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Edited Transcript of INTELLECT.NSE earnings conference call or presentation 24-Jul-19 11:30am GMT

Q1 2020 Intellect Design Arena Ltd Earnings Call

CHENNAI Jul 31, 2019 (Thomson StreetEvents) -- Edited Transcript of Intellect Design Arena Ltd earnings conference call or presentation Wednesday, July 24, 2019 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

* Venkateswarlu Saranu

Intellect Design Arena Limited - CFO

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Conference Call Participants

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* Baidik Sarkar

Unifi Capital Pvt. Ltd. - Research Portfolio Manager

* Mohit Jain

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

* Shyamal Dhruve

PhillipCapital (India) Pvt. Ltd., Research Division - Analyst

* Rajeev Agrawal

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Presentation

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Operator [1]

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Very good evening, ladies and gentlemen. Thank you for standing by, and welcome to first quarter financial year 2020 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. 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 financial results for the first quarter of fiscal 2019-'20 ending 30th June 2019. The investor presentation and the press release has been sent to all of you and is also available on our website. Our leadership team is present on the call to discuss the result.

We have with us today, Mr. Arun Jain, Chairman and Managing Director; Mr. Venkat Saranu, CFO; Mr. Manish Maakan, CEO iGTB. And also on the call, are other senior member of the managing...

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Unidentified Company Representative, [3]

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Pranav is also here.

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Praveen Malik, Intellect Design Arena Limited - VP of IR [4]

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Mr. Pranav Pasricha, CEO of Intellect SEEC. Besides, there are other senior members of the leadership team present in the call. Mr. Arun Jain will brief you on the performance, and this will be followed up 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. This must be read in connection with the rest of company faces.

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

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

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Good evening, everyone. Thank you for participating in this call. I think the business outlook at the end of first quarter, we are looking that the business much healthier in the last 3 months of entire marketing, moving the product out, getting accepted. Though there are some slippages of a few deals, which have not shown up in the result, but I would've loved to have. And that resulted in the shortfall in -- substantial shortfall in EBITDA, which is attributable to the reduction in the license revenue during the quarter, which got deferred for the lack of some documentation provided in-depth perspective. So overall, the result maybe on the face of it may look that is not appropriate, but over the last 1-year period, year-to-year basis, we would have grown 14% in rupee terms and 10.5% in dollar terms and the $2.2 million or INR 15.7 crores license, which have got deferred for the -- which we always delivered but not accounted in the books of account because of the in-depth regulation. So that's our kind of a overall picture which is there.

Well, the good news is Intellect Digital Core, IDC 19.1 is gaining momentum. So till last quarter, when I was sharing with you, we were saying GTB business is now having the healthier outlook, the pipeline is there, the momentum is there. But this quarter, iGTB has not performed to the benchmark or the numbers, which is there much lower than that last quarter, and that has resulted -- but on the other side, the GCB business, which is IDC business, has performed and now become to the profitable trajectory. And the beauty is that digital core banking system, we are winning the deal against our core competitor like Temenos. And (inaudible) that there with our 2 major competitors which we have seen in the marketplace, and we are seeing the market opportunity of digital transformation is increasing. A lot of opportunities are coming up who are upgrading their core banking systems, which they bought in 2005, 2006. It's now end of journey of some 15 years. So that is on a positive trajectory from the way of product is the way we implement it. And it shows in 1 large deal called Central Bank of Mongolia, which you win now after Central Bank of Indonesia this is the next deal in the region, which we are taking the leadership. Second piece is Intellect SEEC, is working on AI business and data business for quite some time, and we have invested heavily on AI business, cloud business over the last 4 years of our journey. And this quarter, we are able to crack the -- underwriter an data algorithm. The cracking an algorithm in AI business is when some customer test the data and prove to the market that this data is acceptable and this data is superior. This data is 30% superior to your competition's data quality. And that is where, in last quarter, one of the largest insurance players has certified on the data quality. And in the public forum also, they certify. This business is a highly scalable business, as you know. Data business is scalable business because this is a almost transaction-based business. So that is a positive news, and therefore, keep us excited for this quarter, what is -- why I'm saying it's a healthy quarter. Healthier than what we believe -- though the number may not show it, but internally, we know why these 2 businesses out of 4 businesses. Now our 3 businesses around track and group track just not some track, it's a highly growth track.

