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Greetings, and welcome, everyone. Thank you for joining us today to discuss Intellect Design Arena Limited financial results for the fourth quarter and the full year of fiscal years 2021, '22, ending 31st March 2022. 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 this call to discuss the results.
We have with us today Mr. Arun Jain, Chairman and Managing Director; Mr. Prabal Basu Roy, Adviser to the Chairman and Director on the Corporate Board; Mr. Manish Maakan, CEO of iGTB; Mr. Rajesh Saxena, CEO of iGCB; Mr. Banesh Prabhu, CEO of Intellect SEEC; Mr. T.V. Sinha, CEO of iRTM; Mr. Venkat Saranu, CFO; and Mr. Andrew England, Full Time Director. Besides, there are some other senior members of the Intellect management team who are also present on the call.
Mr. Arun Jain will brief you on the results, and this will be followed by Q&A. This will be replied by the senior members of our management team.
Thank you, Praveen. Good afternoon, everybody, and good evening. It's a great pleasure for me to announce the results. I think we performed very well during this year of crossing 25% growth. We initially designed that growth for 20%, and we finally achieved 25% of the revenue growth. Our PAT growth comes to 33%. So cash collection is all-time high, and our cash balance is all-time high of INR 558 crore. So all the financial metrics is good. Our market presence is good, the kind of deals we are winning is good. Our acceptance and investment, early investment, which we made in our cloud technology, those are coming out -- those are delivering great results to us. We have a cloud revenue growth of over 112% during the year.
So I will just summarize my point presentation tech is there. We talk about it that we are -- we accelerate digital transformation journey, we have a maximum amount of dollars spent in the industry while there are 7 elements which went very well in this quarter. Annually, we -- I said it is a fantastic year for all of us at Intellect. It's giving me great expectation for going forward to all of us.
So first of all, in the cloud, when we say 4 exponential technology, 5 platforms, 12 products, that's our whole asset base. It used to be 4 platform when I talked to you during the Technology Day in December. We added one more platform, which went live. This is a trade and supply chain finance technology upgrade platform. This is a platform normally sitting on legacy platform, one of the large deals which we announced 2 years back in Singapore was around this platform. Now this platform has been launched on a cloud, which makes it 5 platforms.
So the cloud growth of 112% or if I look at it, annualized growth of this quarter of close to INR 119 crore, that amounts to $16 million of run rate cloud business, which is achieved in just 3 years of our entry into the cloud space and organically $16 million to be achieved in cloud business is a phenomenal success to Intellect and management teams, Manish, Rajesh, everybody who contributed in building of -- Banesh, building this cloud-related business.
And second milestone is we achieved crossed INR 1,000 crore of license-linked revenue, exactly INR 1,060 crore revenue, which is purely coming from license-linked revenue. When we started the company, we started with INR 600 crore as an overall company and license was close to some INR 100 crore or INR 150 crore. In the last 6 years, that momentum of the license-linked revenue, which was to the limit of something INR 150 crore to INR 160 crore license in 2015, '16. Today, that crossed INR 1,000 crore. I think where a few companies can boast of having a license of India sold in global market. And we take a pride this INR 1,000 crore come from all the top banks in the world.
In India, we have 8 out of the 10 banks from RBI, [ HGST Bank ], ICICI Bank, YES Bank, IDFC Bank, you name it. I think we have all the banks where we have a deep footprint. It comes from the best banks in UAE, top 8 of the 10 UAE banks are customers, top 3 banks of Saudi Arabia, top bank of Singapore, top bank of Malaysia, top bank of Philippines, top bank of Indonesia, top bank of Vietnam, top bank of Australia, top bank of if you move into these geographies, top 3 -- 1 of the top 3 banks in South Africa, top 3 bank in U.K., top 3 bank in France, in Spain, in Germany, in Sweden. I think that's -- and then at Canada and U.S.
And that is what make the product totally different on the whole trajectory, which is there. And that makes the biggest deal, which we announced last quarter is Reserve Bank of India. They are interested to give complete cloud native central banking solution first time in the world on managed services to Intellect. It's a big confidence. Reserve Bank of India demonstrated in their technologies, and they took almost 18 months to evaluate our internal technology with their architect that is suitable for next 10 years or next 20 years, this technology is suitable or not.
This contract is a 7-year contract, runs into -- close to over INR 400 crore. For this contract, we have very least approval in this quarter for this contract. This contract is a large value contract. But since it is signed in the last, and it's being designed to build on a completion based COC basis, completion basis. So obviously, by the time it's signed, we didn't -- we complete only a small portion of the contract, and that's why it's there.
It's not a full license being booked onto the contract upfront, which is normal practice. But this -- since it's a full managed services contract, this we require to bill partial billing, and that has some shortfall from that perspective or the expectation of the investors have given you as there's some shortfall because of that. But that's not an issue at all because on the long run, it a full deal, managed services deal for 7 years.
We got another very large digital transformation deal for a large private sector bank in India. This is about transforming their entire digital scope for the transaction banking entire payment systems. And this is another very big deal. We have client entrusted us and give this deal for execution.
The fifth point is our Microsoft partnership. Looking at all the wins what we are getting and the presence we have in the marketplace, banking and financial services division of Microsoft Azure, where we have gotten very senior people from the industry to lead the financial services segment, whether Bill Borden, who was also coming from transaction banking or Peter Hazou, they have seen all the companies in the world in transaction banking business and they've chosen us to be partner on Azure. This will give us a huge access to the customer in Europe and Americas, all advance market besides Asia and Middle East, but our sales team will get enhanced and get a better footprint in all the advanced market over there.
Besides this next point is DBS and Bajaj Finserv, they launched their operation in India last month, and they are operating on our card platform. This is a platform which we are building it up over the last -- over the 3-year period, but it's now moved to the cloud, and DBS has chosen this platform against all the standard platforms they have in Singapore or the global products. So that going live creates opportunity of credit card area.
