Intense Technology ( Bse Code 532326 )
There are some companies started by entrepreneurs which are in existence for some time, but struggle to survive. However, the promoter tenaciously hangs on to his conviction and keeps at his game, in the hope that one day his efforts will fructify and good days will come.
Intense technologies ( http://in10stech.com ) is one such story. The have developed an award winning global customer solution called UNISERVE which is being widely adopted across the world by any industry which manages a lot of data and interacts with lots of customers ( Telecom / Govts / Banks / MFs / Insurance etc.)
So, what does the company do ??
These video will give a good idea as to what the company does
See how Uniserve works
See how Uniserve works for banks
Many other similar videos are available on the company website
As per the company website :
“Our enterprise software products are used globally by Fortune 500s for digitalization of customer experience lifecycle, resulting in greater customer-centricity and reduced operational expenses
We serve customers in 30+ countries across 4 continents, with a 70% market share in telecom domain in India, have 10 years of experience in telecom and insurance domains, and an award-winning product portfolio.
We have improved business processes for some of the leading players in telecom, banking and finance, insurance, and other sectors. Bharti Airtel, Idea Cellular, Aircel, Omantel, Etisalat, ICICI Prudential Life Insurance, GE Money, Bharti AXA Life Insurance, Government of India-Income Tax Dept., and many more are our customers.
Today, we process 25 billion USD worth of client revenue data, help onboard 1 million customers daily, and have a 500 million customer base across our engagements. Our software products are designed for big data analytics. They are cloud-based, and seamlessly integrate into the client’s existing systems, without the need to rip and replace existing hardware or software, leading to a rapid return on investment, with technology not being a hurdle.”
All this is great, but what do the financials indicate:
FY16 revenue : 43.81 cr
FY16 PAT : -8.7 cr
Employee cost : 29 cr
Net cash : 13cr
Mcap : 154 cr
The revenues have been flat over the past 2 years, with profitability actually taking a beating . PAT in FY15 was 3.7cr on similar revenues. On the numbers front, looks like the company is going down. So, why the recommendation ??
Reasons for recommendation
Reason 1. Huge order from a top Indian Telecom company gives comfort to investors and sustainability to the numbers. I believe the company being referred to is BSNL. It's a multi year 150cr + order , whereby the company will take over the customer onboarding , customer communication ( billing , sms ,email , etc ) and data monetization of the client base. Earlier, the long term survival of the company was always suspect. Now, with this order, the long term survival of the company is ensured.
Reason2 . Global agreement with one of the world's largest telecom companies was signed last year. I suspect the company in question is Vodafone PLC. The agreement will open each of Vodafone’s 20 countries as a potential customer for them. As typical global agreements go, each country would not have to negotiate the pricing or test the product, once this agreement is signed.**
Reason 3. The company now gets customers directly. One of the concerns I had as an investor was that if the company has 70% market share in its category in India, why are revenues so low. This can be only if one of the following 2 situations occur
Possibility 1 : The revenues are under reported. This is not possible as all B2B clientele are leading Indian corporates leaving no room for manipulation of billing.
Possibility 2 : the product itself is not critical to the company. I believe that since the company provides mission critical solutions, this is not true.
I am now aware that there is a 3rd possibility. Which is... that earlier the company was working as a subcontractor with system integrators such as Infy / wipro / tcs / techm ( http://in10stech.com/about-us/partners#partn ) thus leading to substantial loss in revenue. Now the company has started bidding for winning contracts on its own steam. A testament to this is the 150cr contract which the company won directly.
Reason 4. Operating leverage to kick in. In a software product company, once the revenue crosses expenses, almost all the incremental money flows into the EBITDA. Which basically means that additional expenses need not be done to cater to incremental customers. To give an example, once microsoft spends all the money in developing windows, and after initial sales of windows covers the developmental cost, each license of windows sold anywhere in the world accrues to the MS bottomline. Similarly for Intense..I believe that once revenues cross 55cr , which is their FY16 expenses, all of the incremental revenue should translate into cash for the company.
