Thread by @CapitalSapling

Stunning results from #IntellectDesign , pat of 80 crores as against loss of 11 crores last year. Sequentially a stunning growth of 35% in bottomline.
Trading at ridiculously cheap valuations now for a software product company with great products. long way to go.

Disc: Invested

https://twitter.com/CapitalSapling/status/1355759884864679936

To sell cement 2day, u gotta make it 2day

To sell cement day after, u gotta make a new batch to sell.

Develop a software product 2day,
Sell it 2day, 2moro, next year.

Simple Stuff Desi analysts dont get,

& then they go value product tech cmpnies like conventional products.

Temenos a company, #Intellect recently beat amongst 20 others in a Canadian bank deal trades at a valuation of $10 billion( 70k crores) at a price sales X of 10.

Intellect doesnot even consider them competition, Palantir, a cmpny that intellect considers so, trades $55 billion.

In this context,to see #Intellect trade at a sub $1 Billion valuation is appalling, yet we love it when such a thing happens as it provides a great opportunity to back up the truck and load.

Thank you Desi Analysts!

What analysts cant get through their heads is the power of generating expenseless Revenue. Quarter gone by #intellect generated an almost expenseless 80% Ebidta margin (License+SAAS+AMC) revenue of 206 crores.
The current valuation doesnot even begin to bake in the size of that .

The operational expenses have stabilised around 285 crores for the past 3 quarters for #Intellect, all incremental sales beyond that is directly moving to bottomline with the business turnin net cash positive, there are no interest servicing expense.

Evident in the numbers below

Essentially what this means is even if the topline grows 10% an incrementally, even that 10 % increase in topline would directly mean a 30% jump in bottom line.

Thats the operational leverage that comes into play once a software product gets references in the mkt.

The product does not need to be sold as hard as the product develops a natural pull in the mkt with increasing references, even the discounting reduces over the years this all adds to the bottom line.
A S.Product becomes a cash generating machine beyond a point.

As the product gets sold to more and more products and with the incorporation of customers demanded domain dictated changes the product with increased features evolves into a much more useful one for the next buyer thus snowballing its value proposition with time.

What reduces the marketing costs further is the rating of the product by analysts like Gartner, Forrester, etc. A lot of RFP's come to the market only seeking technical bids from vendors present in Gartner quadrant. This auto selection reduces the need to market extensively.

What delivers further optionality over core products are the 2 new Platforms #Intellect has developed namely Iturmeric and IDX

Iturmeric is a platform on which customer can develop his business processes on drag and drop tool without the need to code. Customers love such things

Whereas IDX could prove to be the real game-changer for Intellect, its just got rated the best in the world by Novarica, its an ML/AI based data tool that helps insurers underwrite better.

What makes IDX a game changer is that IDX requires no customisation at all, its a buy and use system and is pure money from Intellects perspective and being a ML based system it gets better every time its used.
If IDX scales it will give a hockey stick look to Intellect numbers.

Software deployed in US banks havent been changed in the longest time due to the pain involved in carrying out such massive chnge.
Covid has truly made ppl realize the shortcomings of incumbent software and the drastic neeed to replace them with cutting edge.
Opportunity Galore!

Excerpt from Temenos call:

Talking about shifting operations from other locations to India to save cost. Shows the competitive advantage #Intellect has.
#Intellect has spent 1300 crores in product RnD. The same work in Europe would have cost 5x( more than Intellect's mktcap)

Unlike IT sevices, software products is a different animal.
A product has a much more long gestation period.branding is a huge element of the selling of the product especially in developed countries.
Everyone knows the likes of TCS, HCL, infosys in the developed economies.

But their havnt been too many Indian product success stories. The fact that its an expensive game can be ascertained from the fact that #Intellect has spent close to 1700 crores in SG&A expenses to build its brand.

Similarly the product acceptance is also dependent on vendors having a local support presence to aid the customer, thus it requires building up of a partner network, all these are expenses that have to be incurred upfront.

But every incremental sale doesnot require the same amount of per unit marketing,rnd spend as the infra is already setup and thus bottomline explodes.we are at that inflection point for intellect with the bottomline likely to look significantly higher than what it is today.

#Temenos in latest call talking about how US banks are still using 50 year old software representing a great opportunity for new products to replace the incumbent.
Same addresable mkt for #Intellect.
#Temenos at 36% margins from Europe. Huge sales & margin upside for Intellect.

With the GEM portal of the government working at full steam, #intellect stands to gain additional revenue stream to benefit from the uptake of procurement in GEM.
moneycontrol.com/news/business/…

#Intellect launches it IDX AI, ML based Aadhar processing solution called Magic Aadhar. Yet another amazing use case for its AI ML platform called IDX.
It will help reduce friction by protecting customers' personal Aadhar data from being misused.

#Intellect now has a SAAS ARR of more than $21 million.
Most analysts donot understand the significance of that number and how things scale in SAAS, will only dawn upon them too late.

Temenos achieved an EBIDTA margin of 44% in Q4 Fy19 with European costs structure, thats the kind of upside to current margins #Intellect can achieve as the expenseless ARR's keep increasing qoq.

The same improved further to 47% in the most recent quarter.
Recently Temenos also announced its targets for the year 2025 including a 15% SAAS ARR cagr for next 5 years.

Does throw light on the humongous opportunity size available to #Intellect.

