>POLARIS FINANCIAL TECHNOLOGY LIMITED: Investment in IdenTrust and Indigo TX acquisition will boost its Intellect offerings

Company Background
Polaris Financial Technology Limited (PFTL) incorporated in 1993, headquartered in Chennai has a strong global footprint and primarily focuses on Banking and financial services (BFSI) vertical. It has eight out of the top 10 financial services firms globally among its clients. CitiGroup is its largest client, accounting for over 40% of consolidated revenues. The company offers IntellectTM, first pure play Service Oriented Architecture (SOA) based application suite serving retail, corporate, investment banking and Insurance clients. The IntellectTM suite has grown strongly since the last five years of inception and going forward we believe it to contribute significantly to company’s top line and profits.


Investment Rationale
■ Banking on Intellect platform to derive growth - ‘Intellect’ suite provides more flexibility Polaris ‘Intellect’ based on Service Oriented Architecture (SOA) fulfills all criteria required for modern Core Bank Software (CBS) replacement demand. It provides an efficient web based real-time modular software solution with excellent user interface. It enables clients, enhanced flexibility and customization as per their requirement and fulfils the criteria of a standardized platform. It also provides a multi-entity solution that can be accessed across countries offering a 360-degree view of a customer and provide a holistic view of data which differentiates it from others. Moreover it does not have the rigidity faced by ‘Bank In Box’ software products solutions like Flexcube, Finacle, BaNCS. We believe features and flexibility offered by Intellect is in par with established players and is well placed to benefit from the core replacement demand in emerging geographies which has less competition and high demand.


■ Significant deal wins, robust pipeline for Intellect augurs well for the company
‘Intellect’ has a strong deal pipe of ~US$300 mn in IMEA and APAC region. Intellect has started winning bigger deals in range of US$10-20mn and won US$20 mn deal in Q3 FY12 which is the second largest deal after the RBI deal. We believe RBI deal win of US$55 mn is a big breakthrough which will enable the company to win more deals from PSU and Private Banks in emerging geographies and also help the company to tap immense opportunity present in the central banks CBS market. Polaris investment in IdenTrust and Indigo TX acquisition will boost its Intellect offerings and help win more deals. 


■ Well placed to benefit from Core Banking Software replacement demand
Core Banking Software (CBS) replacement demand around the globe has gained momentum in 2010 and we expect it to continue over the next five years. While US recorded the largest number of CBS replacements in 2006-07 (has slowed down in 2008-09), emerging geographies will now provide the majority of CBS replacement opportunities. Polaris which gets 95% of its Product revenues from APAC and IMEA is well placed to get benefitted from this trend. In the last one year, majority deal wins from Saigon Hanoi Bank of Vietnam, Sonali bank of Bangladesh, Regional Development Bank of Sri Lanka etc has been from emerging geographies and we expect strong deal wins to continue going forward.


Valuation and Outlook
We believe Polaris will deliver strong revenue growth (CAGR of 42.3%) in products business (27.5% of total revenues) due to strong deal pipeline and diversified product portfolio. The services business (72.5% of revenues) is expected to grow at CAGR of 20.5% but has margins in lower double digits. However products business which has higher margins in tune of 20-25% and high growth rate will help the company expand margins going forward. We estimate FY12E and FY13E top line to grow 32.8% and 18.8% Y-o-Y to Rs 21.1 bn and Rs 25.0 bn respectively. The stock currently trades at a P/E of 7.4x and 6.0x FY12E and FY13E earnings respectively which we think is at a discount to its peers considering its high growth rate, strong deal pipeline and high cash and cash equivalents reserve of Rs4.31 bn (~26% of market cap). We initiate the company with a “BUY” rating and have valued the company on DCF basis to arrive at a fair value of Rs 230 (around ~8x times FY13E earnings.) implying an
upside of 36.5% from current levels.


To read full report: PFTL
RISH TRADER

>Talwalkars Better Value Fitness Limited (TBVFL)

Company Overview
Talwalkars Better Value Fitness Limited (TBVFL), is the largest chain of health centers in India having 115 health clubs spread across 56 cities and patronized by 113,000 members. Currently, it is promoted by the Talwalkar and Gawande groups together. Out of the total number of health clubs, 79 are owned by TBVFL, 10 are legacy gyms, 10 are part of subsidiary companies wherein TBVFL has a 51% holding, 6 are part of the JV with Pantaloon Retail and the remaining 10 are purely franchisee outlets operating under the HI FI brand targeting the Tier II and III cities.


