Hold Polaris Financial Tech; target Rs 158: Nirmal Bang

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Nirmal Bang has recommended hold rating on Polaris Financial Technology with a target price of Rs 158, in its April 27, 2012 research report.

“Polaris Financial Technology, for Q4FY12 in Dollar terms, Revenues fell 8% QoQ to $103.5mn on the back of sharp decline in product revenues which fell 25% QoQ to $ 23mn (Q3FY12 product revenues had a 1 time license revenues of $7mn). Intellect wins during the quarter fell 46% YoY to 11. Services revenues fell 1.3% due to delayed client decisions. INR Q4FY12 EBIDTA margins fell sharply by 592 bps QoQ to 12.5% due to lower product revenues and rupee appreciation during the quarter. Q3FY12 had seen a significant rise in margins to 18.4% due to rupee depreciation. INR Net Profits for the quarter were flat at Rs 61.4 crs aided by a onetime other income of Rs 15 crs from sale of property and fall in tax rate by 1021 bps QoQ.”

“For FY12, $ revenues grew 23% to $428mn with services growing 19% and products growing 37%. INR EBIDTA margins grew 68 bps to 14.2%. PAT grew 9% to Rs.220.7 crores despite higher tax rate of 22% against 15% in FY11.  The management has guided 17%-20% growth in FY13 revenues which would be in the range of Rs 2400 – Rs 2460 crs. The order book pipeline for intellect is very robust at ~ $400mn and that for services is ~ $215mn. Revenues from Top 10 clients formed 52.77% of total revenues Vs 57.79% in Q3FY12. Top 5 clients contributed 38.97% of revenues against 43.75% in the previous quarter. It was partly due to vendor consolidation and partly because the share of other clients increased. In Q4, Nordic Bank in Europe selected Intellect in a 15 year deal for liquidity management.”

“Intellect’s penetration in the market has been very encouraging which also reflects in 4 transformational deals the company won during the year including that of RBI which was ~ $55 mn. Q4FY12 saw dismal performance both on the services as well as product business. This might result in pressure on the stock performance in the near term, though low valuations might restrict sharp fall. We believe performance on both the businesses should bounce back in the coming quarters on the back of good existing order pipeline. We expect revenues to grow at a CAGR of 15.5% during FY12-FY14E. At CMP, the stock is available at 5.6x and 5x for FY13E and FY14E earnings respectively. We maintain a HOLD on the stock with a target price of Rs.158,” says Nirmal Bang research report.

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