Intellect Design Arena to strive for 20%+ revenue growth, says MD Arun Jain

Intellect Design Arena, which sells its products mainly to banks and financials, reported better top and bottom line numbers than a year ago quarter, but some analysts felt it was less than expectations. The stock of the company has also fallen 16 per cent since the company announced its numbers. However, the management is unfazed by the volatility and believes it will continue to deliver above 20 per cent growth every year. ETMarkets.com caught up with Arun Jain, Chairman and Managing Director, Intellect Design Arena, over the weekend. Edited excerpts:

Your Q4 numbers are below analyst expectations. Even the stock market reaction was negative. What went wrong?
As a product company, it is more appropriate to compare results year on year (YoY), rather than quarter on quarter (QoQ) as in the case of IT services companies. The results for each quarter could vary depending on the deal closure pattern. Movement of a deal across a quarter end could also impact the results for that quarter.

For FY22, our revenues grew 25%, EBITDA and PAT grew by 33%. Our cash balance more than doubled over a year ago. All the five financial parameters - revenue, gross margins, EBITDA, PAT and cash generation – have significantly grown in this year. Our subscription revenues grew by an impressive 112%. Our EBITDA margins were slightly lower than last quarter because:

• A multi-million dollar deal with a Russian Bank in Germany fell through owing to the Russia-Ukraine war.
• Increase in salary costs
• Capacity building for a $75-million quarterly revenue run rate

Our licence-linked revenue crossed Rs 1,000 crore mark in FY22. Our products have an average life cycle of 10 years, which means this revenue stream would continue as maintenance revenues, production support agreements, change requests, etc,

We are closing the fiscal with 35 new customers who have chosen Intellect’s Digital stack for their digital transformation, including 13 new customers who have chosen Intellect platforms. We remain bullish about the year ahead.

Last two years, your margins improved quite a bit. What changes have you made to achieve this?
Our design thinking led delivery excellence framework is supported by our unique implementation methodology, consisting of product awareness sessions/ product walkthroughs (PWT), defined test walkthroughs consisting of test scenarios and test cases, very detailed design and translation of solution design to work packets, low/ no coding platforms such as canvas technology, Integration platforms such as iTurmeric - have resulted in our delivery cycles shrinking to 6 months against the Industry norm of 12-18 months for similar projects. This increases both delivery certainty as well as gross margins.

Equally important is our licence-linked revenues. License, AMC, subscription revenues make up for 56% of revenues. Our subscription revenues grew 112% YoY. Licence-linked revenues contribute to higher margins. In addition, superiority of our products - both in terms of depth of functionality in terms of user journeys and packaged business components and Technology Edge - microservices based, API led cloud native architecture help us command premium pricing in advanced Market deals. In addition, cost savings from reduced activities during the pandemic - travel, business promotion – also helped in margin improvement

What is the outlook for the coming years? Where do you see growth coming from?
We designed Intellect to achieve 20% revenue growth YoY. Last year, we achieved 25% growth. Though this year macroeconomic parameters are very different, our endeavour will be to keep the designed growth charter.

We are progressively moving our products to platforms consisting of multiple products. The average deal size from platform deals is increasing YoY. We are winning large transformational deals in many countries from banks like the Reserve Bank of India, Resurs Bank, Socgen etc. As banks and financial institutions progress their digital transformation/ cloud adoption journeys , our product depth and technology edge combined with our delivery certainty would help us win a larger pie of this significant spend

Our strategy has been to focus on destiny deals, invest in additional geographies such as Vietnam, France, Saudi, deepen engagements with our major accounts and further build on the success of subscription deals. In addition, our partnership strategy has also been bearing fruits. We won three transformational deals in the last two quarters through this route and we intend to intensify our focus on that.

In India, the open banking ecosystem has expanded to include non-banking financial companies (NBFCs) and other fintech companies that have formed partnerships with banks. The percentage of the Indian population who use banking services will rise as per capita income rises. Rising incomes are expected to increase the demand for banking services in rural areas, propelling the sector forward. The banking sector will benefit from continued monetary policy credibility and structural economic stability.

The BFSI sector is extremely competitive. Moreover, the Indian SaaS scene has developed rapidly in the last few years. How are you dealing with the competition?
As explained earlier, the depth of our product functionality - in terms of spread of user journeys , packaged business capabilities and APIs - as well as technological edge - in terms of a unified microservices-based, API-led, cloud ready architecture - place us ahead of competition. We have been rated in the Leadership Quadrant by multiple analyst rankings for each of our products.

Our growing Installation base with global majors across continents provides us significant referenceability. In addition, our ability to compose curated solutions for each market’s requirements and contextualise the product for each customer is a unique differentiator

A significant difference between several other fintechs is that we are in the enterprise grade software space with significant premium on aspects such as data security, Integration with ecosystem, high availability, higher performance demand which many of the single user journey fintechs do not offer.

Do you plan to diversify beyond BFSI space? If yes, what is the plan?
Our success with GeM Government eMarketplace, LIC, AMFI gives us the confidence to host such National Digital Infrastructure within India and other Geographies.

We offered a Lifestyle Banking application to a large Bank in the Middle East. We offer multi Bank consolidation/ Integration for the Bank’s Corporate customers in several geographies We expect to progress this and eventually offer a Retail / Corporate Banking Ecosystem/ Marketplace.