You can check the disclosures. He has bought in the first week of august.
Had a look at this company …the story seems to be going good… but few questions come to mind…
1… their biggest vertical and the one showing most growth is IGTB( transaction banking) and the reason is the market itself is expanding , Banks are spending more on transaction banking suites.
My understanding is they are integrating their IGTB product with banks incumbent core banking systems( correct me if i am worng)
What is stopping other well placed competitors( Infosys,TCS,Temenos,etc) from developing similar offerings?
And how well they are placed against their top competitors in this space :ACI ,Fundtech,Bottomline ??
2.The core banking software market seems to be mature, with lot of well entrenched competitors. And intellect’s product at the best is Top 5.
3. Inusrance and RTM products yet to gain traction .
So how confident are we that the growth will come for 4-5 years.? for a shorter time frame 3-4 quarters , i think they have lot of deals in pipeline which will give growth.
Some interesting news on Intellect Design. They are innovating in transaction banking platform.
Transaction banking is ofcourse going to be more critical because in developed countries the core banking segment is pretty stagnant because of stable population base.
All of these transaction banking , core banking , risk management are individual components with a plug and play feature. This is the basis of what in IT is called as component based architecture.
No bank will go for the entire suite as the risks would be too high. So you plug in areas with maximum demand. E.g. IDFC has chosen IDA for its transaction banking component only while its core banking suite will be something else.
Another info Rakesh Jhunjhunwala has further upped his stake in IDA as per the latest shareholding pattern. That is the reason for the current upswing.
Great Q2 results.
- Revenues grew by 44% YoY
- Guidance has been revised upwards from 22-26% to 26-30%.
- Two new products released.
- Maintains the forecast - To break even/become profitable in Q4 in FY 16
Disclosure - Invested.
This is definitely an interesting company to analyze. I see parallels being drawn with Accelya earlier in the thread. It has definitely interested me (but i am struggling to determine the right valuation for this company).
A few questions to folks who have analyzed the company ( i have had only a cursory look at the AR and Investor Presentation). Again please feel free to correct in case my points are flawed.
- Whats the customer acquisition strategy - A product company unlike a traditional IT services company has one or maybe a couple of things to sell which it then tries to sell to multiple customers. This is unlike a IT services company where they focus on a few set of customers and try to sell a basked of services (Hence the importance of Account mining and cross sell/upsell in these companies).
Assuming this is true what is Intellects Sales strategy (Apart from mentioning that 50% odd revenue is coming from Americas/Europe). How are they investing in their Sales force. Do they have a strategy on partnering with IT services companies?
Customer Tail - Product companies either are heavily dependent on a few set of customers or end up having a long customer tail with minimal revenue contribution. Is there any visibility on this so far?
Digital and Design thinking are the buzzwords in the industry today - Every company is talking about it but very few are mastering it. (Omni channel as an example has been there for ages, however its only recently that companies have started bucketing it under ‘Digital’). Is this a differentiator for Intellect?
Product Replacement strategy - From a customers standpoint how do they go about integrating Intellect into their existing IT real estate without rocking the ship (given that Financial services industry has been a pioneer in IT spend and yet paradoxically has continued to use legacy systems (mainframes,AS400 etc). This is because the potential pitfalls of replacing age old stable systems is very high. Hence what may happen is that Intellect will end up doing more business with new age banks or banks in emerging countries with no past IT baggage.
Stickiness of Business - I would be interested to know what wrap around services (enhancements and upgrades) can Intellect offer to customers to have an assured annuity business in place.
- Any reason why Arun Jain exiting Polaris Consulting & Services?
- Will it have any impact on IDA? I assume he continues to own/lead IDA as this is his pet project.
Why did Arun Jain sell Polaris Consulting and Services? http://forbesindia.com/article/special/why-did-arun-jain-sell-polaris-consulting-and-services/41499/1
Hi, Since you have done extensive work on the company, can you please clarify some doubts for me?
