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Edited Transcript of INTELLECT.NSE earnings conference call or presentation 14-Feb-20 11:30am GMT

Q3 2020 Intellect Design Arena Ltd Earnings Call

CHENNAI Feb 15, 2020 (Thomson StreetEvents) -- Edited Transcript of Intellect Design Arena Ltd earnings conference call or presentation Friday, February 14, 2020 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Arun Jain

Intellect Design Arena Limited - Chairman & MD

* Manish Maakan

Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking

* Pranav Pasricha

Intellect Design Arena Limited - CEO of Intellect SEEC

* Praveen Malik

Intellect Design Arena Limited - VP of IR

* Rajesh Saxena

Intellect Design Arena Limited - CEO of Intellect Global Consumer Banking

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Conference Call Participants

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* Mohit Jain

Anand Rathi Financial Services Limited, Research Division - Analyst, Technology

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Presentation

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Operator [1]

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Good evening, ladies and gentlemen. Thank you for standing by, and welcome to the third quarter financial year 2019/'20 investors earnings conference call of Intellect Design Arena Limited. (Operator Instructions) I would like to invite and hand over the conference to Mr. Praveen Malik now. Thank you, and over to you, sir.

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Praveen Malik, Intellect Design Arena Limited - VP of IR [2]

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Thank you, operator. Good evening, and welcome, everyone. Thank you for joining us today to discuss the Intellect Design Arena Limited financial results for the third quarter of financial year 2019/'20, ending 31st December 2019. Investor presentation and press release has been sent to all of you and it's also available on our website. Our leadership team is present on this call to discuss our results.

We have with us today, Mr. Arun Jain, Chairman and Managing Director; Mr. Venkat Saranu, CFO. And also in the call are Mr. Manish Maakan, CEO of iGTB; Mr. Rajesh Saxena, CEO, iGCB; Mr. Pranav Pasricha, CEO of Intellect SEEC; and there are other senior members of the leadership team also on the call.

Mr. Arun Jain would first brief you on the performance. This would be followed by Q&A, which will be replied by the senior members of our management team.

On safe harbor. I would like to remind you that anything which we say which refers to our outlook for the future is a forward-looking statement, which must be read in conjunction with the risk the company faces.

With this, I hand over the call to Mr. Arun Jain for his brief on the result. Over to you, Arun.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [3]

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Good evening to everyone. Thank you for participating in this quarterly call. Let me walk you through the Q3 performance as well as update on the progress we have made in our journey during this period. As you have observed from our financials, we have closed Q3 with a revenue of INR 320 crore, that is 45 million, dollar terms, with EBITDA of INR 3.57 crore and negative profit of INR 8.54 crore. Our collection is higher by INR 22 crore, prior quarter, resulting in reduction of net debt by INR 9 crores.

On a revenue trend, our results for this quarter were impacted as we could not close the complex sign-off process for deals worth about $5 million in license value. While we have won these deals, conclusion of the contracts and other documentation would enable us to recognize this revenue in -- is taking quite a while. This process is a stretch with many global banks and almost goes beyond a quarter after the decision has been made. This would have been recognized -- this would be recognized in Q4. We have presented a set of figures just to demonstrate the scenario. If this had, in fact, been concluded totally, in that scenario, revenue would have been INR 355 crore, that is $50 million, with EBITDA margin of INR 37 crore. So that would have been the scenario. So we put in the investor deck, a scenario with pending documentation for progressing closure.

A key aspect of the -- on revenue that I wish to highlight is the progress we are making on the cloud and subscription business front. In the same quarter last year, we had shared that SaaS subscription revenue were amounting to 5% of total revenue. Several analysts had predicted that market would have moved SaaS model sooner than later. A year later now, our SaaS revenue has grown by nearly 50% compared to annual run rate of INR 84 crore last year, Q3. These are now stand at INR 132 crore, an addition of INR 48 crore to the ARR. In the current quarter, SaaS revenue represent 10% of the revenue with AMC revenue at an annual run rate of

(technical difficulty)

So what I was mentioning is our SaaS revenue has grown up by 50%, and ARR has come to INR 132 crore, while this quarter, revenue was INR 33 crore, which is amounting to 10% of the total revenue. In last 1 year, it's almost -- share of the SaaS revenue has doubled up from last year, while the growth is 50% in the terms of base revenue. A significant number of implementation gone live in these 3 quarters. And this quarter, we have impacted on implementation revenue. It has come down in this quarter. So last quarter itself we have 17 -- 17 lives have happened. So all the sign up which happened, which you were asking me last time that so many license we announced in '17/'18 and '18/'19, those closures happened during this quarter. So that high number increase in those quarters have now impacted the Q3 on a lower implementation revenue. So this is about the revenue kind of a pattern.

