Cazenove starts Polaris at buy

MUMBAI: Securities firm Cazenove & Co said it has initiated coverage of

Indian software firm Polaris Software Lab Ltd. with a buy recommendation and a

12-month price target of Rs 1,200.

Polaris revenue from operations should grow 116 per cent in 2000-01

(April-March) to Rs 3.16 billion, the firm said aided by the acquisition of Data

Inc of the US in 1999. Earnings per share should rise 99 per cent to Rs 21.37 in

2000-01.

Net profit is estimated to rise to Rs 748 million in 2000-01 from Rs 372.1

million in the previous year.

Polaris shares closed Rs 9.35 higher at Rs 712 on Wednesday at the Bombay

exchange; the report was dated August 29 and was based on a price of Rs 623.8.

"Polaris now offers critical size, a high growth rate, good return on

capital employed and respected management. All these factors should lead to a

re-rating of the stock," the report said

The acquisition of Data Inc is through a combination of cash and stock.

Though the financing has not yet been decided, we feel that Polaris can pay cash

of Rs 485 million. The remaining will be in the form of stock. Taking a per

share price of Rs 600 rupees, the report said it expected a 2.5 per cent

dilution.

Shareholder approval for a private placement expired on August 23 and the

American/Global Depositary Receipts (ADR/GDR) plans have also been deferred

Polaris is trading on a price-to-earnings ratio of 29.2 times its 2000-01

earnings and 14.8 times the fiscal 2002 earnings. The report concluded that on

the basis of discounted cash flow valuation, the fair price per share is Rs

1,244.

(C) Reuters Limited 2000.