You have moved ahead in your projections by creating an expense schedule assuming 50% gross profit margins. However can you please make me understand how can we get that by the current expenses schedule shown in the annual report. There are two major head of expenses in the Income Statement for 2015 i.e Employee costs & Other expenses. The former is 88% of sales while the latter is 26% of sales. Now while checking the schedules out of 530 crores of employee expenses for 2015 500 crores is for salaries which i believe include the expenditure for R&D as well. However is their any way of finding out how much from this expenditure goes under the head R&D and how much is normal employee cost. Secondly, of the Other expenditure of 158 crores for FY 15 30% is travelling expenditure while business promotion is just 10% of the head. Now, i just want to understand that should i take the promoter’s word on the numbers or is their any way by which we can validate the projections through the accounts as well. I am very new to this sector hence the query
Hi Bharat , If i may ask what brings you to this conclusion ?
Some Perspectives from interaction with company, customers (Bank IT Executives) and others :
- A bank can have upwards of 30-40 software products( meaning close to 30 vendors) mounted on top of core engine. These products are heavily customized according to a particular bank’s need.
-Big ticket Core transformations are happening, although out of top 800 banks in the world, balance- sheet wise, only about 35-40 are in the market each year for core replacement, that gives around 3-5 deals to top 5-7 players.
Core transformation is a very complex project with implementation periods in the range of 2-3 year and a big ticket expense and hence the change is gradual.
-In a vendor selection process, reference cases matter more than product superiority.
-Usually these days, Banks are looking at a payback period of 3 years, A contract could be typically of 5-7 year duration.
- Banks have been realizing the significance of fee-based income of transaction banking space in growing their profits in a highly competitive and regulated world, plus there is emphasis from customer side on efficient management of liquidity and working capital cycle and hence increase in spend here from banks to ramp up IT capabilities.
A. They have a core product development team of 300 people, which has been there around for 10 years and, the company believes they have a better perspective of the problem space owing to them having products across all the verticals, in comparison to say someone like Bottomline which are heavily in transaction banking space
B. Has chosen a good strategy of having a diversified line of products and they have a good head start in terms of already established relationships of Polaris.
C. Have been nimble-footed in the market and the organization structure has been good with various business unit heads located close to relevant markets. Transaction banking head in London, Core banking head in Singapore and Insurance head in New York.
D. They have created a good roadmap of products and the markets they are targeting, not trying to spread too wide and thin.
E. Currently doing implementation work itself, will ponder over using partners after a year or so.
But , Key questions remain the same
-Is there Robustness in business, can it absorb shocks: the usual deal tenure with banking products is in 7-8 years range, but a risk with intellect is License+amc which are recurring in nature only form 38-40% of revenues.
-Growth : Asia is showing good growth in transaction banking space, and intellect has installed some good reference cases, and has been having good deal wins continuously.
On the Core banking side, there are few bigger competitors with large number of installations like Temenos,Financle, Banc,Oracle Flexcube etc, and progress has to be monitored here
RTM and insurance verticals are yet to show good ramp up in sales
-Being a technology company they have to keep wary of emerging threats and product advancements, especially in corporate payments space like Earthport, Ripple etc
Product superiority: While management sounds superbullish on this, this point is hard to collate for an outsider like myself. But a statistic which gives a good idea would be deal wins, win/loss ratio .
Disc: Invested with a small stake
As per Dec quarter results and as stated by management the company has reached a break even point and is has now reported net profit of 2.25 crores for december quarter end.
Intellect Design Q4: Net Profit At Rs.14.1 Cr Vs Loss Of Rs.11.9 Cr (QoQ). But IDA has missed FY16 dollar revenue guidance as it has posted revenue growth at 24.5 percent versus estimated 26-30 percent.
IDA - Quarterly presentation - http://www.intellectdesign.com/investor/presentations/Investors_Presentation_2015_16_q4.pdf
Q4 result discussion with the management - Audio - https://www.researchbytes.com/webcast.aspx?WID=90718
@leon_lph here is my take…
IDA has range of products in banking and insurance. We don’t know much about their revenue breakup by industry. But it doesn’t do core banking products as such. IDA’s products are peripheral to core banking ones.
Real risk about IDA is this -
IDA is not profitable, if there is slowdown/recession Banks can & will postpone purchase of new software. Can IDA survive decrease in revenue for 2/3 years?
