| Intellect Design Arena Limited | ||||||
| Ratings Reaffirmed | ||||||
| Rating Action | ||||||
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| Note: None of the Directors on Crisil Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings. The Board of Directors also does not discuss any ratings at its meetings. | ||||||
| 1 crore = 10 million | ||||||
| Refer to Annexure for Details of Instruments & Bank Facilities |
Detailed Rationale Crisil Ratings has reaffirmed its 'Crisil A+/Stable/Crisil A1+' ratings on the bank facilities of Intellect Design Arena Limited (Intellect). CRISIL Ratings has also withdrawn its ratings on bank loan facilities of Rs.50 crore based on the request from the company and receipt of revised sanction letter with partial reduction in bank loan facilities from one of the banks. This is in line with CRISIL Ratings’ policy on withdrawal of ratings.
The rating reaffirmation reflects the healthy business risk profile of Intellect, supported by market acceptance and maturity of its product suites and strong order pipeline, which will ensure steady revenue growth and healthy operating profitability over the medium term. The ratings also consider the company’s healthy financial risk profile, supported by good cash generation from operations and a debt-free balance sheet.
Intellect’s revenue decreased by 6.3% to Rs 1,774 crore during April-December 2024, compared with corresponding period of fiscal 2023, on account of lower license-linked revenue, which includes license, platform and annual maintenance charges. License-linked revenue declined by 18% to Rs 855 crore in the first nine months of fiscal 2025, while the remaining revenue contributed by annual recurring segment also witnessed a fall during the period. The decline is majorly attributed to delay in closure of high-value deals, which is expected to see closure in the upcoming quarters. Over the medium term, Intellect is expected to post revenue of Rs 2,400-2,500 crore, registering a growth of 6-8% annually. The growth will be backed by continuous launch of new products by Intellect, expansion of business in the developed markets and enhancements in the existing products also supported by improved order funnel reaching ~Rs 10,000 crore as of December 2024.
Intellect’s operating margin declined to 18.4% in the first nine months of fiscal 2025, from ~21.3% during the first nine months of fiscal 2024, on slow revenue growth and high employee costs due to investment in people for growing its businesses. Earlier, Intellect’s operating margin improved to 22.5% during fiscal 2024, compared to 20.5% during fiscal 2023, supported by better operational efficiency. Over the near to medium term, operating profitability is expected to sustain at healthy levels of 18-20%, with improvement in sales of high-margin products, increase in license-linked revenue especially the cloud segment pertaining to insurance business.
Financial risk profile continues to strengthen, supported by steady cash generation (more than ~Rs 400 crore annually), moderate capital investments in product development (Rs 150-200 crore per annum) and moderate incremental working capital needs, leading to limited need for debt addition. Working capital cycle has slightly elongated due to delays in payment relating a government project, leading to higher debtors in fiscals 2024 and 2025. Yet, debt protection metrics remain healthy due to strong cash generation. Besides, liquidity is also healthy, supported by minimal utilisation of the working capital bank lines and surplus unencumbered cash of ~Rs 800 crore as on December 31, 2024. The surplus has built up over time, adding to the company’s financial flexibility.
The ratings also continue to reflect Intellect’s established business position as an intellectual property (IP)-led software product developer within the banking, financial services and insurance (BFSI) domain, healthy prospects for software product companies in this domain, established operating capabilities and healthy financial risk profile. These strengths are partially offset by modest size of operations relative to peers, high working capital intensity and exposure to intense competition in the products business. |
Analytical Approach Crisil Ratings has taken a consolidated view on Intellect and its subsidiaries, considering financial fungibility among them, and presence of common management.
Crisil Ratings has capitalised the new product development cost while expensing the research cost from fiscal 2015 onwards.
