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ICICI Direct Report
The key positives for Intellect Design Arena Ltd. are -
1. software products catering to banking, financial services and insurance sector that is one of the largest spenders in IT services and software,
2. improving quality of revenues (licence + annual maintenance contract as percentage of revenues has increased from 36% in FY17 to 46% in FY20),
3. improving margin trajectory led by cost rationalisation (cost is now aligned to non-licence revenue stream),
4. focus on lowering debtor days thereby reducing working capital requirement.
In addition, the company has a healthy order backlog of Rs 1156 crore, a strong deal funnel (approximately Rs 4020 core) and a digital-ready product portfolio that provides confidence on improved revenue trajectory in coming years.
Further, the company has aligned its cost structure with sustainable revenues, which we believe will reduce volatility in margins (one of the key concerns in product companies) and improve cash flows.
We believe this will be key to a sustained re-rating of the stock.
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