IGI Logo

Revenue in-line but results impacted by margin pressures

Intellect reported revenue of INR 5413 mn (+32.6% y-o-y, +6.3% q-o-q) in-line with our/consensus estimates of INR 5395 mn. Revenue in dollar terms was also strong at $70mn (+27% y-o-y, +3.4% q-o-q). Platform revenue (including SaaS) grew at 47% y-oy to INR 1160 mn. Deal pipeline continued to be strong at $805 mn (+34% y-o-y). EBITDA was INR 1170mn (+17% y-o-y) and EBITDA margins declined to 21.6%, a 210 bps decline from Q4FY22, lower than our/consensus estimates of 23.3%/23.6% driven by higher platform investments and increased travel & marketing costs. PAT declined 7% to INR 690 mn due to an increased tax rate. Intellect expects EBITDA margins to remain under pressure in Q2FY23 with a subsequent recovery in H2FY23 and FY24. We cut our earnings estimates for FY23E/ FY24E by 8%/3% and re-iterate our BUY rating on the stock with a reduced TP of INR 779.

Revenue growth and deal pipeline continues to be strong

Intellect’s continued to grow its revenues at a healthy pace with increased deal wins across geographies and product lines. License linked revenue grew to INR 2,810 mn (+18% y-o-y) aided by platform (SaaS) revenue which increased to INR 1160 mn (+47% yo-y). License revenue declined to INR 770 mn (-3% y-o-y) while Annual Maintenance Contract revenue increased to INR 870 mn (+10% y-o-y). Intellect saw 10 deal wins this quarter including 5 deal wins in the platform segment. The company’s deal pipeline increased by 34% y-o-y to $805 mn while high value destiny deals increased to 64 (from 61 last quarter). The company has also started seeing traction in the high-value markets of US/Europe. US revenue growth is expected to grow by 50%+ on a small base driven by traction in the iSEEC and iGTB product lines, while growth in the European markets is expected to be driven by the retail, lending and credit card platforms.

Margin contraction on the back of higher platform investments and higher travel & marketing

EBITDA margins contracted to 21.6% as the company saw increased travel costs in the range of INR 120-130 mn as travel resumed post Covid, and R&D expenses increased to INR 398mn (+13% q-o-q, +64% y-o-y) as the company increased its focus on developing platform capabilities. Intellect expects EBITDA margins to be in the 22-25% range as it continues to spend aggressively on R&D with margin improvement expected in H2FY23 and FY24 as operating leverage kicks in and the developed products/platforms start seeing traction.

Maintain BUY with a reduced target price of INR 779

We expect sales/EBITDA/PAT to grow at CAGR of 18%/20%/15% respectively over FY22- 24E. We estimate EBITDA margins to decline to 22.7% in FY23E, followed by a recovery to FY24E to 25.9% in line with the company’s stated target range of 25-30% EBITDA margins. We cut FY23E/FY24E earnings by 8%/3%, valuing the stock at 24x FY24 EPS to arrive at a target price of INR 779.

Valuations

We re-iterate a BUY rating at a target price of Rs779. Our target multiple of 24x is below the company’s last five year PE multiple.

To Read Complete Report & Disclaimer Click Here

For More Centrum Broking Disclaimer https://www.centrumbroking.com/disclaimer/

SEBI Registration No.:- INZ000205331

Above views are of the author and not of the website kindly read disclaimer