Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our interaction with the Product business head of Polaris affirmed our positive stance. Key
highlights are: 1) pipeline traction in 1Q12 continues; 2) building up the sales team to
address opportunities; and 3) strong operating leverage that can help defend margins.
Management reaffirmed strong growth guidance of the product business
We interacted with the head of the Products business of Polaris, Mr. Manish Maakan.
The product business suite, Intellect contributed 22% of revenues and 39% of EBITDA
(including fx) to Polaris in FY11.
Management has guided for a 40% organic revenue growth in the product business in
FY12, higher than the overall revenue growth guidance of 22-25% for the company.
Management reaffirmed its guidance on the product business, highlighting strong
underlying business traction.
Pipeline addition robust, given product acceptance and strong demand
Intellect's order book at the end of 4Q11 was US$360m. This has significantly scaled up
from US$120-150m at the end of 3Q11.
Polaris has seen robust pipeline additions continuing in 1Q12. Management believes the
pipeline can scale up by c10% qoq, as it has seen several US$10m+ deals being added
to the pipeline.
The Intellect product suite has seen a build up of positive reviews from prominent industry
analysts like Gartner, Forester and Celent, that has helped increase credibility in the
marketplace
Management believes strong underlying demand continues. Certain macro trends in banking
like need for better customer interface and regulatory requirements are generating
incremental demand for its portals and Basel III compliant modules. Demand for modules in
the core banking and retail banking is also strong, according to management.
Management also noted that a fair proportion of deals are now in the US$10m+ range, while
a few quarters back, most of the deals were in the US$2-3m range.
Investing in sales and solution teams to address opportunities
Polaris historically had a combined sales team, which used to promote its products and
services business.
Given the build up of deal pipeline, Polaris has built up a dedicated sales team for the
products business over the past several quarters. Management spoke of significant addition
to the sales team in 4Q11, and expects to add more in the near term.
The company has also invested in building up local solution teams to address specific
requirements of different geographies. It believes this can improve the win rate, if the local
requirements are built into the solution.
Significant operating leverage can help defend margins
Management highlighted that its 40% growth target for FY12 can be achieved without any
significant addition to its product delivery headcount. This implies significant improvement in
margins for the segment in FY12, even after allowing for wage hikes.
Management believes the operating leverage can play out due to: a) significant anticipated
increase in license revenues due to higher revenues from US/Europe where license rates are
far higher than emerging markets; b) a fair amount of change requests on projects that
generate incremental revenues; and c) increasing contribution from AMC and product support
revenue streams.
The product business funnel has grown to US$360m at the end of 4Q11. Deal sizes of US$5-
10m have now become common, while a year ago most large deals were in the US$3-5m
range.
Potential upside risks to our margin assumptions
We currently forecast 46% growth in the Intellect business in FY12, which is higher than
management guidance of 40%. We believe this is achievable in the context of the recently
won large deals and a strong funnel of deals, with improving deal sizes.
We forecast EBIDA margin for Polaris (including fx) for FY12 to drop by 60bp. In our recent
interaction, management highlighted its expectation of EBITDA margin to improve by 150bp.
We believe there are potential upside risks on margins from better than expected pricing and
utilization in the services business.
Polaris currently trades at 7.9x FY12F EPS, at the lower end of its mid cap peer group
valuations. We believe these valuations do not reflect the growing contribution of the products
business at 39% of EBITDA (including fx) in FY11.
We expect rising contribution of the products business backed by large deal announcements
to drive the re-rating of the stock over the next few quarters.
Our PT of Rs231 values the stock at 11x FY12F EPS.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Our interaction with the Product business head of Polaris affirmed our positive stance. Key
highlights are: 1) pipeline traction in 1Q12 continues; 2) building up the sales team to
address opportunities; and 3) strong operating leverage that can help defend margins.
Management reaffirmed strong growth guidance of the product business
We interacted with the head of the Products business of Polaris, Mr. Manish Maakan.
The product business suite, Intellect contributed 22% of revenues and 39% of EBITDA
(including fx) to Polaris in FY11.
Management has guided for a 40% organic revenue growth in the product business in
FY12, higher than the overall revenue growth guidance of 22-25% for the company.
Management reaffirmed its guidance on the product business, highlighting strong
underlying business traction.
Pipeline addition robust, given product acceptance and strong demand
Intellect's order book at the end of 4Q11 was US$360m. This has significantly scaled up
from US$120-150m at the end of 3Q11.
Polaris has seen robust pipeline additions continuing in 1Q12. Management believes the
pipeline can scale up by c10% qoq, as it has seen several US$10m+ deals being added
to the pipeline.
The Intellect product suite has seen a build up of positive reviews from prominent industry
analysts like Gartner, Forester and Celent, that has helped increase credibility in the
marketplace
Management believes strong underlying demand continues. Certain macro trends in banking
like need for better customer interface and regulatory requirements are generating
incremental demand for its portals and Basel III compliant modules. Demand for modules in
the core banking and retail banking is also strong, according to management.
Management also noted that a fair proportion of deals are now in the US$10m+ range, while
a few quarters back, most of the deals were in the US$2-3m range.
Investing in sales and solution teams to address opportunities
Polaris historically had a combined sales team, which used to promote its products and
services business.
Given the build up of deal pipeline, Polaris has built up a dedicated sales team for the
products business over the past several quarters. Management spoke of significant addition
to the sales team in 4Q11, and expects to add more in the near term.
The company has also invested in building up local solution teams to address specific
requirements of different geographies. It believes this can improve the win rate, if the local
requirements are built into the solution.
Significant operating leverage can help defend margins
Management highlighted that its 40% growth target for FY12 can be achieved without any
significant addition to its product delivery headcount. This implies significant improvement in
margins for the segment in FY12, even after allowing for wage hikes.
Management believes the operating leverage can play out due to: a) significant anticipated
increase in license revenues due to higher revenues from US/Europe where license rates are
far higher than emerging markets; b) a fair amount of change requests on projects that
generate incremental revenues; and c) increasing contribution from AMC and product support
revenue streams.
The product business funnel has grown to US$360m at the end of 4Q11. Deal sizes of US$5-
10m have now become common, while a year ago most large deals were in the US$3-5m
range.
Potential upside risks to our margin assumptions
We currently forecast 46% growth in the Intellect business in FY12, which is higher than
management guidance of 40%. We believe this is achievable in the context of the recently
won large deals and a strong funnel of deals, with improving deal sizes.
We forecast EBIDA margin for Polaris (including fx) for FY12 to drop by 60bp. In our recent
interaction, management highlighted its expectation of EBITDA margin to improve by 150bp.
We believe there are potential upside risks on margins from better than expected pricing and
utilization in the services business.
Polaris currently trades at 7.9x FY12F EPS, at the lower end of its mid cap peer group
valuations. We believe these valuations do not reflect the growing contribution of the products
business at 39% of EBITDA (including fx) in FY11.
We expect rising contribution of the products business backed by large deal announcements
to drive the re-rating of the stock over the next few quarters.
Our PT of Rs231 values the stock at 11x FY12F EPS.
No comments:
Post a Comment