Intense Technologies Ltd Q2 FY2024 Concall Summary

Key Takeaways

• Revenue surged 55% YoY, but don't annualize it: Q2 FY24 hit ₹32.78 crore, driven by new revenue streams from Project Butterfly. Management explicitly warned against extrapolating this quarter, sticking to a 20% YoY growth ambition.
• Project Butterfly is reshaping the business: The strategy, launched in Q4 last year, added communications governance, data services, transmission services, cloud services, and government managed services. These green shoots are now paying off, with one bank saving ~$10M/year on communications spend.
• Infrastructure costs spiked 6x, but it's a pass-through: IT infrastructure cost shot to ~₹6 crore due to composite government deals requiring hardware. Recovery is quick (30–45 days), and margins on the software services part cover the low-margin hardware piece.
• Margins are stable, not expanding yet: EBITDA margin of 18–20% is expected to continue quarter-on-quarter as investments in sales and business development persist for another six months to a year. Absolute EBITDA will be higher YoY.
• What to watch next quarter: Whether the post-Diwali roadshow translates into investor confidence, the pace of collections improvement (DSO already down to ~171 days from 214), and any hard numbers on the conversion ratio for Project Butterfly's cross-selling engine.

Project Butterfly & Revenue Transformation

• New revenue streams are materializing: Data services, translation services, cloud services, and transmission services were added under Project Butterfly and are now driving growth. These were not in the portfolio before Q4 last year.
• Composite deals are replacing pure license sales: Most contracts are now composite (license + services), with license revenue described as "most minimalistic." Enterprise license bargaining has reduced the value of pure license sales, making composite deals both more profitable and better for predictability.
• Annuity base provides a floor: Last year's ₹90 crore revenue comprised ₹60 crore annuity and ₹30 crore from new licenses/sales. Annuity engagements typically see 15–20% YoY growth, and most new contracts have opportunity to convert into annuity or add revenue through upsell/cross-sell.
• Long-term contracts anchor visibility: BSNL, Inmarsat, and Vodafone are on 4–5 year contracts, providing a base of predictable revenue while new streams scale.
• Revenue recognition is being straightened: Management is redefining contracts to recognize revenue on a straight-line basis, aiming to reduce the historical Q4 lumpiness.

C.K. Shastri: "Enterprise licenses people bargain quite a lot and you don't get the actual value what you need to deserve to get because annuity is predictable revenue for them, predictable cost for them and predictable revenue for us. And it's win-win for both the client and the vendor."

Cost Structure & Margin Dynamics

• Infrastructure cost is deal-specific, not structural: The ₹6 crore IT infrastructure cost spike is tied to composite government deals requiring hardware, software, managed services, and AMC components. Previously clubbed in operating expenses, it is now carved out for clarity. Recovery is quick, with invoices within 30–45 days.
• Margin on hardware is low, but the blended deal works: Margin on the hardware piece is low, while margin on the software services part is higher to cover up. The overall margin profile reflects this combination.
• New revenue streams carry varying margins: Transmission services are lower margin but improve stickiness by covering the last mile. Data services are high margin. Management did not provide a specific blended number.
• Investment intensity stays high for now: Investments will continue for the next six months to a year, largely on the sales front. Thereafter, margin growth could be seen. No significant additions to the ~565-person headcount are needed to service existing customers.
• Intangible assets signal product investment: ₹20.9 crore represents software under development, including a marketing communication hub ('Reach') and Blockchain solutions. Some are at UAT testing phase and will be deployed in the current year, after which amortization will begin.

Anisha Shastri: "All the revenue streams are at multiple margins like for example the transmission services is a lower margin business, but ultimately it covers the last mile. So, it improves stickiness on the customers premises, right? So, some of these are lower margin, then the data is a high margin business."

Sales Engine & Go-to-Market

• Sales hiring is domain-specific, not generalist: The company is hiring sharp-shooted salespeople with specific domain expertise: someone who sold transmission services in BFSI, someone who understands data, someone who sold for AWS/Azure for cloud services, someone who managed competency centers at IBM for talent services. Four additional sales personnel were added this quarter.
• Account segmentation drives cross-selling: All accounts have been segregated into strategic, growth, and active categories with targets for cross-selling. Sales teams are split into farmers (existing accounts with individual targets) and hunters (new business, not involved with existing accounts). Weekly calls track invoicing progress and pipelines.
• Partnerships extend reach economically: Strong partnerships with AWS, Oracle, and Natsoft (strategic partner for products and solutions) have been added to expand in international markets more economically. The Natsoft tie-up is a sales and marketing agreement, not a financial investment.
• NXT platform is used but not forced: In many implementations, the underlying IP (NXT platform) is used to optimize processes, but it is not a hard-and-fast requirement. For data opportunities, proprietary data IP for deduplication, quality, and ETL is used, but if a customer has Informatica licenses and wants to use that, the company is comfortable.

C.K. Shastri: "We have built IP assets in the data side, we have data deduplication, data extraction, data quality tools, all these things. Even our low code platform and some of the things we have built the digital engagement platform which have been deployed at scale, these tools help in delivering faster and at a better cost to the end customer."

Working Capital & Collections

• DSO is improving steadily: DSO reduced from 214 days (Q2 last year) to 197 days (March '23) to ~171 days currently. More than 20% of September outstanding has already been realized as of the call date.
• 70% of collections come within 91 days: Sticky customers, particularly some government entities, take longer. The company is focusing more on the 70% of business that pays within 90 days.
• Government deals: better margins, mixed receivables: Government deals have better margins compared to others, and not all government deals come with poor receivable cycles. Some PSUs are troublesome, and a risk assessment process has been set up before taking up new business after experience with one large PSU where deal size got truncated.
• Nigeria exposure reduced: After difficulties in collections in Nigeria, exposure to such countries and opportunities has been decreased.

Outlook & Investor Framing

• Management rejects the quarterly prism: The company explicitly asks to be evaluated on a year-on-year basis, not quarter-on-quarter. While Q2's ₹32.78 crore annualizes to ~₹120 crore, management declined to extrapolate and would not commit to a hardline FY24 number.
• Second half is seasonally better: H2 continues to be seasonally better than H1. The company has tried to straight-line Q4 across the financial year, but this depends on contracts under negotiations materializing before year-end.
• Export business is ~20% of top line: Focus has been more on India, with international partners added to expand economically.
• No sector-wise bifurcation available: When asked for revenue split by banking, government, and insurance, management said they did not have that bifurcation at hand.

Anisha Shastri: "My request to all of you also is don't look at us like a quarter-on-quarter organization. Our focus is year-on-year growth which we are gunning."

Nitin Sarda: "I would say with a lot of disclaimers here, because FY25, '26, two, three years is a very big time for the macroeconomics and microeconomics at play, which are definitely not in our control. But FY26 is where we'll see the total outcome of our Project Butterfly because we are in the advanced stages of its implementation, so I'll put it that way."

Guidance & Commitments

Key Metrics