Intense Technologies

Stock Opportunities Untested - but worth a good look
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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
Zero debt
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.

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/42CFB512_5843_4B08_8911_BCDF99F039E1_121948.pdf

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.**

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/Intense_Technologies_Ltd_160315.pdf

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.
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/0DE4040D_CF23_43F8_A626_206AC377832C_112640.pdf

Reason 6. Q1 results giving leading indicators of turnaround.
http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/C866A16D_7470_4285_BA1A_D30C2EB917E3_181906.pdf
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.

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Some points from my side :

I believe you have taken two new contracts as a proof of the superiority of their product. As far as I know ( not a concrete information ), IBM analytics, oracle cloud, salesforce, Amazon cloud, etc. They all offer their own superior tools for data analysis. So this company is directly competing with the biggies.
How can we assure their product quality ??
Some research reports, some reviews, comparison with other products operating in this field or any industry person who have used their product. Do you have got any information on this front ?
Since, they weren’t able to had big deals in past it might be because of their not so good product.

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That’s an excellent write up. One major question - what is their competition in terms of competing software and vendors? What is the differentiating factor that other companies cannot replicate with their in-house development team?

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@thestocklady, Good writeup. The stock came to my notice as my trigger for 52wk high stocks in screener. I started reading about it with lot of doubts and mistrust. As a thumb rule, I avoid companies from Hyderabad after many stocks which failed me. But when I read about this company it was trading in 50 range. The company is doing software products for telecom and insurance companies. The product is about having wow experience in whole CRM process . They are not competing with biggies like oracle, IBM, SAPetc. Infact they are using biggies platform for developing these software. They are not making any cloud or analytics software product. They use these technologies for their own product.
As mentioned in the website that they have JIO as customer, Mr. Mukesh ambani on his AGM speech mentioned about E-KYC . This company enables that part of customer on boarding. Telecom companies need solutions where they can get customer on board faster, have a seamless integration with their billing software, complain software etc. This company provides solution for this problem. The problem that happens is that if you have taken a SIM from airtel, again you want another SIM from airtel , you will endup giving same set of documents and photos. They avoid this. They have algorithm which avoids de-duplication. BSNL has taken their solution to speedup onboarding and meet regulatory requirement.

The business model followed is one time licensing, NRE+royalty model. They charge per user per transaction in some cases. They have got very capable sales guy from europe, who comes from Aricent and brought Vodafone as customer.

I agree with your view on negatives of the stock. One FPIs has exited the stock. Stock is very volatile.
The next positive trigger on stock would be listing on NSE and adding CEO in promoter list. They have got COO designated, CEO and MD with good sales force. This should translate into growth.
The other positive trigger would be getting some banks as customer. They have focus on insurance and telecom.

Other negative is company has tried hands with many products, they have software products for schools and trying to get into life science software too. They should avoid such steps and demerge entity and monetize the assets.

It is high risk business to be in software products in India. There are many startups doing same solution which are funded in millions dollor. This company should show agility and speed to not let other startup grab this opportunity.

They are at right time and right place. Just need execution and energy to grab business at lighting speed.

Disclosure:- I have 10% portfolio holding in this stock. Views are extremely biased. I try my best to avoid getting overwhelmed by my own thought process. I have bought in last month. I am a buyer in the stock below 60. Buying for long term. USD 10M sales by company is first milestone for review of investment.

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Hi @thestocklady Nice write-up.

Any reason why you think this company is BSNL? If BSNL is the customer their receivable are forever going to be high.

Why do you think they will be able to cross 80cr revenue?

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Company is neither paying tax nor dividend.

Screen Shot 2016-09-05 at 6.21.50 PM.png955Ă—138 17.7 KB

Company has negative cash flow from operations throughout.