Along with that, we started looking simple internal and operational excellence with a product maturity coming in, we are looking to delayer the organization, shifting down responsibility to one level down. So whatever the SVP or VPs used to do it, it'll be done one level down. This to reduce forward cost of containing the cost for the growth. And similarly, some of the design talent from U.S., Canada is moving. We are shifting those talent to India or shifting those first package to India. So that now with the maturity of the product, that is possible to move.

With this initiative, we can able to contain cost going forward in forward quarters. And the next thing is very interesting thing that happened, what we are explaining to you over last 4 quarters, that less is more. We want lesser number of opportunities, but we need to have higher focus on closing it. And with that, if you look at it, our funnel, we are not going beyond $500 million because we believe that this isn't the right size of funnel for our business (inaudible) due to quite focus for the customers because if the funnel become $700 million then it becomes difficult for sales team to focus, the kind of a customer-centric is required for the closure. So in last 4, 5 quarters, we retained the funnel. Now if we look at it, every deal value is going up, so this quarter has substantially moved up. We have only 134 opportunities. We have qualified named opportunity, resulting to $475 million. And this 134 qualified means substantial qualification is done now. Where all the RFPs have been published. We have responded to those RFPs, that will qualification which is there.

On collection front, it was same as last quarter revenues. And as of now, we have visibility of 20% growth of revenue as we discussed with all of you during the latest Investor Presentation.

On numbers front, just Slide #3, we are INR 343 crores against INR 300 crores, which is a 14.41% growth. We are $49.36 million against $10.3 million. License revenue grew 41% from INR 46 crore to INR 65 crore. AMC revenue grew by 8% from INR 55 crores to INR 59 crores. We had INR 15.4 crores of deal deferment during the quarter, which will be booked in Q2. So with this revenue if it hadn't been there, our growth would have been 19.5% with a gross margin of 49%.

We have won large deals. Order with Bank of Mongolia is already shared in GTB. We won a deal in Vietnam. I think there's a simple phrase, winner gets all. So if you look at Indian market Pinnacle they win in Indian market, but Temenos will win in European market. So it's about market to market selection. But I think the strategy which is working out is that focus on a market. And then with the fifth largest -- fifth deal in Vietnam market we won in GTB.

Our gross margin of -- at INR 161 crores, INR 162 crores as against INR 140 crores. The EBITDA came down to INR 12 crores, substantially lower than last quarter, but on annualized basis, it is similar to INR 13 crore. Last year also we had to defer $2.6 million of the deal which came in Q2.

Order backlog of GeM is more than INR 500 crores, this is just at INR 400 crores. More and more focus is going, you must have seen, Economic Times. The government focus is targeting INR 100,000 crores. This year it fell. But this isn't just a very, very conservative figure on order backlog and other cloud deals is INR 300 crores as order backlog. The investment in product development, which is capitalized is in the line around INR 29.5 crores. Cash and cash debt position, this was a question last time you asked. So cash and cash equivalent is INR 114 crores as against INR 108 crores. Net cash is INR 9.962 crores as against INR 72.14 crores because of the bonus and APDP payment during the quarter. Term loan has come down from INR 96 crore to INR 88 crore.

iGTB registered INR 131 crores revenue in this quarter as against INR 132 crore last year. And this revenue has 58.67% from the Advanced Market.

IDC 19.1, win 2 deals in this quarter. And out of the 3 deferred deals are for IDC 19 which will be accounted in Q2 FY '20.

Intellect went live in 9 business financial institutions which have gone live. A bank in Australia, iGTB's SWIFT certified Digital Trade platform has gone now live, so this is a Europe certified trade finance position which has gone live for one of the largest Austrian group. One of the top 100 property and casualty company in the U.S., gone live in with Underwriting Workstation exponent.

Leading financial services organization in Malaysia went live with iGTB's Digital Transaction Banking suite and one Saudi Arabian bank has gone live in the CBX Retail and Digital Transaction Banking.

Next slide is all the numbers are there for you to go to. So Slide #7 and 8 are just representation of the data which we presented earlier.

Revenue growth is, LTM basis, 1,459 going to 1,502. Just going over the funnel also on the next slide, 10 and our current funnel is $515 million, INR 3,580 crores. And average deal value has moved up. Similarly, destiny deals, we have 41 destiny deals which we are pursuing right now. And this 41 deals against 34 in Q1. So that's what I think why we feel healthy -- healthier quarter so there are more deals that which we are pursuing in destiny deals. As you know, destiny deals are deals which are more than INR 20 crores as a deal value.

