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Polaris Software Lab
Strong performance continues
Polaris Software Lab (Polaris) reported strong operational results for Q3FY11. The
management reiterated guidance. We believe that strong demand for Intellect and
growing IT spend by BFSI would continue to drive growth for the company. We
reiterate our ‘BUY’ rating, with a target price of Rs250.
Q3FY11 results – ahead of expectation: Polaris reported stronger‐thanexpected
quarter. The company reported top‐line growth of 3% to Rs4bn (PLe:
Rs3.96bn, Cons: Rs3.95bn) and growth of 6.6% QoQ in USD terms. Operating
margin eroded by 251bps, largely driven by higher employee cost (Rs110m) and
currency appreciation (Rs70m). Due to lower margin, Polaris missed EPS
estimate, delivering growth of 4.6% QoQ to Rs5.06 (PLe: Rs5.13, Cons: Rs4.87).
Intellect moving from strength‐to‐strength: The strong growth is driven by
services business that grew by 6.7% QoQ. According to the management, the
demand outlook of the Services business continues to be strong and expect high
single‐digit growth QoQ. Moreover, the deal pipeline for Intellect business has
seen strong improvement and pick‐up in sales. According to the management,
the deal funnel for Intellect improved to ~$350m (v/s Q3FY10: ~$150m). The
management expects Intellect to grow in high 20s in FY12.
Margins stable – Currency the only risk: The management was confident of
maintaining margins at the current level. The key margin levers highlighted were
hedges (FY11 $25m @Rs48.33, FY12 $74m @Rs48.31, FY13 $72m Rs49.42),
growth in Intellect business, services related to Intellect business and stable
G&A despite growth. We believe margin would expand as contribution of
Intellect swallows in FY12.
Valuation and Recommendation – BUY with target price Rs250: We believe
that acceptability for Intellect suite is growing fast. We expect company to
deliver 20% growth in FY12. We reiterate ‘BUY’ rating. The stock is currently
trading at 7.4x FY12e earnings, steep discount to peers.
India Equity Research Reports, IPO and Stock News Visit http://indiaer.blogspot.com/ for complete details �� ��
Polaris Software Lab
Strong performance continues
Polaris Software Lab (Polaris) reported strong operational results for Q3FY11. The
management reiterated guidance. We believe that strong demand for Intellect and
growing IT spend by BFSI would continue to drive growth for the company. We
reiterate our ‘BUY’ rating, with a target price of Rs250.
Q3FY11 results – ahead of expectation: Polaris reported stronger‐thanexpected
quarter. The company reported top‐line growth of 3% to Rs4bn (PLe:
Rs3.96bn, Cons: Rs3.95bn) and growth of 6.6% QoQ in USD terms. Operating
margin eroded by 251bps, largely driven by higher employee cost (Rs110m) and
currency appreciation (Rs70m). Due to lower margin, Polaris missed EPS
estimate, delivering growth of 4.6% QoQ to Rs5.06 (PLe: Rs5.13, Cons: Rs4.87).
Intellect moving from strength‐to‐strength: The strong growth is driven by
services business that grew by 6.7% QoQ. According to the management, the
demand outlook of the Services business continues to be strong and expect high
single‐digit growth QoQ. Moreover, the deal pipeline for Intellect business has
seen strong improvement and pick‐up in sales. According to the management,
the deal funnel for Intellect improved to ~$350m (v/s Q3FY10: ~$150m). The
management expects Intellect to grow in high 20s in FY12.
Margins stable – Currency the only risk: The management was confident of
maintaining margins at the current level. The key margin levers highlighted were
hedges (FY11 $25m @Rs48.33, FY12 $74m @Rs48.31, FY13 $72m Rs49.42),
growth in Intellect business, services related to Intellect business and stable
G&A despite growth. We believe margin would expand as contribution of
Intellect swallows in FY12.
Valuation and Recommendation – BUY with target price Rs250: We believe
that acceptability for Intellect suite is growing fast. We expect company to
deliver 20% growth in FY12. We reiterate ‘BUY’ rating. The stock is currently
trading at 7.4x FY12e earnings, steep discount to peers.
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