Thread by @Finology_Quest

Intellect Design Arena

Software products company competing in Global Tier-1 BFSI (Banking, Financial Services and Insurance) software market.

A hidden gem or hidden trash 😯

-- A Company Analysis 🧵 --

IDA is a software product company headquartered at Chennai, Tamil Nadu.

Intellect is engaged in the business of software and financial technology development for banking, insurance, & financial services.

But before diving into intellect directly, we’ll first understand, what is Software Product Business? ⤵️

We all are aware of IT service businesses like TCS, they provide services like software development, software testing, IT management etc.

Whereas IT product businesses are completely different, in this, company develop software products which are sold/licensed to others. 🤔

Software products company requires huge R&D! 💸

Once the product is developed & gained acceptance in the market, incremental growth does not require any incremental costs, for each new client a copy of the software is created & thus Operating leverage is built.

Now, company sells its product to customer on License basis (Upfront fee) & these r long term/perpetual in nature.

And then comes implementation phase (setting up product & get it running). Post this AMC comes into play, which is Annual Maintenance Contract, bug fixes & updates

License -> implementation -> AMC

AMC is basically free money! 🤑

Now this is traditional model of selling software. But a new model has emerged called SaaS (Software as a service)

In SaaS model the software is sold as a service, like cloud subscription, they sell product for monthly or annually subscription.

So now that you have understood as to on what the company’s business model is based on,

We shall understand more about Intellect Design Arena ⤵️

Basically it sells software to Banks & Financial services companies.

IDA, formerly known as Fin Tech Grid Ltd, was part of Polaris consulting & services. it demerged & listed separately in 2014. Mr. Arun Jain is the founder of company & as of now he the Chairman & MD.

IDA has 4 revenue segments:

➡️Licence
➡️Implementation
➡️AMC
➡️Subscription

And there majority of the business comes from foreign countries 🧐

IDA has structured its business in different lines of their services and for each line they have different CEOs appointed:

• iGTB
• iGCB
• iSEEC
• iRTM
• iWealth
• iGOV

▣ iGTB (Global Transaction Banking)

Led by Mr. Manish Maakan, includes products for bank’s needs around wholesale & corporate banking services like trade finance, liquidity management, payments etc. serving clients in 85 countries and main focus area is Europe.

▣ iGCB (Global Consumer Banking)

Led by Rajesh Saxena, includes products for bank’s needs around Retail banking, private banking and Central Banking; like core banking software, cards, lending etc.

▣ iSEEC (insurance)

Led by Banesh Prabhu, provides different varies technology solutions, platform and products to the insurance sector, products under this segment are pure SaaS offerings. Products like CBX-I helps clients to integrate everything at one.

▣ iRTM (Risk, Treasury & Wealth management)

Led by TV Sinha, provides solutions to banks around treasury, risk management and asset management.

#Nifty50

▣ iWealth (Wealth Management)

Led by Jaideep Billa, it focuses on wealth manager, advisory firms, brokers, & independed finical advisors.

Wealth Management is a growing business & Tier-1 banks, such as HSBC, Citi & JP Morgan, are already moving in this space aggressively.

▣ iGOV (Government)

iGov provides portal solutions, core system solutions, Digital distribution solutions, and E government solutions.

Government eMarketplace portal (GeM) has already crossed Rs. 60,000 Cr in GMV.

Now let’s look at some Industry aspects ⏬

Global Fintech market are expected to grow at a CAGR of 9.2% upto 2023 and Indian Fintech market is currently valued at $31 bn & is expected to grow by 2025, at a CAGR of 22%. It currently stands as 3rd largest FinTech ecosystem in the world, behind US & China.

Major Competitors:

Management Analysis:

In 2008 Arun Jain and former CFO of Polaris R Srikanth had been penalised by Sebi for insider trading. And in 2018 also Sebi had conducted an investigation into the insider trading activities.

#RBIPolicy #SEBI

Although the company looks attractive but management have been accused for insider fraud many times.

#investing #business

Revenue:

The revenue has grown from around 608 crs to 1,878 crs in the last 7 years. But if we look at 2019, 2020 and 2021 there is no substantial rise in the revenue.

For FY22, revenues grew 25%, EBITDA and PAT grew by 33%. License linked revenues (License+ SAAS+AMC) are now at 57% of revenues as on FY22 vs. 54% in FY20 and 46% in FY19.

#StockMarket

In terms of EBITDA they have done well in FY22 but in the previous years EBITDA has been in inconsistence.

ROE and ROCE of the company is also rising!

Now, the primary thing to understand when evaluating software product business, is the market acceptance of a product and the traction that it is seeing....

Rising license revenues is a clear indication of a product’s market acceptance - new customers are willing to buy the software & old customers are willing to continue.

And also company with multiple products is a safer bet given that any slowdown in demand for a particular product does not effect overall revenues.

Considering IDAL’s diverse product basket and looking at peers like Temenos which runs a billion dollars business primarily from core banking software alone, Intellect seems to have a large opportunity size.

But still the company has not been getting premium valuations like other high growth IT companies! What could be the reason?

Let us know your analysis in comments ⤵️

As you all are analysing the company, can you share your views on this thread @SmartSyncServ @sahil_vi @SwarnashishC @saketreddy @soicfinance

Would love to gain some insights :)