Company Profile
Incorporated in 2011, Intellect Design Arena is engaged in the business of software
development and delivers financial technology products for the BFSI (banking, financial
services and insurance) domain. Intellect Design Arena has a comprehensive portfolio
of products across Global consumer banking (product name: iGCB), central banking,
Risk & treasury management (product name: iRTB), Global transaction banking
(product name: iGTB) and Insurance (product name: SEEC). The company is headquartered
in Chennai and has a global presence across the world and it serves 240+ clients
spread across 91 countries. The company has its major focus on advanced markets
like Americas, Japan, Australia, Singapore, Europe, whereby 58% of revenue mix is
generated from developed markets.
Established player in software product development within BFSI domain
The company has established itself in the BFSI products business globally by beginning
the Intellect suite of software products in 2004, while being a part of Polaris
Consulting Services Ltd. Intellect Global Transaction Banking (iGTB), the transaction
banking specialist is ranked #1 in the world for Transaction Banking by IBS Intelligence.
The company has 14 products across various sub-segments of BFSI such as corporate
banking, retail banking, treasury and capital markets, and insurance. The company’s
products have been well recognised and rated by various leading institutions and
has been conducive in winning top notch digital transformation deals against global
competition. Further the company has robust relationship with large international
banks by providing critical information technology (IT) products to their business
centres across the globe.
Diversified product profile aids in de-risking the portfolio
The company has diversified product offerings across the sub-segments of the BFSI
vertical. Its suite in transactional banking for corporate banking product constitutes
major chunk of revenue mix and is noticing incremental traction in other products
majorly due to digital centric service oriented architecture and focused solution
that service specific customer needs. The company is emerging as the leader in this
category and now boasts of over 90 clients. Further the company has multiple revenue
streams and models which enables its earning potential to be well diversified, de-risked
and sharpened to take advantage of every form of market opportunity and trend. This
in turn, will ensure both an assured and repeated revenue stream, as well as growth,
driven by logo acquisitions, entry to new markets and replication of their success
with the top customers. The company’s repeat revenue from existing customers
stood at 85%. The company has seen steady growth in license linked revenue which
constitutes cloud/SaaS, AMC and license revenue.
Healthy demand prospects for product companies in BFSI segment
BFSI is the largest vertical, contributing to more than 50% of revenue within IT
services and solutions. On an average, banks and financial institutions spend about
7-8% of revenue on IT, which is the highest among all verticals. We believe BFSI
segment shall continue to remain the biggest technology spender, taking into consideration
its dynamic nature and high regulatory requirements in the industry. Hence, revenue
prospects for software firms in BFSI is expected to remain healthy, driven by continuing
high spending, increasing adoption of digital technologies, and expected increase
in penetration. Further the company has created multiple IPs across banking functions
and has been creating its brand across these lines of businesses.
Continuous deal wins to provide impetus to growth
In Q3FY21, the company has won 10 deals, of which 6 were large deals. The company
has won a mega destiny deal (iGCB) from OTTO GmbH (largest e-commerce operator in
Germany) enabling entry into Germany market. Further iGCB also entered North America
(Canada) and won its first cloud subscription deal with a mid-tier bank, the deal
was won against strong international and local competitors. Further the company
closed a multi- million-dollar upgrade deal for the most innovative and fastest
growing bank in Africa for their Core Banking, Lending & Cards transformation
and Insurance (SEEC) also added its tenth customer (from Australia). Recently one
of the largest banks in Vietnam (Vietcom Bank) has done strategic partnership with
iGTB by deploying digital transaction banking enterprise suite (DTB). This Enterprise
Suite delivers superior channel experience to grow the bank’s corporate customer
base, create customer stickiness with the ability to quickly respond to customer
changes, in-built configurable product setup for faster responsiveness as the market
evolves.
Focus on sales incentives strategy to promote large deal wins
The company has aggressively invested in sales and marketing from past 5 years and
its major aim is to have strong front-end team. Further the company has invested
approx. $300 million to propel its market presence and improve its brand awareness.
Currently, the company’s sales team structure constitutes i) regional sales
personnel for smaller markets ii) direct sales personnel for advanced markets iii)
client partner approach for large customer’s iv) system integrator model.
The company’s sales incentives strategy is linked to overall TCV, with higher
inclination to licensed linked revenue deals.
Unique client acquisition strategy has aided in increasing order book
The company understands the BFSI domain thoroughly and has done significant investments
in terms of participating in industry events such as SIBOS and also developing leadership
program in transaction banking. The company’s new products have been successful
as it understands client’s requirements and it does positioning considering
competitive landscape, strength/ weakness of peer product and Bank tiers.
