Intellect Design Arena Ltd. share price target

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Improving deal wins in IGCB, IGTB and iSEEC, increased penetration in the US & Europe market, digital-ready product portfolio, healthy pipeline, huge addressable & underpenetrated market and improved annuity revenues bode well for revenue growth. In addition, healthy margins prompt us to revise our EPS estimates upwards by ~10% and ~13% for FY22E & FY23E, respectively. This, coupled with improving cash flows, prompts us to upgrade the stock from HOLD to BUY with a revised target price of | 875 (6x...

The company registered healthy revenues in Q3FY21. Intellect also won six large deals in the quarter representing improving revenue visibility in coming quarters. In addition, the company has a healthy order backlog of | 1203 crore, a strong deal funnel (~| 4162 core) and a digital-ready product portfolio that provides confidence on improved revenue trajectory in coming years. This, coupled with penetration in the US market, traction in iGCB (retail banking focused software product) revenues, improving quality of revenues (licence + AMC as percentage of revenues has increased from...

Intellect Design (INDA) reported 7.6% YoY growth in its revenues to $50.1mn ahead of DE at $49mn and significant turnaround on EBIT margins at 19% (up 400bps QoQ, was loss making in YoY period) in Q2FY21, beating our expectations. Commentary remains confident on sustaining revenue traction in the near future, given its strong deal win momentum (6 digital wins & 4 large deal wins), order book traction (up 8.5% YoY to Rs11.9bn), large funnel (pursuit $540mn) and strong recurring revenues (up 25% on TTM basis)...

The company has historically seen higher debtor days that has led to high working capital requirement and even equity dilution. However, Intellect has now modified its incentive structure to improve collections. The same is visible in Q1FY21 results (debtor days is down to 126 days from 150 days). Lower working capital requirement, improving margins may boost operating...

Intellect's growth engine has witnessed slowdown due to delay in decision making (Brexit), deferral of large deals, accelerated shift to cloud (iGCB and iGTB) and absence of licence component in cloud wins. Shift to cloud model will impact near term growth but building of annuity SaaS revenue will improve predictability and profitability. Cost control measures have been satisfactory and margins will recover with growth. The deal funnel stands at healthy USD 524mn with 134 opportunities. We maintain our positive stance based on (1) Huge addressable market opportunity (2) Highly-rated and digital-ready product portfolio, (3) Healthy funnel, and (4) Focus on large deal wins. We estimate USD revenue growth of 1.5/16.0% for FY20/21E. Risk to our thesis includes prolonged delay in decision making and US/UK slowdown. We maintain BUY on Intellect despite a weak 2QFY20. Deferral of few large deals and accelerated shift to cloud has impacted growth. Large deal funnel remains healthy but decision making is taking longer than expected. 2H will witness growth and margin recovery but we cut our FY20/21E revenue est. by 6.6/6.7% to factor in weak 1H and delay in deal conversion. We have a TP of Rs 288, assigning 2.0x EV/rev multiple to Sep 21E revenue.

Intellect's investment in sales engine coupled with discipline in deal and geography selection has resulted in improved win ratio. The existing investments are sufficient to deliver growth of 20% and no further dilution is required. The deal funnel stands at healthy USD 515mn with 133 opportunities. Cloud partnerships with global cloud leaders will help scale SaaS revenue, which is of annuity nature and higher margin. We maintain our positive stance based on (1) Huge addressable market opportunity (2) Highly-rated and digital-ready product portfolio, (3) Healthy order book, and (4) Focus on large deal wins. We estimate USD revenue growth of 10.3/17.0% for FY20/21E. Risk to our thesis includes slowdown in deal wins, increase in R&D and SG&A investments, and global slowdown. We maintain BUY on Intellect despite weak 1QFY20. Growth will recover based on strong order backlog (+20% YoY) and healthy funnel comprising of large deals (41 deals of size >USD 5mn). Deal sizes are increasing with increased product acceptance. We have a TP of Rs 300, assigning 2.0x EV/rev multiple to June 21E revenue.

Intellect's investment in sales effort and R&D is yielding results. Deal wins have been robust led by higher acceptance of Intellect products (iGTB and IDC). The company won 12 large transformational deals in FY19. The deal funnel stands at healthy USD 508mn with 122 opportunities. Cloud partnerships with global cloud leaders will help scale SaaS revenue, which is of annuity nature and higher margin. We maintain our positive stance based on (1) Huge addressable market opportunity (2) Highly-rated and digital-ready product portfolio, (3) Healthy order book, and (4) Traction in large deal wins (iGTB). We estimate USD revenue growth of 15.8/16.2% for FY20/21E. Risk to our thesis includes slowdown in deal wins, increase in R&D and SG&A investments, and global slowdown. We maintain BUY on Intellect on inline 4QFY19. The order backlog remains impressive (+38% YoY), large deal wins in advanced market is reflecting product acceptance. Our TP is Rs 313, assigning 2.0x EV/rev multiple to FY21E rev.