GTB has performed around $22 million, if you take into the consideration of the $5 million deal, which has not been accounted. It's lower than what we expected earlier. But I think their focus was significantly on consolidation as well as the market volatility because they are -- their major revenue comes from advanced markets. Manish will speak about the commentary on GTB.

Let me speak on the power of design thinking in bringing the efficiencies. In last [several] quarters, since we started Intellect 2.0, we are focused on industrialization. This industrialization has resulted into getting into finer details about requirement planning to the implementation, and that resulted into a lesser effort, lesser cycle time and more competitiveness in the marketplace and -- because of which we are now in a mode where our products are maturing, our major investment, which we increased during the '19 because there was a shift in the marketplace from product to the platform, where my research and engineering cost has moved up from run rate of INR 92 crore to a run rate of INR 132 crore in Q1 onwards. Now this last 1 year, we spent the time rightly -- that money was spent rightly, and that money has now started coming down. Last quarter, the number has come down from INR 132 crore annualized number for R&D expenses to INR 124 crore. And in coming quarters also that decline will continue, so that it will come down to reasonable number on R&D expense, and that is because of closure of the projects.

And similarly, implementation reductions. So over the last 2 quarters, our costs have come down. If I look at it from previous quarter, our cost has -- run rate has come down by INR 64 crore from INR 332 crore to INR 316 crore. And from last year perspective, it's come down to INR 80 crore, from INR 336 crore to INR 316 crore, which is INR 20 crore per quarter and INR 18 crore on annualized basis. That's a substantial improvement in efficiencies. So I must congratulate all the teams at Intellect that they have worked on design thinking, low-coding platforms, both the strategies are working very well for the company. It is giving a better score, NPS score to the customer and it's resulted into a -- one of the largest implementation, which is the fastest implementation. In just 11 months, we are able to make the complete transformation of corporate banking for one of the largest Middle East bank, which normally takes 18 to 24 months to do it. So I think that's the power of design thinking, which is getting applied and bringing efficiency of the scale. So this cost reduction is not because to just show your margins, this cost reduction is a genuine cost reduction because of the design thinking. So there was a question being asked last time, are you cutting cost to show the profit. That was not the point of view. In a product business, there is a time when you spend money for creating a shift whenever shift happens. And last year was a shift from product to platform and that shift was substantially large and from license revenue to SaaS model. So both the 2 shifts, we are able to take care in 2019. I think that's why we are starting 2020 with a very positive picture because we have a good platform, which Rajesh will give a commentary on IDC 19. We are -- Intellect Digital Core is a full platform with open APIs, ready for Europe and Asia Pacific, Middle East markets.

Our strategy of entering GCB, which was my focus, which I announced in Investor Day during last -- 2 years back, that first '18/'19 was a year of GTB to stabilize. '19/'20 was GCB. So GCB is now getting a good traction and '20/'21 is SEEC, and '21/'22 is RTM. That's how we put the strategy. We have a calibrated strategy, which we are working on it.

Second platform, DTB is very, very stable platform, which takes care of the corporate digital, payments, liquidity, virtual accounts and cash flow forecasting, which is live in India, Thailand, UAE, Vietnam, Canada and Malaysia. Exponent, the underwriting platform, is with data and intelligence and intake, is proven in U.S. market on AWS cloud. Fabric Data Services also has been deployed for customers in U.S. markets. And credit card platform is ready for deployment on cloud in India and Chile on -- in SaaS mode. We have 3 platforms in the pipeline, which is -- which are going to be launched in next 6 months. There is a cloud-native lending platform for SME business, is ready for India, Middle East, and will be live shortly for multiple customers. The integrated trade and supply chain finance product is also shortly to move to that stature of the platform. Together, lending and trade supply chain finance platform has potential to be powerful financial engine to meet the requirement of small SME businesses.

