Intellect Design Arena

Important win for iKredit platform- first in Vietnam.

Chennai (India), September 21, 2022: Intellect Global Consumer Banking (iGCB), ranked #1 in the world for Retail Banking by IBS Intelligence, announced that the Cathay United Bank, one of the leading banks in Vietnam, has chosen to implement iGCB’s acclaimed digital credit platform – iKredit 360 to power the next growth stage of their lending business


As I understood from their concall they are now in process of transforming their solutions and client to cloud. Banking companies do not go easily on cloud and IT support/consultants and Technical analyst have to support these clients. Not every project is a new implementation/Upgrade.


Latest Analyst call recording.

It is better to hear from horses mouth rather than hearing opinions from other people who throw random data/opnion into the mix.


Notes from above management call

  • We are positioned between the best of both- Thought machine(usability) and Temenos (depth of product)
  • GTD has good reference ability- 90+ accounts in GTD.
  • 1200 people R&D team
  • All products have composability by using API, and products(Liquidity, core banking, lending, credit card) can be assembled using different API. Temenos does not have the common capability on open architecture for all products (they do lots of M&A)
  • Every few quarters, we will migrate a product into the platform.
  • Platform is sharp and country-specific, with 97% capability of the product.
  • Platform business DO NOT cannibalise the products business.
  • There are two types of customer
    - who wants to invest upfront- go for a product license.
    - Others prefer platform services.
  • Customers in the EU/US look for a platform. If the cost is substantial over ten year period, then they convert into licences plus AMC (AMC is 20% of license cost)
  • We try to make it a subscription base, but we are flexible

Underwriting Platform - Out of 300 insurance companies (in US), we have a lead of around 20 customers at the moment, and we are signing it off at an accelerated pace. - The underwriting platform is gaining a lot of traction in the US. Hence we are saying the US will grow faster this year.

  • Platform revenue is anything between 300k/per month to 1 million/month, but this is backloaded, meaning less revenue at the start and more revenue as they progress.
  • Product license cost USD 3 million over 10 years but in subscription, it is around 10 million… 3 times more than license revenue
  • Cycle time for the platform is 60% less than a product. If the focus is cost, then the client may be inclined to go with the platform stack.

- Travel cost up, Talent cost up, tax cost up (around 25%).
- Need to invest more in platform/R&D.

  • Our growth, compared to the competition (e.g Temenos), will be market leading. The organisation is geared for 20% growth. This growth requires investing in our IP and remaining relevant.
  • Will grow without diluting our capital.
  • When we launched the product iKredit/Auto, there was a powerful pull from the market; hence we launched the platform now. We could have delayed the investment but preferred to do it now.

Global Recession market-
- Nice businesses like us which cater to specific needs will remain relatively insulated. Our costs are small as compared to the banking budgets of clients.
- Some of the destiny deals (~ 60)- will come to know if they are getting funds by Nov.

  • Big banks are not delaying the decision based on the macro environment. However, the smaller player whose funding depends on the stock market may be impacted.
  • EU/US banks need to upgrade their technology to reduce costs.
  • Europe is ahead of the US in terms of cloud adoption.
    • America first wave of cloud adoption .
    • Europe- New core banking solution is in demand.
    • Asia Pacific- Product-based model
    • Middle east- slowly getting into cloud products but mainly product based.

Focus is to build deals in Europe, Canada and US. Noth America will be faster growth this year.

  • Gartner- look at the number of deals signed in the last 3 years. Forrester look at the product architecture. Hence we moved from Gartner.

  • Banks which have agility are winning in the market. Others are finding it difficult to traverse the market.

  • Best Matrix to look at it- License link revenue.

Product Implementation :
- Kept implementation in-house (Temenos is not the case)
- DID NOT Give implementation- We were building the brand earlier so keeping it necessary was necessary.
- Partnerships are becoming important.

Subscription-based revenue
- Suppose we book 1 million USD product- 1 million is shown in the book
- subscription- Only 3 months of revenue is shown for the product.
- Tier 3/Tier 4 customers are going for platform products.
-Bigger clients prefer for an upfront license.

Product Platform- Costs us $5-6 million/per year.
- First-year revenue may be around USD 1 million/per year
- It takes 6 to 8 quarters for the platform to break even (1 million to 6 million).
- When the platform revenue becoomes 30 million - my platform cost will be USD 8 million. That is when License link revenue will move into 65% range.
- In 3 to 5 years, we will generate around 30 million USD revenue (individual platform)
-GeM - we have reached 30 million as a number

  • Azure/AWS- Work in Progress. It may take 6 to 9 months before we jointly announce a deal

  • Why 20% growth aspiration- Inspired by HDFC Bank and focus is on predictability.

  • Dividend/Buyback- We want around 1000 cr in our book before we become aggressive on payouts. We should have the protection of 3 to 6 months of the cost structure. With 400 cr per quarter, we need around 3 quarters of cost taken care of. Hence we are looking at 1000 cr before being aggressive on buyback/dividend.

My take:
Overall next few quarters will be challenging as they are investing more into platform business. Considering that nature of the product business, it may impact their near term profitability if they fail to sign up customer. However, Intellect a world leader in their field across different products and kind the investment they are making augurs well in medium to long term. I am invested and my views could be biased.


Rating upgrade from Crisil:

CRISIL Ratings has upgraded the long term ratings on the bank facilities of Intellect Design Arena Limited (Intellect) to ‘CRISIL A+/Stable’ from ‘CRISIL A/Stable’ and reaffirmed its rating of ‘CRISIL A1’ on the company’s short term bank facilities.

The upgrade reflects CRISIL Ratings’ expectation that Intellect’s business risk profile will continue to benefit from higher market acceptance and maturity of its product suites, and its strong order pipeline (over Rs.6000 crores), which will ensure healthy double digit revenue growth over the medium term. Increasing share of revenues from cloud platform, Software as a service (SaaS) and annual maintenance contract (AMC), besides cross selling of product suites and new product launches, will support revenue growth. Operating profitability is expected to sustain at healthy levels of over 20%, driven by better cost absorption through expanding scale of operations, and increase in software license revenues emanating from continued deal closures. Earlier, in fiscal 2022, revenue grew by over 25% compared to previous year, driven by timely closure of digital transformation deals. Higher contribution from license revenues (7% higher over fiscal 2021) as well as SaaS and cloud revenues (112% higher over fiscal 2021) led to improvement in operating profitability over 25 % during fiscal 2022 (from ~24% in fiscal 2021).

Read the full report here.

Disclosure: Remain invested.