Maintain BUY with a TP of Rs 300, assigning EV/revenue multiple of 2.0x on Dec-20E revenue. Intellect Design Arena (INDA) posted muted quarter both on the revenue and margin front. Revenue stood at USD 52.4mn (vs our est. of USD 53.7mn), down 3.4% QoQ and 2.8% CC. Revenue fall was led by lower licence revenue (-25% QoQ, higher base effect). Order backlog remains healthy at Rs 13.88bn (+11% QoQ), which provides growth visibility.

Maintain BUY with a TP of Rs 300, based on 2.2x FY20E EV/revenue multiple. Intellect Design Arena (INDA) posted strong numbers both on the revenue and margin front. Revenue stood at USD 54.3mn (vs our est. of USD 48mn), up 21.7% QoQ and 30% YoY. Revenue out-performance was due to large deal wins leading to strong Licence growth (+137% QoQ). Order backlog remains healthy at Rs 12.50bn (+5.0% QoQ), which provides growth visibility.

Maintain BUY with a TP of Rs 285, based on 2.2x FY20E EV/rev multiple. Intellect Design Arena (INDA) posted weak numbers both on the revenue and margin front. Revenue stood at USD 44.6mn (lower than our est. of USD 47.4mn), down 6.5% QoQ but up 19.2% YoY. Revenue miss was due to shift of two large deal closures to next quarter with licence component of USD 2.6mn. Strong order backlog growth of 14.4% QoQ to Rs 11.90bn (excluding GeM project) provides revenue visibility.

Maintain BUY with a TP of Rs 275, based on 2.2x FY20E EV/rev multiple (2.0x earlier). Intellect Design Arena (INDA) posted robust 4QFY18 both on the revenue and margin front. Revenue stood at USD 47.7mn (higher than our est. of USD 43.6mn), up 14.1% QoQ and 27.6% YoY. Growth was driven by higher license component (+42.3% YoY). The company has a strong order backlog of Rs 10.40bn (excluding GeM project) which is ~79% of FY19E revenue.

Maintain BUY with a TP of Rs 230, based on 2.0x Dec-19 EV/rev multiple (~75% discount to Temenos multiple). Intellect Design Arena (INDA) posted flat revenue and stable margin performance. Revenue stood at USD 41.8mn (in-line with our est. of USD 41.7mn), up 0.2% QoQ and 24.6% YoY. Growth was flat this quarter due to high licence component present last quarter. The company has a strong order backlog of Rs 9.51bn (excluding GeM project) which is ~77% of FY19E revenue. Adjusting for one time SG&A; expenses of Rs 50mn, EBITDA margin stood at 7.8% (-34bps QoQ). There is non-linearity in the business and margins will expand with growth in licence revenue.

Maintain BUY with a TP of Rs 190, based on 2.0x Sep-19 EV/rev multiple (~70% discount to Temenos multiple). Intellect Design Arena (INDA) posted robust top-line growth in 2QFY18, with margins expanding for the third consecutive quarter. Revenue stood at USD 41.8mn (vs our est. of USD 38mn), up 11.6% QoQ and 21.0% YoY. This was led by 16 go-lives and contribution of new deal wins (Bangkok Bank, LIC and Utkarsh). EBITDA margin stood at 8.1%, +144bps QoQ, led by revenue growth, stable SG&A; and higher margin licence revenue.

Maintain BUY with TP of Rs 180, based on 2.0x FY19 EV/rev multiple (~75% discount to Temenos multiple). Intellect Design Arena (INDA) posted muted top-line growth in 1QFY18, but efficient cost management in the last two quarters provided some relief to the cash burn. USD revenue stood at USD 37.4mn (vs our estimate of USD 38mn), up 0.1% QoQ and 21.7% YoY. This cannot be termed as bad, considering 1Q is a seasonally weak quarter and 4Qs base was high. EBITDA margin stood at 6.7%, +44bps QoQ, (second quarter of positive EBITDA), led by lower SG&A; and R&D; expenses. Investment in the business has almost reached the threshold, and revenue growth will lead to margin expansion.

Intellect Design Arena (INDA) posted strong Q4 numbers, with a 11.3% QoQ jump ( 11.9% CC) in USD revenues (USD 37.4mn vs est of USD 35.0mn). The growth in revenue was owing to deal wins, higher licence fees and 16 go-lives in the quarter.

Intellect Design Arena (INDA) disappointed this quarter with a 2.7% QoQ (-2.4% CC) drop in US$ revenues (US$ 33.6mn vs est of US$ 37.0mn) and poor cost management. The dip in revenues was largely due to the deferral of two large deals, as banks in the US and Europe are largely keeping their spends on hold. Despite amplified pre-sales efforts, the sales cycle is taking longer to fructify.

Topline Below Expectation EBITDA Negative_Hold

Intellect posted a strong quarter with 12.2% QoQ ( 14.7% CC) US$ revenue growth (US$ 34.5mn vs est of US$ 33.0mn), but cost management has been disappointing. Management also lowered the growth guidance to 16-22% from 22-26% earlier, citing delay in decision making and deferral of deals.

We attended Intellect Design Arena Analyst Meet Intellexpo 2016 and maintain our positive outlook on the company.We maintain our BUY rating with a TP of Rs 275