And third platform of Wealth, which is now live in UAE, Malaysia, Thailand and India, is also -- will be available for launching on a larger scale. So these 4 platforms are in the pipeline, 5 platform has launched in last 6 months. If you look at it, what this platform delivers the value, since last 5 years, since April 2015, we did some analysis. We found the 2 platforms, IDC and DTB, have cumulative revenue -- each one of them have revenue cross INR 1,000 crore. So it means, it's close to $150 million we clocked on IDC, and similar number has been clocked on DTB. So these 2 platforms are -- reached to the level of $150 million. The next 2 platform, payment and liquidity has generated INR 500 crore each, which is close to $70 million, these 2 platforms. And then next 2 platform, which is lending and strategy, these 2 platforms have generated a cumulative revenue, INR 300 crore each, which is close to $40 million number.

So if you look at the portfolio approach, 2 platform, INR 150 crores; 2 platform, INR 70 crores; next 2 platform, INR 40 crores, and then the -- we have next 6 platform, which has a potential to build and -- build the traction on it over the next few years. So there's a healthy pipeline of the products to monetize as we move forward in this journey. After industrialization is over, now it's a focus on customer assets. We have close to 240 customers. So lot of focus is on now getting into monetizing at the customer's site and creating a customer impact.

For creating a brand, this quarter, we completed Cambridge event with Digital Core, how the digitalization -- 25 bankers of global came to Cambridge University, and with Cambridge professor, we did have 3-day event. It created a very good conversation with the bankers that what they are looking for it.

So overall, I will summarize that, I think our SaaS revenue increased. Our AMC revenue increased. Costs have come down. Collections have gone up. Net debt has come down. And we want to stay focused on our priorities in a calibrated manner. So without any anxiety, we feel that business is on the right track, though it should -- it could have been better if my deals would have been closed at -- contracting would have happened at the right time. And overall, I think we are happier that, okay, 10% of SaaS business in 1 year from 5% to 10% is a very big shift and company is able to take that shift very smoothly within similar kind of a budget patterns and similar kind of a cost. So our product quality and functionality as well as market acceptance has gone up well.

At this point of time, I want to give it to Rajesh to speak about GCB because that was a year for him to put the business in traction and in a profitable mode. Rajesh, to you.

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Rajesh Saxena, Intellect Design Arena Limited - CEO of Intellect Global Consumer Banking [4]

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Yes. Thank you, Arun. So let me begin and provide a brief summary about where we are on GCB. GCB consists of a couple of product lines. And today, I want to talk about 3 product lines. The first product line that I want to talk about today is IDC. All of you are aware that we had a recent launch of IDC 19. It is our flagship product. So a little bit about what I'm seeing from a market trends perspective, and then I'll cover -- I'll give you a brief summary of GEO and how do we see IDC going forward.

So from a market trend perspective, we are seeing that there is an acceleration of deals moving towards SaaS. We are seeing on IDC, a clear advent of open banking and along with open banking, we are seeing the need of an open tech architecture with open API, which is very well suited for our IDC platform. We are also seeing many countries launching digital bank and giving licenses on digital bank, both to existing banks as well as to new banks. So these are some of the market trends that we are seeing from an IDC perspective.

From a business perspective, we are also seeing that deal closures are taking more time than they were taking earlier. So if it was taking 6 months in the last year, it's probably taking us 8 to 9 months this year. So that's a very -- summary highlight of the key trends on IDC.

From a GEO perspective, I want to remind that we are not in Americas, but we started our journey in Europe 2 years back. We are seeing very good traction in Europe. We already have a couple of clients in U.K. and Continental Europe and in close conversation with many prospects in Continental Europe. Middle East has come up very strongly for us, and APAC continues to be a steady growth engine for us. So -- and if I look at it from a pipeline perspective, if I look at our Q4, we are chasing 7 deals in Q4 on IDC. And with this, I feel cautiously optimistic about our prospects of IDC.

The second product line that I want to talk about is central banking, IDC central banking. We also sometimes call it QCBS. This is -- we are probably the only company which has a fit-for-purpose central banking solution. So this business is really deal-specific, right? And it depends on how many deals are there. So at this point of time, we are pursuing a couple of deals. These are large ticket items. So -- and we seem to be well placed, and let's see how well we can move ahead and navigate in these deals. So that's from a central banking perspective.