The next slide is, again, depicting the total number of deals out of last quarter. How many we won. 3 we won, 3 we lost. 7 we -- 8 we added during the quarter. Strong backlog. I think remained similar from last quarter to this quarter. Collection days are come down from 124 to 119 on a gross basis. The revenue mix is, again, more of a statistical figure for all the analysts, who are on currency. This mix is I say natural hedge but not a natural hedge I think, the more -- every year we suffer positive hedge because of that. Our business is very much better distributed. It's not U.S. denominated. So a lot of time, the analyst expect revenue -- dollar-rupee fluctuate. Because of foreign and Canadian dollar, Australian dollar, all the businesses are there and this is (inaudible) their sense is also impact our business, similar to this are many other companies.

Next slide is on the hedging summary. And the next slide is on implementation. Another important thing is all the analysts and all the product, IBS Intelligence, Aite, Forrester, Novarica, Celent are recognizing our journey beautifully. And they are putting our product in the global category. Now we are -- started getting -- in this phase, we have started getting a pull from the customer. Based on these reports, we are getting inquiry into the company and that's where these reports [follow] this slide, you may not be reading it in detail, but for our business, these analyst makes a huge difference because they get a full deal. And full deal, the cycle time is much shorter compared to the other deals.

So that's all I have to share with you. I'll leave the quorum for the question-answer session.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have our first question from Mr. Baidik Sarkar from Unifi Capital.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [2]

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Arun, first half, the quantum of license revenue that we booked in the last 5 quarters is upwards of INR 400 crores. But the quantum of AMC revenue that we book every quarter seems to be stuck around at INR 55 crores to INR 60 crores. I understand a lot of the license revenue is under implementation, but even over a period of INR 5 crores to INR 6 crores, it's surprising to see the AMC number not moving. Could you help us understand what the waterfall of AMC revenues might look like in the quarters to come?

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

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Yes. In terms of cushion I think AMC is something like a 2-year cycle within license and AMC. So Manish, you want to answer?

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [4]

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It's difficult -- for the Advanced Market, the realization of AMC is between 24 to 30 months. The -- we're going to -- starting Q2, Q3, start seeing an uptick, and next year is a significant at least shift in GTB's AMC revenue.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [5]

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Sure. Could you quantify that in the range perhaps, because, obviously, our license booking per se is in over FY '17, FY '18 has been pretty strong. So will it be possible to quantify the range of uptick you might expect there?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [6]

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It's real impossible right now, Baidik, maybe we'll work it out and let you know because as you know, a lot of projects are in -- in-flight projects are there because last 2 years, the growth rate is so fast, that is in the flight mode.

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [7]

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So maybe in (inaudible). Arun, maybe just if you look at Q3, Q4, a year before, is when we started clocking the license. So in the 18-month period, license has gone up. Add a 6-month period to it -- 6- to 12-month period, you will start seeing a natural cycle of AMC return coming.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [8]

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Okay. So I'll tell you what we got for that question. Arun, in your written guidance, you say that you're on track to achieve 20%. That's a very strong commitment to be making. So I was just wondering if the waterfall license gives you comfort of that because frankly, nothing else is in your control. I mean your services and license are the only thing in your control. So I was just trying to understand if you -- you've actually said your end -- you guys have quantified as to what your AMC proportion would be. And as -- just an important lead indicator of you continuing to guide for 20% growth.

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

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This year revenue is license-based only. I think the deals is 134 deals and 41 destiny deals. That is what is giving us the confidence.

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [10]

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And I think that's built on, if you look at last year's -- 2 year's track record of delivering consistent growth in license. So this is the third year. After this, you will start seeing the AMC naturally grow. And with each every large deal, you will also see the services revenue comes up. And every large deal also, there's a cycle of the services revenue is almost 6 to 8 quarters. Quarter 2, quarter 3 is when it comes up. If you look at we have, in last quarter, quite a significant amount of license. The services revenue also will pick up in Q3, Q4.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [11]

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Sure. That's helpful. So a bookkeeping question to Venkat. There is a steep ramp-up in your depreciation cost. So I mean should we -- should we expect a similar promotion of ramp up in the coming quarter as well? Or should we just quantify the number for us for the full year.

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Venkateswarlu Saranu, Intellect Design Arena Limited - CFO [12]

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So I think, in fact, if you look into the depreciation currently, what we have reported, to the tune of INR 4.4 crores is an accountable lease rentals, those were regrouped. So we've got a new accounting standard, (inaudible) but has to be shown as a depreciation. That is the reason, you guys have been shown a depreciation. Otherwise, it is in line with overall what has been -- we have been planning on that.

