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Saturday, May 29, 1999

Polaris Software offers IPO at a higher PE 

Partha Pratim Sinha  
In its maiden public issue, Polaris Software Labs is offering 43.65 lakh equity shares of Rs 10 at a premium in range of Rs 175-210. The fiscal-1999 earning of Rs 10.81 discounts the lower end of the offer price of Rs 185 by a multiple of Rs 17.12. At the higher end, the price-earning multiple is Rs 20.36. Such high multiples make it the highest priced software IPO in the recent times.

The other software IPOs in the past few months had priced their IPOs at a price-earning less than 15. These software IPOs have given good returns to the investors even from the first day of their listing. KPIT Systems has been the forerunner with an amazing 350 per cent return in about a month's time after its issue closed in February. However, being a high priced issue, how much returns the Polaris scrip can offer on listing is the million dollar question?.

Of the total number of shares on offer, 8.53 lakh shares are being sold by the promoters and the balance 35.12 lakh shares are the new equity shares. Through this IPOat Rs 220 per share (upper limit), the company plans to mop up Rs 96 crore. At Rs 175, the total aggregate amount works out to Rs 80.86 crore.

The proposed issue is to part finance the company's three offshore development centres which are coming up at different locations in India, its two global software development facilities -- in New Jersey and London -- part payment of long term loans and to set up four overseas marketing centres. The total project cost is estimated at Rs 77.46 crore of which Rs 77.28 crore is being met from the issue proceeds and the rest through internal accruals.

Even though there is no indication about the declining investor apetite for software IPOs, the company is playing it safe by getting the issue underwritten. The issue, being lead managed by Kotak Mahindra Capital, has been underwritten by the same merchant banker along with Enam Financial Consultants. The shares of the company are slated to be listed on the stock exchanges of Chennai and Mumbai.

The company offers awide range of product development and software services. The company's areas of services include re-engineering, maintenance, migration, product testing and validation, ERP, consulting, networking and e-commerce. The company's expertise lies in banking and finance, risk management and trading and retailing softwares.

Even though the banking and financial market is highly competitive, Polaris being one of the bigger domestic players in the market, has an advantage over other IT firms in the same line of business. However, heavy dependence on a single client, who in fiscal 1999 accounted for 35 per cent of the company's total revenues, does not augur well for Polaris Software.

Polaris Software has four subsidiaries, of which three are overseas subsidiaries, with one each in UK, USA and Singapore. The fourth subsidiary, Polaris Retail & Communication, has been floated to cater to the retail automation business in India.

At present, the promoters hold around 62 per cent in the company's Rs 13.55 croreequity capital. Post-offer, this will come down to 47 per cent. Konark Trust, the employees trust which currently has a 6.03 per cent stake in the company, will hold 5.37 per cent after the current issue is through.

For fiscal 1999, the company, along with its wholly owned subsidiaries, earned a net profit of Rs 15.31 crore from a total income of Rs 15.31 crore. On an year-to-year basis, while net profit growth was at 182.5 per cent over its fiscal 1998 net of Rs 5.42 crore, growth in total income was at 93 per cent over Rs 42.66 crore in fiscal 1998.

For fiscal 1999, net profit margin was at 18.6 per cent. Operating profit margin, on the other hand, was at 23.5 per cent. For fiscal 1999, Polaris' export earning was at Rs 51.80 crore, up from Rs 24.96 crore the previous fiscal.

The company, as a single entity, boasts of a compounded annual rate of growth of 99 per cent in revenues and 105 per cent in net profit for the period 1997 and 1999. Polaris Software Labs, the flagship company in the group,earned a net profit of Rs 14.64 crore from a total income of Rs 60.54 crore. This translates into a net profit margin of as high as 24.18 per cent.

Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.



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