No great upside in Polaris Soft in medium term

CNBC-TV18’s Executive Editor, Udayan Mukherjee - Polaris is not going to buy too much of its own stock at Rs 110 and I am not surprise that they have differed the buy back meaning they are not going to do it. The stock markets should punish these companies. It is not the first instance where a company is announcing a buy back and then calling it off. One more company did that in the last one month, so the markets should punish these companies which announce buy backs and don’t follow up on that because it’s a promise broken. Nothing would have changed barring the stock price over the last three weeks for the company to reconsider the announced buy back.
 
I think it’s negative for the stock. Not that the buy back would have taken the stock any places beyond the current levels. The results are disappointing as well. There is hardly any topline growth in the current quarter. It’s quite disappointing that Polaris has ended the year with only Rs 73 crore net profit, that is whole lot lower than market expectation was but everybody would have expected a Rs 100 crore plus net profit for the full year. So even if one looks at EPS Rs 7.4 on the closing price yesterday of Rs 108-110, the stock is already at 15 times current years delivered earnings but one can buy Satyam at that price or almost buy TCS at that price, at that kind of valuation multiple.
If Polaris grows its earnings by 35% next year, I think they are only speaking of 20% and even if we give it some berth and say 35% on a low base, it goes up to Rs 10 EPS. But even then the stock is 11 times next years earnings, so instead one can buy a whole clutch of better midcap IT companies at 11 times earnings today, next years earnings. I can’t think of any reason why people should be buying Polaris on numbers, on their broken promise of the buy back. Save the one carat which they have dangled ostensibly to keep the stock price afloat is the real estate carat.
 
There is one technology company last year which became a real estate company from a tech company, SSI. I think Polaris would do well to do that because they probably could make more money from real estate development business than the technology business.
 
So the short answer is market should be disappointed and there are much better stocks in the midcap IT space. So small trading punts and moves like real estate base etc can always happen but in the medium term no great upside.