Temenos CEO on the Opportunity size available to the Software products players in the banking space.
$63 Billion growing at 8% Cagr for next 5 years.

A wonderful session by #intellect today , an initiative a lot of tech companies can replicate.
Intellect has a Net promoter score of 60 which is industry leading. Even Gartner has noted that #intellect has received the best ratings from Customers vis a vis competition.

Banking softwares are the most sticky in the category of software products. Very painful to switch to a different vendor given the complexities.

Reason why likes of Temenos trades at 60 times earnings and #Intellect will also soon follow suit.

Cash Machine!

Takes lots of capital both in R&D & Marketing to establish a software product company from india in developed mkts.
Majesco sold out to a PE player in US due to same.
Makes what #Intellect is doing while being listed(Public investors dont like cash burn) even more commendable.

Temenos has achieved a $10 billion market cap catering to just consumer banking, #Intellect available at $1 billion with 4 segments with potential to become as big as current GCB size.

Upside!

Size of the competitors listed in the tweet above:

Duck Creek: $5.7 billion( Data Platform)
ACI worldwide: $5 billion ( GTB & Payments)
Bottomline: $2.1 Billion (GTB)
The younger Mambu recently raised capital at $2.1 Billion.

#intellect participating in all segments.

#Intellect won the Concentra Bank deal against established competition in the Advanced markets including Temenos.
Secular EPS growth of 30% to come yoy for years to come backed by RnD of 8 million hours.

HDFC netbanking fiasco, goes to show the absolute intolerance people have with unavailability of online banking.
Will lead banks to invest increasingly more on digital, even if it means diverting marketing funds to IT, Since downtime can destroy a lot of goodwill built over time.

In this context, it presents a great opportunity for companies helping banks digitize.
And there is nothing better than to have rich paranoid customers looking to spend their way out of trouble.

Of #Intellect quarter sales of 382 cr, a 115 cr(30%) came from SAAS & Amc.
Significance of this:
The company will have to expend no manpower over getting this revenue again next year.
Its almost free annuity revenues.
This makes it so easy for company to grow consistently.

To those who value companies conventionaly, we ask how do you value a company that doesnot need to work for a large portion of its previous year's revenue, next year.

One would assume that these earnings should command a significanlty higher multiple like platform companies.

Banking Technology company Alkami has recently filed for an IPO in the US seeking a market cap of $2 billion at 17 times sales and net loss.
In this context #IntellectDesign with a 25% EBIDTA margin trading at 6 times sales is certainly appealing.
bizjournals.com/dallas/news/20…

#IntellectDesign wins another large destiny deal with one of the largest banks in Europe. 4 out of top 6 banks in Europe are Intellect's customers now.

Incredible numbers by #Intellectdesign, outdoes even the stupendous numbers it delivered in q3. More than 100% growth in pbt yoy. Debt free now against more than 300 crores debt last year. Balance sheet is net cash now with 150 crores net cash on books.

Gets easier & easier for #Intellect in future years with the benefit of Saas and AmC
As per q4 nos intellect now earns an 560 crores in annuity income which will happen next year as well. That means 37% of last years revenue of 1500 cr is guaranteed next year without any effort.

Very good call for Intellect. The massive proportions Intellect's IPR can create in future is truly worth waiting for. Hopefully soon we'll see large service companies like LTI will line up to partner with #intellectdesign to sell Intellect's products or to develop on it.

Those thinking guidance of 15% topline growth in next 5 yrs cagr is soft, should know that incremental topline is coming in Annuity, while majority of existing revenue is license which is one time upfront. 15% is seriously significant infact & could mean a 30 to 40% cagr in eps.

With regards valuation Ncino a Nasdaq listed cpany did saas revenue of $45m against Intellects $8.5m this quarter.
NCINO Trades at 5x Intellect on a price to saas revenue but in addition Intellect also has significant on premise revenue which is not getting any valuation.

Good times ahead for #intellectdesign, the operational leverage and the power of ipr monetization will show up in bottomline in the next couple of years.

Another large destiny deal for #intellectdesign in advanced markets in Canada.

The IPO frenzy around digital Kakao Bank in the Korean markets is great for companies like #Intellectdesign, Seeing the massive appetite for digital banking in public markets. Every traditional bank will be driven by paranoia into spending on the best digital products to keep up.

Its a very good set of numbers from #Intellectdesign yoy, the returns appear softish qoq due the the upfront cost of SAAS sales for which the sales come later in annuity.
Also in the jv head the company reports a loss almost every june quarter, so qoq compaison is unfair.

In anycase a qoq comparison in software product is foolish, the right comparison is on an annual basis, where the quarterly spikes get ironed out.
Invested significantly and with patience.

A metric that should actually be tracked qoq in the case of companies such as #intellectdesign is the SAAS revenue, which has jumped an incredible 20%qoq and 100% yoy.

This is the metric which will dictate the valuations of Intellect going forward.

Extremely positive concall for #Intellectdesign, the best being the ARR runrate now has reached an annualised rate of 627 crores which is huge and increasing at a fair clip of 12% qoq almost 60% annualised growth rate.
PBT coming in at 88 cr vs the usually big Q4 of 90cr.

With regards Valuations, Temenos trades at 60 pe even smaller ones trade higher than 12 times sales. Something wrong with Indian investors, they donot get how to value SAAS & software product businesses.
A market cap of a $1.5billion is tiny in global opp size scheme of things.