Polaris Software Labs: Nurturing Long-term Ambitions

Polaris Software Lab (Polaris) is engaged in migration, re-engineering,

maintenance and other software services with domain focus in the banking and

financial services segment. The company has recently forayed into the insurance

segment as well. Among its major clients are Citibank–which also holds about

11% stake in the company–NEC, National Global Holdings, Viador, Reuters and

HP.

Polaris’ results were disappointing for the first quarter ended June 2001

when compared to the previous quarter. Sequentially, revenues were down 10%

whereas the net profit was down by 18%.

While revenues were up 34% to Rs 70.07 crore, net profit was up 35% to Rs

14.92 crore when compared to the same quarter last year. The company saw

sequential decline in the revenues as new clients were signed during the last

month of the quarter. Polaris added eight clients during the quarter taking the

list of active clients to 82. Polaris plans to have a long-term relationship

with the clients, which will see the client grow $3 million—$10 million over

the three-year period. This will enable it to focus on achieving the long-term

optimistic target of revenues of Rs 1,000 crore by 2004 rather than focusing on

short-term.

Polaris’ revenues from the banking suite Bankware in the first quarter are

not available. The company nevertheless expects to achieve revenues of more than

Rs 75 crore from this suite in the next three years. Notably, the company faces

stiff competition in the banking product segment from established players like

Tata Consultancy Services, i-Flex Solutions and Infosys apart from global

players. Polaris saw a decline in onsite revenues, which fell from 48% in the

immediate previous quarter to 41% in the first quarter. It added 109

professionals and currently has 2,443 professionals. The company expects to add

600 professionals in the current fiscal.

Polaris Software is currently traded at Rs 128 discounting the projected

March 2001 EPS by 9 times and the March 2002 EPS by 7 times. The stock skidded

after the announcement of the first quarter results from about Rs 210 and has

stabilized at the current levels of Rs 130.

Polaris Software has built up a strong and well-known expertise in the

banking and financial segment and future performance will depend on the success

of its strategy to focus on long-term relationships. The decline in margins

despite the shift to offshore is a concern in the short term but is likely to be

made up with product revenues and upturn in tech markets.

While there is no downside form the current levels, we believe that the

upside would depend on the company’s performance in the second quarter. Market

Performer.

Sushanto Mitra is

the founder of Technology Capital Partners

The views reflected here are of the author and not of this publication. No

liability is accepted for losses based on the information presented here