In this BSFI Industry is very conservative. Financial viability of Vendor plays a major role in vendor selection. Banks won’t purchase any important/core software from vendor that they think might go bust in next 5 years. Currently IDA is not profitable, once it becomes reasonably profitable, will start getting real large deals.BUT if slowdown comes before that some clients will avoid renewing IDA licenses. That might start downward spiral for IDA.
High Valuation. Currently with share at 214, MCap is 2140 Cr. Revenue for the year is only 811 Cr.
Jain said the company is on track to achieve its revenue guidance of Rs 1200-crore by FY18, adding, the target is to maintain gross margin between 50-53 percent.
Overall the IT solutions are going cloud based - and they are stripping down the server heavy applications. Most big banks in US/Europe and their customers are using banking apps which can be run on smart phones, Ipads, Tablets.
Given this landscape, I would imagine, IDA will need continuous cash infusion in R&D, Development etc.
20% topline growth may be achieveable but the bigger question is - does it translate to 20% bottomline growth as well ?
Disc: Not invested in IDA currently but tracking
Good set of questions.Have been reading about Intellect for a while and trying to answer your questions based on my understanding.
1.Customer Acquisition strategy:
They are spending most of the Sales and Marketing expenses on hiring top talents from each region they operate.Last few quarters they have been on a hiring spree for second level and third level management people to beef up the sales force.This will yield fruits in the upcoming years.Their quarterly results presentation has all the details about the new additions.
They are diversified across all regions like US,EU, EMEA,APAC,Africa.They do have products in Banking(Global transaction banking,Consumer banking and Risk/Treasury) and Insurance to distribute their revenues.Their customer base is evenly spread across developed markets and developing markets with 49% revenues coming from US/EU and rest from other markets.Management did accept the fact other markets are not as good as the developed markets when it comes to pricing power.Having said that,they follow a pricing model that is acceptable in various markets.
When a company’s product gets accepted in developed markets,it is a proof that product does have industrial strength considering the fact bank’s MONEY is really flowing through your software and no banks would risk their business by choosing an inferior product.
2.Customer Tail: To measure the number of clients and how much they were able to penetrate into their market,we still need to give them sometime to reach a critical mass in their sales.With a $120 million revenue,breadth of clients will not be much to count on.Even management has clarified that the biggest problem in this business is scaling upfaster due to long sales cycle.The time taken by the clients to choose the product and sign an agreement takes 15 to 20 months which shows how difficult for the company to project the future sales growth.Due diligence process by the clients on this business is very long.
3.Digital and Design - the buzzwords:
As per the management,their product is the only one built on latest digital technology that is available currently on the market.All their competitors products are 15 to 20 years old.Selling point is their product is X times better than the compeition because of the vision they had when they built this product with digital capabilites.Arun Jain
mentioned 10 years of hard work is slowly paying off now.He got this idea of digital when the iPad was launched in 2010.He also added that other can also create a similar product but they have to go through another 5 years atleast to create a similar to theirs.By the time,it is the question of can his CEOs position the product well ahead of the competition in the market.
4.Product replacement strategy:
Like Rishi mentoned Intellect is a component based architecture.They can upgrade individual components/modules or the whole suite.Another important point to note here is there are two types of business oppurtunites in this digital space:
a.Digital programs: Here,banks try to utilize digital technology by implementing themselves and later they choose a vendor in this process after pow-wow.Here,banks target a business group like marketing,operations etc or group of people like customers,employess,management etc. for this digital programs.
Most of Intellect wins are in this space.
b.Digital Transformation:Here Banks don’t fully understand their business and seek help from companies like Intellect to leap-frog into their business.This invloves untilizing the latest
i.digitl technologies like artificial intelligence,analytics,business process management etc,
ii.utilizing latest best practises in process and integrate all the business process to enhance the delivery mechanism.This is where intellect is lagging.
These are again based on my readings/listening to their concalls.Problem with such B2B business is you have no way to verify what management says.Either you have to be an employee or customer to truly understand their product strength and weakness.