Please refer Annexure - List of Entities Consolidated, which captures the list of entities considered and their analytical treatment of consolidation |
Key Rating Drivers & Detailed Description Strengths: Growing presence in software product development and delivery, with presence across verticals within the BFSI domain Intellect has established itself in the BFSI products business globally by developing the Intellect suite of software products which has 17+ products across various sub-segments of BFSI such as corporate banking, retail banking, treasury and capital markets and insurance. It has spent over Rs 1,200 crore for new product development and owns a sizeable portfolio of Ips. Intellect’s top products, such as purple fabric artificial intelligence (AI) technology and unified architecture of e-Mach.ai have been well received by customers, which has helped in winning high-value digital transformation deals against global competition. The company has also established a strong relationship with large international banks and provides critical information technology (IT) products to their business centres across the globe.
Healthy demand prospects for product-based IT companies in BFSI segment Within IT services and solutions, BFSI is the largest vertical, contributing to more than ~50% of revenue. On average, banks and financial institutions (Fis) spend 7-8% of revenue on IT, which is the highest among all verticals. Out of BFSI’s IT budget, 20-25% is allocated to buying new software or upgrading existing software generally. However, penetration of third-party vendor package is relatively low, at 18-20% with majority of the software being developed in house. Globally, banks and Fis are expected to spend over USD 10-11 billion for upgrading its transaction banking technologies. With increasing competition, it will be critical for banks to focus more on their core business to improve efficiency and outsource IT-related spending to third-party vendors such as Intellect. BFSI will remain the largest technology spender, considering the dynamic nature and high regulatory requirements in the industry. Hence, revenue prospects for software and IT products firms in BFSI are expected to remain healthy, driven by continuing high spending, increasing adoption of digital technologies such as machine learning, AI, etc. Intellect is well placed to apitalize on this trend, given its upgraded and matured product suites in this domain.
Good operating capabilities Steady ramp up of its various business segments has enabled Intellect register margin of over 20% since fiscal 2021, reflecting in healthy operating capabilities and steady cash generation. While the operating margin has marginally declined in the first nine months of fiscal 2025, the company is expected to sustain its operating profitability at 18-20% levels in the near to medium term, despite rising travel and employee costs, supported by improving scale going forward.
Healthy and improving financial risk profile Intellect’s financial risk profile has strengthened continuously, supported by healthy cash generation (over ~Rs 400 crore in fiscal 2024 against ~Rs 350 crore in fiscal 2023) and continued nil debt balance sheet. The company continue to remain debt free as on December 31, 2024, along with healthy debt protection metrics. Interest coverage ratio improved to ~112 times in fiscal 2024 as compared to ~75 times in fiscal 2023, while total outside liabilities to tangible networth ratio remained favourable at 0.52 time (0.55 time) Intellect is expected to sustain the improvement in its financial risk profile over the medium term, supported by steady cash generation and moderate investments in product development (Rs 150-200 crore per annum).
Weaknesses: Modest, though improving, scale of operations with large working capital requirement Though Intellect registered a compound annual growth rate of 18-20% between fiscals 2022 to 2024 in terms of revenue, its scale is modest compared with the global IT products it competes with. While the revenue of Intellect may witness a flat growth this fiscal, revenue growth as per Crisil Ratings is expected at a modest 6-8% from fiscal 2026. Also, while the company has been able to win large deals, continuous monetisation of its product portfolio is a key monitorable, given the large expenditure and time taken to establish its products and continuous spending required towards upgradations and research and development. Hence, continued growth in scale of operations is critical for sustenance of healthy operating margin over the medium term.
The working capital cycle, represented in the form of gross current assets, stood at 232 days as on March 31, 2024 (increasing from 215 a year ago), mainly due to higher debtors of 88 days (76 days) and inventory of ~146 days. Inventory is huge due to high unbilled revenue on account of milestone payment basis, which is expected to gradually moderate with completion of work in progress implementation projects, given the operating norms in the product business. Debtors have expanded in fiscals 2024 and 2025 mainly due to receivables pertaining to the Government e-Marketplace project completed in the first half of fiscal 2023 and undertaken on behalf of the Government of India. However, this working capital requirement was adequately met with internal cash accrual and sizeable cash surplus available.
