Intellect design arena Q4 FY23 Concall Notes
It was relatively long investor call for intellect around 135 min, initial 90 min was spend by 3 business verticals explaining fy23 business growth and future growth potential. Will briefly summarize my understanding first/
Retail Banking
Overall retail banking market grows at 8%, SaaS business grows at 34%. SaaS business to capture 30% market share by 2029, e-Mach.ai is well positioned to capitalize this.
iKredit 360 platform launched in India in Feb 2023 - pay as you grow model
Another launch event in UK for open finance platform in collaboration with AWS, targeting UK-Europe market.
2 case studies on iTurmeric implementation with reserve bank and SME market place for leading private bank (?).
Temenos and thought machine are main competitor in european market, sees large opportunity space here. Intellect AI
3 main business lines - Insurance, Wealth & ESG
Comprehensive underwriting ecosystem in insurance, sees lot of traction in US market.
Focus to empower relationship mangers in wealth business - looking forward to launch wealthforce in key markets
iESG - explainable AI to improve corporate risk analysis. Chosen by worlds largest sovereign wealth fund (?). iGTB
Market leadership in transaction banking. IGTB revenue to be double by 2026.
working on market place solution for banks in collaboration with Microsoft & accenture
Q&A
SaaS revenue buildup slower due to backloaded nature (18-24 months), GEM up for renewal in 2024 - can be a negative overhang for intellect in short term.
Cash generation lower in FY23 due to eMach. ai investment. Will be better in FY24.
SaaS offerings focused on specific application, magic submission, magic invoice, iESG etc
each item could be 50 - 100m $ business
Stick to medium term trajectory of 20% top line growth and 25-30% margin. No guidance for short term. No plans to diversify from BFSI sector for now.
This is my largest holding for sometime now. I have been invested since last 8 years. They have delivered in line with expectation, but best is yet to come.
Management was very reluctant to share the GeM number so far. But I think in some of their earlier talks (I could not find a source), they mentioned that GeM contributed around 20-30 million to revenue last year.
As GeM revenue was platform based, it must be very profitable, and the loss of this revenue shall impact their profitability.
This press release should clear all speculation about GEM impact on Intellect.
Rs.253.5cr revenue in FY23 - 11% of group revenue
Rs.11.7cr of operating profit - About 3% of group operating profit
So it seems to be very low margin business. It implies group margin would have been 200bps higher if GEM was excluded. Good riddance I guess?
It was probably a prestige project ,bid for and run at low margin just to brag to other prospective customers . Gov projects are rarely ever very profitable in India . Back in 2007 , TCS was running a Calcutta university project at 300% cost and time overrun(I had a friend on that project) just because they were focussing on increasing the revenue of domestic project basket .
The problem companies like Intellect face especially with products like the one created for GEM is that this is doesn’t have any use case outside GEM.
The matters that the company will need to address in the short term will include
The GEM platform R&D cost that is capitalized will need to be impaired/ written off now since they don’t have any other customers using this platform.(no revenue visibility).
Staff who are currently working on both management and operations of this platform will need to be redeployed to other revenue generating projects or be asked to find a new job.
The product has largely lost its referenceability considering it is not live at any customer.
If the company has procured any assets etc to deliver these services, then those assets has lost its ability to generate any revenue and may need to be redeployed or written off.
As far as TCS is concerned, revenue that this project will bring in is just a drop in the ocean for them. They may have internal mandates to penetrate into more key government projects.
I certainly believe that the GEM department should have considered the ingenuity that Intellect has brought to table 7 years back and how they have ran this project glitch free over the term – now we know what a free market economy can do to a company with lesser financial muscle power – the amount of thought, effort and sheer brilliance that Intellect has delivered to this project is forgotten in no time - its cruel and unfair to lose out after scoring better on technical parameters but that’s the world we live in.
Hope Mr. Arun Jain and his leadership teams learns a good lesson from this episode and come out stronger. I’m certainly going to keep my investment intact with this management team.
AJ
Disclosure: Remain invested and this will remain one of my biggest bets.
Something does not add up. Doesn’t 240 crores to run a marketplace SAAS platform seem quite high even after you include amortization of development expenses over 7 years.
Would be interesting to see what Infibeam’s margins were.
Not sure but the expenses would likely consist majorly of hardwares or cloud storage and database capacity which would have increased over the years as the GeM platform became bigger and got more transactions .So in effect cost would increase with the increase of traffic on the platform .Since we have no idea how IDA procures and maintains the resources for the scalability of the GeM ,we can not make any valid conjecture on the expense especially since we do not have the data points for past 7 years ?
I think it is due to L1 kind of procedure followed in Govt procurement where lower bidder wins the deal may be thats why impacting margins, also GeM may had enhanced the trust over the competency of IDA
Solid Q1 results from intellect, highest ever quaterly revenue of 644 cr, EBITDA margin improves inline with management guidance.
Last quarter company intellect won deal in Asia pacific (Philipines), middle east(Saudi), Eastern europe (OTP bank), a french bank and US bank. Demonstrates global reach for the company.
presence in 57 countries, focusing on 10 countries to penetrate deeper. Partnered with IBM and accenture already on cloud, more partnership lined up.
Regarding GeM, there will be revenue impact from Q4 FY24 - profit is single digit in GeM hence not much impact. Recievable will improve after GeM. Arun Jain doesn’t believe TCS will make any profit with GeM ( )
target to grow 15-20% YoY consistently, for FY25 GeM revenue to be adjusted.
Intellect was in competition with Temenos and thought machine for OTP bank deal (from hungary). deal win send a strong message that intellect is front runner in new Bank technology wave.
Not focusing on treasury, brokerage product for now as opportunity size for other product (Core banking, lending etc…) is too big.
25 work shops lined up before Sep end with various customers/partners on eMACH.ai
Arun jain discussed about “Band Aid” solution vs Structural solution BFSI industry. His view is that lot of the BFSI spending last 2 year was on temporary fix due to Covid situation and IT sevice companies benefited from it - akin to Band aid. It was not sustainable, Intellect focus on structural solution and benefitting now. Arun believes many NBFC/Fintech in india also doing the same, specifically not focusing on security in cloud. They will need to fix this at some point and move to structural fix.
Lost 2 deal in US due to banking crisis (SVB&FRB), temporary setback - but this year has started strongly focusing on Candaian banks more.
Arun was disappointed that investors are not acknowledging AI capabilties of the company - not many questions on AI (many questions on GeM naturally )
Overall strong result in a weak BFSI IT environment shines spotlight on intellect finally, hopefully better days are ahead.
.
Hi, appreciate your effort in explaining to Neil. After many years now, What would you like to say on IDA which has made so much progress on products and entered top 3 among this space.
Intellect bags Destiny deal from Indian Bank - To deploy Intellect’s eMACH.ai powered Cash Management System
Through this implementation, Intellect provides:
● Omni-channel access across Desktop, Mobility, Host to Host & API
● Treasury persona aligned dashboard to drive Contextual Banking eXperience
● Extensive coverage of Payments across electronic and physical channels
● Contextual use cases for Bank & Corporate Personas across Mandate, Cashflow Forecasting &
Reconciliation
● Coverage of Multi-Modal Collections offerings for Indian Corporates (Mandate based
Collections, Electronic Variants Cash/Cheque Collections, Doorstep Banking, Cash Delivery)
● Comprehensive Bill Collections Platform to help Channel Agnostic Bill Orchestration, Collections
& Settlement for Anchor Billers. Payment-by-link to enhance user experience & stickiness for Bill
Payments
● Ready Open APIs across Portfolio, Payment, and Collections to curate Banking-as-a-Service
)
)