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Last Updated : Nov 13, 2015 12:02 PM IST | Source:

Buy Polaris; target of Rs 220: Reliance Securities

Reliance Securities is bullish on Polaris and has recommended buy rating on the stock with a target of Rs 220, in its November 05, 2015. research report.

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Reliance Securities report on Polaris

Virtusa Corp has purchased promoter and Citi’s stake in Polaris of 53% for Rs 220 per share with an open offer to increase its holding to 75%, as had been speculated in the media earlier. Polaris’ metrics vs. Virtusa (Exhibit: 2) such as lower revenueper-employee, similar offshore structure, lower op. margins, cross sell opportunities into Virtusa’s base are opportunities; however the extent of spending rationalisation by Polaris’ top account is a key risk. Virtusa plans to continue operating Polaris as a separate listed entity and expects combined synergy benefits of US$100mn over 3 years. Stock price may be volatile in anticipation of increase in open offer tender price due to the limited stock premium over CMP, relative valuation differential and synergy benefits; we maintain BUY with Target Price of Rs 220.

Outlook and Valuation
While the stock price may exhibit volatile swing in anticipation of higher open offer tender price based on the limited premium over CMP, high valuation differential (Polaris trades at ~50% discount to Virtusa’s P/E multiples) and potential synergy benefits ahead. We keep our estimates unchanged and maintain BUY with Target Price of Rs 220, says Reliance research report.

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First Published on Nov 13, 2015 12:02 pm
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