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Baidik Sarkar, Unifi Capital Pvt. Ltd. - Research Portfolio Manager [13]

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Sure. That's helpful. And if you could just break up your other income of INR 15 crores for us, please?

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Venkateswarlu Saranu, Intellect Design Arena Limited - CFO [14]

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Other income, primarily on INR 13 crores, we got on account of sale of land as well other flats.

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Operator [15]

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(Operator Instructions) We have our next analyst on the line, Mr. Shyamal Dhruve from PhillipCapital.

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Shyamal Dhruve, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [16]

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So my first question is on the muted performance on the revenue side. So though you have mentioned that we had a deferment of 3 deals with license revenue of $2.2 million. But even -- like, if I adjust for that, then also our revenue was quite muted compared to what we used to report in earlier quarters. So does this mean that we are facing any, like, challenges in any of the geographies due to the macro uncertainties like the -- from the Brexit or anything like that? Or it is just that the -- it is a one-off in this quarter? And the deals would start coming from the next quarter onwards?

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Unidentified Company Representative, [17]

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Yes. If you look at it (inaudible), if you add back $2.2 million it becomes become 51.5, which is lower than the last quarter. So first of all, quarter-on-quarter performance, we already guided the market. It cannot be driven in 90-day period. We can't close the deal in 90-day period. That is almost impossible for us to do the tracking. I would like to advise all analysts that this quarter-on-quarter pressure unnecessary compromises the deal even if we want to do it, and we don't want to compromise the deal value. So this is the first thing which is there. And I'm guiding that 20% growth, which we are looking at is we are on the track, and you think 41 destiny deals are there. That's what I think is a question mark. This time, if we look at iGTB revenue is $100 million for the full year. So when you look at quarterly revenue in GTB, quarter-on-quarter, they were not same. Even the first quarter, the revenue was INR 122 crores, even last year. But in the final quarter, the revenue went substantially large. The deal value is $5 million to $10 million license value, which we mentioned to you earlier. It can take anything to anywhere. So I think we need to shift our thinking from destiny deals issue here and license value deal here because this business model is license deal value. Whenever it's signed, there will be blips there. But that will not become a new baseline for next quarter to be that.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [18]

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Correct.

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Shyamal Dhruve, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [19]

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And my second question is on the GTB revenue front. So GTB contribution has declined to around 38 percentage of revenue. Earlier, it used to be in the 45, 46 percentage. So does that mean that the 3 deal deferments were largely on that GTB side only or it was across the segments?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [20]

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No. I think what we've said is 3 deal deferments is where we have got contracts, but complete paper work from audit requirements was not complete, so we did not accrue those revenues. From a GTB, if you look at, it's always been Q2 and Q4, which spike up. So that's been the last 8 quarter pattern. So it's consistently following that pattern right now. We have 2 deals where there were large upgrades, and upgrades -- the approval cycles are getting a little longer because any upgrade is another $20 million investment from the bank. We have to deal with just getting the internal paperwork sorted out, which is not what we're counting in the 3 deals. Okay. It's a pattern of what's going on always.

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Shyamal Dhruve, PhillipCapital (India) Pvt. Ltd., Research Division - Analyst [21]

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Okay. And my last question is on the guidance front. So though I do believe that our is not a cyclical business and quarterly revenue used to be volatile. But the -- for the 20 percentage revenue guidance to achieve the 20% of your revenue guidance, we need to have $10 million incremental revenue across the all 3 quarters. So with the global uncertainties, like the -- we have -- we had the commentary from most of the IT companies that deals are getting delayed in the European market due to Brexit. Though we are not in the services segment, but that delay would be across the segments. So are we confident enough that we would be -- with the strong pipeline we are having, we would be able to achieve 20 percentage irrespective of the macro challenges.

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Unidentified Company Representative, [22]

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I think I can take it for GTB. If you look at -- a significant portion comes from North America and then Asia, those markets are not seeing any turbulence from that perspective. Europe has been muted with Brexit and whatever else, but that stays in where we stated. Even our deals being deferred right now, is North America, Asia where we've continued to grow via market leaders. It's a 1 quarter here or there. And again, go back to last 8 quarters pattern Q2, Q4, alternate quarters make up. And here the deal licenses are becoming $5 million, $10 million deals. That makes that significant difference.

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Operator [23]

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We have the next question from Mr. Mohit Jain from Anand Rathi.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [24]

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On the deals environment. So if you would elaborate a little bit on this GTB revenue that you get, I'm assuming all of it is from U.K. So this 28% and 3% from Continental Europe, is there a risk to it given that we are more of a discretionary site.

