The brokerage firm Anand Rathi in its latest report has recommended investors buy the stocks of Intellect Design Arena Ltd for a potential 35% upside. The brokerage has set a target price of Rs 850. Intellect expects the Microsoft partnership to correct slower advanced market sales and is adding senior salespeople in advanced markets. The shares of Intellect have fallen from 52-week highs of Rs 986.65 to the current market price of Rs 630.20 after closing on 20th May 2022, which makes it an attractive stock to buy at the current levels. Today, the share price gains 0.70%.
Soft Q4 but key growth trends intact
According to the brokerage, "Intellect's $68m revenue (Q4) was up 25% y/y, with License/AMC growing just 2% y/y, a drag on overall growth. SaaS revenue, up 81% y/y, helped to a high-growth trajectory and the GeM contract is likely to be extended to Dec'25. Intellect continues to offer products in both forms with more customers choosing SaaS to upfront licensing. Hiring rose along with costs as evident from lower gross margins q/q; the company has stepped up sales efforts (incl. the Microsoft partnership) to accelerate next year. Advanced markets performance remained weaker than peers."
Commenting on the EBITS, the brokerage has said, "The Q4 23.7% EBITDA margin declined 180bps y/y, 247bps q/q. The company lost ~$4m in License sales in Q4 which, besides rising wages and headcount, added to margin pressure. Ahead, it expects to touch $75m quarterly sales and, hence, is confident in margins. It also doesn't intend to go beyond 30% margins as re-investment would be required to sustain growth rates. Adj. for capitalisation, Intellect has moved to an 18.5% EBITDA margin, from 20.6% a year back."
Brokerage Views and Comments on Valuation, Target Price And Risks
The target of Rs850, 23x FY24 EPS. No meaningful change in our estimates (sales/EBITDA). But rising amortisation (non-cash) and taxation rates lead to a ~4-5% EPS cut. "We watch its growth in advanced markets; till it improves, our target multiple is constrained at 23x despite rapid earnings growth. In FY22, Intellect announced Rs2.5 dividend per share," the brokerage has said. According to the brokerage, the risks would be slower growth in advanced markets.
About the company - Intellect Design Arena Ltd
Incorporated in 2011, Intellect Design Arena is a IT software sector company that operates in the Financial technology. The company is a global leader in Financial Technology for Banking, Insurance and other Financial Services. It is a small-cap company having a market cap of Rs 8,433 crore. For the year ending 31-Mar-2021, the company's key Products/Revenue Segments include Computer Software. The company has a comprehensive portfolio of products across Global Consumer Banking, Central Banking, Risk & Treasury Management, Global Transaction Banking and Insurance and is also engaged in the business of software development.
The stock has been picked from the brokerage report of Anand Rathi. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article. Goodreturns.in advises users to check with certified experts before taking any investment decisions.