Buy Intellect Design Arena Ltd For Target Rs. 740 - ICICI Direct
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About the stock: Intellect Design Arena (Intellect) provides software products to retail, corporate banking, insurance & treasury.
* The company is a transition from a product company to a platform company
* Intellect generates 55% of revenues from developed markets and rest from emerging markets
* Recently, it saw a turnaround in margins (from 5% in FY20 to 25.1% in FY22
Q1FY23 Results: Intellect reported Q1FY23 results.
* US$ revenues grew 26.4% YoY to US$70 mn
* EBITDA margins declined ~290 bps YoY to 21.6%. Ex-Esop expenses, margins were at 24%
* Funnel is up 28% YoY to US$805 mn
What should investors do? Intellect’s share price has grown by ~5.7x over the past five years (from ~| 111 in July 2017 to ~| 630 levels in July 2022).
* We maintain BUY rating on the stock
Target Price and Valuation: We value Intellect at | 740 i.e. 23x P/E on FY24E.
Key triggers for future price performance:
* Strong deal wins as well as continued healthy funnel is expected to aid future revenue growth
* Improving quality of revenues (licence + AMC + Cloud) from 46% in FY20 to 57% in FY22) bode well for long term revenue growth
* The company is making investments to improve quarterly revenue run rate to US$90-100 mn in 10-12 quarters from now
Alternate Stock Idea:
Apart from Intellect, in our IT coverage we also like Newgen.
* Strong logo additions with continuous focus on enhancing annuity revenues would aid 17.2% revenue growth over FY22-24E
* BUY with a target price of | 440
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