We believe the company is well placed to capitalize on incremental growth opportunities given its upgraded and matured product suites in BFSI domain, strong order book execution capabilities and continuous deal wins. Further we expect the company to deliver robust growth supported by domain specialization and long standing client relationship. The stock is currently trading at PE of 16.7x FY23E EPS and we initiate our coverage on Intellect Design Arena Ltd with a Buy Rating.
Yr End March (Rs Cr) | 2018 | 2019 | 2020 | 2021E | 2022E | 2023E |
---|---|---|---|---|---|---|
Net Sales | 1087.00 | 1450.00 | 1347.00 | 1492.00 | 1716.00 | 2017.00 |
Growth % | 19.00% | 33.00% | -7.00% | 11.00% | 15.00% | 18.00% |
Employee Cost | 767.00 | 839.00 | 812.00 | 820.00 | 886.00 | 982.00 |
Other Expenses | 245.00 | 479.00 | 459.00 | 325.00 | 378.00 | 464.00 |
EBITDA | 75.00 | 132.00 | 75.00 | 347.00 | 452.00 | 571.00 |
Growth % | -421.00% | 76.00% | -43.00% | 360.00% | 30.00% | 26.00% |
EBITDA Margin | 7.00% | 9.00% | 6.00% | 23.00% | 26.00% | 28.00% |
Depreciation & Amortization | 27.00 | 42.00 | 69.00 | 76.00 | 93.00 | 110.00 |
EBIT | 49.00 | 91.00 | 7.00 | 271.00 | 359.00 | 461.00 |
EBIT Margin % | 4.00% | 6.00% | 0.00% | 18.00% | 21.00% | 23.00% |
Other Income | 27.00 | 63.00 | 26.00 | 20.00 | 18.00 | 16.00 |
Interest & Finance Charges | 17.00 | 16.00 | 22.00 | 15.00 | 13.00 | 12.00 |
Profit Before Tax - Before Exceptional | 59.00 | 137.00 | 11.00 | 276.00 | 364.00 | 465.00 |
Profit Before Tax | 59.00 | 137.00 | 17.00 | 276.00 | 364.00 | 465.00 |
Tax Expense | 7.00 | 9.00 | 5.00 | 23.00 | 47.00 | 70.00 |
Effective Tax rate | 12.00% | 7.00% | 46.00% | 9.00% | 13.00% | 15.00% |
Exceptional Items | 0.00 | 0.00 | 6.00 | 0.00 | 0.00 | 0.00 |
Net Profit | 52.00 | 128.00 | 11.00 | 253.00 | 317.00 | 395.00 |
Growth % | -278.00% | 148.00% | -91.00% | 2108.00% | 26.00% | 25.00% |
Net Profit Margin | 5.00% | 9.00% | 1.00% | 17.00% | 18.00% | 20.00% |
Consolidated Net Profit | 47.00 | 131.00 | 16.00 | 253.00 | 317.00 | 395.00 |
Growth % | -309.00% | 181.00% | -88.00% | 1479.00% | 26.00% | 25.00% |
Net Profit Margin after MI | 4.00% | 9.00% | 1.00% | 17.00% | 18.00% | 20.00% |
Yr End March (Rs Cr) | 2018 | 2019 | 2020 | 2021E | 2022E | 2023E |
---|---|---|---|---|---|---|
Share Capital | 63.00 | 66.00 | 66.00 | 66.00 | 66.00 | 66.00 |
Total Reserves | 710.00 | 927.00 | 936.00 | 1189.00 | 1506.00 | 1901.00 |
Shareholders' Funds | 812.00 | 1029.00 | 1057.00 | 1310.00 | 1627.00 | 2022.00 |
Minority Interest | 10.00 | 9.00 | 12.00 | 12.00 | 12.00 | 12.00 |
Non Current Liabilities | ||||||
Long Term Burrowing | 90.00 | 64.00 | 35.00 | 35.00 | 35.00 | 35.00 |
Deferred Tax Assets / Liabilities | -15.00 | -44.00 | -44.00 | -44.00 | -44.00 | -44.00 |
Current Liabilities | ||||||
Short Term Borrowings | 38.00 | 37.00 | 186.00 | 146.00 | 106.00 | 76.00 |
Trade Payables | 117.00 | 166.00 | 208.00 | 194.00 | 198.00 | 205.00 |
Other Current Liabilities | 272.00 | 290.00 | 293.00 | 257.00 | 257.00 | 257.00 |
Short Term Provisions | 32.00 | 43.00 | 44.00 | 44.00 | 44.00 | 44.00 |