What has not done so well in this quarter is Russia-Ukraine war. We lost one large mega deal. It was about core banking transformation for Russian bank, [indiscernible] in Germany. They were already about to sign the deal on the same day where Rajesh was about to fly to sign the deal and that Russia attacked Ukraine. There was a smaller deal, which we have not mentioned in the press release, where we want to implement trade supply chain finance system in Ukraine for one of the Eastern -- one of the European banks. And that was supposed to be implemented in the U.K.
Both these deals, we have not booked any revenue. We have not booked any exposure on the company books. So it's completely risk-free from that perspective. If we would have signed the deal, let's say, in January, and then we might have to take a write-off of the deal that would have been harmful for all the investors. So on one side, it is good from a revenue perspective, but bad from the loss of at least $4 million of the revenue, which would have been accounted in this quarter because of the deal.
Second thing is about talent cost INR 13 crore cost increase happened during the quarter over the last quarter. This INR 13 crore is attributable to salary increase and employee increase in fuel travel, which started sometime in May -- in March. So these 3 elements constituted the INR 13 crore increase in the deal.
On the front of -- we look at fixed capital, the way we look at the whole business, our technology capital where our products such as I was mentioning, is gaining momentum. If you look at technology presentation, we are progressing very nicely, continuously in that space. In leadership space, our leadership, which is, we call it, most critical for product company, which is a top 500 people in the company who has a deep expertise in the product business. Our attrition is less than 10% in that space, which is a very, very good news because the expertise is when the industry is running around 25% to 30% attrition, we have been able to retain the critical talent in the company, which is very, very useful for us.
Our customer base, I always mentioned -- I mentioned that we have 270 customers at the end of the year, and these customers are marquee clients of every geography. And that makes it another area for next 3 years, when we look at the journey. Now we need to go deep in each country and expand each country operations on customer capital.
I want to bring to the attention the execution capital, how do we deliver the product to the customer. And there, the significant improvement happened, which is displayed by INR 558 crore cash in the company is demonstrated by single phenomenon in the last 2 years, which happened is we apply design thinking for execution excellence. What does it mean? As an investor, I cannot explain the nitty-gritty, how we work on, we did additional transformation of one of the Malaysian banks.
On cloud, a typical digital transformation takes 18 months to 24 months. Globally, that's the benchmarking of a digital transaction banking when we go sign the deal. After signing the deal, you have observed the AMC takes 2 years to come in is because 18 months is a cycle time for the implementation. For this, using the cloud as a technology and using our delivery methodology, which we call [indiscernible] methodology of implementation where we break down every small user journey to the smallest work package to be delivered and what decision customer needs to give it.
We are able to implement [indiscernible] cycle in 6 months' time. So it's a significantly more we have created for digital transformation using our existing capital when we apply design thinking at a requirement stage, solution stage, engineering stage, so we are inspired by Toyota, what Toyota disrupted the auto industry of Americas in '80s. That's how we are looking at it, Intellect has something done. IT implementation industry by bringing every smallest component to be so perfect that it accelerate the transactions -- transformation on a cloud significantly faster, and that's our storyboard for next year.
On future side, if I look at next year, our design strategy is 20%, which is stated strategy that we have designed our organization for 20% growth. And we are not looking to downgrade or anything because of the international disturbances are there. We understand international disturbances. We have taken into account those deals and those pipeline deals, which are just sitting in those areas, which is a doubtful. In spite of that, our sales pipeline has grown to $725 million from last quarter, substantially higher than the last quarter. Our investment deals have gone significantly -- are also grown up to 61 Destiny deals.
So all the metrics, which is there for us to see by next year, there was the [indiscernible] management team should we look at design of 20%. We designed for 20%. This year, we're able to do 25%, which is much better than what we designed [indiscernible]. Obviously, a product company, which is majored on an annual basis. So first is the principle of product companies, they're never a quarterly company. It's not a service company. Again, Indian investors, we believe that everything is quarter-on-quarter.
And I mentioned multiple times that when you have a deal of $4 million or $5 million in single deal, it's -- $4 million means INR 30 crore of additional profit or INR 30 crore of reduction in the profits. Now that is not a way we can understand and play on Intellect stock from that perspective. But 20% move to 25% was a delight. As a management team, we are all celebrating that element at 25% growth we have here. And next year, we are looking 20% growth should be available.
Then next thing is Microsoft should accelerate building some tailwinds to our 20% growth, that should help us out in doing it. We have seen where we have given a focus on the countries. So we are -- what I mentioned that if you go to the top bank in a country and then expanding the footprint in 2016, I spoke about it that our strategy is to go to the top -- 1 of the top 3 banks whenever we enter into the country and then we go down from top 3 bank to the rest of the banks in the country, and that strategy is working in India and that strategy is working in UAE. That strategy is working in U.K., that strategy worked in Canada, that strategy is working in U.S. So these 5 countries, where we spent full kit sales team. We invested into these 5 countries. We have achieved substantial runway of more than $30 million revenue per country as delivered by these 5 countries.
Now we are looking to choose another 3 countries for market expansion where we deepen -- because we have 18 countries where we do a revenue pool of -- where we have a $3 million to $5 million revenue pool per country. This revenue pool for 3 contribute chosen 1 in Asia, 1 in Middle East, Africa and 1 in Europe. And these 3 country will be deepening by putting more, moving the sales team. So we have moved [ Paramjeet Singh ], who was Executive Vice President to lead our Vietnamese business, and Vietnam will become our focus country for deepening the relationship there, deepening the country there. So that number can move to $10 million per country in the next 2 to 3 years window.
What -- next point, which is working in favor of Intellect is, we've now learned how to deal with -- last time you asked a question, "Can you crack $50 million deal?" Some investor asked that question. And I was -- we were working with RBI for the deal, but I was shirking away that question that, yes, we are working on those large deals of $50 million. And we -- now we demonstrated the $50 million deal we can crack. Because $50 million deal, we need to have a proposal team -- the proposal team, presales team. It requires a full village to win a $50 million deal.
But once you have all the templates, all the calculations, all the commercial arrangements, all the delivery, nuances coming together, the organization move from $5 million deal to $15 million ideal to $50 million. So we crossed third home of $50 million deal. And it's about strategic deal when we call Destiny deal a few years back that we are focusing on the strategy. That is what is working well now. And that's how we look at it, that we prepared the organization for Singh, calibrated $60 million, 2 quarters of $55 million, 2 quarters $60 million, and then now $67 million and then $75 million.
