Anand rathi: Polaris Software Healthy products order book; maintain Buy

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Polaris Software
Healthy products order book; maintain Buy
 Strong deal flow. Polaris’ order book is healthy, with 17 new deals
in the products business. Q2FY11 revenue and net profit were in
line with our estimates. We maintain our target price and Buy
rating.
 Key points. Polaris’ overall revenue in 2QFY11 grew 7.7% qoq
(rupee) and 5.9% (US dollar). Revenue from the products business
was 21%. Consolidated net profit rose 3.3% qoq. Geographically,
Europe and America grew 6% and 1% respectively, while RoW and
India were down 6% and 1% respectively.
 FY11 guidance maintained. Management has maintained FY11
EPS guidance of `20.2-20.5, which is a growth of 31-33%.
 Introduction of FY13. We expect about 12% volume growth, flat
pricing, and a 50-bp margin expansion over FY12e.
 Strong balance sheet and cash-flow to aid business. Polaris has
cash and liquid assets of `4.8bn (`47/share). This reduced from
`5.3bn in 1QFY11 owing to capex of `400m and dividend payout
of `200m. Debtor days have slid to 44 from 47 earlier.
 Valuation. We maintain our target price of `235 which comprises
`200 for core earnings of `16.5 (target 12-month forward, Sep ’11
PE of 12x, maintained) and `35 (valuing the cash above the
average peer cash holding).