Description
Analyis of Polaris Software Lab Ltd.
Polaris Software Lab Ltd.
Company Trivia
• Develops Technology Products for Financial Services Industry (Banking ) • Software Product named “Intellect” • Banks use “Intellect” to automate various aspects of their business • ‘Intellect’ used by 200 customers world over • Company pursues Product Development and Differentiation Strategy
How does the Company make money?
• • • • Product is well developed and mature (2003- present) Marginal cost of producing product = 0 Products Business – High Margin Costs incurred by Company :
? Installation costs ? Customization of product for client ? Maintenance and Upgrades Development
• Product Switching by Bank impossible – Legacy costs • No problem receivables –Customers are large banks and pay full within 41 days • Citibank captive – steady business
How does the Company Grow?
Four Growth Levers ? Growth through Products – ‘Intellect’ Expansion ? Expanding Business in accounts ? Entering new Countries ? Growth in new/related segments - Insurance
What can kill this business?
• Single Customer (BFSI) • Product is IP and not Consumption asset(e.g. Cigarette) • Once installed in a Bank, product is immortal (except for minimal maintenance and upgrades) • No Bank will buy this product forever. There is a limit to expanding business account/ automation
• Competitor may offer killer product with superior operating characteristics(Windows vs. Mac, MS-Word vs. Google docs )
What can kill this business?
• Damages due to Litigation (IP infringement) e.g. Upaid vs. Satyam • Rogue Employee (e.g. World Bank ban-Wipro) • Damage due to Product Defects (Accidents in Toyota Cars– Suspected ECU problem) • Recent Growth primarily fuelled by Acquisition of boutique firms. (Extension of moat). • Competitor can play the same game( Tata- Corus acquisition)
Key Ratios
2010 Revenues (Rs. Lacs) PAT 116076 13064.32 2009 120191 11118.67 2008 94113.86 12980.18 2007 111741.06 7338.25 2006 163860.74 9864.73
Operating CF
EBIT/Sales(%) Current Ratio Avg. ROA(%) Avg. ROC(%) EPS(Rs.)
24002.37
15.16 1.33 78.83 22.57 15.48
19628.19
14.16 1.93 70.33 24.48 13.25
8008.64
10.94 2.76 60.94 17.42 5.34
8435.78
15.17 2.94 57.8 23.37 8.09
5440.71
9.3 3.21 2.09 2.5 1.36
Dupont Analysis
2010 PAT/Sales Sales / Assets 11.25 6.6 2009 9.25 7.2 2008 5.5 5.25 2007 8.76 2.84 2006 1.93 2.23
Assets/NW
NW/ Shares outstanding
22.52
78.83
24.01
70.33
29.72
60.94
69.04
57.8
138.31
54.05
All values in %
What price will you pay for this share?
In Crores except per share data Operating Cash Flow Cash Mar-06 68.9 57.6 Mar-07 74.35 55.94 Mar-08 70.04 30.9 Mar-09 183.12 36.84 Mar-10 240.02 52.7
Average Cash Average operating cash flow ICR =3, Interest Interest rate Debt Capacity Total Capacity Equity Share Capital Face Value per share Total Number of Shares Share price
46.80 127.29 42.43 9.00% 471.43 518.23 49.48 5 9.90 52.37
Historical Share Price Movement
Shareholding Pattern
• Citibank(owns 19%) consistently offloading its stake- Due to problems in US • This forces share price to plateau (not rise significantly) • Promoter owns significant share • Hostile Take-over may not pay-off as key employees may walk-off with the promoter. • Verdict: Great business: Good stock to invest
Thank you
doc_379380438.pptx
Analyis of Polaris Software Lab Ltd.
Polaris Software Lab Ltd.
Company Trivia
• Develops Technology Products for Financial Services Industry (Banking ) • Software Product named “Intellect” • Banks use “Intellect” to automate various aspects of their business • ‘Intellect’ used by 200 customers world over • Company pursues Product Development and Differentiation Strategy
How does the Company make money?
• • • • Product is well developed and mature (2003- present) Marginal cost of producing product = 0 Products Business – High Margin Costs incurred by Company :
? Installation costs ? Customization of product for client ? Maintenance and Upgrades Development
• Product Switching by Bank impossible – Legacy costs • No problem receivables –Customers are large banks and pay full within 41 days • Citibank captive – steady business
How does the Company Grow?
Four Growth Levers ? Growth through Products – ‘Intellect’ Expansion ? Expanding Business in accounts ? Entering new Countries ? Growth in new/related segments - Insurance
What can kill this business?
• Single Customer (BFSI) • Product is IP and not Consumption asset(e.g. Cigarette) • Once installed in a Bank, product is immortal (except for minimal maintenance and upgrades) • No Bank will buy this product forever. There is a limit to expanding business account/ automation
• Competitor may offer killer product with superior operating characteristics(Windows vs. Mac, MS-Word vs. Google docs )
What can kill this business?
• Damages due to Litigation (IP infringement) e.g. Upaid vs. Satyam • Rogue Employee (e.g. World Bank ban-Wipro) • Damage due to Product Defects (Accidents in Toyota Cars– Suspected ECU problem) • Recent Growth primarily fuelled by Acquisition of boutique firms. (Extension of moat). • Competitor can play the same game( Tata- Corus acquisition)
Key Ratios
2010 Revenues (Rs. Lacs) PAT 116076 13064.32 2009 120191 11118.67 2008 94113.86 12980.18 2007 111741.06 7338.25 2006 163860.74 9864.73
Operating CF
EBIT/Sales(%) Current Ratio Avg. ROA(%) Avg. ROC(%) EPS(Rs.)
24002.37
15.16 1.33 78.83 22.57 15.48
19628.19
14.16 1.93 70.33 24.48 13.25
8008.64
10.94 2.76 60.94 17.42 5.34
8435.78
15.17 2.94 57.8 23.37 8.09
5440.71
9.3 3.21 2.09 2.5 1.36
Dupont Analysis
2010 PAT/Sales Sales / Assets 11.25 6.6 2009 9.25 7.2 2008 5.5 5.25 2007 8.76 2.84 2006 1.93 2.23
Assets/NW
NW/ Shares outstanding
22.52
78.83
24.01
70.33
29.72
60.94
69.04
57.8
138.31
54.05
All values in %
What price will you pay for this share?
In Crores except per share data Operating Cash Flow Cash Mar-06 68.9 57.6 Mar-07 74.35 55.94 Mar-08 70.04 30.9 Mar-09 183.12 36.84 Mar-10 240.02 52.7
Average Cash Average operating cash flow ICR =3, Interest Interest rate Debt Capacity Total Capacity Equity Share Capital Face Value per share Total Number of Shares Share price
46.80 127.29 42.43 9.00% 471.43 518.23 49.48 5 9.90 52.37
Historical Share Price Movement
Shareholding Pattern
• Citibank(owns 19%) consistently offloading its stake- Due to problems in US • This forces share price to plateau (not rise significantly) • Promoter owns significant share • Hostile Take-over may not pay-off as key employees may walk-off with the promoter. • Verdict: Great business: Good stock to invest
Thank you
doc_379380438.pptx