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Polaris: Out of gas

Apr 23, 2001

Polaris has clocked a meek sequential (QoQ) growth of 6.3% in revenues and a rise of 9% in net profits. On a YoY basis the growth in topline is 68% for the 4QFY01 and the bottomline growth for the period is 60%. Considering the comparatively smaller revenue base of Polaris, the company's performance is lacklusture. For the further quarter the company added six new clients. The notables ones included GE Power Systems and Panasonic USA. Both these clients are for a projects in the area of Oracle Financials.The company's active client base now stands at 76. Polaris has a large chunk of its revenues coming for areas like implementation of Oracle Financials and ERP. This could a probable reason for the company having lower operating margins. Also these areas have lower entry barriers therefore, the stiff competition could be another reason for pressure on the margins.

The company added 115 employees during the 4QFY01. This is an increase of more than 100% compared to recruitment in 3QFY01. Therefore, the company seems to have a clear business visibility considering the fact the quite a few companies have cut down on their hiring in the fourth quarter due to the US economic downturn.

(Rs m) 3QFY01 4QFY01 Change FY00 FY01 Change
Sales 730 776 6.3% 1,461 2,656 81.7%
Other Income 10 8 -18.3% 142 42 -70.7%
Expenditure 550 584 6.3% 1,151 2,002 73.9%
Operating Profit (EBDIT) 180 192 6.4% 310 653 110.7%
Operating Profit Margin (%) 24.7% 24.7%   21.2% 24.6%  
Interest - 0   3 0 -89.2%
Depreciation 19 20 7.2% 30 68 128.0%
Profit before Tax 171 179 4.9% 419 626 49.5%
Tax 3 (3) -213.0% 47 6 -88.0%
Profit after Tax/(Loss) 168 183 8.7% 372 621 66.8%
Net profit margin (%) 23.0% 23.5%   25.5% 23.4%  
Diluted number of shares 34.2 34.2   34.2 34.2  
Diluted Earnings per share* 19.7 21.4 8.5% 10.9 18.2 66.8%
P/E (x)   16     19  

Polaris had opened the year with a strong 12% sequential growth in revenues for the first quarter for FY01. The figure shot up to 21% in the second quarter. But then it started to dip and in the third quarter the QoQ growth in revenues was just 16%.

For the year FY01 the company has posted a growth of 82% in revenues and 60% in operating margins. The company managed to improve its operating margins by 270 basis points over the year. The expenses for FY01 includes Rs 19.5 m as amortisation of ESOP (employee stock options plan). Excluding this, the operating margins would have gone up by 340 basis points. However, even then Polaris' operating margins are way below the industry averages.

The company has declared a bonus of one for two (one share for every two held). At a current market price or Rs 342, the stock is trading at a P/E multiple of 19 times its FY01 earnings.

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