On the lending piece, I think Arun talked about it, a little bit about our lending proposition. After our last year release of micro services, cloud-ready loan origination module, we are seeing extremely good traction on this product. And we are seeing this traction in Middle East. We are seeing this traction in Asia Pacific, and interestingly, we are seeing very good traction of this product in Continental Europe. So I think from a lending perspective, my summary would be that, especially our loan origination product, we are seeing good potential and good growth perspective.

So that was a summary of the 3 product lines. So overall, cautiously optimistic. We have enough deals in pipeline, both for Q4 and Q1 and Q2 of next year. So I would say, at this point of time, cautiously optimistic about our performance going forward. Back to you, Arun.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [5]

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Thank you. Manish?

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [6]

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Hi. Arun, thanks. Now 2019 calendar has been -- we've had -- we've seen a lot of headwinds from the global trade slowdown due to the U.S.-China conflict and Brexit because the -- my business has been focused on Americas and Europe. We've also seen increased M&A in midsized banks in U.S., which has deferred decisioning for us where we made a lot of good inroads in this, and we've had 5 major customers, senior management changes that have happened. These have been very significant events, which now by Jan '20 are behind us. Like Arun called out, we had a major deal with a $5 million license, which takeover couldn't be completed in Q3, which is in Q4 now. With this behind us, along -- while we have this, we've had a very strong execution focus. We have had 17 major go-lives in last 6 months. These are all programs which we sold over the last 18 months, which we saw a lot of license growth for us. These are -- 9 out of these were for DTB, 4 liquidity, 2 digital, 1 payments, 1 trade finance, across all 4 regions. This will now lead to 19% growth in AMC next year for us. 11 of our customers won 34 major global awards that -- in last quarter, and our 3 new platforms, 1 award. So there's a very strong customer franchise that has been built up right now. Look forward to next year to monetize this franchise and get back on to the growth track.

Arun, back to you.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [7]

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Thank you, Manish. Pranav, for update on AI data and insurance.

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Pranav Pasricha, Intellect Design Arena Limited - CEO of Intellect SEEC [8]

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Sure, Arun. So Q3 has been a positive year -- sorry, positive quarter for us. We continue to see quite significant growth in our key U.S. accounts. If you've heard our commentary in the last few quarters, we've gained quite a substantial customer footprint on our new offerings in the U.S. and all the new sales are all 100% SaaS driven. So the good thing for us is every single customer we're finding cross-sell and upsell opportunities, and we're expanding our footprint. We've also had a new major global customer in terms of notable new wins, that has been on-boarded in Q3. And we've already also looked at signing some new major customers in Q4. So the trajectory of growth, both in terms of with -- in account, upsell, cross-sell based on expansion of our data payloads, our cloud revenue that is growing very positively. Also we are gaining new ground in terms of new client wins and geography expansion. We'll talk more about that when we talk about Q4 results.

So the good news is we're continuing to see the scalability of our engineering in the true SaaS model. So gross margins continued to improve. However, as you know, in the short term, on the SaaS model, we have a significant amount of implementation cost, which is front-loaded. So the overall short-term net margin continues to be lower than where we would like it to be. But overall, the growth and the gross margin profitability is very strong. The adoption -- the feedback of our AI-based software is extremely strong. We have 100% customer retention. We have 100% growth in every single account that we are in. And the growth trajectory of new accounts is very significant also. So I would say good momentum going into 2020.

Arun, back to you.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [9]

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Thank you, Pranav. I think important point is, Pranav has set sort of a franchise in center of the U.S., which is most difficult market on AWS, for which most of the investments are running on the same cloud. So if more cloud -- more customers are coming, the incremental investment on that cloud would be not that huge. But obviously, the presale cost is higher in this case because for AI and machine learning business, he has to build up a POC for which customer doesn't pay upfront money or implementation revenue. So that's the shortfall which happens for which is -- which may have an impact on -- which may not have an impact going forward because that's built in into current numbers. But that number, if it would have been licensed, then it would have been much better. So 2021, as we forecasted that, that is a focus of SEEC business. So next 4 quarters, we'll be looking how the SEEC business takes off, like the GCB has done. So calibration-wise, GTB, GCB, SEEC and RTM, so that's how the trajectory is. So that's why, this time I'm saying, T. V. Sinha will start speaking next time onwards when the treasury, brokerage, capital market will be taking some shape. But this time, they are building on franchise of high-volume processing with the Citibank, Reserve Bank of India using our treasury solutions. So those solution on (inaudible) are going to create a value when we start marketing and putting some marketing dollars behind it.

