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We see healthy revenue growth continuing (FY11-13F CAGR of 23%) as Intellect makes inroads
into big-ticket deals. FY12 revenue guidance of 22% looks achievable, but we are more
circumspect on margins staying flat. Longer term, we see aggressive S&M hiring translating into
growth and better margins.
4QFY11 normalized top-line growth in line, sales investment pulls down margins
4QFY11 consolidated revenues were up 8.5% qoq to US$96.7m and ex-pass-through items were
up 4.9% qoq, in line with our estimate. Product revenues grew 8.9% qoq, while services revenues
were up 4.0% qoq ex-pass through. EBITDA margin fell 106bp qoq to 12.0% (vs RBSe 14.5%).
However, normalized margin (ex-one-time/bought-out costs) was up 6bp to 13.2%. Despite
margin drop, PAT was up 14.9% qoq to Rs576m on asset sales (Rs97m) and tax write back,
helping meet FY11 EPS guidance (Rs20.4 vs guidance of Rs20.2-20.5).
Two >US$10m deals signify Intellect has entered the big league
Polaris announced two >US$10m deals for Intellect, including a core banking win with the
Reserve Bank of India (RBI). We believe this could be an inflexion point, as most previous deals
have been
We expect aggressive sales staff hiring to translate into deal activity over the next two to three
quarters.
FY12 top-line guidance is achievable, but margins could see some slippage
Polaris guides for FY12 US$ revenue growth of 22.1-25.0% (19.2-22.1% organic). The higher end
reflects organic growth of 40% for products and 17% for services. EPS guidance of 5-9% growth
reflects a flat EBITDA margin, a 26-27% tax rate and some property sales gains. We consider the
revenue target realistic (RBSe +26.7%) given large deal wins in 4QFY11, but we incorporate
some margin pressure, given the quantum of wage hikes (12-13% for offshore staff), lateralcentric
hiring and the IdenTrust acquisition.
Near-term margins may be subdued, but product leverage is a long-term story
We believe the street is disappointed by Polaris’s 4QFY11 margin trend. While aggressive sales
investments hurt near-term margins, we believe the six- to nine-month conversion cycle for large
product deals raises the growth potential for products and is a long-term positive for margins. We
reiterate Buy with a lower TP of Rs231 (20% upside potential including final dividend of Rs4.5).
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
We see healthy revenue growth continuing (FY11-13F CAGR of 23%) as Intellect makes inroads
into big-ticket deals. FY12 revenue guidance of 22% looks achievable, but we are more
circumspect on margins staying flat. Longer term, we see aggressive S&M hiring translating into
growth and better margins.
4QFY11 normalized top-line growth in line, sales investment pulls down margins
4QFY11 consolidated revenues were up 8.5% qoq to US$96.7m and ex-pass-through items were
up 4.9% qoq, in line with our estimate. Product revenues grew 8.9% qoq, while services revenues
were up 4.0% qoq ex-pass through. EBITDA margin fell 106bp qoq to 12.0% (vs RBSe 14.5%).
However, normalized margin (ex-one-time/bought-out costs) was up 6bp to 13.2%. Despite
margin drop, PAT was up 14.9% qoq to Rs576m on asset sales (Rs97m) and tax write back,
helping meet FY11 EPS guidance (Rs20.4 vs guidance of Rs20.2-20.5).
Two >US$10m deals signify Intellect has entered the big league
Polaris announced two >US$10m deals for Intellect, including a core banking win with the
Reserve Bank of India (RBI). We believe this could be an inflexion point, as most previous deals
have been
We expect aggressive sales staff hiring to translate into deal activity over the next two to three
quarters.
FY12 top-line guidance is achievable, but margins could see some slippage
Polaris guides for FY12 US$ revenue growth of 22.1-25.0% (19.2-22.1% organic). The higher end
reflects organic growth of 40% for products and 17% for services. EPS guidance of 5-9% growth
reflects a flat EBITDA margin, a 26-27% tax rate and some property sales gains. We consider the
revenue target realistic (RBSe +26.7%) given large deal wins in 4QFY11, but we incorporate
some margin pressure, given the quantum of wage hikes (12-13% for offshore staff), lateralcentric
hiring and the IdenTrust acquisition.
Near-term margins may be subdued, but product leverage is a long-term story
We believe the street is disappointed by Polaris’s 4QFY11 margin trend. While aggressive sales
investments hurt near-term margins, we believe the six- to nine-month conversion cycle for large
product deals raises the growth potential for products and is a long-term positive for margins. We
reiterate Buy with a lower TP of Rs231 (20% upside potential including final dividend of Rs4.5).
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