Intellect Design Arena Ltd, a cloud-native, future-ready multi-product FinTech company for the world’s
leading financial and insurance clients, confirmed that its recent WealthQube Win in Indonesia is for
bank BRI. Intellect’s wealth platform, WealthQube®, will underpin the Digital Transformation of Wealth
Management at PT Bank Rakyat Indonesia (BRI).
1ac7bde2-7f1c-4c38-99b9-cc57b3c5d507.pdf (937.9 KB)
Intellect Design Arena’s solid Q3 numbers | Arun Jain to ET Now:
I will try to post my updated notes post the Technology Day. My view so far is that if we few things fall in place, company could be a 9.5k cr+ market cap company by next year. Will try to show the working to back this. Happy to get the feedback then.
D: Invested. 12% position
That’s 17% returns from current levels. Not particularly compelling returns for a high risk technology company? I can see where you are coming from, say a 30x multiple on a conservative Rs.24 EPS for FY22.
Any idea what’s got the market excited today? I doubt the company will provide financial guidance tomorrow.
Look forward to your analysis post the technology day.
Intellect Tech Day presentation
http://content.icicidirect.com/mailimages/IDirect_Intellect_CoUpdate_Mar21.pdf
Good report on intellect though I dont focus too much on price target give by them.
disclosure:Have been holding since 120 levels and one of top 3 holdings now
Some numbers that stood out for me from the Technology day
GCB has 3 products which are each generating Rs.100 crore revenue. So GCB’s overall revenue contribution must be slightly over Rs.300 crore.
Not much financial disclosure around GTB which is quite annoying since its the most mature business in Intellect’s portfolio.
Government expects GeM turnover in FY22 to be 2.7x. Even if it is around 2x Intellect will make revenue of high double digit million $ amount. (What is high? >$50mn?)
SEEC, as mentioned in the ICICI report above, will be $100mn in next few years.
Magic Aadhar seems to be small business in terms of revenue potential - Rs.50 - Rs.100 crore. However margin potential is 70%.
Working capital - 60% of GTB business is in advanced markets. For GCB this is at ~20% but will rise to levels similar to GTB. This should drive improvement in working capital.
Sharing a thread on intellect by sapling capitals
Using other people words on the stock as I am not good with words and presentations
It isnt the software product enterpreneur that need to learn how to run a software product company, he has all the skillset, its the indian investor/vc community that needs to learn to value them to inspire risk taking for the enterpreneurs to dedicate their life to the pursuit.
Stunning results from #IntellectDesign , pat of 80 crores as against loss of 11 crores last year. Sequentially a stunning growth of 35% in bottomline. Trading at ridiculously cheap valuations now for a software product company with great products. long way to go. (on last qtr results)
To sell cement 2day, u gotta make it 2day
To sell cement day after, u gotta make a new batch to sell.
Develop a software product 2day,
Sell it 2day, 2moro, next year.
Simple Stuff Desi analysts dont get,
& then they go value product tech cmpnies like conventional products.
Temenos a company, #Intellect recently beat amongst 20 others in a Canadian bank deal trades at a valuation of $10 billion( 70k crores) at a price sales X of 10. Intellect doesnot even consider them competition, Palantir, a cmpny that intellect considers so, trades $55 billion.
In this context,to see #Intellect trade at a sub $1 Billion valuation is appalling, yet we love it when such a thing happens as it provides a great opportunity to back up the truck and load. Thank you Desi Analysts! (Feb 5 post)
What analysts cant get through their heads is the power of generating expenseless Revenue. Quarter gone by #intellect generated an almost expenseless 80% Ebidta margin (License+SAAS+AMC) revenue of 206 crores. The current valuation doesnot even begin to bake in the size of that .
