Buy Intellect Design Arena Ltd For Target Rs. 810 - ICICI Direct
Revenue growth guidance of 20% for FY23…
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)
Q4FY22 Results: Intellect reported muted Q4FY22 results.
* US$ revenues were flattish QoQ to US$67.7 mn
* EBITDA margins declined 250 bps QoQ due to lower topline
* License linked revenue was at 57% of overall revenues
What should investors do? Intellect’s share price has grown by ~5.6x over the past five years (from ~| 120 in May 2017 to ~| 680 levels in May 2022)
* We maintain BUY rating on the stock
Target Price and Valuation: We value Intellect at | 810 i.e. 20x P/E on FY24E.
Key triggers for future price performance:
* Transition from product to platform, which is likely to enhance margins
* Improving deal wins, deal pipeline (| 5,455 crore in FY22), increased penetration in US & Europe, improving quality of revenues (licence + AMC + Cloud from 46% in FY20 to 57% in FY22) bode well for long term revenue growth
* The company aspires to achieve 20% revenue growth in FY23. The funnel continued to be strong
* Margins are likely to improve 190 bps to 27% over FY22-24E
Alternate Stock Idea: Apart from Intellect, in our IT coverage we also like LTI.
* LTI expected to register industry leading growth
* HOLD with a target price of | 6,000
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