Intellect Design Arena

hi @bhosleganesh,
IDA posted profits of Rs.15.92 crores in Q4 2016 by capitalizing R&D costs to the tune of Rs.22.89 crores.
The reason they stated about R&D capitalization is this is an industry wide practice followed by other companies like Ramco,Temenos.They wanted to be super conservative when it comes to accounting policies,however clients on the Africa region are questioning if they come to know this is a loss making company and mgmt. gets into all sorts of conversation to explain the company’s financial health.

Being the first full year after the company got listed separately,they had to take a call on accounting policies.After discussing with the board,they decided to capitalize this cost.They will amortize this for six years once the product gets launched.

They also mentioned their R&D lab is approved by the DSR which is eligible for some tax credit.Their annual R&D expenses going forward will be $20 millions (Rs.35 crores per quarter) and this will be stable figure until they reach $200 millions revenue.

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IDA 2015-16 annual report - http://www.intellectdesign.com/investor/reports/annual-report-2015-16.pdf

HDFC Securities recommendation report - http://www.hdfcsec.com/Research/ResearchDetails.aspx?report_id=3018259

Intellect has invested heavily in R&D over the past 10 years (~US$ ~150mn). It offers a well-diversified portfolio of products under suites like iGTB, iGCB, iRTM and iSEEC, which are digital-ready, highly flexible, scalable and deployable on existing CBS. With a highly-rated product portfolio, strong leadership team, marquee client list and a huge addressable opportunity, we believe Intellect is in the early stages of a multi-year growth trajectory. We build US$ revenue CAGR of 24% over FY16-18E. As operating leverage and non-linearity kick in, EBITDA can turn positive in FY17E. We have built in 6.9/9.7% EBITDA margin for FY17/18E. Initiate coverage with a BUY. Our TP of Rs 280 is based on a 2.5x EV/revenue multiple, implying 37% upside and is at >60% discount to rival Temenos’EV/revenue multiple.

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Intellect_Design_Arena_Visit_Note_SPA_Sec_110716181502 (1).pdf (108.7 KB)

FYI
Source: Researchbytes

Disclosure: Invested 3% of portfolio . Will add further on dips

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Hi,
Did anybody attend the agm ?

Summary of AGM: http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/D8F7A779_7C63_4263_9808_F35CC1F8610A_121017.pdf

On the last point: Company is planning to raise 300 cr. People who attended the AGM, can you please throw some light of why they need 300 cr and route they are planning to raise this.

What about sectors like IT, FMCG, industrials? Have your views on these sectors changed?

Well, with the IT sector I have a nuanced view. It’s been a long-time favourite of bulls on Dalal Street. We have all cut our teeth with companies like Infosys, Wipro, TCS, that have gone up 50 times, 100 times and have made us a lot of money. So we are all very enthralled by those companies and they continue to do well. But those companies pioneered a service-led, business-oriented model in India, which essentially means you export services to the west, bill in rupees, collect in dollars and you make a margin. And because the rupee depreciated and volumes were growing you kept doing well. That model maybe under threat due to automation, competition and just due to the fact that there is a slowdown in global IT spends.

But increasingly I find, as an analyst, there are a lot of opportunities in what I call product-oriented companies on Dalal Street. There are a lot of companies catering to vertical markets, building products in knowledge, database, antivirus. They offer some very attractive opportunities to investors, they are available at fairly cheap valuations. So rather than look at the old services-led model, which of course I have in my portfolio, I would also be looking at the product-oriented companies. And there are maybe half a dozen on Dalal Street now that have exciting balance sheets, exciting prospects, and probably deserve a lot of investor attention. So that is my short take on technology.

That’s been your position in the recent past as well. And if our research is correct, you’d invested in companies such as Polaris, Geometric, Sonata. Are you still adding to such investments?

