“The market was expecting atleast a three per cent growth in net profit as against an eight per cent fall reported by the company. Polaris has also not been able to meet its earning guidance of 17 per cent to 25 per cent per year through organic growth”, said an analyst with a domestic brokerage house.
The other income includes Rs 3 crore billed to a new company for developing a enterprise resource management product. The Polaris spokesperson said the new company would be floated shortly, as a 100 per cent subsidiary called Empower Ltd.
“Acts like billing to Group companies, makes the market really nervous especially at a time when ‘trust is at a premium’. With such transactions, it makes no sense to look at the consolidated results as the revenue would get accounted for in Polaris Software Lab Ltd and the subsidiary is most likely to show the work done as an asset (unless the subsidiary expenses the development charges). Trying to meeting earning guidance by billing to subsidiary companies is certainly not acceptable,” the analyst said.
Mr Arun Jain, managing direcrtor, Polaris, was quoted saying that the margins would be lower in the second quarter due the integration expenses with OrbiTech Solutions Ltd. Also, the staff expenses would go up while trying to bridge the salary difference between Polaris and OrbiTech employees. Analysts said that the operating margins of the company has fallen to 21.4 per cent (23.1 per cent) during the first quarter. Also, the product revenues had not shown the expected growth. The stock opened Tuesday’s trading session on the NSE at Rs 224. Selling pressure soon set in and the stock hardly witnessed any buying support during the day. Selling pressures gained momentum during the afternoon.