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Unidentified Company Representative, [25]

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GTB revenue.

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

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Yes. No, I think there are good client relationships in the 5 different accounts in U.K., those 5 deep accounts that are Lloyds, Barclays and JP, HSBC. We have their deep accounts. For them, I don't see any caterer -- all these accounts are deep accounts. Just they are -- we don't see any risk from the Brexit perspective.

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

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No. I mean from incremental growth perspective because while these clients will continue to spend I'm sure about it, but incremental new assignment, is there a delay there, a slowdown or is there a thing that you see from a second half perspective.

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

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I think deals are there. Actually, some of these deals are in the pipeline, Manish, even more -- there's one deal in U.K., which is there and one deal in...

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [29]

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The 2 (inaudible) deals were in Spain and U.K.

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

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So the balance portfolio is there as of now out of 41 destiny deals, I think it's a more balanced portfolio right now. We have a few deals in Japan, few deals in Singapore in pipeline, few deals in Middle East in pipeline. So I think it's -- as of now, it's a balanced portfolio.

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [31]

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And I think another thing to remember is, if you look at from a GTB perspective, the business is built around 80% of revenue coming from existing customers, a strong relationship, the depth of what we offer, the consistent cross-sell, their budget cycles, we are all very closely in -- the shifts are a quarter here or there. That's about it. And reliance on just brand-new business is not that high.

Whatever we get in the year 1 as new customers, it's about delivering in year 2 and mining it in year 3. So that's been a repeatable model on which we have built and grown this business.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [32]

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Okay. And sir, second is on R&D expenses. Is there a change in budget for this year in R&D spend? Or -- because this time it looks like, it is going up.

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Unidentified Company Representative, [33]

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But it's similar to last quarter, we have this INR 1.5 crores extra from the last quarter. It's not substantial. There were some other -- we had lesser implementation revenue, which is the team which is sitting there, they are doing more of the products, so INR 1.5 crore or INR 2 crore here and there will move.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [34]

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But on a full year basis, this is broadly the same as last year because we are building with some assumption or should we annualize the new number, INR 33.55 crores?

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Unidentified Company Representative, [35]

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No. It's the same number.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [36]

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As last year?

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Unidentified Company Representative, [37]

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Europe last year. Last quarter number is INR 32 crore or something. So you multiply that -- annualize that. Q4 into 4.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [38]

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Q1 into 4, right?

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Unidentified Company Representative, [39]

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Q1 into 4 also.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [40]

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Okay, sir. And last is on this USD revenue, 30 crore. Which country is this revenue from? USD revenue of 30 crore, is it like from emerging markets or is it from 34% U.S. dollar revenue?

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Unidentified Company Representative, [41]

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It it from Advanced Market.

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

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They are from Dubai also. Billing Dubai on U.S. dollar.

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Unidentified Company Representative, [43]

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Middle East client was also booked in U.S. dollar.

As well in U.K. we billed some customers in U.S. dollar.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [44]

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Like top 3,4 countries would be U.K. and Middle East, isn't it?

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Unidentified Company Representative, [45]

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U.S., U.K., Middle East.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [46]

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U.S. will be the largest part of this, is that correct?

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Unidentified Company Representative, [47]

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Yes, obviously. It will be equal almost, maybe. It's not...

Canadian revenue is also in U.S. dollar.

U.S. dollar? Part of Canadian revenue is also U.S. dollars. So the more (inaudible) the value (inaudible) we expect the deal. We just try to take the deal at U.S. dollars for all the global customer and license proposals are always in U.S. dollar. Some of the customers insist on local currency, but we prefer global currency. That's the strategy of the company.

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Mohit Jain, Anand Rathi Financial Services Limited, Research Division - Analyst, Technology [48]

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Right. But this 1/3 piece is not U.S. dependent, right? From a region perspective.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [49]

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Well, no, no, no. That part I want to clarify, it's not region dependent.

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Operator [50]

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(Operator Instructions) Moving to our next investor, Mr. Rajeev Agrawal from DoorDarshi Advisors.

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Rajeev Agrawal, [51]

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I first wanted to understand a little bit about the cash flow in the quarter.

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Venkateswarlu Saranu, Intellect Design Arena Limited - CFO [52]

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The cash position of the company is. Yes, see, as I said, that we will report a cash up on INR 114 crores of closing balance as compared to the onetime growth of the previous year. And as for the net cash in consumer we reported a net of INR 10 crores as compared to INR 32 crores in the end of March.

