Polaris Consulting open offer good opportunity for shareholders: Analysts

Virtusa Corp to acquire 26% stake at Rs 220.73 per share at Rs 590 cr

The open offer to the shareholders of Polaris Consulting & Services by US-based technology outsourcing company Virtusa Corp is a good opportunity for Polaris shareholders to tender their shares, say analysts.

Virtusa Corp has made an open offer to acquire 26 per cent stake in Polaris Consulting & Services at Rs 220.73 a share amounting to Rs 590 crore. The offer opened on March 11 and will close on March 28.

The open offer price of Rs 220.73 reflects a premium of 31 per cent over the price six months ago and about 40 per cent over the price one year ago.

The stock price of Polaris has outperformed the broad indices: BSE Sensex, NSE Nifty and BSE IT Indices with wide margins mainly supported by the open offer price announced by Virtusa. In the past six months, the Sensex is down five per cent, Nifty down five per cent and BSE IT Index by three per cent.

“With the US Fed’s dovish stance on the scheduled interest rate hikes, the dollar is expected to weaken against major global currencies resulting into a hit on the income of the technology driven company. So, tendering shares to earn profit now would be a better option,” said an analyst with a leading Delhi-based broking firm.

According to the offer document, the acquirer Virtusa has no intention to make a de-listing of Polaris Consulting & Services from the bourses. The stock will continue to trade on the exchanges upon completion of the offer.

“The earning numbers of Polaris have been average to below average over the past few quarters. Overall the small-cap and mid-cap IT companies have been laggards over the past six to nine months. The good performance of Polaris on the bourses is mainly on account of the ongoing open offer. After March 28, we expect the stock of Polaris to retreat,” said Dinkar Shanbhag, head of institutional equity, at Lotus Global, a city-based brokerage house.

The price-to-earnings (P/E) ratio of Polaris is 13.65 based on the open offer price and historically the stock has traded at a P/E ratio of 8-10 times.

Virtusa’s top five clients contribute 40 per cent to revenue and it gets 52 per cent of this revenue from the top 10 and Polaris top 10 clients contribute 60 per cent to its revenue.

Polaris’ financial performance is also on the downward trend in the current financial year with net profit declining six per cent in the first nine months of the current financial year.

The net profit declined to Rs 121.9 crore for the nine-month period ended December 2015 from Rs 130.18 crore in the year-ago period.

According to Shanbhag, investors who want to continue investing in Polaris shares will get an opportunity to buy shares of the company from the secondary market at a lower price once the open offer period ends.