So with that, I open up for the question-and-answer session. The presentation deck, you must have seen, so I'm not repeating those numbers over there. So please go ahead with your question set.

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Praveen Malik, Intellect Design Arena Limited - VP of IR [10]

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Operator, please open it for the questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) First question of the day we have from [Rohit] from (inaudible) Capital.

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Unidentified Analyst, [2]

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My first question is on GCB. I mean, it's interesting to know that both GCB and GTB together have generated $150 million. But I was wondering, is the margin profile for both the businesses same?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [3]

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Within GCB and GTB?

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Unidentified Analyst, [4]

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Yes, GCB and GTB.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [5]

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Yes, margin profile -- as of now, the margin profile for last 3 quarters will be lower in GCB. But I think if you're looking at 2020 for next 4 quarters, the margin profile will catch up because there is a point of time, traction point is there, where the -- it will catch up. And cost of GCB are lower because lot of GCB costs are India-based versus GTB cost is lot of advanced market. So that way margin profile of both the businesses are going to be equal in 2021.

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Unidentified Analyst, [6]

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Okay. Sir, I mean -- sir, I understand that -- I believe that GTB is more of a global leader in its space, but I believe GCB has a lot of competition in its space, right, sir, despite that it's able to generate the same margins as GTB, is it?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [7]

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Competition is -- the pricing is not such a serious concern in what we said -- even if the competition is there, we are looking in GCB, competition as Temenos and new players, which are emerging in digital banking, so there the pricing is not a discounted pricing. It's about anybody who wants to make a change in the core banking, he's not looking at pricing as a parameter, he's looking (technical difficulty) as a parameter. So earlier, we were not fully ready with AI, digital platform-ready. I think with the European side there, with the Temenos being leading and growing well, is giving us a good head space for creating a good margin space.

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Unidentified Analyst, [8]

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Okay, understood. And sir, on the -- on SaaS and subscription revenue, am I right in understanding that this is entirely the subscription revenues and there's no cloud implementation revenue in this number?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [9]

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No, this is all SaaS and subscription. So it's a mix of hosted services, it's cloud hosting. So it could be private cloud or it's a public cloud. So there's -- 2 different models are there.

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Unidentified Analyst, [10]

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Okay, understood. And are there any costs associated with these revenues?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [11]

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Are all bundled into this. So they are all variable costs. So we normally take a private cloud on a rental from a cloud player on private basis. So there is no upfront cost on that. But upfront cost of implementation is upfront. So that we have to -- that reduced our margin in first 6 months or first 9 months. Like there are 2 deals in GCB, for which they will go live sometime in second half of the year, for which all the cost is being incurred. So those will be the burden for our implementation revenue.

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Unidentified Analyst, [12]

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So on an ongoing basis, I understand the upfront implementation costs that you have to incur. But on an ongoing basis, would I be right in thinking that the margin on this particular piece of revenue is about 60%, 70%?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [13]

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Not in the 2021. That will be -- if I take only absolute margin for the delivery, then it's 70%. But if you're looking at the POC cost and presale cost, it comes down to 30%, 40% in the first 2 years. I think that will be up to, I would say, June '21 or September '20 or next 18 months, the cost will be -- margins will be depressed on this business.

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Unidentified Analyst, [14]

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Okay, understood. And generally, I understand that the subscription revenue generally grows, but why is there a decline after the first quarter that you have indicated? I think it's gone down from INR 23 crore to INR 18 crore. Why is there a decline in this run rate?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [15]

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Yes. So that is basically the government e-marketplace. That time, there was an election quarter in which there was a decline.

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Unidentified Analyst, [16]

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Okay. Okay. So this number includes GCB, iSEEC and the government e-marketplace numbers together. Is it?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [17]

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Yes, government e-marketplace. So GCB, SEEC, and government e-marketplace. GTB doesn't have too many businesses on the cloud as of now.

