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24 Jan 2011
Polaris Ltd

Polaris Ltd has reported a 18% yoy growth in its consolidated turnover and a 33 % yoy growth in profit before tax for the quarter ended 31st Dec 2010. Profit after tax at Rs.50 for the Dec quarter is up 25% yoy giving it an EPS of Rs.5.02 for the quarter.

For the first nine months of the current year turnover is up 19% and profits after tax are up 35%. For the full year the company is estimated to deliver a turnover of Rs.1600 Cr.and an EPS of Rs.20/-,  pretty much in line with the guidance gives by the management at the start of the financial year.

Over a five year period (Mar06- Mar 11) the company has roughly doubled its turnover from Rs.825 cr. in March 06 to an estimated Rs.1600 cr. in March 11 and a ten fold growth in its profits after tax from Rs.21 cr. for the year ended March 06 top an estimated Rs.200 cr. in March 2011.

At current market price of Rs.178 the estimated earnings for ye March 2011 are discounted about 9 times.

Healthy Balance Sheet: As on 31st march 2010 the company had an equity capital base of Rs.49.58 cr. (9.9 crore shares of Rs.5 paid up). Loans stood at a miniscule Rs.5 cr. and book value per share was Rs.103.

Cash and cash equivalents were at Rs.500 crore (Rs.50 per share) and debtors at Rs.202 crore represented approx. 2 months sales indicating steady sales realizations.

The cash reserves of Rs.500 cr. provides the company a considerable headroom for inorganic growth. Dividend for 2009-10 was 70% or Rs.3.5 per share giving a yield of 2% on the CMP of Rs.175.

Investment Rationale: Polaris is a dominant financial technology player in the region, ranked 4th amongst Indian I.T Companies providing services to the financial sector. Its ability to build, manage and provide end to end solutions to the banking and insurance sector through a combination of I.T products together with the services model has held it in a good stead. Key growth driver in the recent quarters has been the client winnings for the “Intellect” suite of products for the financial sector. “Intellect” fetched 19 new clients in the Dec 10 quarter and provided the company with strong tailwinds.

During last year the company spent heavily on brand building with a campaign of 1000 spots per week at New York, the financial capital of the world.

At 9 times current year earning, a reasonable sales/ market cap ratio of 1:1 times. 2% dividend yield, negligible debt and a  cash + cash equivalents of Rs.50 per share makes Polaris a very safe bet in the I.T sector at CMP of Rs.175. A strong recovery in the U.S financial sector gives an additional confidence to invest in Polaris.

Although the company has not given any kind of formal guidance for its earning for 2012 Mr. Arun Jain CEO of the company in an recent  interview with a leading financial TV Channel  said he was confident of achieving a 30 % net profit growth for next year.