Copyright © HT Digital Streams Limited All rights reserved. Equitymaster 7 min read 22 Oct 2025, 09:00 am. IST In the last four years, the BSE IT index has gone almost nowhere. (Pixabay) Summary Analysts are betting on this under-the-radar tech player showing strong earnings visibility, scalable business model and improved market positioning. Could this be the next big compilation? Indian IT stocks have not been crowd favorites in the past few years. Even long-term investors who were willing to remain patient have little to show for it. The BSE IT index makes this clear. In the last four years it has gone almost nowhere. There were two brief periods of excitement: one after the collapse of the Covid-19 outbreak in 2020 and another recovery between April 2023 and December 2024. Outside of those brief rallies, anyone who bought IT stocks after 2020 barely made any money. This is not because the sector is broken. India remains the world’s leading IT procurement destination with around 55% global market share. The industry is on track to reach $350 billion in revenue by 2026 and contribute nearly 10% of India’s gross domestic product. By 2030, it could grow to $500 billion. India’s IT success is built on a mix of cost advantage, reliable delivery and deep customer relationships. Many firms have established development centers around the world and entered into strategic partnerships to move up the value chain. The industry is also seeing the rise of platform-based models and the creation of intellectual property, signaling a gradual shift from manpower to product. And that’s where Intellect Design Arena (Intellect) enters the picture. A rare product play in a service-heavy industry Intellect is one of the few listed Indian technology firms that builds and sells software platforms instead of providing outsourced services. The company develops products that help banks and insurers modernize their systems without replacing everything they own. In a sector suffering from slower global spending, Intellect stands out by driving a product-led, recurring revenue model. It sells once, earns over many years, and keeps expanding margins. The company’s two flagship offerings include eMACH.ai and Purple Fabric. They form the foundation of this strategy. eMACH.ai helps banks transform legacy systems into agile, cloud-ready systems. It breaks down banking operations into small components that can be combined to create new digital products faster. Purple Fabric is an enterprise-grade artificial intelligence platform that focuses on business impact. It aims to deliver measurable outcomes such as faster loan approvals, smarter risk models and more transparent management. Together, they address the two biggest themes in global banking today: digital transformation and responsible AI adoption. The Big Picture: A Sector at a Crossroads Indian IT’s current challenge is growth. Artificial intelligence is reshaping global technology spending. Clients are cautious, waiting to see how automation and AI will change their cost structures before committing to new budgets. Indian IT firms have prepared for this by training their workforce and investing in AI solutions. However, revenue growth at large-cap players slowed to the low single digits, compared to double-digit expansion during 2020-22. In this environment, Intellect’s 18% year-over-year revenue growth in the June 2025 quarter is an outlier. The company’s product model protects it from the price pressures and billing constraints that traditional outsourcers face. Strong execution and clean balance sheet Intellect reported total revenue of ₹2,580 crore in FY25, up 11% from the previous year. Ebitda was ₹610 crore, while profit after tax stood at ₹330 crore. The company has no debt and holds ₹1,020 crore in cash, giving it flexibility to invest in research and expansion. Margins have steadily improved. Ebida margin rose to 23.6% in FY25, compared to 21% a year earlier. Over the past five years, total revenue has grown at a compound annual rate of 11%, and profit after tax has more than doubled. Return on equity is around 20%, while return on capital employed exceeds 25%. The company’s license-related revenue, which includes platform fees, licenses and maintenance, now contributes more than half of total revenue. This creates a predictable revenue stream, unlike one-time project revenue. FY26 starts on a strong note In the first quarter of FY26, revenue rose 18% year-on-year to ₹734 crore, while Ebitda grew 28% to ₹176 crore. Profit after tax was ₹94 crore, up 27% YoY. Collections remained strong at ₹586 crore, keeping cash flow in line with revenue. Intellect’s annual recurring revenue stood at ₹1,040 crore, reflecting the steady revenue stream from long-term contracts. The company’s