Total Equity & Liabilities | 1346.00 | 1587.00 | 1825.00 | 1989.00 | 2270.00 | 2642.00 |
Assets | ||||||
Net Block | 466.00 | 557.00 | 675.00 | 739.00 | 791.00 | 831.00 |
Non Current Investments | 49.00 | 52.00 | 60.00 | 60.00 | 60.00 | 60.00 |
Long Term Loans & Advances | 102.00 | 95.00 | 76.00 | 76.00 | 76.00 | 76.00 |
Current Assets | ||||||
Currents Investments | 21.00 | 16.00 | 17.00 | 17.00 | 17.00 | 17.00 |
Sundry Debtors | 241.00 | 203.00 | 285.00 | 257.00 | 290.00 | 338.00 |
Cash and Bank | 140.00 | 82.00 | 106.00 | 228.00 | 423.00 | 707.00 |
Short Term Loans and Advances | 21.00 | 32.00 | 39.00 | 39.00 | 39.00 | 39.00 |
Total Assets | 1346.00 | 1587.00 | 1825.00 | 1989.00 | 2270.00 | 2642.00 |
Yr End March (Rs Cr) | 2018 | 2019 | 2020 | 2021E | 2022E | 2023E |
---|---|---|---|---|---|---|
Profit After Tax | 52.00 | 128.00 | 11.00 | 253.00 | 317.00 | 395.00 |
Depreciation | 27.00 | 42.00 | 69.00 | 76.00 | 93.00 | 110.00 |
Others | 0.00 | -266.00 | -40.00 | 0.00 | 0.00 | 0.00 |
Changes in Working Capital | -19.00 | -178.00 | -80.00 | 15.00 | -30.00 | -41.00 |
Cash From Operating Activities | 49.00 | -50.00 | 44.00 | 343.00 | 380.00 | 465.00 |
Purchase of Fixed Assets | -128.00 | -130.00 | -135.00 | -140.00 | -145.00 | -150.00 |
Free Cash Flows | -79.00 | -180.00 | -91.00 | 203.00 | 235.00 | 315.00 |
Others | -39.00 | 80.00 | 24.00 | 0.00 | 0.00 | 0.00 |
Cash Flow from Investing Activities | -149.00 | 1.00 | -100.00 | -140.00 | -145.00 | -150.00 |
Increase / (Decrease) in Loan Funds | -43.00 | -32.00 | 105.00 | -75.00 | -40.00 | -30.00 |
Equity Dividend Paid | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
Others | 186.00 | 95.00 | -25.00 | 0.00 | 0.00 | 0.00 |
Cash from Financing Activities | 143.00 | 63.00 | 80.00 | -75.00 | -40.00 | -30.00 |
Net Cash Inflow / Outflow | 42.00 | 14.00 | 24.00 | 128.00 | 195.00 | 285.00 |
Opening Cash & Cash Equivalents | 23.00 | 61.00 | 75.00 | 100.00 | 228.00 | 423.00 |
Closing Cash & Cash Equivalent | 61.00 | 75.00 | 100.00 | 228.00 | 423.00 | 707.00 |
Yr End March | 2018 | 2019 | 2020 | 2021E | 2022E | 2023E |
---|---|---|---|---|---|---|
Basic EPS | 4.00 | 10.00 | 1.00 | 19.00 | 24.00 | 30.00 |
Diluted EPS | 4.00 | 10.00 | 1.00 | 19.00 | 24.00 | 30.00 |
Cash EPS (Rs) | 6.00 | 13.00 | 6.00 | 25.00 | 31.00 | 38.00 |
Book value (Rs/share) | 62.00 | 76.00 | 77.00 | 98.00 | 122.00 | 152.00 |
ROCE (%) Post Tax | 7.00% | 14.00% | 1.00% | 19.00% | 20.00% | 21.00% |
ROE (%) | 6.00% | 13.00% | 2.00% | 19.00% | 19.00% | 22.00% |
Receivable Days | 75.00 | 56.00 | 66.00 | 66.00 | 58.00 | 57.00 |
Payable Days | 36.00 | 36.00 | 51.00 | 49.00 | 42.00 | 36.00 |
PE | 44.40 | 20.40 | 45.00 | 26.10 | 20.80 | 16.70 |
P/BV | 2.70 | 2.70 | 0.70 | 5.00 | 4.10 | 3.30 |
EV/EBITDA | 28.60 | 21.10 | 11.70 | 18.90 | 14.00 | 10.50 |
Dividend Yield (%) | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 | 0.00 |
P/Sales | 2.00 | 1.90 | 0.60 | 4.40 | 3.80 | 3.30 |
Net debt/Equity | 0.00 | 0.00 | 0.10 | 0.00 | 0.00 | 0.00 |
Net Debt/ EBITDA | 0.00 | 0.30 | 1.80 | -0.10 | -0.60 | -1.10 |
Sales/Net FA (x) | 2.50 | 2.80 | 2.20 | 2.10 | 2.20 | 2.50 |