So our focus will be in the next 2 quarters to each whatever the investment we did, additional investment last quarter and this quarter for the headcount that will be prepared for $75 million run rate. And that we are hopeful to achieve faster. But looking at the tail wins which are available to us, we need to invest higher from the sales and marketing side along with Microsoft. So some increase in the budgets will happen. One is because of travel, obviously, the capital costs will go up. COVID is open up. So all the meetings have started happening, face-to-face meeting.
The beauty of the face-to-face meeting is those large deals which are there internationally, we could be able to sign a lot of deals, but now the face-to-face, our sales team is able to influence the deal to earlier closures of those deals. So that will be helpful. So one, investments will be on the sales and marketing side over the coming year.
And second side of investment would be on our product investment. As of now, in spite of the salary increase, our capitalization of the product is still at INR 116 crore versus INR 120 crore. Next year, this budget will go back at least 15% to 20%. The R&D budget will go up because we are looking for those countries where we're entering, we have to make it [ plus ] 1% suitable for that country, the product upgrade, the technology edge and interfaces. So those are the places where the large edge investments are going into the next year. Our product like wealth, which is bought by SBI, is a great validation of wealth products. So those are the high-growth products. Underwriting products are taking momentum in U.S. and underwriting products. Treasury product is taking momentum. So these are the third layers of product besides the top layer of product liquidity, quantum and DTB, the 3 products, which is the core leading products and then IDC, IDL payments and cards, which is the next-generation product. So it's a very, very healthy pipeline over there.
Next year, our tax rate will come to 26% level. So our standard tax rate will be -- all our losses are being taken care of. In this quarter, the tax rate has gone up somewhat because we exhausted that cumulative losses which were available for us until third quarter. So fourth quarter, tax rate has gone up to 20 -- slightly over 20%, but the regular tax [indiscernible] 26%.
But one beauty is on effective cash tax rate. Our balance sheet tax rate will remain at 17% to 18% because we have a INR 96 crore of MAT credit available to us. That INR 96 crore will take at least next 2 years for us to bring our tax rate, effective cash tax rate above 18% of the tax rate. So this is what I think I wanted to share as a story with you.
And at this point in time, I can leave for question and answer. All the presentation slides or the data slides are available us in the -- okay. And any question arises from there, you can go through it.
Thank you, Arun. Now we are opening the session for Q&A. [Operator Instructions] So we have the first question coming up from Mr. Rahul Jain from Dolat Capital.
First question is on the growth and the comments you have shared on the cost side of the headwind. So I understand that the year has progressed well, but at least from a Q4 exit perspective, we faced a couple of challenges. So how with these things going into FY '23, how some of your overall outlook and what are the risks that we assigned to that outlook with the chain macro situation?
Rahul, I mentioned to you, we are quite confident on the pipeline that we have, the deals, the pipeline that we have and those pipeline makes us -- are confident that our design growth of 20% is all possible. And if -- unless something else happens in the industry or any other -- anything happened in the industry. As of now, whatever the parameters available to Russia and Ukraine, all the deals should we talked to other customers and all the pipeline members who were in P4 and P5 stage of our sales funnel.
We are [indiscernible] if I'm managing that -- going to -- yes. Healthy cost of the talent is definitely a concern, but that's an industry phenomenon. We have less dependence on head count increase compared to any other industry. And we are not expecting in this quarter, not to add more than 100, 125 people in this quarter. So there is no -- not a significant pressure on from additional comp, but sell increase is definitely will get distributed over 4 quarters.
And Rahul, to answer your question as well. None of us can, however, disregarded the macro factors, which are affecting the global economy today. Having said that, the pipeline numbers, which you see in the presentation shows our early growth and that is after discounting and clarifying with various customers about the digital transformation journey, allocation of capital and all of that.
The key point here is that while the larger players in the BFSI segment will have issues to some extent, it is our belief that niche-focused players which are especially IT-related will be able to weather the storm relatively well based on current circumstances as we see it. So therefore, as Arun said, the organization is designed for '22. We see no reason to change that design at the moment.
Just a small follow-up on that. On the profitability side, since we are only at a much higher growth rate than the 20% kind of a thing that we are highlighting as of now, so what should be the margin given that we have headwind plus the growth rate would be lower compared to large dispel. So is it safer to assume the Q4 should be the benchmark going forward right now for the near term?
Rahul, look at the LTM business margins. Don't look at it quarterly margins. Quarterly margin is no indicator. A $4 million deal of Russia could have been there, the margin would have been 28%, 29%. So for our product company planning, do you use different yardstick on an LTM would be better yardstick for you.
Okay. So 25% for the full year is the right [indiscernible]
I don't want to put the numbers still full, but my PAT margin will be lower because of tax rate. Effective tax rate on P&L will be lower. So PAT, visible PAT pad will be lower because 26% will be there while the effective cash rate will be -- tax rate would be not more than 18%. So that's how I think we make a judgment call.
Right. And to the comment that trouble made on the macro situation and how some of the large banks may think about the way forward. So is this also emanating from some of our conversation or this is [indiscernible] in terms of our cycle behavior that we might have business?
This is a general macro issue, not a client talking. So don't mix the two issue. Client, he has mentioned, Prabal has mentioned that client we talk to, we are finding the -- they are looking for this technology faster than the earlier. So the liquidity solution which we have with the interest rate going up, it becomes valuable product because all the banks are now accelerating a journey because all the corporate is putting pressure with the interest rate going up, liquidity, Manish, you can just throw some light on the liquidity product why the interest rate increase is helpful for selling the liquidity.
Yes, that's on a leadership quarter-end product for us. And actually, you will see on the press release also. We have been rated best-in-class by IT. And every there's a significant gap between us and the next vendors over there. That's from a market positioning perspective interest rates if you look at across the board, I guess, including India yesterday was increased. The U.K. was increased today. This is an opportunity for corporates to gain more. And for banks, it becomes quite a defensive product as well as a retention product to ensure that the balance is remove with them. The amount of RFPs I'm dealing with is at an all-time high right now from a number of European banks as well as Asian banks.
