Polaris reported revenues of US$78.9 mn (+3.3% qoq, +18.4% yoy), in line with our expectations. The major negative surprise came on the margin front – EBITDA margins declined 320 bps qoq to 13.4%. The company attributed the drop in margins to reversal of salary cuts done last year (7-8%) and further increase in offshore salaries by 15%. Polaris’ margin performance is an indicator of pressure likely to be felt by most mid-sized companies in the tight supply market, in our view. Net Income of Rs466 mn was driven mainly by significantly higher other income of Rs142 mn (Rs55 mn in 4QFY10). SG&A expenses also declined at an absolute level, aiding EBITDA.
EPS for fy 11 and fy 12 is expected to be flat at Rs 19 and Rs 19.2
