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Anand Rathi
Intellect Design Arena (Buy)
Target: ₹840
CMP: ₹680.2
With growth accelerating to 22 per cent y-o-y, a large chunk driven by India and the Mid-East, Intellect had a strong Q2. At the analyst day, the company spoke about its sharpening focus on the US and the short-term impact of SaaS on licensing revenue growth. Going ahead, it expects more balanced growth and is relying on partnerships (Hexaware added) to drive sales in the region.
Overall, the medium-term growth outlook is 20 per cent+, driven by product cross-sales. Short-term margins are expected to be little lower due to rising people costs and investments in the Americas, and should touch 30 per cent by Q4 FY23.
The company believes this is due to the rapid adoption of SaaS revenue, up 155 per cent y-o-y (excl. GeM, est. 120 per cent y-o-y). It expects to close some large licensing deals in advanced markets, taking quarterly revenue to $75 million in four quarters.
The funnel looks strong at $650 million, up 20 per cent y-o-y. Overall, 57 per cent of the business (incl. total SaaS) is IP-driven.
Overall, Intellect may hit a 30 per cent margin in FY23, as operating leverage holds high amid an expected recovery in advanced markets. Operating cash flow to net income ratio (CFO:NI) was weak at 58 per cent as receivables shot up on its fast-growing India business.
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