Investment Rationale
■ Introduction of HI FI Gyms results in accelerated expansion at zero capex cost
TBVFL is well positioned to increase its penetration into various parts of the country with launch of the HI FI concept which is mainly targeting the middle income population in the Tier II and III cities. This has helped the company to promote its brand and create an awareness in the smaller cities and also increase the total number of health clubs at a faster rate. In case of the HI FI format, TBVFL does not require capex though the royalty component is similar to the subsidiary model and additional upfront income of Rs. 1mn resulting in higher revenue at zero capex and a faster roll out of health clubs.


■ Healthy sales growth supported by fast paced expansion and demographic mix
TBVFL is focused on increasing its total number of gyms particularly in HI-FI segment which is leading to faster expansion on account of its attractive business model. TBVFL being benefitted from a surge in the number of people aged 35-50 years who form a major portion of the population. We expect rising awareness of the need to be healthy and maintain one’s physical appearance will be the major reason for increase in membership. As per our projections, the sales are expected to grow at a CAGR of 19% from
FY11 to FY14.


■ Focus on franchisee Model to support RoCE going forward
TBVFL has a large gym base, in which the amount of capex varies depending on the level of ownership. This optimal mix of owned, subsidiaries and franchisees on a pan Indian basis would support RoCE going forward. As Franchisee model does not require capex, we believe the company’s focus is on expanding its franchisee network to support RoCE.


Valuation and Outlook
The stock is currently trading at a P/E of 11.9x, P/BV of 2.1x and an EV/EBIDTA of 7.2x its FY13 estimates. We have taken a discount of 30% to the average EV/EBITDA (8.9x) of its international peers as TBVFL is in a growth phase and operates in an emerging market. Thus we have arrived at an EV/EBIDTA multiple of 6.2x for valuing the company. Considering the strong business model and expansion plans coupled with increasing awareness of health and fitness, TBVFL is well poised to deliver high growth rate in the coming years and we expect it to grow by 30% and 29.7% for FY12E and FY13E respectively. We initiate the company with a ‘BUY’ rating arriving at a target price of Rs. 205 (an upside of 37%.).


To read full report: TBVFL
RISH TRADER

>SUPREME INFRASTRUCTURE INDIA LIMITED

Results Highlights
■ The company has registered a robust revenue growth of 70.4% yoy to Rs. 4,106 mn, showing superior execution strength of the company. This strong execution was seen in the building segment as well as in the road projects viz., Manor Wada Bhiwandi, Nagar Kopargaon and Patiala Malerkotla.


■ EBIDTA margins remained under pressure and declined by 34 bps yoy at 16.9%. This was mainly due to marginal rise in cost of materials as a percentage of sales by 332 bps yoy. Going ahead we expect the margins to remain between 16.5% to 17%.


■ At the PAT level we saw a decline in margins by 179 bps yoy at 6.1%. The decline was mainly due to rise in interest cost as a percentage of sale by 185 bps yoy at 6.2% and in addition to that we also saw increase in cost of deprecation by 58.5% yoy which further dented the margins.


■ Average cost of borrowing stands between 13% to 13.5%.


Other Highlights
■ The present order book stands at Rs. 37,725 mn including L1 of Rs. 4,210 mn (49.4% Roads, 5.85% Bridges, 0.44% Railways, 41.62% Buildings, 0.27% Irrigation, 1.94% Power & 0.48% Others) which gives the revenue visibility for next 24 to 30 months. The order book to bill ratio stands at ~4.0x FY11 sales. During the quarter SIIL, added orders worth ~Rs. 8,123 mn and YTD order inflow stands at ~Rs. 14,354 mn. We saw improvement in order inflows from last quarter and management expect to maintain the decent flow of orders going ahead. Additionally, the company is targeting ~Rs 40 bn as its closing order book by end of FY12 while the outstanding bids as on date stands at ~Rs 25 bn.


■ During the last quarter the company has added two new BOT projects viz., Sangli Shiroli in Maharashtra and Patiala Malerkotla, an ongoing project at Punjab which the company bought from the original concessionaire. Today the company has 9 BOT project of which two projects are operational viz., Kasheli Bridge and Nagar Kopargaon.


