The BFS Vertical: Going Strong

The Banking and Financial Services (BFS) vertical forms the
largest contributor to the total IT services revenue in India, and has
maintained its lead over other verticals for a considerable number of yearsalmost
38% of the $24 bn IT services business, according to Nasscom. Despite its size,
the demand from this sector continues to grow faster than many other verticals
and is unlikely that in the medium term this position will change.

Reasons for this pre-eminent position are also well known. The
banking sector was one of the firsts to incorporate automation, and continues to
be a leader in usage and outsourcing. Further, IT is a critical, if not
necessary, input to any banking or financial services operation, and
consequently the demand for services is least impacted by economic cycles.

All the major software services companies have large BFS
practices, and continue to grow them aggressively. At the same time, there are a
number of companies that focus on this vertical alone and have grown over the
years to reach a critical mass. These companies belong both to the services and
product segments, and have been successful in their fields despite competition
from the biggies. This is largely due to their concentration on certain niches
within the vertical that are not well served by their larger counterparts.

Nucleus Software Exports: Q1
Sales Grow 34%

Nucleus Software Exports (NSEL) provides software solutions to the BFS industry.
IT provides solutions on retail banking, corporate banking, cash management,
trade finance, Internet banking, and credit cards. NSE also provides other
services like consulting outsourcing software solutions, software support and
maintenance, customized software development, and BPO. Its software products
include FinnOne, Cash @ Will, Trade Facto, BankONet, and Power CARD. Revenue for
the Q1 ending June 30, 2007 increased by 33.96% to Rs 66.66 crore as compared to
Rs 49.76 crore for the corresponding quarter of the previous year. The net
profit after tax increased by 4.54 % to Rs 14.01 crore as compared to Rs 13.40
crore for the corresponding quarter of the previous year. Product business
revenue for the quarter stood at Rs 44.17 crore, an increase of 82.67% in
comparison to Rs 24.18 crore in the corresponding quarter of the previous year.
Whereas the projects and services business segment revenues for the quarter has
decreased 12.11% at Rs 22.49 crore against Rs 25.58 crore for the corresponding
quarter last year.

During the quarter, NSEL got eight new product orders for
twenty-three product modules and the company added six new clients. Orders for
product business were bagged from a financial institution in Dubai, South East
Asia, Sri Lanka, and other banking and financial institutions in India. The
company bagged a large order from GMAC, a subsidiary of GM Motors and ACOM of
Japan. The company added thirty-nine new employees, taking the total global
strength of employees to 1,571. The flagship product, FinnOne, was recognized as
the "No. 1 Best Selling Retail Lending Software" by IBS Publishing for
the year 2006. The stock currently trades at Rs 302.

Polaris: Declining Profits

Located in Chennai, Polaris Software Lab, a Nasscom Top 10 company, is a key
player in application development for the banking, financial and insurance
sectors, with its portfolio of products, outsourcing and modernization services,
and consulting. Polaris has staff strength of close to 9,000. The company has
product suite and seven banking platforms under the brand name Intellect.
Polaris has offices in Tokyo, Sydney, Hong Kong, Singapore, India, Dubai,
Bahrain, Riyadh, London, Belfast, Zurich, Frankfurt, Toronto, New York, Chicago,
Fremont, and Chile. For the quarter ended June 30, 2007, the consolidated
revenue was Rs 257.45 crore compared to Rs 232.05 crore in the corresponding
quarter last year, a growth of 10.95%. During the quarter, profit after tax was
Rs 14.42 crore compared to Rs 20.27 crore in the previous year, down by 28.86%.
One of the main reasons for low profit was the appreciating rupee value. The
Intellect-led business contributed 20.90% to the revenue, while BPO subsidiary,
contributed to 3.90% to the revenue.

During the quarter, Polaris added fourteen new clients, which
include six deals for Intellect platform. The deals came from Western Europe,
Middle East, and Asia Pacific. The company signed a Master Services Agreement (MSA)
for specialized outsourcing services with two global banks. The company launched
a super-specialty center for the risk and treasury business in Mumbai to provide
highly-specialized products as well as end-to-end solutions for modernization of
global treasuries. The company entered into a strategic partnership with Ementor
Denmark A/S to deliver IT solutions tailor made for the Nordic market. Also, the
company started the cooperation of a Near Shore Application Center, and a Global
Performance Engineering and Certification Lab at Mississauga, Ontario, Canada.
The stock currently trades at Rs 125.