IDA Results
Margins 20% +
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detailed q3 concall notes
q3 update intellect design arena.pdf (7.3 MB)
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Indian IT cos could gain from woes of Atos, Temanos, says Nilesh Shah (moneycontrol.com)
Troubles at Temenos should Help IDA I Guess.
However looks expensive at the moment.
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In case you have not heard why Teminos woes Nilesh Shah is referring here it is. This is the best thing that could have happened to Intellect the last few months.
This report will report create doubts in the minds of perspective customer which are being targeted by Intellect as well. Plus Teminos has a large user base in Europe, which is focus area for Intellect.
Key beneficiaries of this will be for large deal. However due to size, it takes long time to seal a deal. Looking at the trouble of Teminos, I think IDA shall report better deal win in the next 3/4 quarters IMO.
https://hindenburgresearch.com/temenos/
I know the report is huge (may 20/30 pages). Here are snippets from the report, which highlight few important things about them
Bank of Ireland $2 billion
Temions spends fortune in acquisitions
… they planned to invest around 20% of the revenue in R&D. but…
Note: Invested
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Lower revenue guidance of 620-630 crores for q4.
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Been tracking this company for quite long, been in and out and currently having a tacking position. I still could not figure out the business model of this co.
In the last 2 years, from Q1FY23 to Q1F25 - it has won 105 deals, and went live on 109, with 18 of them at least over 50Cr per deal. That is atleast 900 Cr of new revenue, which should have shown up somewhere?
If we take all the 62 of the destiny deals won in the last 8 qtrs, that should add up to atleast 2300 - 2500 Cr of incremental revenue. At the same time, when we look at the license lined revenues, it has only gone up from 281 Cr in Q1FY23 to 312 Cr in Q1FY25.
Even if we discount the loss of GEM project, doesn’t seem like all these new deal wins are actually translating into the platform or license revenues or AMCs. The AMC was 81 Cr in Q1FY23 and just 121Cr now. The GEM deal was mostly platform deal, as the platform revenues have gone down substantially, from 144Cr in Q2FY24 to 66Cr in Q1FY25.
On an avg, 50% of revenues are license linked, so what’s the remaining revenues? This ratio of license linked vs. others has remained mostly constant for the last 8 qtrs. The SG&A expenses are almost half of the license linked revenues in the last 8 qtrs. The Software Dev expense is mostly constant for the last 8 qtrs.
The investment thesis was that as they sell more of these deals, recurring revenues will increase, cost will remain constant and profits will zoom. Doesn’t look like anything like that is happening. Management guidance for FY25 is 15%-20%, which seems like more of the same. From the numbers, it seems like they need to keep selling these deals just keep the lights on. Would appreciate your thoughts. Thanks.
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as per their concall, 480 cr is fixed expense including their current R&D spend what they are doing, and any additional 100 cr income from here will give 80cr to profit. In another 6 months there will be more clarity on their guidance… Even I have the same questions on revenue growth… Didn’t seem anyone asking right question in this quarter concall…
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Very valid concerns. Also the management keeps issuing some or the other notification to the exchange to stay in news. Some award won, or some partnership with another firm, some bootcamp. Constantly in the news cycle. Rarely do you have a notice of a large destiny deal won. Previous quarter they said they just missed out on a very large deal. This quarter they said all work had been done for a deal but the bank said they will start in Q4 so expenses are there but revenue not. I think a 30 crore deal.
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- Moving towards 700 cr per quarter revenue from 600 cr per quarter
- Costs are more or less fixed around 480 cr per quarter. Any additional revenue (around 80%) will translate to margin
- Canada Credit Unit (Vancity) won - significant win. The Canadian credit union market which is run on 30/40 year old systems. Vancity is leader in Credit Union market and this deal win has opened a few other opportunities in the market for Intellect.
- US-Hired senior person and started marketing. US is highly regulated market but large TAM. It is a long shot. This could be investment area in the future.
- Conducted few events in last few months in Europe/London/Chennai. Getting 2 leads a day since last few months. Best momentum they have ever seen. Until last year they used to get 60 leads per quarter but this quarter they got around 120 leads. This is due to increased awareness as well as from newly signed partner network. 600cr of funnel through partner network.
- Purple Fabric and iTurmeric is a disruptive technology with huge runway in the market.
- Revenue may be lower margin due to required investment and subscription elements associated with these kinds of products
- IntellectAI - Signed up big 5 - PwC, Accenture, EY, KPMG and Deloitte.
- Talking to lot of CEOs/Heads for partnership. They should be able to build business of $10-$30 million on partnership with IntllectAI products, at least they should see a path towards it by implementing products. Next 2/3 quarters Intellect should have better understanding of how the partnership work is evolving.
- If partnership network starts delivering (as Intellect expect), they could reach 30% margin next 6/8 quarters. Current margins are lower at 20-22% due to investment required in supporting products and new technologies
- eMach AI - Huge interest in wealth management across countries. Implementing for Commodity exchanges in Bangladesh.
- Reduction in implementation revenue - Due to low code nature. Also as they increase partners, implementation revenue will be less. Focus is on license and SaaS revenue.
- Aim for 20% growth over 3-5 years with full focus on organic growth. No interest in inorganic growth.
My Take:
I think they are seeing lot of traction. This does not mean that it will fructify, but they are putting themselves in the right spot at the right time. Earlier many IT companies would believe that they can develop project/product if they implement similar thing for few clients. But Intellect has developed over 30 years of domain expertise with Arun Jain spearheading the operation with full focus on organic expansion.
Intellect was a bit slow on cloud and subscription business but it looks like they spotted AI trend nicely and are riding it. Hopefully it shall result in more client signings and entry in more developed markets.
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