Know Your Stock | Intellect Design Arena gains 16% in 3 weeks. What’s behind the rally?

EBITDA margin rose 320 basis points to 19.2 percent, compared to the preceding quarter.

The consolidated net profit for the quarter jumped 35 percent to Rs 62 crore, compared to Rs 46 crore reported in the September 2022 quarter.

The company earns a large part of its revenues by licensing its products. This includes money earned from letting customers use their products for on-premise use, as well as income earned from licensing their products to be used on a cloud platform.

Subscription, cloud service revenues

IDA also earns money from subscriptions for products offered through the cloud, and from setting up and hosting those cloud services. Another major part of the revenue is AMC (Annual Maintenance Contract), which is the income earned for providing on-going support, updates etc., to the customers.

In the December quarter, platform revenues increased 25 percent YoY to Rs 111 crore (‐6.7% QoQ), while licence revenues recovered sequentially. They declined 36 percent YoY at Rs 72 crore (+5.9% QoQ).

AMC revenues were strong at Rs 98 crore, growing at 19 percent YoY (+8.9% QoQ). Deal pipeline grew 45 percent YoY to Rs 7,031 crore (+5% QoQ). It also reported six deal wins over Q3FY23.

The company expects EBITDA margins to improve as the contribution from license/SaaS deals increases. The company also mentioned continued investment in Research and Experimentation (R&E) to further add platform capabilities to its existing products. R&E expenses were up 40 percent YoY at Rs 44 crore.

Not everyone is bullish on the company’s prospects in the near term though. “Given the slower-than-expected growth, we revise our revenue forecasts for FY23/24E by ‐3 percent/‐5 percent,” says a note by Centrum Research.

“We  further  revise  EBITDA  margins  by  +50/‐90  bps  due  to  lower  growth  in licenses/SaaS business. We note that Intellect’s products continue to be ranked highly among industry benchmark rankings and we continue to be positive on the long‐term growth story in the company’s banking products despite near term challenges. We retain ADD at Rs 493.”

Collaboration with AWS

The company’s collaboration with AWS is expected to accelerate Intellect’s Go-To-Market strategy around co-build, co-market, and co-sell for IntellectAI, which is Intellect’s insurance and wealth segment, with artificial intelligence products designed for commercial underwriting, wealth and capital markets.

According to Sandeep Haridas, chief strategy officer, IntellectAI:  "Amazon Web Service's ecosystem of partners, as well as a comprehensive and broadly available cloud platform, will allow us to offer so much more in terms of capabilities, strategy and technology to our customers who use our suite of underwriting products. With the new collaboration, Intellect and AWS will work jointly and provide commercial carriers new ways to improve efficiency, automation and realise greater RoI in their technology initiatives."

The company also recently discussed its increasing growth potential in the Philippines, which may have aided in maintaining the stock momentum.

In a recent interview to Business Inquirer, Rajesh Saxena, CEO of the global consumer banking at Intellect Design, said the Philippines was an attractive market to them over the short-to-medium term. He mentioned the need to digitise and innovate services for better customer acquisition and service, stiff competition and cost cutting, are some of the challenges Philippine-based banks are facing today.

At  1.10 pm on February 22, the stock was trading at Rs 467.60, up 0.47 percent, on the National Stock Exchange.