Intellect Design Arena PICK for 2015

(bbbhutra) #102

RJ exits should throw some caution on the company. However, I believe the company might need few more quarters before turning profitable. Below were the latest positive development for the company -

Disclosure - Hold only a tracking position in the stock. Might study further if available at Rs.100 to increase stake. However since it is a very small company and loss making, I will not look to invest more than 1% of my portfolio in this company.

(Gary) #104

Some inputs based on a bit of review I did. Been tracking Intellect for academic reasons and have taken a small position few months back.

I was almost “certain” of their rise 6+ months ago … now , I’m confused. Reasons -

  1. DSO consistently going on … anyone in tech firm will tel you that’s its a critical measure. This quarter DSO is 180!
  2. IDA claims 208 total clients … for annualized rev of 850 odd. Per client avg 4 cr. revenue that too with overseas clients ; Operations in 30+ countries … in far flung places in Africa. Does it sound sustainable?
  3. 67% of total revenue was implementation in 2QFY17 … 3Q numbers are not know. This figure has hovered around 70% for a while. Why? As your base grow, the AMC should flow. High DSO and not getting AMC indicates poor project execution. They claim 95% projects on time - if that’s the case, why are they not able to collect their fees on time .
  4. Personally I feel they’ve diversified too much. Take Finacle for example - only core banking and nothing else. While here Intellect even has insurance package. insurance is a very different industry - starting from product development to sales … the whole value chain is different . They have 14 different suites in all!
  5. Finally, management is over promising and under delivering for some time now. The guidances have been revised and not met in just 2 1/2 yr company history.

(Rahul Deshmukh) #105

After strong beating to 52 week low, coming back strongly

(bbbhutra) #106

Few latest announcements from the company -

Intellect Design Arena signs 10 year deal with one of Australia’s ‘Big Four’

Intellect # 2 in the world in Digital Banking

Central Bank of Lesotho goes live with Intellect Quantum Central Banking Solution

Intellect Design Arena gets nod from SEBI for Rs 200 crore rights issue

Intellect Design Arena to partner with Central Bank of Armenia

Disclosure - Hold only a tracking position in the stock. Might think of increasing exposure once available around Rs.100. However since it is a very small company and loss making, I will limit my exposure to 1% of my portfolio in this company, currently its only 0.25%.

(hamed) #107

I have highest allocation to this stock at cost. it has corrected 40% since the buying price and now is third in portfolio but i haven’t booked single rupee loss. it has fascinating credentials and hope is that once it has good critical mass it should go to another orbit. one questions i forgot to ask the management is why the average contract value is low at 1-2M etc, for the kind of applications they deliver it should warrant multi million contrct deals. Hopefully will come in future.

(nprao) #108

I am invested in this stock at average Rs. 160 price levels.

IDA has made a lot of investments in products and the salesforce. I spoke to an employee at a large MNC peer, and they do respect IDA although IDA isn’t a serious competitor for them in the big leagues. Apparently the missing link is referrals. If IDA manages to win one big contract from one big bank that will open more doors with top tier clients for them. Unclear when/ if it will happen.

Stock should continue to be weak until the rights issue is done. If it is able to repeat 4Q17 like performance in 1Q18 too, there might be a reasonable pop up.

(Vilas D'Souza) #109

All looks good here. The only question that stopped me from investing into this counter is why did big bull of all investors exit

(Kumar Saurabh) #110

At least one thing I can highlight, look at increasing receivable days. For a product company, increasing receivable is much more dangerous than any other company. There is a chapter on software and products business in Dorsey’s five principle’s of investing, that might give you some clue. Disc : Exited after 2 continuous quarters of increase in receivables

(Vilas D'Souza) #111

Yes. increasing receivables is concerning. You can possibly look at Majesco

(Anandca09) #112

Majesco itself is underforming … No revenue growth

(Kumar Saurabh) #113

both majesco and intellect are high risk bets with lot of future assumption numbers built in. As pointed , majesco struggling with revenue growth and without revenue growth , operating leverage wont play out. The only good part is majesco receivable days do not show any deterioration and share of cloud is increasing plus tie up with watson gives a hope to crack tier 1 insurers. If that does not happen in next 2 quarters, sorry to say but that might lead to further bad days.
Disc: holding majesco 2% of portfolio. No trades in last 6 months

(MHS) #114

Hi - what is the process to apply for Rights issue through online??

(Gokul Krishnan) #115

My broker (geojit) said there is no online option for rights issue. There was online option for the buy backs eventhough. They helped fill the rights application form for me and asked to submit the same to the mentioned bank branches in the issue document. Hope this helped.

(MHS) #116

Thank q for the update.

Anyone having ICICIDIRECT account, any info please update for online application??

(Gary) #117

I was intrigued by the conference call transcript for 4Q that happened in May. (Just happened to read it). Seems there is some accounting change that intellect has done that has resulted in reported profit improvement. However, that was not what intrigued me - it was the way Arun Jain responded to the analysts with vague and dismissive answers that made me uncomfortable. For those who want to invest - I’d suggest a reality check.

PS: Invested a small portion given the digital story is still unfolding.

(Gary) #118

Please see the latest investor presentation - they seem to have improved the DSO and collections metrics. It is not that … the issue is that they are burning cash faster than the new product revenue are being realized.

And second, long term , the Software + AMC share hasn’t gone up … which suggests a lot of under cutting on price or clients that were acquired 12+ months ago have decided not to pay AMC (which means poor implementations )

(s) #119

Arun Jain is a technocrat and his attitude shows dissent at everything questioning him, It does sound problematic but successful technocrats are not always good PR guys. The concern you are raising of no growth in amc … not sure where are you picking it from. The AR shows 25% CAGR growth in AMC. 35% CAGR growth in License. Cash burn up and equity dilution are short term concerns but the company has some marquee clients so my guess is the company has some foothold in the market. The spend on high profile marketing team vouches for confidence of market experts in the product and delivery, because it is very difficult to be convince to sell junk in market repeatedly. I would not sacrifice my job for such an experiment if I am not convinced of product portfolio or execution capability of the company. A must own risk for portfolio . At 1.2 times sale it can be a huge success or even if damp squib will survive moderately.IDAL.pdf (499.1 KB)

(s) #120

(nzkatre) #121

Best immediate indicator for investors is whether promoters try to hold, increase or decrease their holding using the rights issue.
Current promoter holding ~29%
Bear case : In case promoters do not invest in the rights isseu - NEW promoter holding ~ 23%
Bull case : In case promoters invest the full amount with 0 contribution from public investors (Not possible, including just to define the boundary scenarios) NEW promoter holding ~ 43%
Any increase in promotor holding above 32% should be taken as a vote of confidence.
Questions :-
What date will the allocation status of rights issue be made public ?
When and how can we know of the promotor holding after the rights issue allocation ?

(s) #122

True it will be interesting to see allotment surprise, It should be on 25th August. In last con call Arun said that promoter is going to apply for Rights. The mood in public( holding over 40%)is little subdued because of RJ moving on . Problems are the product portfolio is too large and in India IP rights have very low regard and good employees do not stick long if they do not grow. So it will be a challenge to sustain a Indian IP based product portfolio as western world believes in tested and trusted product than innovative and low price risk