Polaris Financial Technology : Nirmal Bang

Q1FY13 results above street expectations and broad based. Company disclosed more transparent results.
Dollar revenues grew by 3.9% QoQ to $ 107.6 mn. Constant currency revenues stood at $109.31 mn (a growth of 5.6% QoQ). Service revenues grew by 3% and Product revenues grew by 6.4% on q-o-q basis.
In Rupee terms, revenues grew 9.4% QoQ to 569.3 crore partly due to rupee depreciation. Gross margins grew 118 bps QoQ to 37.13%. EBIDTA margins growth remain subdued despite no wage hikes during the quarter. They grew 139 bps QoQ to 18.4%. R&D spent stood at Rs.28.8 crore which is almost 5.1% to revenues. The company is making investments in the core banking, treasury management and insurance. Other income stood at Rs. 13.64 crore (out of which Rs.9 crore was due to sale of assets). In Q4FY12, other income stood at Rs.21.6 crore (out of which Rs.15 crore was due to sale of assets). PAT was flat QoQ at Rs. 61.2 crore and was above our expectation primarily due to higher extraordinary income and lower tax rate in Q4FY12.

��


Intellect Revenues aided by license revenues
Intellect revenues grew 6.4 % in dollar terms and by 12.3% in rupee terms. License revenues contributed almost 13.3% against 8% in the previous quarter. Consequently, professional services, support & maintenance and SI contributed 49.3%, 36.2% and 1.2% respectively. During the quarter, Intellect won 9 new wins.
FT Services grew well
The services segment grew 3% in dollar terms with addition of 5 new clients.
Guidance
Company has guided for a EPS of Rs.25.5 for FY13E which is 15% growth.
Other Highlights Attrition rate fell to 15.1% against 15.6% in the previous quarter. Wage hikes would be given in the Q2FY13 quarter.
Valuation & Recommendations
Post the dismal Q4FY12 results, the stock price had fallen sharply. In the current quarter, growth has been broad based. From the current quarter, Management has started disclosing details of the product revenues which is positive.
We expect revenues to grow at a CAGR of 15.5% during FY12-FY14E. At CMP, the stock is available at 4.7x and 4.2x for FY13E and FY14E earnings respectively. We recommend a BUY on the stock with a target price of Rs.158.