■ Recently in the month of Jan, 2012 management entered into a Private Equity deal with 3i India Infrastructure Fund to off load 49% stake in its four road BOT projects for US$61 mn. The road BOT projects includes Panvel Indapur which is under a separate SPV and the rest i.e. Sangli Shiroli, Nagar Kopargaon & Ahmednagar Karmala which is under Supreme Infra BOT Holdings Pvt. Ltd., as informed by the management. This deal will help the company to bring down the debt levels, meet its project equity requirement (~Rs 5.4 bn) and will ensure early financial closure of projects. With this deal we can see improvement in margins and higher execution which will drive the top line going forward.


Valuation & Outlook
In view of the growing order book, efficient execution of ongoing projects, backward integration and improving track record, we expect the company’s top line to grow at a healthy CAGR rate of ~39% during FY11A to FY13E. We also expect that the operational BOT projects wpuld generate steady cashflow to the company going forward. At current market price of Rs 223.75 the stock is trading at a P/E multiple of 4.4x and 3.5x to its FY12E and FY13E EPS of Rs. 51.1 and Rs. 63.8 per share. We maintain ‘BUY’ with a target price of Rs. 304 per share with an upside of 36% based on SOTP method. For the construction business we arrive at a price of Rs 255 per share which discount FY13E EPS of Rs 63.8 by 4.0x. For BOT projects viz., Manor-Wada-Bhiwandi (MWB) and Nagar Kopargaon (NK), which are valued on NPV basis gives a value of Rs. 49 per share.


RISH TRADER

>MBL INFRASTRUCTURE LIMITED: EPC & BOT BUSINESS

Results Highlights
⇒ The topline of the company stood at Rs. 3,397 mn a growth of 26.9% yoy. Second half of the year being strong in term of execution which is being reflected in the topline of Q3FY12 and we expect the same run rate to continue. We saw good execution on the EPC front especially road segments. Management has informed that substantial construction work has commenced on newly procured road BOT projects.


⇒ EBIDTA margins stood at 15.3% a decline of 46 bps yoy, primarily due to higher operating expenses as a percentage of sales by 66 bps yoy. Management has guided to maintain its margins between 13% to 14%.


⇒ Adjusted net profit margins stands at 6.6% a decline of 208 bps yoy. High cost of borrowings, rise in depreciation and higher tax outgo resulted in reduction of margins. Interest cost as a percentage of sales stands at 4.6% a rise of 85 bps yoy. Average cost of borrowings for the company stands at 13% and we expect steady margins for the next few quarters.


Other Highlights
⇒ Order book of the company stands at ~Rs. 22.2 bn constituting 21 projects and the major order flow constitutes from govertment organization. The order book to bill ratio stands at 2.2x FY11 sales which gives us the revenue visibility for next two years. The fresh order inflow for last four months stood at ~Rs 11 bn while year to date fresh order inflow stood at ~Rs. 14 bn. Outstanding bids for various projects as on date stands at ~120 bn. We expect order inflow to improve which was not the case nine moths back which saw aggressive biddings. Now we see upward correction cycle in the industry which would increase the fresh order book inflow and we have estimated fresh order inflow of ~Rs. 30 bn in FY13.


⇒ On the BOT projects front company has started booking revenue on the Rimuli Roxy Rajamunda project, Orissa (Toll) where the company has 50% stake while, the balance is with SREI infra and company has made equity investment of Rs 250 mn as on date. The other two BOT projects i.e. Seoni Katangi, MP (Toll) bagged during second quarter and Waraseoni Lalbarra, MP (Toll + Annuity) bagged last quarter has achieved financial closure and substantial construction work has started as informed by the management. The new BOT project Bikaner Suratgarh, Rajasthan (Toll) bagged in the month of Jan 2012 in 50:50 JV with SREI Infra costing ~Rs. 5 bn is expected to achieve financial closure by end of FY12.


Outlook
In view of the growing order book flow form NHAI, efficient execution of ongoing projects, backward integration and improving track record, we expect the company’s top line to grow at a healthy CAGR rate of ~30% during FY11A to FY13E.The company is well poised to capitalise on the opportunities and grow faster than its peers. The company is also diversifying into dedicated freight corridor which will give company an opportunity in different line of segment. With the increase in BOT project from one to five projects which will improve the cash flow of the company going forward. We maintain “Buy” on the stock with a target price of Rs 265, an upside of 50% from the present levels based on SOTP method of valuation.




