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Polaris: Holding ground

Oct 28, 2002

While Polaris’ numbers for 2QFY03 look very disappointing at the first glance, a deeper analysis reveals some positives. The steep 35% decline in bottomline has largely stemmed from a steep drop in other income. The revenues are up 8% QoQ. A steep ramp up in marketing costs has taken a toll on the company’s operating margins. The profits at an operating level have fallen by a marginal 2%. If the ramp up in marketing expenses is towards creating a strong infrastructure, then the move is a smart one. Since future growth of the industry will be based on volumes, it is imperative that smaller players like Polaris get a robust marketing infrastructure in place.

The disappointment with the results could also be stemming from the fact the company had indicated of a 17% to 25% growth in topline from its existing businesses. However, for 1HFY03 the company’s revenues have grown by only 2%. Thus, the 25% organic growth in revenues now seems to be a rather distant dream.

(Rs m) 1QFY03 2QFY03 Change 1HFY02 1HFY03 Change
Sales 705 759 7.6% 1,437 1,464 1.9%
Other Income 45 8 -81.8% 55 54 -2.5%
Expenditure 566 622 10.0% 1,135 1,188 4.7%
Operating Profit (EBDIT) 140 137 -2.1% 302 276 -8.6%
Operating Profit Margin (%) 19.8% 18.0%   21.0% 18.9%  
Interest - 0   - 0  
Depreciation 26 33 25.3% 48 59 25.1%
Profit before Tax 159 112 -29.7% 310 270 -12.8%
Tax 15 19 25.3% 11 34 210.1%
Profit after Tax/(Loss) 144 93 -35.4% 299 236 -20.9%
Net profit margin (%) 20.4% 12.2%   20.8% 16.1%  
Diluted number of shares 51.2 51.2   51.2 51.2  
Diluted Earnings per share* 11.2 7.2   11.7 9.2  
*(annualised)            
P/E (x)   23.3     18.3  

The company added 6 new clients during the quarter, taking the base of total active clients to 105. In another move, the company has changed the ratio for its merger with Orbitech in favour of Polaris shareholders. The merger ratio will now be 42.65: 100 as compared to 14:25 previously.

At the current market price, the stock is trading at a P/E multiple of 18x its 1HFY03 estimated earnings. The valuations are on the higher side considering the company’s performance. While others from the industry have managed to post a strong growth in revenues, the company’s performance has been significantly weak in this aspect.


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