Aiming for 22-26% revenue growth in FY16: Intellect Design

Intellect Design Arena’s June quarter earnings were boosted by revenue spillover of USD 2.5 million from preceding quarter, the company’s Chairman and Managing Director, Arun Jain told CNBC-TV18. The company’s dollar revenue grew to USD 30 million. Net income stood at Rs 192.92 crore. Jain said selling and marketing expenses (S&M) have grown at the same pace as sales. Going forward, the company is aiming for 22-26 percent annual revenue growth. The Rs 211 crore cash in the books will be utilised as working capital, he said. Below is the transcript of Arun Jain's interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18. Sonia: The dollar revenues have improved sharply to more than USD 30 million after being in the range of USD 24-26 million in the last four quarters. Can you tell us what would the key drivers for the topline growth this time? A: Because the traction is there in all the four businesses sustainable, we are guiding that 22-26 percent growth is there in this year which is possible and we expect it to grow better. Latha: Did you get the benefit of that USD 2.5 million spillover? A: That is right. USD 2.5 million in the last quarter, which spilled over contributed. Otherwise it would have been more straight growth of 10-15 percent quarter-on-quarter (Q-o-Q). Now, it becomes 20 percent growth Q-o-Q. That is where it has helped this quarter to be sharply better than last quarter.

Latha: You have guided to turn profitable in Q4 FY16 and you seem to be on track to achieve that considering how EBITDA losses have narrowed sequentially. In FY17 when the company is profitable, what will be the kind of margins you can achieve? A: I would like to guide investors specifically on two elements of product companies because there is not too much of a role modeling product company out of India. We did something about the service industry. We are still in a very early stage of margin building.

I think the focus is market leadership than margin building for the next three years. What I want to say is that at this juncture - my operating margin metrics is most important, which investors must track. I am able to maintain more than 50 percent operating metrics. It improved by 300 bps in last quarter to this quarter where my operating margins used to be 48.5 percent or 51 percent level. That is where you should put your eye on, rest of the things are constant.

We will keep the research and development (R&D) cost within USD 20 million for next three years. It may shift by 10 percent but not more than 10 percent on R&D cost, sales and marketing cost is directly proportional to how much growth we aspire for if we want to sustain the growth of 25-30 percent year-on-year (Y-o-Y) that number shifts. I would advise investors to study a lot of product companies out of US where sales and marketing cost can go up to 35 percent even at the USD 2 billion mark and they don’t focus on total profit after tax (PAT) margin over here.

The market share and market leadership which defines because whatever market share we are gaining, it is gaining for next 20 years because replacement cost for any technology, for any bank is substantially difficult to do it.