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Rajeev Agrawal, [53]

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So there is a INR 62 crores reduction in the net cash and I'm assuming we would have also generated some cash in the quarter, right?

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Venkateswarlu Saranu, Intellect Design Arena Limited - CFO [54]

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Yes. We obviously -- if we look about the current quarter, revenue, INR 343 crores, and we collected [INR 358] crores cash collection.

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Rajeev Agrawal, [55]

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No, no, so what I'm asking is that there is a INR 62 crores net cash reduction in Q1 from Q4, that's given. But if it -- was there a net cash generated in the quarter, that also be accounted for in...

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Venkateswarlu Saranu, Intellect Design Arena Limited - CFO [56]

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No, no, no.

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

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The negative weather cash pay as one of some of $3 million, $4 million in shortfall in this quarter.

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Rajeev Agrawal, [58]

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And given of a cash position. I know Arun you mentioned that the company does not see a need to raise capital. So we still believe that is the case? Or do we think we might have to revisit that?

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

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For this year, as of now, the base of 20% growth, we don't see the cash sales, but the 10-year in a consultant, anything while situation happen, we may require to do it, I will take it on. But as of now the planning process of first quarter, whatever you forecasted are cash it's in the line with that because we have to yet to pay that consolidated around INR 80 crores outflow in a bonus for this condition this quarter. So that was planned for. And it is a general plan as of now.

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Rajeev Agrawal, [60]

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Got it, got it, okay. So cash, we believe what we will reap from the business would be sufficient to grow the business. The second question I had was more around the insurance. So team said we are having good traction with our underwriting platform. I was looking at the Gartner Magic Quadrant report for insurance and I don't see Intellect mentioned there. So any comments you can give on that? Sort of what is your sense of how the Intellect insurance platform is positioned within the operators?

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

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Pranav, do you like to take this question?

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Pranav Pasricha, Intellect Design Arena Limited - CEO of Intellect SEEC [62]

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(inaudible)

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

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Okay. I think we are not saying we are insurance platform. So I think we are in the different report, particularly I report a better report on this. So we are not in the policy admin, but credit policy admin system. We have in the underwriting systems so we'll send you the reports, multiple reports of Novarica or other in a list. Aite and Novarica , who cover CIE and data into this. So you can go over the reports on this. So that is our data set.

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Rajeev Agrawal, [64]

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If I could -- go ahead.

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

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I think, the insurance policy admin has been a Guidewire and Majesco, and other people are there in a big traditional quality admin system. It's a major shift which is happening, Autonomous insurance which is happening. In that space, they are not there.

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Rajeev Agrawal, [66]

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So in the policy underwriting segment who would be our key competitors there?

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

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Underwriting segment, Guidewire has a cash solution like GTB used to come along with the core banking. Similarly, underwriting consider policy admin a standard package. So we can say Guidewire is our competitor. But Guide -- the way we separate GTB out of the core banking and make it a GTB a separate business line. Underwriting to us is a most valuable differentiator in insurance business and a policy admin systems. So if you look at the IT report on a product acceptance in Slide #18, it will give you. We have a AI suite provider for the insurance companies. Then looking at policy admin and regular systems.

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Rajeev Agrawal, [68]

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So our underwriting will plug into -- on the third-party policy admin module for this and does it work across different vendors.

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

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That's right. That's right. The business could fully run microservice (inaudible)-enabled software.

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Rajeev Agrawal, [70]

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Got it. Okay. And how big is this opportunity set here in underwriting plan that we have?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [71]

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So the positive, if you're coming to business Investor Day, you will see a video that Pranav will share you the company capacity. This is around at the high space. The wave is not only that, this phase of insurance product, but that has space itself. So this year, (inaudible), which I mentioned in my conversation that our data has proven to be highest quality data than Dunn and Bradstreet already. Other companies and players. It's a different play altogether, in which we'll just selling the data, IT and done data package. And it depends on the scalability of this model can go up to multi-million dollars possible because now we are just achieved a success in quarter 1. And that Liberty Mutual has shared on the stage that our data quality is better. And there is a big success for us with Chief Operating Officer of Liberty Mutual can go and share that our data quality is better than all the players in the U.S.