So this demand will only grow with all these interest rates. I think U.K. itself is saying we will expect another 2, 3 interest rate hikes. U.S. is saying the same across the board. In Europe, you're hearing the same thing. So the demand for it will only go up. I think we have established success for very large banks in U.S. also [ 50% ] live in 6 to 9 months. You're leveraging our iZoom methodology that creates that mode for us of having a ready product to be able to implement fast and having market coverage for covering tax regulation for 60-plus countries. No one else has that ready product from a market perspective. Any large global banks will have at least 30 to 50 country footprint. So that becomes a big differentiator.
And also, Manish, if you would share a quick thought on the cycle numbers, how we change that market positioning or [indiscernible]?
So if you look at most of my revenue driver was through cash management from a corporate banking perspective. Trade and supply chain, we had done a deal with Raiffeisen Bank before and then UOB in Asia in Singapore. That's where we were modernizing the platform, AI-based cloud-native infrastructure. It was important to ensure we establish right level of success. And if you look at any of my peers, their trade revenue is higher than their cash revenue. That gives you as a perspective of the revenue pool I will be playing into. So that's a very big opportunity of now taking it out to market-leading product [indiscernible] and established success and to take that out to the market. So that should add to the growth of the platform.
Okay. So you're saying this iColumbus is kind of a test deployed already on these 2 transactions that you mentioned in the past?
That's where the base formation of that happened over there. We have significantly added AI capabilities and other capabilities, which we'll be taking it out. And this is the only product out in market where you have trade finance, supply chain finance, collateral limits integrated along with a channel, which is integrated with a cash channel. No one else has that capability. So now it's about monetizing that, taking it out to market, marketing it that, that's what we focus on.
And if you look at again from a trade perspective and a supply chain perspective, all the demand supply gaps, which we are hearing in the market as well as the pressure on trade to digitize and how AI will help you do that faster and take paper automation, I think all of those things we have addressed looking at the market needs.
Sure. That's quite helpful. And just last one, bookkeeping one. On the other income side, sorry, I missed your comment if you shared already. What is the reason for the other income channel?
There are two reasons for it. One reason is subsidiary income. So there are 2 companies, [indiscernible] works in Adrenalin. They delivered a good quarter 4. So they are not a consistent number. And then there is [indiscernible], which we considered more than -- are all just consider more than 3 years outstanding as a write-off. There was write-back into it and strategy income. The fourth -- third component is strategy income. Now we have a couple of cash so there is a strategy income.
Thanks, Rahul. Next, we have Mr. Vivek [indiscernible]. Vivek?
So you had 2 quarters where we've hit a run rate of $67 million. Should we expect this to ramp up from the next quarter onwards? And as you alluded earlier, should we expect a run rate of $75 million in the next 2 quarters? And if yes, if we go from $67 million to $75 million and even if the cost increase, the margin as a percentage should go up. Would that be fair to assume?
That's what we are shooting for, that $75 million, as $75 million is next quarter or next to next quarter, but that's what we are shooting for in next 2 quarters. One of the quarters which should hit $75 million, so you understood right, Vivek.
And we're not very far away in the industry. I think you asked the question whether we were struggling in the $55 million to $60 million category. So we're already talking of a $75 million up in that stage. I think just keep that in perspective as well.
Sir, just one more question. On the talent front, should we expect a bit more to come in the books or most of it as of noise on the books and from year on, we should expect a regular sell increases? Or do you think because in the last quarter, you had mentioned that a bulk of the cost was yet to come on the books? So would you say a Q4 run rate of INR 250 crores, as I can see on the P&L for the employee cost than the fair base? Or do you expect this to go up higher than the revenue growth from year on?
It won't be higher than revenue growth, but I think the cost rate will go up, increments and 100 people additional costs. That's what we have. And now I'm saying if you are making sales and marketing investments, then those will be the -- also part of salary costs will come in.
And sir, once we -- up to what level of revenue can the current capacity system? I'm just trying to understand as we thought in the...
$75 million. $75 million current capacity is there. That's what we have mentioned to you. And that is what we completed till March 31. Now we are now next milestone is $100 million or $90 million. That's what we need to achieve when we are preparing the organization for $100 million, $400 million run rate in next 2 years, 2 to 3 years, whatever the numbers will be there. So that is where our effort will be there by the right investment we need to make. That's why 3 countries we've chosen in this year, we want to choose again, calibrated growth of the country, 3 countries are per year when we make a full country and then expand further on it.
Sir, just one last question. As we've been saying in the past that since you're a product company, so I'm guessing as we go from $67 million to $75 million to $90 million to $100 million, at some point, there should be a jump in the margin, right? I mean [indiscernible] mentioned that beyond a certain point, most of it flows down to the EBITDA. So would you say that -- I mean, that might have been delayed because of the cost increase, but that the premise is still valid, if I'm...
It is fully valid because if you say license-linked revenue of INR 1,060 crore this time. That lies INR 1,060 crore comes flowing into the bottom line without an additional cost of the delivery. So that number is a one important number you have to monitor is license-linked revenue. And that -- but on other side, some companies stopped investing. You have seen some of the product companies stopped investing. And then push for the margin like FLEXCUBE may push for the margin to 40%, 45%. We will not be doing that.
So we have been advised by the investor all of you that we don't push for the margin beyond a point because market size is too big for us to capture. And for that, we need to constantly keep on investing ahead of time for our growth investment as we part and parcel of it. And you have seen multiple product companies, which stagnate at $60 million, which stagnated $70 million just because they stopped investing into growth investments.
Absolutely. Absolutely. And Vivek, you see our -- this statement, which you just made us very crucial to understanding it is, which is that most of these companies we compare with or is being compared with are essentially single product to dual product companies. We -- firstly, we are very young and they are much more mature companies, number one.