Other Highlights
⇒ The toll collection at Seoni Balaghat Rajegaon operational BOT project for 9m FY12 stood at ~Rs. 103.2 mn and the management expects to achieve toll collection of ~Rs. 120 mn by end of FY12.


⇒ Recently the company has recommended as interim dividend of 15% which comes to Rs 1.5 per share on paid value of Rs. 10 per share.




Valuation
The fair value of the company stands at Rs.265 per share using the SOTP method. We have measured the EPC business on P/E basis and BOT business on DCF basis




⇒ EPC Business
We have valued the EPC business on relative valuation basis by assigning P/E multiple to its standalone business. MBL EPC Business trades at a P/E of 4.2x and 3.0x to its FY12E and FY13E EPS of Rs. 42.1 and Rs. 59.6 which we think is available at a steep discount to its peers considering its high growth rate and healthy return ratios. Going forward we expect the valuation gap to narrow in the medium term and the company will trade at valuation in comparison to its peers. We have reached at standalone target price of Rs 238 per share, which is ~4.0x FY13E EPS of Rs.59.6 per share.


⇒ BOT Business
Seoni - Balaghat - Rajegaon, BOT project which is operational has been valued using DCF basis which gives a value of Rs.27 per share.




Outlook
In view of the growing order book flow form NHAI, efficient execution of ongoing projects, backward integration and improving track record, we expect the company’s top line to grow at a healthy CAGR rate of ~30% during FY11A to FY13E.The company is well poised to capitalise on the opportunities and grow faster than its peers. The company is also diversifying into dedicated freight corridor which will give company an opportunity in different line of segment. Even addition of BOT projects form one operation project to current total of 5 projects will improve the cashflow of the company going forward.


RISH TRADER

>Gujarat Pipavav Port Limited: Q4 CY11 RESULT UPDATE (BP WEALTH EQUITIES)

Result Highlights

⇒ The company reported total income of Rs 1,159 mn during Q4CY11 up 18.5% QoQ and 39.7% YoY on the back of increase in container volumes by 31% YoY and increase in bulk volume by 10% YoY. Realizations in containers increased by 17% YoY and realizations in bulk increased by 10% YoY which aided the revenue growth.

⇒ Management said that there was higher amount of fertilizer volume during the quarter as compared to the previous quarter as the government sourcing had increased due to which bulk volumes increased 10% YoY. Issues in the power sector has caused power companies in the vicinity of Port Pipavav to go slow on their proposed development of power plants which could lead to a decline in handling of coal volumes at the company’s port going forward. Capacity addition in the container business and addition of four new container lines in CY11 has helped container volumes to increase by 31% YoY.

⇒ The company achieved EBITDA margins of 50.9% in the quarter an increase of 488 bps QoQ and 702 bps YoY on the back of better realizations on containers, higher volumes of reefer cargo, favorable exchange rate and higher container storage during the quarter. There was also a one time upside on account of favorable write-backs of volume rebate provisions during the quarter which helped margins to improve by 200 bps.

⇒ The company’s net profits increased by 104.3% QoQ and by 145.2% YoY to Rs 270 mn in

Q4CY11 with net profit margins increasing by 978 bps QoQ and by 1,055 bps YoY to 23.3% during the quarter. The company’s interest cost declined marginally by 1.7% QoQ to Rs 208 mn and its depreciation cost increased by 22.6% QoQ and by 25.6% YoY to Rs 161 mn on account of addition of new assets during the year.

Expansion Plans

The company has increased its container yard capacity to 850,000 TEUs and would increase it further depending upon the needs of its clients and growth in volumes. The company is targeting completion of its High Cube Double Stack Project and expansion of its fertilizer shed by Q3CY12. It has also placed order for purchase of three Rail Mounted Gantry Cranes and has targeted installation and commissioning it by Q4CY12.

Valuation & Outlook

The company has repaid debt amounting to Rs 895 mn CY11 which has reduced its interest payment substantially and going forward on the back of capacity and margin expansion we believe GPPL to post healthy revenue and profits. At CMP the stock is trading at 11.4x CY13E EV/EBITDA and 19.3x CY13E P/E. We continue to value the stock based on DCF methodology and arrive at a target price of Rs 66. We have assigned BUY rating on the stock.

RISH TRADER