Please Share:: 
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Polaris Software Lab (POL)
Technology
In-line revenues; one-offs aid margins. Polaris’ reported recurring net income of
Rs426 mn beat our estimate by 10% on the back of better-than-expected margin
performance. Revenue growth (+4% qoq reported, +2.5% organic) was in line with our
expectations. We understand that one-off provision reversals aided margin
improvement, even as the management did not quantify the extent of reversal.
Sustainability of margins remains key and we would wait for a quarter or two before
turning positive on the stock. Maintain SELL with an unchanged TP of Rs175/share.
1QFY12 results – margin beats surprises, revenue performance in line with expectation
Polaris reported recurring (excluding proceeds from surplus real estate monetization) net income of
Rs426 mn (down 11% qoq, down 9% yoy), 10% higher than our estimate. Net income
outperformance was driven by a 200 bps beat on EBITDA margins, even as revenues came
marginally below estimate. Revenues of US$100.7 mn (versus our estimate of US$101 mn)
included acquisition contribution of US$1.5 mn – +4.1% qoq on reported basis, +2.5% organic.
Margin performance was surprising given headwinds in the form of wage hikes and Rupee
appreciation. Management attributed margin improvement to better realizations, lower SI
revenues, and one-off provision reversals.
Sustainability of margins key to stock performance; our confidence remains low
Polaris has shown reasonable revenue traction for the past several quarters and indicates that the
momentum remains strong. The company has also raised its FY2012E revenue guidance to
US$430-440 mn from US$425-435 mn earlier. Even as we believe revenue momentum for the
company can sustain, we have reservations on building in margin improvement from 1QFY12
levels. Margin headwinds in the form of stronger Rupee and tight supply-side environment in the
industry continue and the company has limited levers to improve margins – utilization remains
high at 81%, there is little leverage on the SG&A front (the company has also communicated its
intent to keep investing in the S&M engine).
Raise EPS estimates, maintain SELL
We have revised our FY2012E and FY2013E EPS estimates to Rs19.5 and Rs22.3 from Rs18.9 and
Rs20.9, earlier, respectively. We note that our EPS estimates represent recurring earnings and do
not factor in surplus real estate sales proceeds that the company is building into its FY2012E EPS
guidance of Rs21.95-Rs22.35. Revision in EPS estimates is primarily driven by (1) increase in margin
assumptions, and (2) change in Re/US$ rate – to 44.7 and 45.6 for FY2012E and FY2013E versus
45.5 and 44 earlier, respectively. Our target price of Rs175/share implies P/E of 8X FY2013E
earnings, reflecting the risks associated with our margin assumptions, as discussed earlier
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Polaris Software Lab (POL)
Technology
In-line revenues; one-offs aid margins. Polaris’ reported recurring net income of
Rs426 mn beat our estimate by 10% on the back of better-than-expected margin
performance. Revenue growth (+4% qoq reported, +2.5% organic) was in line with our
expectations. We understand that one-off provision reversals aided margin
improvement, even as the management did not quantify the extent of reversal.
Sustainability of margins remains key and we would wait for a quarter or two before
turning positive on the stock. Maintain SELL with an unchanged TP of Rs175/share.
1QFY12 results – margin beats surprises, revenue performance in line with expectation
Polaris reported recurring (excluding proceeds from surplus real estate monetization) net income of
Rs426 mn (down 11% qoq, down 9% yoy), 10% higher than our estimate. Net income
outperformance was driven by a 200 bps beat on EBITDA margins, even as revenues came
marginally below estimate. Revenues of US$100.7 mn (versus our estimate of US$101 mn)
included acquisition contribution of US$1.5 mn – +4.1% qoq on reported basis, +2.5% organic.
Margin performance was surprising given headwinds in the form of wage hikes and Rupee
appreciation. Management attributed margin improvement to better realizations, lower SI
revenues, and one-off provision reversals.
Sustainability of margins key to stock performance; our confidence remains low
Polaris has shown reasonable revenue traction for the past several quarters and indicates that the
momentum remains strong. The company has also raised its FY2012E revenue guidance to
US$430-440 mn from US$425-435 mn earlier. Even as we believe revenue momentum for the
company can sustain, we have reservations on building in margin improvement from 1QFY12
levels. Margin headwinds in the form of stronger Rupee and tight supply-side environment in the
industry continue and the company has limited levers to improve margins – utilization remains
high at 81%, there is little leverage on the SG&A front (the company has also communicated its
intent to keep investing in the S&M engine).
Raise EPS estimates, maintain SELL
We have revised our FY2012E and FY2013E EPS estimates to Rs19.5 and Rs22.3 from Rs18.9 and
Rs20.9, earlier, respectively. We note that our EPS estimates represent recurring earnings and do
not factor in surplus real estate sales proceeds that the company is building into its FY2012E EPS
guidance of Rs21.95-Rs22.35. Revision in EPS estimates is primarily driven by (1) increase in margin
assumptions, and (2) change in Re/US$ rate – to 44.7 and 45.6 for FY2012E and FY2013E versus
45.5 and 44 earlier, respectively. Our target price of Rs175/share implies P/E of 8X FY2013E
earnings, reflecting the risks associated with our margin assumptions, as discussed earlier
No comments:
Post a Comment