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Unidentified Analyst, [18]

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Understood. And the last question from my end, sir, now is, it's a broad strategic question. I believe, towards the end of the last financial year, Mr. Jain, you're talking about how you were very happy with the trajectory with the license size going up, and we are going to focus only on large big deals and putting the management and the company bandwidth into these, and that is the natural trajectory for any product company that is scaling up. But over the last couple of quarters, we have seen a change there in the sense that we have appointed a chief monetization officer to monetize the already existing software and target Tier 3, Tier 4 customers and then entering into another segment of security as well. So there seems to -- means to be a major change in strategy where we are going for focusing on only large big deals and now we're going into more pieces. Sir, could you explain why this change has been there?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [19]

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Yes. I think, if I explained initially the Intellect 2.0 strategy, one was industrialization and second is monetization. So when you're looking at pattern of the growth and we wanted to look at very large deals, the way we did it in '18/'19, '19/'20, those deals, we are finding a big shift in the marketplace. We were expecting SaaS and subscription revenue to come by at least 18 months delay. So we were looking at that time in April 2019, our whole judgment was that still a slow adoption of subscription. People asking us the rate, but they're not willing to bet on it. But now, suddenly, we find AWS and Azure's market capitalization led to the adoption also significantly, and every deal is getting disrupted by asking possible cloud revenue -- cloud options. So even if they don't want to purchase public cloud, they still ask for the cloud option, and that is the delay, which Rajesh was mentioning, the 6-month cycle is getting to 9-month cycle. So they ask both the option. Okay, let me evaluate both the option. And then we have to spend POC time with both of the -- both the options, which is available to us. So that's why I think that's a 1 answer question. Secondly, your question is why we are getting into security or horizontal space. I think this is a idle asset which is there, whatever we have already built for 200 clients. (inaudible) security is working very well for 200 banking clients over the last 10 years, how do I monetize it without disrupting the major organization? This is no-sales monetization strategy where we are doing only digital marketing, digital sales. No no-sales focus is to be diluted. It's done by the CTO office and the team of 10 no-sales monetization team internally. So -- and we are not using Intellect brand significantly over there. We are using ARX brand for doing it.

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Unidentified Analyst, [20]

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Okay. Understood. Sir, I'll get back in the queue, but 1 feedback or suggestion, if I may, that the results were uploaded -- the presentation was uploaded only at 4:30, and it's too a little time for us to read and prepare questions for the conference call. So maybe if you can have it 1 day before and then have the con call the next day, that would really help us.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [21]

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Okay. We can do the next time next day call instead of same day call, that's not a -- yes, perfect.

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Operator [22]

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(Operator Instructions) Next, we have Mohit Jain from Anand Rathi.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [23]

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Sir, one is on the margin side. What are you looking at from EBIT margin perspective for next year?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [24]

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See, next year, we're looking 20% EBITDA margin. Not EBIT margin, EBITDA margin of 20%. That's what...

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [25]

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No, EBIT level because your amortization will also kick in, I guess, for the product that we have capitalized over the last 2, 3 years.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [26]

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Yes. So immediately I'll not be able to respond to EBITDA margin versus EBIT margin. So EBITDA margin, we are tracking EBITDA margin, but we will be liking to do 20% plus.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [27]

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Okay. And second is on the cost side. You have reduced cost both on SG&A and employee side this quarter. So this improvement will continue or this is the new run rate that we will maintain going forward?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [28]

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No, this will continue. These are the cost -- these are new cost lines.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [29]

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So 3Q '20 is a stable cost base that we should assume? And then incremental...

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [30]

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For Q3 '20 -- yes, bottom line to EBITDA line, yes.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [31]

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3Q '20 onwards, sir, incremental revenue growth and the $5 million as you have shown in pro forma, 70% of that will get converted into EBITDA. Is that a fair assumption?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [32]

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That's a fair assumption.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [33]

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Okay, sir. And any visibility on your growth path, like 3Q, 2Q, we saw some delays to 3Q, 3Q to 4Q. So now on a Y-o-Y basis, the number that you are looking at from a growth annualized perspective?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [34]

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Mohit, I would have given the bet, but I don't want to take a bet on any guidance here.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [35]

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No, but any improvement because pipeline is more or less steady.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [36]

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The pipeline is steady, so I just want to remain silent on any of the guidance right now because I'd want my fingers...

