Intellect Design Arena, the demerged BFSI focused product company from Polaris, lists at Rs 69.25 per share today
Intellect Design Arena, the demerged BFSI focused product company from Polaris, listed on the stock exchanges today. The stock was trading almost 5 percent higher after listing at Rs 69.25 per share.
Arun Jain, CMD, Intellect Design Arena, expects a 20 percent growth in the company in coming years. The growth has been hit by lower sales investments in the last 3 years, he said.
In an interview to CNBC-TV18, Jain said that 47 percent revenue of the company comes from developed markets and that products are accepted by more than 20 clients. The company has been able to increase its sales investments to 27 percent from 17-18 percent of revenue and plans to increase it by USD 10 million every year, Jain said, adding that he expects gross margins to improve to 60 percent in 3 years.
Below is the transcript of Arun Jain's interview with Sumaira Abidi & Reema Tendulkar on CNBC-TV18.
Sumaira: Intellect Design Arena’s listing another milestone has been achieved by you. Could you first walk us through the growth potential of the business, what is the expected sales growth and for how many more quarters will you be making losses?
A: I don’t want to shirk away your question that what is the next six months guidance but I am saying that guidance we have already given that 20 percent growth year-on-year (YoY) we can expect in coming years using this business model. We were under investing this business model before demerger. We started having the investment decisions sometime taken in April and first nine months we are seeing the result of those investments where we start putting the right numbers.
The beauty of our model is 47 percent of our revenue comes from developed markets. In Europe and America my products is accepted by more than 20 clients, including Central Bank of Sweden, Bank of Montreal in Canada, many US customers and almost all the High Street banks are using Intellect. So, this is a big success for the product and that gives the confidence for us that 20 percent growth can come in because my revenues for each one of them is substantially higher.
Reema: You spoke about investments and you have been maintaining that the product business requires a lot of investment. So, what are the kind of investments the company is making and how does it compare with what you were earlier investing?
A: My growth last three years didn’t happen because my sales investment was 17-18 percent of my revenue model and that is not an optimal investment for product business. As soon as we cross the hump of 27 percent of my investment coming in sales and marketing we will be able to hire high quality talent which is published in information memorandum.
We have a Head of Europe, sales is coming from a competition, a Head of America coming from one of the business head of my customer. I think those kind of profiles we couldn’t higher earlier and we should have hired. If I go hindsight I should have taken decision at least 18 months before than what we took the decision right now.
My investment on sales will go up USD 10 million, YoY I will be increasing the sales and my gross margin I will be increasing from 50 percent level to 60 percent level in next three years. So, these are the two metrics which I will be monitoring as I go along and then rest of it can be translated into margin and if you are lucky we may get EBITDA margin also somewhat earlier because in product business there could be single deal where like in 2011 we booked USD 7 million license revenue in one quarter. So, those kind of up and down can happen but I don’t want to build up an investor metric just based on that. They have to look at five year agenda what we are trying to drive in this company.
Sumaira: Also your company is sitting on cash of about Rs 300 crore. Will the cash levels keep depleting as the company ups its sales investments? What is the cash utilisation policy?
A: It will not be coming down Rs 60 crore. I think we will be making it 20 percent growth is happening then 20 percent growth will bring at least USD 25 million new business every year and USD 10 million is only incremental cost and at 50 percent margin level you start generating some cash into the system. So, if you do a math on it, it will be cash in the rs 300 crore is a good cash for us to sustain for next three years and making the company positive going forward.
Reema: How are you planning to utilise this, we come back to our earlier question?
A: We are going to invest in Design Center in America where we have Interactive Guidance and Control Lab (IGCL) in America. So, just to explain the investor we have full spectrum banking, first of its kind in the world where we have consumer banking, capital market and corporate banking under one umbrella. Nobody else has in the world this larger suit which is there.
This enables my index to go higher and it is build on a common technology called IGCL Technology. This is where I am bringing a huge amount of differentiation and bringing a confidence and my investment will be to take my digital labs from India which I have 30,000 square feet of IGCL Lab in Chennai, 20,000 IGCL Lab in Goregaon, I want to have 50,000 square feet of lab in America where I can bring the customer and take them to the experience of full spectrum banking.
Sumaira: What is the investment that is required for these labs?
A: Chennai lab we spent USD 10 million last year in March when we inaugurated it. Mumbai lab we will be spending something like USD 6 million and US lab we are taking the whole building; that may cost somewhat higher but we are keeping a budget of USD 15-20 million for IGCL lab in America.
Reema: What have been the recent deal wins and how does the deal pipeline look right now compared to what it was one year ago?
A: If I look at the pipeline between last year and this year, last year pipeline at this point in time would be close to USD 250 million. This year the pipeline is close to USD 400 million across the four businesses. So, that is the pipeline.
The other things is quality of pipeline, the deals which are more than USD 5 million deals we have almost 10 deals which are more than USD 5 million deals which we are bidding for versus earlier more than USD 5 million deals for only two or three which we were bidding at any point of time. So, these are the few qualitative indexes of pipeline.