Accumulate Polaris Consulting; target Rs 215: P Lilladher

Prabhudas Lilladher's report on Polaris Consulting & Services

Polaris Consulting & Services’ (Polaris) Q3FY15 results were below PLe / consensus expectation on all counts. This miss was largely attributed to loss of a Tier-1 client leading to a loss in revenue of $10mn/yr. The company expects new logos (9MFY15: 16) to compensate the leakage. Retain ‘Accumulate’, with a Target Price of Rs215.

Management has guided for ~10% YoY revenue growth for FY16 with ~15% EBITDA margin for Q4FY16. There are likely to be challenges in Q4FY15 due to client attrition, but management expects revenue to start accelerating in Q1FY16 (~4% QoQ USD revenue growth). The confidence in growth was driven by outlook on deal pipeline and discussions with new logos.

"Polaris’ management is likely to continue with investment in H1CY15 as Sales and Marketing team grows in newer geographies and newer verticals. Revenue momentum is likely to improve in FY16, but still lower than industry average. Moreover, continued investment is likely to restrict any accelerated earnings growth. We see limited upside in near term. Reiterate our "Accumulate" rating with a Target Price of Rs 215", says Prabhudas Lilladher research report.

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