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Rajeev Agrawal, [72]

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Just coming now to the revenue, I think, very strong diverse as we give a 20% growth. But I think there was a question all year as well, that from here on, the incremental growth that we will need, all the time we just look at how much we do INR 450 crores a quarter, right, in your guidance. And I understand that we should not look at the business from a quarter-on-quarter perspective but from a year perspective. We seem to be or you seem to be comfortable with that [1%] guidance, but do you see any risk with that guidance?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [73]

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Businesses risk anyway, how can I do it? But yes, I don't have to repeat multiple times same answer. The risk is always there with us, but I think pipeline is strong, and 3 businesses are now taking shape. IDC business has not kicking off last year, in spite of IDC not kicking off, we were able to see 24% growth last year. Now with IDC also taking off. I can see that. We should be able to do it.

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Rajeev Agrawal, [74]

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Got it. No, I appreciate that. Yes. I know it has (inaudible).

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [75]

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We are fighting further, making those numbers. All the business managers are committing to find the numbers. If something happens, something happens.

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Operator [76]

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We have the next question from Mr. Rohit (inaudible) from [Marshmallow] Capital.

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Unidentified Analyst, [77]

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My first question, I mean, obviously, you've seen a large increase in cost in both software development expenses, and the research and selling expenses. So I was just clearly, I know, you mentioned in the past that you've added a lot of people to prepare the company for the next stage of growth. So the current organization's capability that we have, so when do you think we can sustain the growth with the current set of systems and the people that we have. And when you think we need to invest more?

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Pranav Pasricha, Intellect Design Arena Limited - CEO of Intellect SEEC [78]

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I think if you look at last time, Arun gave the guidance that focuses on developing mid-level leadership development. So our initiative was to shift down that recruitment, get the next level people to time correct. So a lot of seniors are acting as mentors to build this space. I think we cannot rely on just getting people from outside. It's about grooming. The retention rates are very good for mid management. It's about grooming them and growing them. So right now, we don't have that concerns and identifying this as an opportunity to nurture existing people, and acting upon it. We started Internet Oxford leadership program to train people in a number of training programs internally going in, focused on cloud, significant trainings over there. So there's a lot of internal training, which goes into some of these costs, where it is to grow the existing organization, we believe in.

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Venkateswarlu Saranu, Intellect Design Arena Limited - CFO [79]

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For this question on cost gone up from last quarter, slower than last quarter. That I wanted to clarify it.

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Unidentified Analyst, [80]

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Yes, so I was talking about year-on-year cost increase. I understand that you need to scale up the capability for the next level of growth. So just curious with the current cost and the employees that we have in the business, would we be -- would this be enough for, let's say, the next 2, 3 years or would we need to do any new hiring again, 2 years out, more on those lines.

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Venkateswarlu Saranu, Intellect Design Arena Limited - CFO [81]

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So the total we are looking at a 2.0, years generation exit to 2021. Developed and the resources we are looking at, I think, 3.0 internetware yet. We are not working on 3.0. And at that time, we'll come back to you on 3.0 agenda, what kind of resources is required. As of now up to at least March '21 is our focus for that. We may have a cost increase and maybe incremental basis of the incremental basis data or contractor basis. We'll do the planning some time in next year, mid next year. From September 2020, we'll look at some plans as far as what kind of acceleration or what market opportunities are available in front of us, but that is a planning and we come back to you.

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Unidentified Analyst, [82]

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Yes, so that's very helpful. The second question I have is the IDC traction that we are seeing. In which geography are you seeing more sort of traction?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [83]

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A lot of Africa, Middle East and U.K. Now we have one of the deal, which is deferred, is in U.K. There's a second deal in U.K. and we have which is a very, very celebrating point. We're not an open. Just want to communicate today because it's our trading position, API-based, and we are expecting it to go live in the next 2 to 3 months. And that is a more traction will happen.

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Unidentified Analyst, [84]

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And the major competitors in the market that you won, it is Temenos and (inaudible) or are there other players?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [85]

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Temenos is a key player in Europe and one of the key players in Africa, FLEXCUBE is also there, (inaudible) Solutions are there. Couple of UK deals we have won against Temenos.

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Unidentified Analyst, [86]

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Okay, okay. So that's nice to know. The next question I have is I was just curious about, let's say over the last 2, 3 years for the segments that we have become quite strong in. With iGTB, the entire business, the underwriting business in insurance and the IDC business. Has the sales cycle evolved differently or it remains the same 1, 2 years that we have seen from a few years back?

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

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Same. The cycle hasn't changed. But we see a (inaudible). IDC pipeline is building in 17.1. That is resulting in (inaudible) as I said in this quarter, as I said, the last 21 months, we launched IDC 17.1, sometime in October 2017. Orientation in this quarter. So it's around 18 months' delay. But I think the good news is the license value consistently, which we showed you on the full year value last time and even now. And if you look at the funnel qualification. The deal values and license values are growing.

