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India Equity Research Reports, IPO and Stock News
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Company Background
Polaris Financial Technology Limited (PFTL) incorporated in 1993, headquartered in Chennai has a
strong global footprint and primarily focuses on Banking and financial services (BFSI) vertical. It has
eight out of the top 10 financial services firms globally among its clients. CitiGroup is its largest client,
accounting for over 40% of consolidated revenues. The company offers IntellectTM, first pure play Service
Oriented Architecture (SOA) based application suite serving retail, corporate, investment banking
and Insurance clients. The IntellectTM suite has grown strongly since the last five years of inception
and going forward we believe it to contribute significantly to company’s top line and profits.
Investment Rationale
Banking on Intellect platform to derive growth - ‘Intellect’ suite provides more flexibility
Polaris ‘Intellect’ based on Service Oriented Architecture (SOA) fulfills all criteria required for modern
Core Bank Software (CBS) replacement demand. It provides an efficient web based real-time modular
software solution with excellent user interface. It enables clients, enhanced flexibility and customization
as per their requirement and fulfils the criteria of a standardized platform. It also provides a multi-entity
solution that can be accessed across countries offering a 360-degree view of a customer and provide a
holistic view of data which differentiates it from others. Moreover it does not have the rigidity faced by
‘Bank In Box’ software products solutions like Flexcube, Finacle, BaNCS. We believe features and
flexibility offered by Intellect is in par with established players and is well placed to benefit from the
core replacement demand in emerging geographies which has less competition and high demand.
Significant deal wins, robust pipeline for Intellect augurs well for the company
‘Intellect’ has a strong deal pipe of ~US$300 mn in IMEA and APAC region. Intellect has started winning
bigger deals in range of US$10-20mn and won US$20 mn deal in Q3 FY12 which is the second
largest deal after the RBI deal. We believe RBI deal win of US$55 mn is a big breakthrough which will
enable the company to win more deals from PSU and Private Banks in emerging geographies and also
help the company to tap immense opportunity present in the central banks CBS market. Polaris investment
in IdenTrust and Indigo TX acquisition will boost its Intellect offerings and help win more deals.
Well placed to benefit from Core Banking Software replacement demand
Core Banking Software (CBS) replacement demand around the globe has gained momentum in 2010
and we expect it to continue over the next five years. While US recorded the largest number of CBS
replacements in 2006-07 (has slowed down in 2008-09), emerging geographies will now provide the
majority of CBS replacement opportunities. Polaris which gets 95% of its Product revenues from APAC
and IMEA is well placed to get benefitted from this trend. In the last one year, majority deal wins from
Saigon Hanoi Bank of Vietnam, Sonali bank of Bangladesh, Regional Development Bank of Sri Lanka
etc has been from emerging geographies and we expect strong deal wins to continue going forward.
Valuation and Outlook
We believe Polaris will deliver strong revenue growth (CAGR of 42.3%) in products business (27.5% of
total revenues) due to strong deal pipeline and diversified product portfolio. The services business
(72.5% of revenues) is expected to grow at CAGR of 20.5% but has margins in lower double digits.
However products business which has higher margins in tune of 20-25% and high growth rate will help
the company expand margins going forward. We estimate FY12E and FY13E top line to grow 32.8%
and 18.8% Y-o-Y to Rs 21.1 bn and Rs 25.0 bn respectively. The stock currently trades at a P/E of
7.4x and 6.0x FY12E and FY13E earnings respectively which we think is at a discount to its peers considering
its high growth rate, strong deal pipeline and high cash and cash equivalents reserve of Rs
4.31 bn (~26% of market cap). We initiate the company with a “BUY” rating and have valued the company
on DCF basis to arrive at a fair value of Rs 230 (around ~8x times FY13E earnings.) implying an
upside of 36.5% from current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Company Background
Polaris Financial Technology Limited (PFTL) incorporated in 1993, headquartered in Chennai has a
strong global footprint and primarily focuses on Banking and financial services (BFSI) vertical. It has
eight out of the top 10 financial services firms globally among its clients. CitiGroup is its largest client,
accounting for over 40% of consolidated revenues. The company offers IntellectTM, first pure play Service
Oriented Architecture (SOA) based application suite serving retail, corporate, investment banking
and Insurance clients. The IntellectTM suite has grown strongly since the last five years of inception
and going forward we believe it to contribute significantly to company’s top line and profits.
Investment Rationale
Banking on Intellect platform to derive growth - ‘Intellect’ suite provides more flexibility
Polaris ‘Intellect’ based on Service Oriented Architecture (SOA) fulfills all criteria required for modern
Core Bank Software (CBS) replacement demand. It provides an efficient web based real-time modular
software solution with excellent user interface. It enables clients, enhanced flexibility and customization
as per their requirement and fulfils the criteria of a standardized platform. It also provides a multi-entity
solution that can be accessed across countries offering a 360-degree view of a customer and provide a
holistic view of data which differentiates it from others. Moreover it does not have the rigidity faced by
‘Bank In Box’ software products solutions like Flexcube, Finacle, BaNCS. We believe features and
flexibility offered by Intellect is in par with established players and is well placed to benefit from the
core replacement demand in emerging geographies which has less competition and high demand.
Significant deal wins, robust pipeline for Intellect augurs well for the company
‘Intellect’ has a strong deal pipe of ~US$300 mn in IMEA and APAC region. Intellect has started winning
bigger deals in range of US$10-20mn and won US$20 mn deal in Q3 FY12 which is the second
largest deal after the RBI deal. We believe RBI deal win of US$55 mn is a big breakthrough which will
enable the company to win more deals from PSU and Private Banks in emerging geographies and also
help the company to tap immense opportunity present in the central banks CBS market. Polaris investment
in IdenTrust and Indigo TX acquisition will boost its Intellect offerings and help win more deals.
Well placed to benefit from Core Banking Software replacement demand
Core Banking Software (CBS) replacement demand around the globe has gained momentum in 2010
and we expect it to continue over the next five years. While US recorded the largest number of CBS
replacements in 2006-07 (has slowed down in 2008-09), emerging geographies will now provide the
majority of CBS replacement opportunities. Polaris which gets 95% of its Product revenues from APAC
and IMEA is well placed to get benefitted from this trend. In the last one year, majority deal wins from
Saigon Hanoi Bank of Vietnam, Sonali bank of Bangladesh, Regional Development Bank of Sri Lanka
etc has been from emerging geographies and we expect strong deal wins to continue going forward.
Valuation and Outlook
We believe Polaris will deliver strong revenue growth (CAGR of 42.3%) in products business (27.5% of
total revenues) due to strong deal pipeline and diversified product portfolio. The services business
(72.5% of revenues) is expected to grow at CAGR of 20.5% but has margins in lower double digits.
However products business which has higher margins in tune of 20-25% and high growth rate will help
the company expand margins going forward. We estimate FY12E and FY13E top line to grow 32.8%
and 18.8% Y-o-Y to Rs 21.1 bn and Rs 25.0 bn respectively. The stock currently trades at a P/E of
7.4x and 6.0x FY12E and FY13E earnings respectively which we think is at a discount to its peers considering
its high growth rate, strong deal pipeline and high cash and cash equivalents reserve of Rs
4.31 bn (~26% of market cap). We initiate the company with a “BUY” rating and have valued the company
on DCF basis to arrive at a fair value of Rs 230 (around ~8x times FY13E earnings.) implying an
upside of 36.5% from current levels.
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