeat customer revenue. They have also established themselves as leaders in AI and machine learning for the financial services industry which is seen through their recent ‘destiny’ deals with major American insurers. The company is quite optimistic in their forward outlook and future prospects but it remains to be seen whether they will be able to stay on course and grow as fast as they have in the recent past. Cash burn is a metric which we should closely watch for Intellect Design Arena. They are making huge investments in their product which is putting a lot of stress on the cash flows. While they have been able to grow sales and improve profitability in the year 2018-19, their ability to raise cash through internal accruals and outside funding would be critical to their success in  2019-20.

Disclaimer

This is not an investment advice. Please read our terms and conditions.

 

Q3 2019 Updates

Financial Results & Highlights

Standalone Financials
Particulars (INR Cr) Q3FY19 Q3FY18 YoY Q2FY19 QoQ
Sales 238.91 186.49 28.11% 263.64 -9.38%
PBT 22.53 17.17 31.22% 50.53 -55.41%
PAT 22.53 16.85 33.71% 50.53 -55.41%
Consolidated Financials
Q3FY19 Q3FY18 YoY Q2FY19 QoQ
Sales 377.93 266.14 42.00% 383.08 -1.34%
PBT 15.33 13.26 15.61% 37.23 -58.82%
PAT 13.37 12.16 9.95% 31.46 -57.50%


Detailed Results

  1. Total Revenues grew 42% YoY while PBT and PAT have grown at a modest rate of 15.6% and 9.95% respectively.
  2. EBITDA witnessed a growth of 263% YoY from Rs 11.55 Cr in Q3 last year to Rs 41.91 Cr in the current quarter.
  3. The PBT and PAT have fallen by more than 55% in QoQ terms, while the EBITDA has stayed almost the same in the same period.
  4. This is mainly due to reinstatement of receivables/liabilities which has brought the profits down by more than Rs 14.75 Cr.
  5. Q3FY19 saw license revenue growing around 68% YoY to 88 Cr from 52.5 Cr last year.
  6. iGTB revenue stood at Rs 167 Cr which accounts for 45% of total revenues.
  7. This quarter also saw Intellect Design secure 12 digital transformation deals with 4 being large ones, and went live at more than 15 financial institutions across the world.
  8. Have a strong order log of around Rs 1108 Cr this quarter which is Rs 98 Cr more than last quarter.
  9. Repeat revenues from existing customers stood at 83%.
  10. Geography wise, revenues have grown for both emerging markets and advanced markets in YoY basis.

Investor Conference Call Highlights

  1. The company has gained a large order of more than Rs 700 Cr in the iGov business government marketplace which is expected to last more than 8 years. This project has not generated revenues yet but is expected to be a regular contributor to company revenues in the future.
  2. The company is focussing their efforts towards shifting from a license based revenue model to subscription based revenue model. Right now cloud based subscription revenue accounts for only 5% of total revenues but management is expecting this figure to go up 4 to 5 times in the next few years without any major incremental cost.
  3. Management has faith in their customer service and sustainability of revenues mainly due to the high repeat customer orders which stands at 83% of revenues today.
  4. Management expects the next quarter to be even better than current quarter.
  5. In the short term revenues may be affected due to push towards the cloud subscription model.
  6. Liquidity is a problem for the company. They have plans for QIP, however, they would wait for the right valuation. Current valuation is very depressed due to overall pessimism in stock market.
  7. Overall, management is pretty optimistic about the long term prospects of the company and the current direction they are going in.

Analyst’s View

Intellect Design Arena is a good player in the digital transformation space especially for financial institutions. They have been on a consistent growth path for last several quarters. The revenues of the company have been consistently growing and the high customer retention rate further emphasizes their service and product quality and overall stickiness of their offerings. Considering the current pipeline of orders, their execution capability and reasonable valuation, we believe it seems to be an interesting investible idea.

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