Buy Intellect Design Arena Ltd For Target Rs.750 - ICICI Direct
Transitioning from product to platform…
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 & rest from emerging markets
* Recently, it saw a turnaround in margins (from 5% in FY20 to 23% in FY21)
Q2FY22 Results: Intellect reported robust Q2FY22 results.
* US$ revenues increased 10.2% QoQ to US$61 mn
* EBITDA margins improved 159 bps QoQ to 26.1%
* License linked revenue was at 57% of overall revenues
What should investors do?
Intellect’s share price has grown by ~4x over the past five years (from ~| 176 in Oct 2016 to ~| 690 levels in Oct 2021)
* We maintain HOLD rating on the stock
Target Price and Valuation: We value Intellect at | 750 i.e. 23x P/E on FY23E
Key triggers for future price performance:
* Transition from product to platform, which is likely to enhance margin profile
* Improving deal wins, deal pipeline (| 4,808 crore), increased penetration in US & Europe, improving quality of revenues (licence + AMC + Cloud from 46% in FY20 to 54% in FY21) bode well for long term revenue growth
* The company aspires to achieve 20% revenue growth in FY22. We would wait for early greens shoots on the same to turn positive on the stock
* It is expected to post 431 bps improvement in margins to 28% in FY21-23E]
Alternate Stock Idea: Apart from Intellect, in our IT coverage we also like LTI.
* LTI expected to register industry leading growth
* BUY with a target price of | 7,650
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