The operational expenses have stabilised around 285 crores for the past 3 quarters for #Intellect, all incremental sales beyond that is directly moving to bottomline with the business turnin net cash positive, there are no interest servicing expense. Evident in the numbers below
https://pbs.twimg.com/media/EtdbZKGUYAsm581?format=png&name=360x360
Essentially what this means is even if the topline grows 10% an incrementally, even that 10 % increase in topline would directly mean a 30% jump in bottom line.
Thats the operational leverage that comes into play once a software product gets references in the mkt.
The product does not need to be sold as hard as the product develops a natural pull in the mkt with increasing references, even the discounting reduces over the years this all adds to the bottom line.
A S.Product becomes a cash generating machine beyond a point
As the product gets sold to more and more products and with the incorporation of customers demanded domain dictated changes the product with increased features evolves into a much more useful one for the next buyer thus snowballing its value proposition with time.
What reduces the marketing costs further is the rating of the product by analysts like Gartner, Forrester, etc. A lot of RFP’s come to the market only seeking technical bids from vendors present in Gartner quadrant. This auto selection reduces the need to market extensively.
What delivers further optionality over core products are the 2 new Platforms #Intellect has developed namely Iturmeric and IDX Iturmeric is a platform on which customer can develop his business processes on drag and drop tool without the need to code. Customers love such things
Whereas IDX could prove to be the real game-changer for Intellect, its just got rated the best in the world by Novarica, its an ML/AI based data tool that helps insurers underwrite better.
What makes IDX a game changer is that IDX requires no customisation at all, its a buy and use system and is pure money from Intellects perspective and being a ML based system it gets better every time its used.
If IDX scales it will give a hockey stick look to Intellect numbers.
Software deployed in US banks havent been changed in the longest time due to the pain involved in carrying out such massive chnge.
Covid has truly made ppl realize the shortcomings of incumbent software and the drastic neeed to replace them with cutting edge.
Opportunity Galore!
Excerpt from Temenos call: Talking about shifting operations from other locations to India to save cost. Shows the competitive advantage #Intellect has. #Intellect has spent 1300 crores in product RnD. The same work in Europe would have cost 5x( more than Intellect’s mktcap)
Unlike IT sevices, software products is a different animal.
A product has a much more long gestation period.branding is a huge element of the selling of the product especially in developed countries.
Everyone knows the likes of TCS, HCL, infosys in the developed economies.
But their havnt been too many Indian product success stories. The fact that its an expensive game can be ascertained from the fact that #Intellect has spent close to 1700 crores in SG&A expenses to build its brand.
Similarly the product acceptance is also dependent on vendors having a local support presence to aid the customer, thus it requires building up of a partner network, all these are expenses that have to be incurred upfront.
But every incremental sale doesnot require the same amount of per unit marketing,rnd spend as the infra is already setup and thus bottomline explodes.we are at that inflection point for intellect with the bottomline likely to look significantly higher than what it is today.
#Temenos in latest call talking about how US banks are still using 50 year old software representing a great opportunity for new products to replace the incumbent. Same addresable mkt for #Intellect. #Temenos at 36% margins from Europe. Huge sales & margin upside for Intellect.
With the GEM portal of the government working at full steam, #intellect stands to gain additional revenue stream to benefit from the uptake of procurement in GEM.
#Intellect launches it IDX AI, ML based Aadhar processing solution called Magic Aadhar. Yet another amazing use case for its AI ML platform called IDX. It will help reduce friction by protecting customers’ personal Aadhar data from being misused.
#Intellect now has a SAAS ARR of more than $21 million. Most analysts donot understand the significance of that number and how things scale in SAAS, will only dawn upon them too late.
Temenos achieved an EBIDTA margin of 44% in Q4 Fy19 with European costs structure, thats the kind of upside to current margins #Intellect can achieve as the expenseless ARR’s keep increasing qoq.
The same improved further to 47% in the most recent quarter.
Recently Temenos also announced its targets for the year 2025 including a 15% SAAS ARR cagr for next 5 years.
