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Polaris: Uninspiring performance

Jan 10, 2001

Polaris software has reported a quarter on quarter 20% jump in net profits with improvement in profit margins. The company's profits in the current quarter jumped by 90% compared to 3QFY00. The higher growth in profits was despite a drop of 32% in other income.However, niether the topline growth nor the operating margins where anywhere near the industry standards.

(Rs m) 2QFY01 3QFY01 Change
Sales 630 730 16.0%
Other Income 15 10 -31.8%
Expenditure 484 550 13.6%
Operating Profit (EBDIT) 145 180 23.9%
Operating Profit Margin (%) 23.1% 24.7%  
Interest 0 0  
Depreciation 17 19 13.7%
Profit before Tax 143 171 19.5%
Tax 3 3 0.7%
Profit after Tax/(Loss) 140 168 19.9%
Net profit margin (%) 22.3% 23.0%  
Diluted number of shares 17.1 34.2  
Diluted Earnings per share* 16.4 19.7  
*(annualised)      

Polaris added five new clients, which includes one large US-based bank and two European banks in 3QFY01. The number of active clients being serviced now stands at 70. The revenues form e-commerce during 3QFY01 contributed to around 24% of the total sales.

Banking, finance and insurance verticals are Polaris' main focus areas which together account for more than 60% of its revenues. Polaris launched, BankWare, a unit that will develop banking products to address the new and emerging technology needs of banks. With BankWare Polaris intends to move up the software value chain into consulting and also move into the products arena that traditionally has higher operating margins.

It has also expanded its presence in International market by opening new offices at Switzerland and Germany (currently revenues from US contribute 69%, followed by 17% from Europe).

At the current market price of Rs 436 Polaris is trading at a P/E multiple of 26 times its 9 months annualised earnings.


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