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Gaurav , replies as under

  1. Why do I think its BSNL ?
    I had heard BSNL was on the lookout to streamline their customer onboarding and billing processes. And then this order came. As Airtel,Idea and Vodafone were existing customers, only BSNL remains in the 100m+ customer category

  2. Will it affect receivables ?
    A case which comes to mind in Tulip Telecom, which got screwed as outstandings from government run companies went through the roof. Since then, no private sector company was willing to take large exposures and work with them . Hence, BSNL ( to the best of my knowledge ) has tweaked their norms and now has moved to a monthly invoicing and payout system. In some cases, they even give advance if a bank guarantee is furnished. However, investors will have to wait and watch the receivables. This will be evident only with the 0317 results when the company will give the balance sheet along with the results

  3. why do i think 80cr will be crossed ?
    They are doing appx 45 cr in revenue from their ongoing engagements. Add 25-30cr from the large ( BSNL?) order. Add for the US order and JIO…and you come to 80 cr. I am assuming no deepening of the existing relationships

  4. No tax/ Dividend
    Company is still in the growth phase whereby all the cash generated is spent on building a global footprint. Infact, the co. even dips into its FDs to feed growth overseas. Hence question of dividend doesnt arise. The co. is paying tax. As global operations stabilises, we should see both FCF as well as dividend.

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@avneesh , apart from what Keshav has written , the latest AR of the company
http://in10stech.com/images/financial_reports/Annual-Report-2015-16.pdf
mentions the following awards which the company has won

1 The UniServe NXT platform has been recognized as
the best of Future IT (Emerging technologies) by world renowned iCMG architecture awards panel for 2016

2.Mentioned in the Gartner and Forrester magic quadrant and wave reports for customer communications management this financial year

3… To make it a hat-trick they received the Da Vinci TT100 Business Innovation Award. It is South Africa’s longest running most prestigious innovation award supported by Dept. of Science and Technology

The other awards and mentions which the company has won can be seen here

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yes, the cash flow: Very big negative. If this had been a newly started IT startup, -Ve cash flows are OK. But for this company, cash flows are very poor for the last 10 years.

@thestocklady Were you able to find the reasons.

Thanks.

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@whipsaw .i totally agree with you…hence i havent put a buy recommendation. It merits tracking.

Just as a side comment…if it was a unlisted company …with 70% marketshare in their domain+ multi geography presence + multiple industry solutions + award winning software product …I am sure it would have been valued much higher in the PE/VC space !

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Screen Shot 2016-09-05 at 7.42.38 PM.png590Ă—808 70 KB

Airtel is not the customer. It is Aircel. Do we know what company does for these customers? Do these customers give repeat business to the company or it some one time kind of work?

The corporate tax rate in India is 33%. Just paying any tax is not enough. Why is company not paying corporate rate of tax. I dont think we any exemption left of IT sector.

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@Gaurav_Agarwal

1.Airtel comes under the name Bharti Airtel
2. Tax would be lower due to carry forward losses. For q1, co has paid 30lacs tax on 164 lacs pbt…hence moving towards full tax rate.

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These are pretty low revenues for a company that has 50+ big customers. Maybe that product is not that important to the clients?

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Airtel has not taken full platform. They bought only billing software, Airtel used that software to plug on leakage of revenue. I am Airtel customer since a decade, my account had discrepancy and it got resolved after six to 8 months . Timeline matches with their claim of licensing with Airtel.

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Yes you are right, Tushaar. They don’t have pricing power due to lower size. Now things are changing, Telecom/Insurance/Banking regulators has made KYC mandatory and E-KYC is giving lot of benefits to its customers. This has open up opportunity for Intense and its competitors. Hope to see more pricing power with the company. It is tough though. 70% of Indian Telecom is their customer. Indian guys don’t give you money and squeeze vendors to last drop.

Getting Vodafone as customer is very challenging and they got it last year. They would have not got pricing power again with such deals. Tier1 customers will not give vendor pricing power. With vodafone in kitty , they should be able to get more pricing power with other vendors.

Startup should not tagged with lifetime of a company. The company should have agility, willing to work hard, challenge status quo, make viable products for problem. The company started in 16 years back but they could not do any credible products. Now with Cloud and analytics they have got good solution. Last year 7% + equity was given as ESOP which is huge dilution by a promoter who owns less than 10%. This is characteristics of a startup.
Tax is not paid full due to carry forward of losses.
My few findings on AR2016.