There have been a plethora of offerings in the recent past. Polaris spun off a nice looking product company which I own. There are a lot of others, few companies have come out with an IPO recently. So it requires little bit of digging. The road to riches is never easy. There is risk in these stocks because they are unproven business models yet. We don’t know if India can legally sell, in the domestic market, a lot of licenses or are they all going to be pirated software. So time will tell. But I am fairly excited about these companies because they address very good opportunities. For example, the Aadhaar database was built by an Indian company and that’s a huge technological achievement. They have 100 crore people on the database. Antivirus software companies are showing up in India. So that makes me excited as a technology investor.

Hi Hrishikesh, won’t EV/EBITDA be a better way to evaluate product company (assuming more than 50 percent revenue will be royalty based ). If you see guide ware and similar companies, thats how they have been tracked.also, any idea , what’s the projected break up of royalty and services . Why I am asking this question is because , higher the royalty share , higher the chances of EV/EBITDA.i am sure , you would be aware of majesco but I believe they will never get a guide ware valuation , best case may be half of it due to higher difference in projected royalty share as a part of total revenue . Disc : invested in majesco, exploring IDA

Going through docs, licensing is 33 percent , will do my number crunching and come back. Also, hd few friends who were associated with competitive product companies . Will do a ground check .

Though I do not give too much imp to glass door reviews, for this one , it looks little scary

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I used to work for Polaris between 2003-06 period and seems like things have not improved much. I was curious to see the remarks of Intellect guys in glassdoor and it surely is very disheartening. If employees are not satisfied, no amount of strategy will work

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Also, is company dissipating energy by having a multiproduct/multivertical strategy.??? It puts pressure on product development teams and efforts could be spread too wide and thin.??

And, the critical mass in particular segments is necessary for software companies too succeed big…??
e.g. Devoting large chunk of energy towards transaction banking suite which already has a good headway in the market can lead to capturing a big share of market and can create a snowballing effect with lot of reference cases.
The seminal text in this regard ‘crossing the chasm’ and ‘Inside the tornado’ suggest this idea.

The argument from the company’s side is, it provides them diversification as a whole and they will be well positioned to capture growth in one segment when there might be a slowdown in other.

Views invited.

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As I was not comfortable with glassdoor feedback about company, did some more research about management. Few of historical events put management in very bad light. Anyone aware about these details

This stock becomes a complete no for me if these links (specially last one is true). On arrest, i would like to know if anyone knows the story in detail

Disc: Recently purchased a very small amount so that it can motivate me to study the company further. Will be exiting. This is not a recommendation by any means.

Refer post no. 5, 28 & 30 above:

Thanks for highlighting, that is why did not want to form opinion on point 1 and 2 highlighted. However, point 3 about insider trading is my main worry.Any chances of framing wrongly by SEBI, Have never heard SEBI picking wrong guy for insider trading.

by the way, i was not able to open pdf. file not found. would b great if u can share any other way

Q1 Results came out today.

Q1 Revenue: 205.80 Cr (Q1 FY17) vs 192.92 cr (Q1 FY16) - 6.67% yoy growth
Q1 PAT: loss 5.52 cr (Q1 FY17) vs loss 11.11 cr (Q1 FY16)

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/B1492630_DEA8_4530_9ADB_70E1DD4A60ED_143743.pdf

Disappointing.
Rising SG&A expense doesn’t seem to be contributing to the topline.
EBITDA 3.3Cr. Vs 19.8 Cr same Qtr last year! Other income of 16Cr. saved the bottom-line.
They say few deals were deferred due to BREXIT, with 30% exposure to Europe, wont be surprised with such sub-standard results in further quarters.
Disclosure: Invested with tracking position

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Investors_Presentation_2016_17_q1.pdf (1.4 MB)

Latest investor presentation - Info about industry landscape and competition.

These results do not seem to give confidence. Dso has gone up indicating poor delivery. Second, product portfolio seems disparate. I am not aware of many companies in both banking and insurance eg.
A person I know at very senior level indicated that there were delivery issues earlier in his patch… But now getting fixed