Crorepati maker! After 1,400% rally in Covid year, this stock is still gung ho

NEW DELHI: Intellect Design Arena has had a dream run on Dalal Street during the Covid year, notching up a staggering 1,371 per cent return over its 52-week-low price hit on March 25, 2020. That means, a Rs 6.8 lakh investment made in the stock on March 25, 2020 would have become Rs 1 crore today!

And the latest bout of depression in the market has failed to stall its continuous rise.

In a telephonic interview with ETMarkets.com, Intellect's Chairman and Managing Director Arun Jain said his company is eyeing double-digit revenue growth and over 30 per cent margin growth in FY22. He sounded optimistic about deal wins and is hoping to generate Rs 20-100 crore business from the newly-launched 'Magic Aadhaar' over the next 2-3 years.


Analysts tracking the company appreciated its BFSI and technology capabilities, but said the stock might already be priced to perfection after the recent rally.

Background
Intellect split from Polaris in FY15 and has since been operating as an independent product company. It builds software for the entire banking domain including corporate banks, NBFCs, central banks, retail banks, wealth managers and insurance companies. The company has 60 per cent of its product portfolio based on licensing and 40 per cent on cloud. It generates 57 per cent of its revenue from advanced economies and competes with established large product-companies like FiServ and Temenos. The company has operations in Europe, West Asia and Asia Pacific, and is looking to partner with large systems integrators like IBM to build significant operations in the US market by FY23.

What does the management say
Jain said unlike IT services firms, technology companies, like his, have an inverse financial matrix, wherein one first invests and then reaps the benefits. Jain said his company invested Rs 1,700 crore on sales and marketing over the past five years and about Rs 1,200 crore on research & development.

“After investing Rs 2,900 crore, our projection in October 2019 was that we would be commanding an Ebit margin of 20 per cent in the June quarter. We delivered on that. Ours is a product business, where R&D is the most critical piece. We have cracked that. The adoption of our products has been encouraging, even German financial institutions and French clients using them now,” Jain said.

Jain said his company has received 15-20 direct calls on its website for the newly-built 'Magic Aadhaar' and the sales team has built a pipeline of 30-40 customers, whom it plans to pursue.

“The beauty of this product is that we had to spend only a few hundred thousand dollars, as it is based on the same platform that we had built in the US. Revenue from this product over the next three years could be Rs 20-100 crore, but the margin would be healthy,” Jain said.

Jain is expecting revenue share from advanced markets to jump to 60 per cent going forward from 57 per cent at present.

FY21 performance, shareholding
The company reported an 11 per cent rise in revenue at Rs 1,104.60 crore for the nine months ended December 31, compared with Rs 991.20 crore reported for the comparable period last year. Licence revenues during the period rose 70 per cent YoY to Rs 250 crore from Rs 147 crore. Cloud revenues jumped 38 per cent YoY to Rs 115.20 crore while AMC revenues grew 20 per cent YoY to Rs 223.40 crore. Net profit for the period stood at Rs 182.20 crore compared with a Rs 25 crore loss reported for the year-ago period.

Intellect Design is a darling for the FPIs, who own a 24.12 per cent stake in the company, and that includes a 7.53 per cent stake held by Akash Prakash's Amansa Holdings.

The company also had seasoned investor Mukul Agrawal holding over 1.8 per cent as of December 31. Promoter stake in the company stands at 31.3 per cent. This includes Polaris Banyan Holding's 24.02 per cent, while the rest is held by Arun Jain and his HUF.

What do analysts say
ICICI Securities said the company is currently undergoing a phase of monetisation of products and will witness monetisation of big data analytics and artificial intelligence in the second phase. This, coupled with cost control, sustainable capex and improving working capital should bode well for its financials, it said.

“However, the recent runup in stock price prompts us to downgrade the stock from ‘buy’ to ‘hold’ with a revised price target of Rs 640 based on 5 times FY23 price/sales and 21 times PE on FY23 EPS,” the brokerage said.

Sharekhan said Intellect Design’s investments on composable technology to create products and platforms provide differentiated customer experience, reduce costs and faster time to market to its customers.

It values the stock at 27 times FY22 and 20 times FY22 EPS.

"We continue to like the stock given the favourable industry tailwinds, its future-ready product portfolio and possibilities of improving financial metrics. Hence, we maintain a ‘buy’ rating on the stock with a revised target of Rs 660," it said.

This is not far away from a record high of Rs 647.55 the scrip hit on Wednesday.