Secondly, they were just 1 or 2 product companies. We have 12 products, 4, 5 platforms now and 4 horizontal technologies, right? So this is our IP chest, so to speak. As a result, continuous investment is the right way to go for shareholder wealth. I mean there is no other great [indiscernible] apart from that. So that continuous investment will form part of our strategy, only for the reason of our IP [indiscernible].
Thanks, Vivek. Next, we have Mr. [ Nitin Gupta ].
Yes. My question is like what are you planning to do with the cash that you are having on your books?
We declared the dividend first year. This is first time we did that, sharing the dividend. But I think cash in the books is just starting to build up, as I mentioned, last time. We'll be looking at it where the opportunities are there. We are not an acquisition company, but is some opportunities are there in the market, we'll see if something comes out, but not to disrupt [ the current system ]. Whether it could be marketing, market-facing acquisition, if it comes in our way or mostly market-facing, not only IP side. IP side, we have everything available to us. So if market-facing, which gets us the acceleration somewhere, then we may consider. But otherwise, will -- 2 buckets: pay back to the investors; and then deploy in case of -- if an M&A opportunity comes our way. We need to keep our [indiscernible] ready.
Okay. One minor point. So for how many quarters this ESOP cost is going to continue?
What is it?
ESOP.
ESOP will continue. ESOP is 4 year. If every time we issue a new ESOP, so ESOP will be -- as of now, we have -- this quarter, I think we had cost of around INR 11 crore. INR 11 crore is this quarter cost. So in this year, we spent something INR 40 crore in ESOP, RSU, which is not a noncash payment. So 40 -- so that is bundled into it. If we take that into account, it's around -- INR 40 crore will be close to 2.5% of EBITDA margin.
Thanks, [ Nitin ]. Next, we have Mr. Mayank Babla from Dalal & Broacha.
Am I audible?
Yes, Mayank. Please go on.
Sir, just wanted some clarity. Sorry, I missed earlier. We lost 2 deals -- 2 deals, right, because of the Russia-Ukraine crisis. And so you mentioned, I think, $4 million was the size of the deal.
That's right.
Of both put together?
Both put together, yes.
Okay. And sir, any -- I know it's a bit difficult, but any view on when we can recover or this deal will be back on track?
Unlikely as of now. Russia in Europe -- operation of Russia in Europe will not be activated for next 2, 3 years.
Thanks, Mayank. Next, we have Mr. Rajiv from Ambika.
Yes. This is Nishid Shah from Ambika Fincap. Arun, congratulations on a good set of numbers. My question is, I mean, everyone seems to be too focused on 1 quarter EBITDA margin. But my question is on the -- overall, how do you see the next 3 years? And you have now 5 platforms, and you added 1 platform. You already talked about moving to $100 million run rate a quarter from $67 million over a period of next 2, 3 years. But where do you see the company in the next 3 years? And how do you see between GTB, GCB and insurance?
So from a product company perspective, I would say 5 years is a good horizon. We should look at it, that how we have designed the company for next 5-year duration. So that's our whole design is all about. When we invested into cloud technology in 2019 and '20 and we suffered some losses, those are very advanced investments, which has delivered the result for our SaaS revenue to go up to $60 million annual run rate.
Even if, say, $50 million, $60 million annual run rate. This is a very, very -- these are recurring revenue streams and that is license like revenue. So that's -- once you look at it, at each time we are selling into one country like in UAE, selling to the E NBD as a bank and then I sell to SEB as the next bank, a premium got increased, and my delivery time has come down.
So my margin has gone up on every deal when I go. As of now, we are building on 3 products, as we mentioned, 3 out of 12 products, 5 platforms. 5 platform has started working on it, these 5 platforms. So this is a big scope to us. We are finding our competition is getting slightly off track. Temenos is looking, private equity investors are looking for Temenos. Great news for us. If private equity buys them out, they will squeeze research and R&D dollar out of the window. And that's what is our sweet spot for us. We have seen Finastra going down the tube when their private equity investor has taken the money.
So we wish that it should become private quickly, so that they will -- so with that competition, gets under pressure of doing and cutting the cost and no R&D investment. We are quite bullish about the future because there are not too many companies which have got this strength, not too many. We don't see any single company in financial technology space which has got a complete suite of 900 APIs, 300 PVCs and ability for [indiscernible], I assume, at [indiscernible] 6 months implementation.
It's a very, very different space. We are looking ourselves and that's why we want to be calibrating. That's why we don't want to make any single mistake in this journey, which will topple our engine, whether it's security, whether it's extreme security, the investment in securities, the investment in performance of the technologies. So those are things that are become very, very critical. So just to answer your question, I think it's -- we are building design thinking is helping us out to building a culture.
Culture itself is a moat, a big moat for any competition to come in because when I say execution capital, when we do the implementation, Nishid, we talk about bulk packet level for our work packet. So we are breaking down like a Toyota work packeted. On assembly line operation, how each work packet gets executed. We are breaking down the implementation into those work packets. We have sheets running into our project planning sheets running into PGM 110 to PGM 120 to PGM 130. And that's how the 6-months implementation can be done for the large bank in Malaysia. And that is very, very different moat. If you can cut down the delivery cycle time by half, I think world is yours.
And the point which less unstated is that...
Can you speak a little loudly, Prabal?
The point which is left unstated is essentially that what he just mentioned is that we are trying for the first time in the IT industry of essentially doing what Toyota did in the manufacturing setup. We are now trying to do it in the IT industry. So if -- so it's really a very, very big fundamental move. And we're able to do it over the next few quarters, you will see the results. As such results are already evident, but so -- just keep that in mind. It's a really sales mix shift as and when it come to the IT industry as a whole.
My next question is on the GCB side. I mean how is the consumer banking space shaping up and the competition? And how are we winning and how is the pipeline there?
Let me just explain on the pipeline. I think we have a good pipeline. We have growth of $725 million pipeline. Destiny deals are growing, strategic deals are there coming up. So overall, Nishid, it looks -- looking to be good.
No, particularly the Global Consumer Banking.
The Global Consumer Banking. Rajesh, you want to comment?
So I think when we look at Global Consumer Banking, there are really 4 product lines that we talk about. One is our IDC proposition, our flagship product, IDC; lending, our leadership product, which is the central banking, Quantum Central Banking; and now the credit card platform. Let me just spend a minute on each of these product lines so that you will get the granularity on what we are seeing.
