Polaris Software Lab -: Good margin performance  HSBC Research,

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Polaris Software Lab (POL IN)
OW(V): Good margin performance
 Revenue in line, margins surprised positively, largely due to
pricing improvement
 Full-year guidance revised upwards as pipeline remains
robust
 Maintain OW(V) rating with a TP of INR235
Polaris reported better-than-expected results. Revenues of (USD101m, +4.1% q-o-q
and INR4502m, +2.9% q-o-q) were broadly in line with HSBC estimates, but EBIT
margins at 10.7% surprised positively compared to HSBC expectation of 9.0%. The
company has raised the full year revenue guidance to USD430-440m from USD425-435m
and EPS to INR21.95-22.35 from INR21.65-2.15 earlier. Products contributed near 23%
of revenues in the quarter.
The management remained confident of growth in FY12 and has not seen any slowdown
in demand. The company has a pipeline of USD550m and seeing traction in both products
and services. The pricing up-tick in the large clients of Polaris has helped the company
offset the margin impact due to the salary increase in 1Q. The company added 455 net
employees in the quarter, +4.1% q-o-q. The company has currently USD76m of hedges
for FY12 at the rate of INR48, USD88m of hedges at INR49 for FY13 and USD58m at
INR50 for FY14.
Estimates and Valuation: We are not making any material change to our estimates. Our
EPS estimate is still near 9% lower than the company guidance, largely driven by the
lower margin estimate. The stock is currently trading at 8.5xon our FY12e EPS. We
continue to value Polaris at INR235 per share (12x our FY12e EPS) and maintain an
OW(V) rating