Analysts have put a one-year target of Rs 3000-3500. This is not surprising considering that the company is expected to post a revenue CAGR of over 75 per cent along with an improvement in margins, which should drive earnings at a CAGR of more than 90 per cent over the next three years. A relatively higher contribution from offshore revenues, widening of the client base, an improvement in marketing as well as better billing rates (because of fewer domestic projects), will be Polaris' mantra for growth in the new millennium.However, investors should watch out for Polaris Software's board meeting on January 11, which will discuss the third-quarter results, stock split, ESOP, compulsory demat and the possibilities of opening new offshore centres.

In the third-quarter, the company is likely to post a profit of around Rs 8-9 crore, which is lower than that in the second-quarter. However, it must be borne in mind that the second-quarter net profit was propped up by an other income of Rs 9.6 crore. Compared with the first-quarter profit, the growth is likely to be around 100 per cent. The stock-split, probably in the ratio of 1:2, will improve liquidity in the counter. But more than the stock split, if the company is really interested in improving retail participation, it should look at compulsory demat. But most of all, it is the setting up of a subsidiary in Germany, to cater to the European market, that needs to be looked at. For Polaris, it is imperative to improve its marketing network and for that, a presence in more countries around the globe is a must. And funds for setting up such centres should not be a problem, at least in the near future.

Polaris has an impressive business profile with its thrust on the lucrative banking/finance and retail segments. It is estimated that the banking and finance segment alone accounts for over 20 per cent of total spending on IT services globally. Where Polaris differs from most other IT companies engaged in this segment is that it offers a whole spectrum of solutions - ranging from retail banking, credit card, trading, risk management, loan management, security management to tele-banking and custodial services.

The association with the Citibank group has given Polaris the necessary edge over its rivals. Retailing is another segment which has tremendous scope because of the high-volume nature of business. Polaris has executed projects in the retail segment and used this expertise to develop products, which have found wide acceptance in the US. Transportation is yet another new area of business.

Internet and E-commerce does not constitute a large portion of the company's revenue and that could be a worrying factor. Polaris has been a late entrant into this segment, forming an SBU to look at this area only recently. Also, the high proportion of ERP services is a cause of concern as the segment has been witnessing a slowdown. However, the investment in the development of mass products like Super Store XS will add to the company's coffers in the medium to long-run. In FY 2000, the company is like to earn a net profit of Rs 30-35 crore, which on the expanded post-IPO equity of Rs 17 crore gives an EPS of Rs 20. At a time when most software companies are quoting at PEs of over 150, Polaris is a good buy at Rs 1961.