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [37]

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Any significant change in 4Q? Or you are only betting on this $5 million thing which will come through?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [38]

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No, no, no, it's the same traction, which we are looking at it, just a question of closure here, what Rajesh and Manish have in the marketplace to close. There's nothing changed in the marketplace. GCB has -- no, GTB was doing very well. Now GCB also has started getting the same kind of attraction as GTB is getting and we are getting direct head on with Temenos and winning the deal with FLEXCUBE and Temenos. I think that's a very good news for the investor. In the U.S. market, we have AI platform, which is there. So I think all the 3 businesses are now in a performance stage. Then we need to focus on RTM next year, and then we can bring all the 4 businesses on the shape.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [39]

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And sir, lastly from a free cash flow perspective, when do we expect to turn positive now?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [40]

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It's a marginal number. We have the free cash flow versus this is a few numbers. It's about our collection, which is -- total collection pending is around INR 600 crore, which is pending. So if we have another surplus number of $50 million, $55 million between that number, free cash flows are there. We did $47 million last quarter. So $3 million, $4 million gap is there. Because now if you look...

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [41]

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Your receivable days will remain here only, right, given the current business mix or do you see there's some scope of improvement there?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [42]

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I don't know, for the next 2, 3 quarters, it is --

It will remain here. So our receivables was INR 614 crore last September 30, it became INR 592 crore in this quarter -- this quarter, so there is a reduction of INR 22 crore on absolute number, while days, I'm not tracking days because to manage the cash flow, I need to manage the absolute number. So INR 614 crore has come down to INR 592 crore. And then that would drive the INR 9 crore debt -- reduction in the debt for this quarter.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [43]

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Right. So broadly, operating metrics will be similar is what I can assume?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [44]

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That's right. Only Q1 will be the major...

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [45]

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Q1 will be the major?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [46]

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The bonus payment will be there, [AP, DP] and bonus payment. So that's the time we require some more cash.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [47]

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So employee expense will shoot up in Q1 is what you mean?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [48]

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Yes, that's right, employee payout.

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Operator [49]

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Next we have [Rohit] from (inaudible) Capital.

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Unidentified Analyst, [50]

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Could you give your thoughts on how the government e-marketplace business is progressing?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [51]

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We -- our expectations are much higher (technical difficulty) performed. So our ministers are saying that they will do INR 50,000 crore this year, in June, July. So after the government came into picture, they were quite optimistic about it. But it took some time to put the government in action. So let's say, next year, it would be much better. January, February, March, obviously, it will be better quarter, and government purchases happen in January, February, and March. So this quarter will be better than the last quarter. But we are not able to predict April, May, June because last year's, April, May, June was a -- it just zeroized because of election year. No government department could purchase during the election period. So -- but overall, we are looking that it should -- next year, we should at least grow by 50% plus next year on government business.

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Unidentified Analyst, [52]

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Okay. Sir, when you had bid for the contract and had won it, is the business tracking your expectation that you had when you won the contract? Or is it below your expectation or above your expectation so far? I am talking cumulatively.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [53]

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So far, it is as per the expectation. Whatever RFP guidelines were there, it is as per the expectation of the RFP guidelines.

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Unidentified Analyst, [54]

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Okay, understood. And sir, the next question I have is, you mentioned that we're going to launch a few platforms and products in the next year. Sir, I remember that we have brought in 12 products at beginning of financial -- this financial year. So are the number of products that we are having in the basket increasing after this? Or are these the same products we're upgrading and moving to cloud or something like that?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [55]

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They are same 12 products. We're not going to increase anything, new products. We're just monetizing one-by-one. So I'm saying 6 products -- I mean 6 platforms, IDC and DTB, INR 1,000 crore in last 5 years, 2 platform; liquidity and payment, INR 500 crore; next 2 platform, INR 300 crore. So that's how -- 6 are getting monetized. 6 remaining are there, which we are planning to do it in next. So that's the pipeline for next 5 years.

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Unidentified Analyst, [56]

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Okay. So we're going to stick with the 12 products that we have and are trying to monetize them to the extent possible over the next 5 years. That's the plan?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [57]

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That's right. That's the plan.

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Unidentified Analyst, [58]

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Okay. That's helpful. And the last question from me. If you could please...

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [59]

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What we are demonstrating is...

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Unidentified Analyst, [60]

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Sorry?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [61]

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What we are demonstrating is a pipeline of how the revenue flows in. What we started in the beginning, they reached INR 1,000 crore, next we started that reached to INR 500 crore. Next we started, INR 300 crore. So that's a proper flow of product focus and pipeline, the way we have learned the art of selling this product in the marketplace.