  1. Very high dosages of words and jargons. Should have been avoided such language.
  2. Too many high promises. Market size is huge. Customer management is USD 8B size. Let’s assume 20% as outsourcing size. USD 1.6B. Can it get USD 100M as revenue by 2020? Your guess is as good as my guess.
  3. I would not value a company on parameter which management has not worked. As the size less than 100Cr sales and not predictable quarterly result, all parameters like profit , EPS etc are not right parameter. I would value this company on times of sales. Anything with 3 times of sales, with 30 - 40% sales growth should be good valuation.

I did analysis of shareholding and how shares are moving. Top 10 shareholders endup trading in the counter which brings volatility. One of trading member has transferred share to NCR electronics(no idea who is he?) . Hope this trading member does not trade on the counter. :))

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Hi,

Any update on AGM ?

Regards,

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Some boarders showed concern over the quality of the software being made by intense.

Some concerns may be addressed by the fact that the company recently won a global award under the Emerging / future tech category.

The companies press release is attached

http://corporates.bseindia.com/xml-data/corpfiling/AttachHis/AEC765E9_4951_4A7F_BCD3_059B6738B911_145053.pdf

mcap when posted : 122 cr

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@thestocklady and @kkarunakar I agree with your views and I also find this company as attractive bet, however there are couple of things that bother me.

  1. I believe there are few big players like salesforce present in the market. Salesforce is one of the most highly valued American cloud computing companies for CRM (Customer relationship management) with a market capitalization above $55 billion. Please have a look at the video (Salesforce) to understand what salesforce does. As far as my knowledge is concerned, salesforce works on very similar lines as that of Intense (Or I should say, Intense works on the similar lines as that of salesforce)

  2. Apart from Salesforce there are other biggies like SAS, which are trying to tap the same market. These biggies (Salesforce, SAS) are very renowned companies which already have world’s leading companies as their clients.

If my understanding of the Salesforce and SAS (having Customer Intelligence software product) is correct then capturing big fishes from American market is not at all easy task for Intense, However the licensing cost for these software is remarkably high, which can give a upper hand to Intense (assuming that their cost is lesser).

  1. Entry barriers : As far as my understanding is concerned, there are no/very less entry barriers for other companies to enter this market.
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@pratik_surana There are two school of thoughts on innovation. One says that No big companies( with lot of bureaucracy ) can do innovation due to structural issues. Another says that innovation can happen on small organisation ( which are more adhoc) but they can’t scale. It is upto you to decide on which school you belong too. I believe that innovation can happen in small organisation faster, if innovation is good and has huge scale of opportunity, biggies can takeover company and reap benefit of big opportunity. Is the current market of Intense, big enough for biggies to put their hands on. May be , may not be. I don’t see threat from biggies,but I do see threat coming from many small startups, which is mushrooming in this space.
What intense is doing today is customer on-boarding, billing and revenue guidance for customer etc for telecom, insurance and bank domain. Which is very small pie for biggies. Intense may be doing lot of customization for its customers ,which big guys will not do. Cost for intense is also less for sure .
Real trigger will be getting biggies in insurance, since telecom has no pricing power. They got one USA client as per their disclosure.

Disclosure:- I hold this stock all three PF that I handle, I have not bought/sold any shares in last couple of months.

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Hi,

Intense technology declared result yesterday and nos are spectacular.Sales from to 1.9 Cr vs 1.2 Cr ,QoQ
Intense Quarterly Results.pdf (690.6 KB)

Net Profit Ts 6 Cr Vs 1.3 Cr
EPS 2.72 Vs 0.58 .

As mentioned by @thestocklady , originator of this thread " time has actually come for Intense tech "
It would be interesting to see the growth in coming qtrs.

Regards,

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As the originator of this thread, I am happy that thanks to this forum now most people are atleast aware of this company.

The numbers were fantastic, and help validate my thesis on the stock.

Apart from the fantastic numbers, what gets me excited is the highly optimistic commentary by the management

http://corporates.bseindia.com/xml-data/corpfiling/AttachLive/16B1D36A_42C2_40D5_81E9_586F95CCDCD9_112917.pdf

Coming from an ultra conservative management, these comments assure me that the best days of the company are ahead of us.

Disclosure : Have increased my holding by 30% since the thread was initiated. Will look to buy more as the 80cr revenue envisaged by me looks more realistic after q2.

mcap when posted : 197 cr

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