I think on the central banking, Arun talked about the large deal win that we had on RBI. Besides RBI, we also closed 2 very large deals on central banking. And we had closed 1 deal in the previous year. So we are seeing humongous momentum in the central banking space. And in fact, as a leadership product, we are now seeing us being called rather than us going to these clients. Clients are calling us and asking us to participate. So central banking, we're seeing good momentum, right? And many central banks are going through this process of modernizing their core banking system.
IDC, we are seeing some very good traction in Europe. Our product, unfortunately, Arun talked about one of the banks, the German direct bank, the deal which we lost because it has Russian ownership. The bank had Russian ownership. But we are seeing very good momentum. We are in the last 2 or 3 in many large deals in Europe and that journey in Europe and other parts continues.
Cards, we talked about the recent launch. I think you may not have noticed it, but Bajaj Finserv and DBS came together to launch the first co-branded credit card. This credit card is not only managed by us from a technology perspective, but also from an operations perspective. And the way this platform has been designed, it's a low touch, no touch with a lot of [ impairment ] from a customer perspective. So a customer can do a lot of operations. So it's a game-changing platform that we have put together along with the IP of both Bajaj Finserv and DBS. So we are very hopeful that this platform, which is now online in India, we will be able to take it.
So from a market perspective, as I go and meet a lot of clients, I see a lot of opportunity. I see a lot of opportunity. I see a lot of opportunity where I see banks sitting with a lot of legacy. And I think we are there with that. One more point that I have to make. What is the tailwind that I'm seeing? I see that the cloud technologies that we invested in, our architecture, our API-first architecture and our product being cloud-ready, whether it's Azure, whether it is AWS, that is giving us the flip, and that is a competitive edge that we have put in.
Arun, I have a small question on Microsoft. The tie-up with Microsoft, where do you see the results coming in, in terms of order flow coming in? And are we increasing the bandwidth to take care of the orders that can come flowing?
That will take 2 quarters, 2 to 3 quarters. I think by January, we can expect some orders flowing from that deal 9 months from now. And we have time to take care of that. So that's why you need to plan next round. As soon as we reach $75 million, we need to plan for some additional capacity in third quarter, fourth quarter to be [ early ] in that time to make it $90 million. $50 million is a good bucket quarter-on-quarterly run, so we can -- so that is working very well, Nishid. This $50 million bucket size to increase the capacity, it's not too much, not too less.
Thank you, Nishid. Next, we have Mr. Utkarsh Solapurwala from DAMOS CAPITAL.
I have 2 questions. First one is, what is the current status on AIF that we are looking to create on the investing in ecosystem?
We are still waiting for the approval. We have applied in SEBI. SEBI is taking time to asking some questions. So as soon as it's through. And the strategy is the same strategy. We are looking for those small ecosystem players to invest into the IDC marketplace. So that's a '23, '24 agenda. So by that time, this should be completed.
Second question is, as we scale up from $60 million to $90 million and potentially $100 million in the next 2, 3 years, are we ready with the management bandwidth for the top leadership positions that we might need to create if the -- as the revenues inching higher?
We have very, very high-quality leadership capital. We have 50 partners in the company, very rich capital available, and close to 365 [ VP plus ] leaders with more than 25 years' experience. This is a highly rich, older expertise is required. So that's what, I think, we invested upfront, and that's what we are leveraging.
Thank you, Utkarsh. Now we have next question coming from Mr. Harshil Shethia from AUM Fund Advisors.
Yes. Sir, I had a question on -- well, currently our deal pipeline is up around $725 million. So what is the tenure of the deal? Do we have more on the shorter end of the deal or more longer-tenured deals of [indiscernible]?
Yes. So this deal pipeline, we qualify a destiny deal. This destiny deal we are reporting separately in the deck on the slide, if you go to the slide [indiscernible] side. We're some of the decision of 61 deal, some 10 or 12 deals were decided in the quarter. We win 2 out of 3, we win the deal. One deal typically, the ratio is coming 70% -- 60% to 65% to 70% win rate in those destiny deals with us. So that's one forecast we can look at.
And we are -- as I mentioned, that we learned the art of having a larger deals like that, we have $50 million deal. So now we are at capacity to get $1 million deal to $50 million deals. So obviously, the quarterly impact comes from the major deals, while $1 million deals are also important for us to keep our cloud running over there.
Sir, actually, my question was on the same slide of -- it's, I guess, Page #35. You mentioned that our panel pipeline is up 7 -- $625 million.
$725 million. $625 million is 167 opportunities.
Correct. So what is the time line of the deal. So basically, so majority of the deals are like 3-year deals, 5-year deal, if you can tell me.
There are 2 questions you're asking. You're asking duration of the deal when it closed or size of the deal for which the deal will be.
Duration, duration is my question.
Duration of the deal, once you sign it, it's a 10-year deal. Once you sign a deal with any customer, it's a 10-year deal. Nobody change the license.
Okay. Okay. And secondly, I had this question with Microsoft. So what products are we going to sell at Microsoft? Are we like working with Microsoft for our platforms or how is it? Can you Just elaborate?
Yes. So we are working on all the GTB product suite, cash cloud payments, they are exclusively signing with us. And for other products, they are working with us. So GTB products are exclusive, which I mentioned. Other products will be there. So that is the current arrangement.
Thanks, Harshil. Next, we have Mr. [ Ankush Agarwal ]. [ Ankush ]?
Congrats on a great set of numbers. So firstly, Temenos, in the recent Capital Markets Day, have said that going forward from 2022, they will stop selling licenses and subscription will be the standard offering for new and existing deals. So I wanted to know your thoughts on how does this impact the industry. If the market leader switches to a permanent subscription base model and how does Intellect is looking towards this?
It's good news for us. If somebody says that he doesn't want to sell on-premise license, and we are selling it and customer wants a on-premise, so it's a good news for us.
Okay. So like but Intellect internally doesn't have any plan to move to a formal subscription-based model?