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Unidentified Analyst, [62]

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Understood, understood. And I mean, if you remember correctly, in case of iGTB, we had an ambition that this segment will reach INR 1,000 crore eventually in 1 financial year itself, given how much attraction and the leadership we had in the marketplace. Is it something which you think is -- and I'm not asking when, but is it something which you think is possible down the line?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [63]

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Obviously, and that's why we have built the business. GTB alone business, annual business should be INR 1,000 crore. Whether it happens next year or next to next year or 2 years later, but that's a way we build the business of $150 million business. That's why we are striving hard for it.

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Unidentified Analyst, [64]

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Okay, understood. And the last question from -- sorry, please go ahead, sir.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [65]

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Yes, yes, go ahead. (foreign language) go ahead.

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Unidentified Analyst, [66]

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Sir, the last question for me is, how do you see the cloud revenue or the subscription revenue with certain -- cloud as well as -- recurring revenue, which is the cloud and the AMC revenue, which is an attraction of around INR 33 crore and INR 63 crore right now. How do you see that moving in the next financial year?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [67]

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We think AMC will be moving by 15% year-on-year. So '19 -- next year, GTB has advantage because lot of product sales (inaudible) '18/'19 and '17/'18 is getting materializing over here. So 15% is a run rate for AMC growth. Cloud -- SaaS, we are not able to project right now. It's moving very well. Chances are it should grow higher, but exact number I cannot give right now.

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Unidentified Analyst, [68]

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Okay. But you do see good growth there in the next year?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [69]

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That's right.

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Operator [70]

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(Operator Instructions) Next we have (inaudible) from [J&J Holdings.]

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Unidentified Analyst, [71]

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I just heard you guys saying that you all were expecting the cloud wave to come a bit later. So do you all feel like you all are ready with the product for the cloud? Means, since you all didn't expect it to come so soon, these are products ready to be sold or are features still that need to be worked upon?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [72]

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As I mentioned, 5 platforms are ready. 4 platforms are getting ready in the next 6 months. So out of 12, 9 platforms we have chosen to go on a cloud or a subscription-based model, SaaS model, out of which 5 is ready, 4 to be going forward. And that's why we had a higher R&D expense in 2019.

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Unidentified Analyst, [73]

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That means, last year, there was a high R&D expense for this particular reason?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [74]

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That's right.

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Unidentified Analyst, [75]

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Okay. And when you say products and platform, you use them interchangeably? Or -- so when you say 12 products are there, but then 9 platforms are there.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [76]

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Basically, when you move a product to the platform, then you have to look at a lot of ecosystem-related integration and ecosystem-related marketplace work. And it should be ready for security and performance of the -- so platform is a much larger word than the product. So every product is not ready for -- to this -- we have not chosen all the 12 products to go to platform.

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Unidentified Analyst, [77]

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Okay. So 12 products will go -- will become -- only 9 of them will become platforms. And of these 9, 5 are already and 4 will be becoming ready in the next 6 months?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [78]

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That's right.

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Unidentified Analyst, [79]

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And so in terms of -- and on these 9 platforms, you all are seeing, at least the ones that are -- we are already selling the 5, that those -- are you all seeing good enough growth in those areas, the ones that we're already selling?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [80]

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That's right. We're seeing a good -- that's what Pranav has highlighted, that's what Manish was highlighting DTB. That's about IDC, Rajesh had highlighted. These are having a good traction.

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Operator [81]

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(Operator Instructions)

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [82]

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Okay. If there are no questions, we can close the call.

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Operator [83]

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Sir, just 1 question in queue. Would you like to go ahead with that?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [84]

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Yes, please go ahead, we have time. Yes.

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Operator [85]

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I'm sorry, sir, he has dropped off, so no more questions. Thank you so much for addressing the session, sir.

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Praveen Malik, Intellect Design Arena Limited - VP of IR [86]

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Yes. You can close the session in case there is no questions.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [87]

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That she has already done. Okay. Thank you very much for participation. Any other question, please write to Praveen Malik, Head of Investor Relations, he will answer to you. Thank you.

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Praveen Malik, Intellect Design Arena Limited - VP of IR [88]

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Thank you, everybody.

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Operator [89]

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Thank you so much speakers for addressing the session. Thank you participants for joining in. That does conclude our conference call for today. You may all disconnect now. Thank you, and have a pleasant evening.