Intense competition in the BFSI vertical for IT products The revenue being predominantly derived from the BFSI vertical, representing revenue growth volatile and susceptible to cyclicality in the global financial sector. Furthermore, given the healthy business prospects in BFSI, the competitive intensity is also high with presence of several global and Indian vendors. This, combined with typically high client retention and long tenure of product implementation, acts as a high entry barrier for product companies in the BFSI space. This is different from the more commoditised IT services industry, where client retention is based on billing rates, with shorter tenure contracts. However, with Intellect’s recent product launches such as Purple fabric AI and unified architecture eMach.Ai, it presents global opportunities for expanding the company’s business. |
Liquidity: Strong Intellect has healthy liquidity, supported by unencumbered cash and cash equivalents of ~Rs 800 crore as on December 31, 2024, bulk of which is in India, and invested in fixed deposits and debt mutual funds. Fund-based facilities of Rs 141 crore were completely unutilised over the nine months through December 2024. The company also has adequate non-fund-based limit, which helps facilitate in competitive bidding with average utilisation of 42% for the nine months through December 2024.
Over the medium term, annual cash generation is expected to sustain at over Rs ~400 crore, which will remain adequate to meet product development capital expenditure of Rs 150-200 crore annually. With expanding scale of operations, the working capital requirement may also remain high, mainly due to its debtors cycle. Unbilled revenue remained at fiscal 2022 levels of ~Rs 775 crore in fiscal 2024 as well; it may remain sizeable over the medium term too, following steady increase in large deals and implementation of work-in-progress projects.
ESG profile Intellect’s environment, social, and governance (ESG) profile supports its strong credit risk profile. The IT sector has a low impact on the environment because of the inherent nature of digital services, core operations as well as products. The sector, though, has a higher social impact because of its large and diverse workforce, Intellect has continuously focused on mitigating its environmental and social impact.
Key ESG highlights
There is growing importance of ESG among investors and lenders. Intellect’s commitment to ESG principles will play a key role in enhancing stakeholder confidence, given its high share of market borrowings in its overall debt and access to both domestic and foreign capital markets. |
Outlook: Stable Intellect’s business risk profile will continue to be supported by its diverse products and advancements in AI space, resulting in steady revenue generation and sustenance of healthy operating profitability over the medium term. Financial risk profile will remain healthy, supported by debt free balance sheet and sizeable cash surpluses. |
Rating Sensitivity Factors Upward Factors
Downward Factors
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About the Company Intellect, incorporated in 2011, develops and delivers digital financial technology products for the BFSI domain. The company was listed on the Bombay Stock Exchange and National Stock Exchange on December 18, 2014. The promoters hold 29.95% stake in Intellect as on December 31, 2024, as per stock exchange filings. The company is headquartered in Chennai and has global presence, with offices in India (Mumbai, Gurugram and Hyderabad), Asia-Pacific, Europe, Middle East Asia and Africa. It has over 5,500 employees.
Intellect reported profit after tax (PAT) of Rs 198 crore during April-December 2024 on net revenue of Rs 1,774 crore, compared with Rs 249 crore and Rs 1,893 crore in the corresponding period of fiscal 2024. |
Key Financial Indicators
**Revenue from operations as per Crisil Ratings-adjusted figures |
Any other information: Not Applicable |
Note on complexity levels of the rated instrument: |
Annexure - Details of Instrument(s)
&Interchangeable with Bank Guarantee exposure to the extent of Rs.10 crore |
Annexure - List of Entities Consolidated
*Subsidiaries of Intellect Design Arena Limited, UK **Subsidiaries of Intellect Design Arena Pte Ltd, Singapore ***Subsidiaries of Intellect Design Arena Inc., USA #Subsidiary of Intellect Design FZ LLC, Dubai @On July 1, 2020, the Company has increased its ownership interest in Intellect Polaris Design LLC (“IPDLLC”) from 50% to 100% resulting in IPDLLC being a wholly owned subsidiary. |
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| Annexure - Details of Bank Lenders & Facilities | ||||||||||||||||||||||||||||||||||||||||||||
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Criteria Details
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