Brokerage firm Centrum Broking has initiated coverage on the stock of Intellect Design Arena with a 'buy' recommendation.
Centrum has set the target price of ₹803, valuing the stock at 24 times FY24 earnings per share (EPS). The target price is a 20 percent upside from the stock's June 8 closing of ₹667.05 on BSE.
Intellect Design Arena (INDA) is an IT products company focused on the banking and financial services (BFSI) sector.
The company earns revenues from selling products either via the sale of licenses or from its rapidly growing SaaS business. The banking & financial services sector, both globally & in India, is increasing spending on technology, benefiting BFSI focused players like Intellect.
As highlighted by the brokerage firm, After spending substantially on R&D for its product base, Intellect turned profitable in FY18 and its liquidity, transaction banking and central banking products have turned market leaders.
Intellect’s focus on predictable SaaS/AMC revenues should reduce revenue volatility. The company’s revenues have grown at a five-year CAGR of 15 percent while PAT margins have improved from 2.3 percent in FY17 to 18.2 percent in FY22, said the brokerage firm.
It expects Intellect’s revenue, EBITDA and PAT to grow at 17 percent, 23 percent and 20 percent, respectively, from FY23-27E as operating leverage improves margins and newer products drive revenue growth.
"Intellect’s recent share price correction means that the stock now trades at a discount to its five-year mean P/E. We forecast EPS of ₹26.1/33.4 for FY23/24 and value Intellect at 24 times FY24 EPS (below its five-year historical mean of 30 times) arriving at a share price of ₹803. Key risks to our thesis include a slowdown in spending by banks as well as margin headwinds due to rising attrition," said Centrum.
The stock fell more than 2 percent in intraday trade on BSE on June 9.
Disclaimer: The views and recommendations made above are those of the brokerage firm and not of MintGenie.