LONG TERM BUY - POLARIS

 POLARIS  CMP : 130.00  TARGET : 175.00

IT Research Experts expect IT services exports to grow at a two-year CAGR of 18% to US$ 47 bn in FY13, mainly driven by volume growth. While large cap companies will continue to drive growth, small to mid-cap companies are also expected to benefit from the secular growth in the sector.

And yes there are problems in U.S. and the Eurozone but slowly and gradually all the noise will die down, optimism will return and things will be get back to normal.

Besides, in a recent report, Moody’s said the 1,600-plus U.S.-based companies it rates had $1.2 trillion in cash at the end of 2010 — 11.2 percent more than they did a year earlier.

Based on above, Polaris Software is one company that is poised to do well in the years to come considering the fact that the company derives a major bulk of its revenues from United States, Europe and Asia-Pacific.

Polaris Software a debt free company having a Marketcap of Rs.1350 crores is the world’s most sophisticated banking and insurance software company. Polaris is the chosen outsourcing partner for 10 of the top 15 global banks and 6 of the 10 top global insurance companies. Polaris offers state-of-the-art, comprehensive solutions for core banking, corporate banking, wealth & asset management and insurance. Over the last two decades, Polaris has implemented its solutions and services among 200 of the world’s largest financial institutions.

Polaris Software Lab expects to generate revenue of around $100 million (nearly Rs 450 crore) in the next five years from its FT Grid (financial technology grid) offering, which the company launched recently, claiming it to be the world’s largest ‘cloud’ offering with capacity to handle 100 million customers.

The FT grid will enable the Chennai-based software company to offer its financial technology infrastructure and banking products on a pay-per-use (cloud) model to banks and financial institutions. Using FT Grid, the company would deliver ‘sachet banking’ — a concept similar to sachet shampoo — to tap smaller clients such as cooperative banks. The service would be offered in multiple languages, including Hindi, Tamil and Telugu.

Polaris has entered into a three-year agreement with US-based IdenTrust and IT major IBM to provide reliable and scalable IT infrastructure for FT Grid.

FT Grid will be offered /available in three distinct variants :

1.FT Grid 7010 would be available for India, Bangladesh, Africa and Vietnam
2.FT Grid 8010 will be for capital markets for European clients.
3.FT Grid 9010 US, Canada and Australia.

Polaris has already offered the new platform on a private cloud to Deutsche Bank in Germany. It is also in talks with Andhra Pradesh Co-operative Bank; a bank in the US, and another Cooperative Bank in Kerala, said Mr Jain

Company has an Equity base of Rs.49.6 crores on which it does business of something close to Rs.1500 crores p.a. As on 30 June 2011, Polaris had Rs.177 crores cash and investments to the tune of Rs.252 crores.

The company generated total revenues of Rs.1438 crores in FY2010-11 as against Rs. 1139 crores in PFY, up by 26.25 pc. PAT shot up from Rs.130.64 crores in FY2009-10 to Rs. 187.02 crores in FY2010-11, up by 43.15 pc. Even in Q1FY12 company did revenues of Rs. 455 crores as against Rs.369crores in Q1FY11, up by 23.3 pc. However, PAT was down by 4.5 pc to Rs.44.5 crores in Q1FY12 as against Rs.46.6 in corresponding quarter of previous year.

The company pays a dividend of Rs.4.50 per share and at CMP of Rs.136/share the dividend yield works out to 3.3 pc. A good entry point would be in the range of Rs.110-120. At CMP, P/BV is 0.7 and PE is around 7 only.

The company has 20 subsidiaries out of which 6 are based in India and the rest in different parts of the globe.

Going forward, Polaris Software will continue doing well under the dynamic leadership of Arun Jain, Chairman and CEO of the company.