Does throw light on the humongous opportunity size available to
Temenos CEO on the Opportunity size available to the Software products players in the banking space.
$63 Billion growing at 8% Cagr for next 5 years.
A wonderful session by #intellect today , an initiative a lot of tech companies can replicate. Intellect has a Net promoter score of 60 which is industry leading. Even Gartner has noted that #intellect has received the best ratings from Customers vis a vis competition.
Disclosure: As above
Though regret due to to covid time due to fear could allocate just 7% to the stock
Anand Rathi sell side report on Intellect Design Arena. In the past this analyst has been more right than wrong on the company.
Its available online on Bloomberg Quint’s website, to which i have linked below. Hope this is ok @Donald
The stock of IDA has been on a tear in recent weeks.Seeing the move from 43 will be misleading because at that price,the stock was effectively at ~2x FY21 earnings which was definitely an unsustainable price.Coming back to the company,I see no brokerage report building in 30% EBITDA before FY23.However,looking at the numbers of last 3 quarters since the expenses have been in the 283-286cr. range,a quarterly revenue of 405 cr. will take margins to 30%.In Q3 company has already done 382 cr. revenue so the day isn’t too far.This is also in-line with Mr. Arun Jain’s guidance of costs being in this range while operating leverage keeps kicking in.He had guided for a 30% margin in 4 quarters in the Q2 call.It will be instructive to note that he has been extremely conservative on guidance in recent quarters.He himself noted that they have burnt their fingers too much & want to gain back the trust of the investor community.So achieving 30% EBITDA ahead of his guidance will be in-line with these statements.
In my view,the key monitorables remain how they do with their SaaS revenue & how licensing revenues move over next 2-3 years.Their scaleup in US could also be very interesting.They mentioned having on-boarded a Tier-2 bank as a client,who they will use as a reference for future meetings with potential clients.The working capital also remains a key monitorable for me.IMHO 30% EBITDA won’t be the ceiling and they can theoretically do ~40% EBITDA too,at higher scale.Globally,companies like Intellect trade at very rich multiples.Till 5-6 years back IDA commanded similar multiples but markets lost all hope when the numbers didn’t flow in.All that seems to be coming back with strong delivery & healthy investor communication.
Disc.: Invested.Views are biased.
Very impressed with what I heard on the technology day. Will write my detailed thoughts.
To your question on GEM revenue, GMV on the GEM platform could be 1Lcr. This is government’s target and is in the public domain. Intellect and its consortium partners are likely to make around 20p on INR100. This gives revenue potential of $27m. In coming years, GMV could go to 3Lcr as well in coming years. That is the bull case. You can go by your assumption and take a lower GMV than 1Lcr for FY22, if you dont believe government. But that is the rough calculation.
From what I understand, Intellect had small contribution from GEM in Q3 and was breaking even. Costs here wont increase and increase in revenue here would largely flow to EBITDA.
Based on this, it is highly likely that cloud/SAAS revenue component is likely to double in FY22.
Ok that’s fantastic. You seem to be aware of more information than what is in the public domain because Arun Jain was quite reluctant to disclose the basis point they charge on the contract.
Couple of questions -
Thanks.
Hi
Can you please clarify how infibeam will get revenue in this case
GeM contract was won by a consortium involving Intellect and Infibeam.
Even Tata communication.
The revenue split is not given anywhere, except for how beyond certain number of transactions govt would pay them. Also the contract was for five years (2023 i guess).
If anybody is interested, they can check pg 86-89 of the pdf
The image below is MoD procurement from GeM, example for how much is route through GeM now
Attaching my updated note post the technology day. I have added some new sections in the document. But some of the old sections (background) may not be fully updated and may be as on Oct/Dec 2020.
D: Remain Invested from 240 level. May have averaged up at various points. The note is not a recommendation for anyone and is more for discussion purpose.Intellect Design Arena - Investment Document March 2021.pdf (1.4 MB)