sales funnel, at ₹ 11,300 crore with ₹ 9,200 crore in active opportunities, shows a healthy pipeline that could support growth in the coming quarters. Management expects double-digit revenue growth for FY26 and Ebitda margins between 23% and 25%, supported by scale, higher licensing income and tight cost control. Worldwide and the US event Intellect earns about one-third of its revenue from Europe, followed by Asia, the Middle East and India. The US, long a weak geography, is now becoming a key focus. In FY26, the company secured three major transformational deals in North America. One comes from a Tier-1 Canadian multinational bank that selected eMACH.ai Core Banking and Payments for its US expansion. Another win came from a San Francisco-headquartered global financial services firm that chose Intellect’s Liquidity Management Platform to monitor cash positions in 35 countries. Breaking into the US market matters because it is the world’s largest banking technology market. Success here can increase both deal size and brand recognition. Emerging engine: Purple Fabric Intellect’s new AI platform, Purple Fabric, could be its next growth driver. The platform is built to deliver measurable, auditable business outcomes. In FY25, it signed a ₹ 200 crore AI transformation deal with a London-based brokerage firm and another multi-country tie-up with a European bank to modernize its treasury and transaction banking systems. Management believes Purple Fabric will play a pivotal role in FY26 and FY27 as financial institutions globally adopt responsible AI frameworks. Valuation and Peer Comparison At around 39 times trailing earnings, Intellect trades at a slight premium to mid-tier peers such as LTIMindtree (34x). The higher multiple reflects its differentiated product model, healthy cash flow and expanding recurring revenue base. If the company can grow recurring revenue above ₹1,200 crore and maintain margins close to 25-27%, the current valuation could find further support. Capital allocation and dividends Intellect’s capital allocation remained conservative. The company finances expansion entirely through internal accretion, has no debt and pays a modest dividend. It continues to reinvest heavily in R&D, marketing and talent to strengthen its global positioning. This discipline shows in its clean balance sheet and consistent cash generation. Management also used stock buybacks and ESOPs to retain key talent and reward shareholders. The opportunity and the risk The opportunity lies in structural change. Banks worldwide are moving towards modular, cloud-based systems. Regulators are pushing for AI that can be explained and audited. Intellect’s products sit right at the intersection of these trends. However, execution risk remains. Product companies depend on smooth implementation cycles, and any delay can affect short-term results. Competition from world leaders such as Temenos, FIS and Finastra is intense. The US market, while promising, still needs consistent delivery to establish long-term credibility. Broader technological outlook For investors, it is worth remembering that technology now extends far beyond traditional IT. The next phase of India’s tech growth is likely to come from platform companies, defense technology, semiconductors, AI and cyber security. Intellect’s positioning, as an IP-led, product-first technology firm, already places it ahead of the curve within this transition. The bottom line Intellect Design Arena has evolved from a niche banking software provider into a credible global product company. Its twin engines are driving a steady shift to high-margin, recurring revenue. The balance sheet is clean, cash flow is healthy, and yield ratios are among the best in mid-tier tech. In a market where large IT firms struggle to deliver growth, Intellect’s execution, innovation and design-led approach offers something different. If management sustains its performance and delivers consistently in the US and Europe, the company could emerge as one of India’s most successful product-led technology stories. Investors should evaluate the company’s fundamentals, corporate governance and valuations of the stock as key factors when conducting due diligence before making investment decisions. Happy investing. Disclaimer: This article is for informational purposes only. This is not a stock recommendation and should not be treated as such. This article is syndicated from Equitymaster.com Get all the Business News, Market News, Breaking News Events and Latest News Updates on Live Mint. Download the Mint News app to get daily market updates. more topics #IT shares #Multibaggers #Stock markets #BSE IT index #equitymasters #marktpremie Read next story
Prediction: Is this the next tech multibagger stock to watch?