Reason 5. International Operations to break even. See the results for FY16 http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/5A15EE31_2E45_4B88_B1ED_D98169187D22_203446.pdf
The difference between the standalone and consol numbers is the international ops. From these results, it's evident that international ops did income of 1.80cr and expenses of 10.40cr. The company has overseas offices in Singapore , Sharjah , UK , USA. Opening these offices is an investment that needed to be made. I think the company showed great self belief and foresight in taking its product global even as it waited for its Indian ops to become profitable. The strategy seems to be paying off with a whole lot of global clients signed up
( http://in10stech.com/about-us/customers-and-partners#cupar )
The big market for Intense is the US. The company's efforts in the market seem to have paid off as they recently announced their first deal win in the USA. I believe that this will open the doors for them in the US.
Reason 6. Q1 results giving leading indicators of turnaround.
We can see a substantial jump in revenue and return to profitability in what is the weakest quarter for the company. Q1 (I hope) has set the tone for a great FY17, which can be a breakout year for the company. Last year the company did 45cr of revenue….if they are able to cross 80cr this year, investors will see very healthy operating cash flows.
Reason7. JIO. While the company has yet to make any formal announcement on this, their website clearly mentions Reliance Telecom as a customer.
What JIO is going to do is accelerate the digitalization of the telecom space due to availability of data bandwidth . More online billing / self service portals / digital communication. In a nutshell , more work and hence more revenue for Intense.
So, I have given most of the triggers , I will also present the other side of the picture so that investors can make an informed judgment on this
Risk 1 : receivables are high. For FY16, the revenue was @44cr and the receivables were @26 cr.
Mitigant : The bulk of the company's sales comes in December and March, when contracts are released before budgets lapse. I believe these typically carry a 6 month payment term..hence the receivables. All are considered good as per the 2016 AR.
Risk 2 : promoter holding is low. The promoters holding is only 18%. If we add some key employees , it may go up to 30%.
Mitigant : There is no mitigant for this. From a group of people which initially promoted this company, a few left , thus reducing the promoters holding. The current promoter has never sold shares . The promoters are first generation entrepreneurs with no external source from where to earn income and pump into the company. This is a fact that investors need to be comfortable with.
Risk 3 : Company's zero debt status may change. The company may use up its cash to invest in hardware and to provide bank guarantees for the large contracts it has got.
Mitigant : Cash is not being spend mindlessly but in areas which will immediately translate into revenues.
Risk 4 : The promise is there...the potential is there...the numbers not there yet
Mitigant : Much like Rohit Sharma. There is promise ( a global product used by who's who ), potential ( great client list / contracts ) , but the numbers are unpredictable till now. To become a Virat Kohli, the company will have to step up its game and provide stability and predictability to its revenue performance. That will lead to substantial rerating as investors derive comfort from more good quarters than bad ones.
Risk 5 : It is a Hyderabad based company
Mitigant : Nothing can be done about that. Investors can derive comfort from the company's debt free status , global client list , dominant market share.
Comfort about promoters intention can be derived from
- They have spent the last 17 years nurturing and growing the company. The company IPO came in 1999 ( it was called fortune informatics earlier )
- The current core team has been together since the inception
- The CEO Jayant Dwarkanath is an able number 2 and has been with the company since inception. He owns @6% of the company. Jayant's wife is a Padmashri and a renowned motivational speaker ( https://www.youtube.com/watch?v=B8cm5YPvo3c ) . Must see clip
- Some renowned investors such as Satpal Khattar and Anil Sarin have taken stakes in the company
Conclusion : I believe this is a story on the verge of taking off and merits attention. As per the company, they want to be a 100m$ company by 2020. If they do that, as a product company, they can even be valued at a billion dollars. 40x from here. But there will be many challenges / hurdles along the way...may not even happen.
But if it does, you will at least know what the company is and what it does.
Disclosure : I have been holding the shares for more than 3 years , and continue to buy on dips. This is not a trading/buying recommendation. In fact, this is not a trading stock and needs to be held for 3/4 years to give any meaningful upside.
Mcap when posted : 154 cr. EV when posted is 140 cr.