Why should I do it? My customer focus is there. I want to look at it, what is right for the customer. If a customer wants to invest upfront for the capital cost, I want to pay him the cost. And if customer wants heavy operating cost model, I would like to give him. So as a design thinking, I'm all about customers here. Customers in the center and run around the customers. Why should I tell customer what he or she should be doing here? I cannot tell customer you should be -- wear blue shirt or white shirt here. Let him wear whatever he wants to wear.
Right. Right. No. The question was that if the industry leader is moving to such a model, do you think the overall industry dynamics will shift more towards the subscription-based model? Or you do think like it won't make that much of a difference from the industry [ perspective ]?
If a customer -- industry doesn't have anything -- customer drives the industry. What customer ask, we had to do it. And I think what your question is right that if leader is moving towards -- it's good for us, at least for -- we also have a cloud revenue growing 100% to 112%. We are also finding -- we would love to sign that cloud deal because cloud deal has a 10-year -- more than, you can grow the revenue year-on-year on the cloud. So we always want to sign the deal. But we do not -- we never want to say customer that we only sell one thing, not sell other thing.
Got it. Got it. Sir, something on the similar line. So our license revenue growth has quite tapered, right? Even though it's understandable that the SaaS has grown like 100%. So incrementally, a lot of deals are coming on SaaS with doesn't have a license component. But from here onwards, how do you think -- do you expect the license will again start growing at double digit? Or do you think that [indiscernible] that a larger part of our growth will be driven by the SaaS deals and such that SaaS will already lead the growth and license would be more or less at the similar levels?
I think from an investor perspective, you should only understand license-linked deal. You track only one number, which is 57% of revenues licensing deal. It's a means of winning the deal, whether I've been as a license or I've been a SaaS last choice given to customer when customers selects our product, then his CFO and his procurement department come into place. And they start saying, "Oh, give me this rate, give me that rate. Give me this proposal give me that proposal." We are quite flexible on giving those proposals, which is best suited for the customer without Intellect.
That's understandable, that you are more focused on the customer. The reason I was asking this question is SaaS gives up business models more predictability. If Temenos, the entire thought process about them going corporately for subscription was the same. So I was just trying to understand if our deal finances sell that, a larger part of the stack, but got it that way.
Sir, lastly, for quite some time, we have been talking about this directional margin towards 30%, right? But given that some of the commentary that you made that given that we have to enter 3 more countries and there, we have to invest in an additional R&D plus on the sales front as well with the given markets of deal you have to invest. So do you think that target is like on the back burner for a couple of years now?
It's not a back burner. I think if $4 million deal comes in, then we will have $30 million this quarter itself. So focus is $30 million, and we remain 30%, we don't want to go beyond 30%. Now 25%, 27%, 24%, those are quarter-to-quarter game. Obviously, for next 2, 3 quarters, if we get some good wins, we may able to come closer to 30%. Otherwise, it may be 27%, 26%. We are not so much hung up on the margin has to be 30%, but directionally, we are in the same direction, and that's what our attempts are.
Right. Lastly, sir, just a little bit clarification on this Microsoft deal. You said the iGTB oil products would be exclusive. So it would be exclusive on the Microsoft end to sell this product or [indiscernible] D Microsoft can sell these products?
No, no, not from our side. I think we have joint go-to-market time with Microsoft. Microsoft has banking and finance team, who has selected this product after a lot of evaluation.
Okay. Okay. So Microsoft on this area versus [indiscernible] ARPU is there?
Yes.
And again, similarly on this, you said that this -- a guidance of 20% growth is there, but this Microsoft deal should add some tailwinds. So this is over and above this 20% is what you are saying.
As of now, just keep it 20% here, that till the time. I could clarify, it's not a guidance. We say we designed the company for 20% because we can't give you guidance as a product company. We told 2 years back, we don't give guidance. But that's why we never give 25% guidance or something. It happened. It happens.
Thanks, [ Ankush ]. Next, we have Mr. [ Nandan Mariwala ], from [indiscernible] [ One Capital ]. [ Nandan ]?
Congrats on the quarter. Just one quick question on the GeM platform. Till when is that deal going to go on? Because I remember, somewhere around FY '17 or '18 is when we won the deal. It was some fire or deal or so. So is it going to come up again for rebuild or if you can just clarify?
Yes. So this deal is up to '24 basically, '23 -- December '23 is to be exact. And this is coming for 2 years extension as a part of the proposal. So we are looking forward that if it should be extended by another 2 years on that deal.
You mean beyond December '23, right?
Yes. That's right.
Thank you, [ Nandan ]. Next, we have Mr. Amit Chandra from HDFC Securities.
Am I audible, sir?
Yes, Amit. After a long time, I'm hearing your voice.
Sir, my simple question is on the SaaS and subscription revenue. So currently, we are at 20% SaaS subscription. But how -- in terms of margins, how different it is? Because typically SaaS and subscription is a high-margin business. But as we're increasing our SaaS and subscription in our revenue mix, that is not being reflected in the EBITDA margins. So like one thing is that -- now the non-SaaS -- non-SaaS revenue, like margins are coming down. So is it -- is it the right way to look at it? Or we will see the like benefit of increasing SaaS subscription on the margins going ahead?
Yes. So Amit, the SaaS revenue in a full operating model in a stable stock operation is around 70%, which is rightly estimated that it should be around 70% on a fully operating model. But since we are in enterprise cloud, so if you look at the first statement we made, enterprise-grade solution on the cloud. So what does it mean is that we will take a full client on cloud. They will pay us $2 million to $4 million per year on the cloud, depending upon what services is consuming. It may vary from $500,000 for the year to $2 million. So it's different from a smaller client like [indiscernible] which will panning for the $500 or $5,000 per client per year. So that's a difference that we want to sign up a big enterprise.
But that initial investments are large. So when we are building up the entire business, we have to build up a higher capacity, higher investment, and this margin will come to 70%. So those contracts, which will become into operating states, they become into 60% to 70% to 80% level. So that that's the current level is there, on margin level. This margin level of 23%, 25% level is not on an annualized basis, 25% level, which is reasonably good. And I mentioned some deal like $3 million, $4 million deal move here and there left and right, that shifts our margin.
