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Polaris reported in-line revenues, up 4.1% qoq at US$110.7m. EBITDA margin rose 82bp qoq to
12.9% (RBS est. 11.5%), on provision reversals and pricing uptick. Revenue and EPS guidance
upgrade of 1% and better than expected margins give room to upgrade our EPS forecasts, that
are below guided levels.
Headline revenue growth in line, but segmental performance was a mixed bag
Polaris 1Q12 revenues in US$ terms was up 4.1% qoq to US$100.7m, broadly in line with our
estimate of US$100.8m. In INR terms revenues were up 4.3% to 28.8%. North America and
Europe revenues were up 10.9% and 7.9% respectively, while IMEA and Asia Pacific
revenues were down 11.0% and 5.9% respectively, given greater exposure to product
business, that tends to be lumpy.
Surprisingly, product segment (Intellect) revenues were up only 4.0% to US$23.5m,
significantly below our estimate of US$26.9. We had expected a strong 19.2% qoq increase
for Intellect, given the contribution of the IdenTrust acquisition (US$1.5m) and ramp up in the
US$55m RBI deal. Management explained that this was partly driven by one time pass
through revenues booked in the previous quarter (US$2.4m).
Services business revenues (including BPO) were up by 4.1% qoq at US$77.1m, beating our
estimates of US$73.8m. This includes c1.8% uplift due to realization improvement, which was
a positive surprise. Volume growth of 3.0% was marginally below our estimate of 4.1%.
EBITDA margin surprisingly rose on provision reversals and realization uptick
EBITDA margin improved by 82bp to 12.9%. Given that anniversary wage hikes were paid
out, and Identrust financials were integrated, this compares favourably to our 12.5% estimate.
This is explained by the 1.8% qoq improvement in realization in the services business, higher
proportion of license sales and provision reversals in Sales & Marketing expense line
The company reported non-core property sales of Rs20m during the quarter. This helped
boost PAT to Rs446m (down 22.6% qoq), versus our estimate of Rs395m
Tax rate spiked to 27.5%, as a result of expiry of STPI tax benefits. Management guided for
FY12 tax rate in the region of 25-26%.
Room to upgrade our current EPS forecastson the back of 1Q12 margins
Polaris raised its revenue guidance to US$430-440m from US$425-435m. This implies a
revenue growth of 23.6%-26.5%. Our current revenue estimates of US$441m is marginally
above the revised guided range, which we believe can be achieved as visibility improves
through the year.
The company also marginally raised its EPS guidance to Rs21.95-22.35 from Rs21.65-22.15.
This is above our current forecast of Rs21. Given the margin outperformance during the
quarter, this leaves some room for operating profit upgrades.
We believe the guidance upgrade is driven by a) strong large deal flow in the products
business - for instance a major breakthrough in the Bangladesh market with deals with a
consortium of banks; and b) greater confidence of spending by large BFSI accounts as well
as realization improvement achieved during the quarter.
The stock remains cheap at 8.3x FY12F EPS, near the lower end of its peer group. We
continue to hold that strong growth in the products business, that has significant operating
leverage can help achieve c20% EBITDA CAGR over the next 2 years, which can drive rerating
of the stock from current levels.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Polaris reported in-line revenues, up 4.1% qoq at US$110.7m. EBITDA margin rose 82bp qoq to
12.9% (RBS est. 11.5%), on provision reversals and pricing uptick. Revenue and EPS guidance
upgrade of 1% and better than expected margins give room to upgrade our EPS forecasts, that
are below guided levels.
Headline revenue growth in line, but segmental performance was a mixed bag
Polaris 1Q12 revenues in US$ terms was up 4.1% qoq to US$100.7m, broadly in line with our
estimate of US$100.8m. In INR terms revenues were up 4.3% to 28.8%. North America and
Europe revenues were up 10.9% and 7.9% respectively, while IMEA and Asia Pacific
revenues were down 11.0% and 5.9% respectively, given greater exposure to product
business, that tends to be lumpy.
Surprisingly, product segment (Intellect) revenues were up only 4.0% to US$23.5m,
significantly below our estimate of US$26.9. We had expected a strong 19.2% qoq increase
for Intellect, given the contribution of the IdenTrust acquisition (US$1.5m) and ramp up in the
US$55m RBI deal. Management explained that this was partly driven by one time pass
through revenues booked in the previous quarter (US$2.4m).
Services business revenues (including BPO) were up by 4.1% qoq at US$77.1m, beating our
estimates of US$73.8m. This includes c1.8% uplift due to realization improvement, which was
a positive surprise. Volume growth of 3.0% was marginally below our estimate of 4.1%.
EBITDA margin surprisingly rose on provision reversals and realization uptick
EBITDA margin improved by 82bp to 12.9%. Given that anniversary wage hikes were paid
out, and Identrust financials were integrated, this compares favourably to our 12.5% estimate.
This is explained by the 1.8% qoq improvement in realization in the services business, higher
proportion of license sales and provision reversals in Sales & Marketing expense line
The company reported non-core property sales of Rs20m during the quarter. This helped
boost PAT to Rs446m (down 22.6% qoq), versus our estimate of Rs395m
Tax rate spiked to 27.5%, as a result of expiry of STPI tax benefits. Management guided for
FY12 tax rate in the region of 25-26%.
Room to upgrade our current EPS forecastson the back of 1Q12 margins
Polaris raised its revenue guidance to US$430-440m from US$425-435m. This implies a
revenue growth of 23.6%-26.5%. Our current revenue estimates of US$441m is marginally
above the revised guided range, which we believe can be achieved as visibility improves
through the year.
The company also marginally raised its EPS guidance to Rs21.95-22.35 from Rs21.65-22.15.
This is above our current forecast of Rs21. Given the margin outperformance during the
quarter, this leaves some room for operating profit upgrades.
We believe the guidance upgrade is driven by a) strong large deal flow in the products
business - for instance a major breakthrough in the Bangladesh market with deals with a
consortium of banks; and b) greater confidence of spending by large BFSI accounts as well
as realization improvement achieved during the quarter.
The stock remains cheap at 8.3x FY12F EPS, near the lower end of its peer group. We
continue to hold that strong growth in the products business, that has significant operating
leverage can help achieve c20% EBITDA CAGR over the next 2 years, which can drive rerating
of the stock from current levels.
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