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Unidentified Analyst, [88]

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So I just wanted to get this clear. So when you have more implementations going on and more customer references. And then we have more analysts are coming in, how we will help assist in higher license values and the larger number of potential customers considering our entities on the pay for the deals much better, but sales cycle would not change irrespective of how strong the product is active in the market. Am I right?

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Venkateswarlu Saranu, Intellect Design Arena Limited - CFO [89]

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Tenure, 3 to 6 months, but various customer cycles, and we have to invest $100 million a cycle time for this 20 million underwriting process are similar. For the 2 deals, which Manish is talking about in GTB, which has got delayed because of this we have to explain you all the things at. Those days would have come in, this call would not have been required. As explanation, in just about those.

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [90]

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13 million plus for the bank budgets they have to approve. So approving these size of budgets is where a quarter here or there happens. But also a direct answer if you look at just on a data basis for last year, our net license value because of the brand recall and because of the Net Promoter Score is consistently improving. That's not a forward-looking statement, that's a backward statement based on past data.

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Unidentified Analyst, [91]

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Understood. Understood. So with these increases in sign of the deals that you're looking at and with the increase in average size of deal and possibly looking at more captive deals, and that is that we are following. Would you say that the sales cycle on average will be longer going forward?

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [92]

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No. I think, as an example, if you look at last year, we had 2 $10 million plus license deals for GTB. The cycle time for that and the cycle time for where they were the $3 million to $5 million deals was very, very similar. I think our brand will to be able to play what you call as a big boys game is helping us step up on the ladder and focus on improving the win rate and not adding everything I think that's where the shaping of the portfolio is happening and that you are seeing. There are certain quarters we are very excited, a bump a quarter, the next quarter we see feel a little pattern, but at an annual basis, if you look at just the last 2 years. I think the results speak for itself.

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Unidentified Analyst, [93]

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Yes, the results have been quite excellent over the last couple of years. The last question I have is more on a broad industry basis, from my understanding of what I see in case of Guidewire. I mean the insurance industry, in general, is moving quite rapidly to the cloud model, where the on-premise implementation, license revenues are coming down quite fast for the insurance product software players. Do you see that cloud from on-prem implementation in the banking software, do you think it is too strategically important for them to ever think of shifting to cloud? Or do you see that shift slowly taking place. Or do you think it will eventually happen, maybe not now, but sometime down the line?

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [94]

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I think if I said look at from a corporate banking perspective, in the market I operate. I do see a trend in the next 2 to 3 years, quite a bit of it will not be on cloud. Some of our current deals are on the cloud. The difference being is that the private cloud, public cloud, is it cloud ready, is it cloud enabled, is it cloud native? We've seen a lot of jargon around there. The good news is both our insurance and GTB products are cloud native Microsoft built, the investments we have done over the last 2 to 3 years is ready to add any of those customer segments.

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Unidentified Analyst, [95]

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But on the core banking software, that's the industry part of the [apex]. So this is good?

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [96]

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No, not part of (inaudible).

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [97]

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And so the trend will follow.

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Unidentified Analyst, [98]

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Okay. Okay. Understood. Okay. So the ....

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Manish Maakan, Intellect Design Arena Limited - CEO of Intellect Global Transaction Banking [99]

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(inaudible) in IDC is in cloud and core banking business is on a cloud transaction recycling.

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Arun Jain, Intellect Design Arena Limited - Chairman & MD [100]

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I think not being ready for cloud is not an option. We will have a clear moment if you are playing right. That we recognized 2 years ago, and that's where the investments are about moving the commercial model, software is all there for shaping the commercial models are moving towards there, managing balancing revenues. Take a look at insurances, all revenue comes like that, IDC number of revenues is coming like that, we have cautiously not taken ATP to that route, but it's inevitable. Some of the products, I only sell on a SaaS basis on cloud. So that's a journey. Look at over a 3- year horizon, it will be significant on a 1-year period, I would say, too.

Okay. Any other questions?

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Operator [101]

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Sir, at this time, there are no further questions. I would like to turn it back to you for any final or closing comments.

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Praveen Malik, Intellect Design Arena Limited - VP of IR [102]

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Thank you, everybody. Thanks for joining the call. In case any questions or queries are there, please get back to us. And we invite you to the investment conference. We'll be having annual conference on 30th of July, if you have not received the invite, please do write to me or call me. Thank you very much.