Okay. So this 70% rule or the 70% gross margin rule for a subscription revenue, is it true for all contracts or there is a range which is very big in terms of margins that we engage with, enterprises on the SaaS side?
I'm saying this is a full mature stage here. GeM, we don't have that kind of a margin. Government of marketplace will not have that kind of a margin. That is much lower margin we operate at in Government eMarketplace. But any global marketplace, those kind of market norms between 60% to 70% are established.
Okay. And sir, on the free cash flow conversion, what is our estimated or our target range where you want to operate in terms of the FCF to pack conversion?
From an EBITDA to cash conversion, last year, we converted 300 -- INR 322 crores on an EBITDA of INR 450 crore. So it's close to 70%, 75%. So our target will be around 80%, should be converted. 70% is a good number, but 80% should be our target.
Amit, if you see -- if you compare over the last 6 quarters or so, you would see that it used to be in the range of 35%, 40%, and we've steadily been increasing that. So on an annualized basis, Arun just gave the figures, we're already at 70%, 75%. So maybe another 5% here and there is possible. And -- but I think we're on the right trajectory there.
Thanks, Amit. Arun, can we take a couple of more questions?
Yes, two questions. If you can extend 6:15, I can...
Okay. Thanks, Arun. Next, we have Mr. [ Ashish Kabra ] from [ Fair Deals ].
So first, congratulations on a great set of numbers. So sir, I just wanted to ask like from a 3-year perspective, is this $100 million -- $100 million revenue -- is it -- can we make that? Or that will go beyond 3 years?
Yes. I mean that's what we are working for, yes, not beyond 3 years. Not beyond 3 years that we are working for, 3 years, yes.
There are a few questions here, Praveen. So [ Sanjeev Agarwal ] from [ Global Holdings ], he pushed a question. Going forward, what is going to be the dividend policy? As of now, we -- Board is just evaluating what is the dividend policy. We'll be looking at based on 2, 3 years of sustained cash flows and market scenarios. So we'll come back to you as soon as we define the policy over there.
Somebody asked a question about the tax part. Tax part will be 26% plus. 26%, 27% will be our overall tax number for the next year. But our effective tax rate or cash tax rate for which company will be paying will be at a MAT rate because we have a MAT credit available to us. Our payout will be on MAT credit, and that will be 18%, [ or the number. ]
The third question is, there are a few lost deals so -- [indiscernible] a few lost deals from the pipeline. Could you please that us now what are the likely reason for those? Obviously, 70% conversion of winning the ratio is always a good year. You can't win all the deals which is there for you. So we all want to have all the IPL matches won by the one team. but the other teams also to play here.
Which is the products will reach monetization phase? I think we have IDC as -- IDC payments [ 60 ] wealth and underwriting. All the 5 products are under race for monetization '23, '24. He is asking the question. In '23, '24, I think out of 5, 3 should work. 3 should be doing well in '23, '24.
What is the impact of losing Russian banking deal? There's no impact. We have not booked any revenue. So there's no impact at all. It was about to be signed. We didn't sign. If we would've signed, maybe it would have positive impact, but no negative impact on this deal. There was a [indiscernible] on GeM revenue of INR 1 lakh crore. It can move to INR 1.5 lakh crore. A lot of things are happening in government because there are some discount and discounting is also available in GeM. So based on that, predicting revenue of GeM is not 100% there.
Ravi Mehta, Deep Financial. Was it conscious step to let go of the Russian deal or we can really look at that opportunity? No, it's all about letting go. It's just a situation that reached that point of dead bank opportunity in Europe because no Russian bank will allow to open a branch and Europe as of now, sanctions are there. So it will not be there. Okay. So Praveen, any other questions? This is a question which came to me.
Thanks, Arun. One last question is -- take it from Mr. [ Gaurav Singh ] from [ Bharat Capital ].
Yes. So since you mentioned that you want to not push the margin lever too much, and you also mentioned that you are working on methods to reduce the implementation time cycles. So if you are not increasing the margins or not making a conscious effort to increase the margin, shouldn't that not be compensated in the higher revenue growth? So on the revenue side, you're saying you want to go calibrate it, but you're also saying that you don't want to push the margin too much. So isn't that contradictory in a sense?
I'm saying margin is the outcome, margin is not a driver. If we have a lower cost of implementation, margin will naturally grow. But we don't run the business for the margin. That's what I wanted to convey. So the meaning is different. Meaning is not that we don't want a margin. Meaning is that whether we focus on margin and that we take a deal, that's not the whole question around it.
Right. Because there's a marketing cost side angle as well to margin. So you could hike your marketing cost, reduce the margin. You grew your revenue, right? So it should translate to a higher revenue growth, right, yes?
That's right. That's right. So this year, instead of 20%, we did 25% revenue growth. So it happens in a product business that sometimes when you are focusing on a deal for 2 months or 3 months, and we win the deal like RBI, it's a big plus. And most of the RBI accruals have not happened in the last -- so those will flow into the next year. Most of the revenue will flow into the next year.
So these are a few positive sides of the -- this trajectory. That's why committing anything over 30% is our baseline. I'm saying we designed the company for 30% EBITDA, 20% revenue growth. That's a design parameters. It can be at 25%, 33%. It happened this year. It happened 33% and 25%, which is better than what we designed the company for. So whatever the guidance we've given to Board approval, we have taken for the investment still based on those investment, we were be able to generate 25% growth.
Right. But since you want to -- you calculated it for 30% EBITDA growth, if you want to do that and 20% is revenue, you have to grow your margins, right?
That's right. That's right. That's what we are looking for. But I don't want to commit all the -- I don't want to put myself in a box saying how everything is committed. This number is committed, this number is committed, and there's no management flexibility available here. We need to play the ball here, for sure.
Thanks, Gaurav. So now we are closing the call. In case you have any further question or want to have a follow-up call, please do write to us or call us for the details given in our website. Thank you for joining us today. Thank you, the management team, Arun, Prabal.
Thank you. Thank you for the deep questions.
Yes. Thank you. Thank you, everybody.