Polaris Financial Technology Ltd recently bagged a $20 million deal from the Reserve Bank of India and another single deal of Rs 100 crore. It is expecting two more deals to win, which would be large size deals of $10 million. However, Arun Jain, chairman and managing director of the company says he is finding some slowness in decision making and do not know whether the slowness will remain or is it only a matter of early starting. Speaking to T E Narasimhan, he said despite the slowness, he is confident of 30 per cent growth in product business next year. Edited excerpts:
How was the Q3 for Polaris?
It was a big success, intellect grew by 69 per cent and product revenue was the key. The Rs 100 crore Ebitda from Rs 52 crore, through FX have contributed to it but without forex, it was a significant improvement in the Ebitda margin. Product business is seeing good growth.
What are the highlights of the quarter?
Gross profit of intellect business, which was over 45 per cent, compared to the gross profit of service business that was around 29.3 per cent. We expect our product business to start delivering 30 per cent of the operating margin. So, 16 per cent is our SG&A cost, resulting 45.7 per cent into 29.7 per cent at operating level.
On constant currency basis, dollar growth is close to 4.7 per cent on two counts, one is rupee which accounted for Rs 58 crore in revenue, which when translated at Rs 53 is reducing the number. So, it is giving one per cent additional growth in rupee terms. $4.2 million last quarter has come down to $1.8 million. So, if we remove those aberrations, net growth in dollar terms is also over four per cent.
Can you throw some light on the Rs 20 crore forex loss and how currency fluctuations bothering you?
There are three elements to this FX loss. First, a loan of $20 million, which was at a rate of Rs 48, which was settled at Rs 53 in the last quarter. So Rs 5 on $20 million is Rs 10 crore. Close to Rs 10 crore loss happened on the lending side and one more $10 million loan, which we repaid has also incurred another Rs 3-4 crore loss.
Then, the marked to market we did for the next quarter hedging. It is not the last quarter hedging; it is the next quarter hedging of $30 million which needs to be marked to market. For the next quarter Rs 12 crore is marked to market.
How many new deals were bagged during the quarter and giving the current scenario, how are the customers’ behaviour and what kind of opportunities you see?
We won a second large deal after RBI which is over $20 million, a single deal of Rs 100 crore and second large deal in the same year for Polaris. We are expecting two more deal wins, which would be large size deals of $10 million.
Last quarter we saw three of the top five banks using intellect and going live, and we have over 25 live sites. Looking at the pipeline, we are bullish about the product business in 2012-13. However, we are finding some slowness in decision making and we do not know whether the slowness will remain or is it only a matter of early starting. Despite the slowness, we are confident of 30 per cent growth in product business next year.
What is your outlook now on your growth for next three years?
We need to really work it out, we are just observing it. Next two months will be critical. Customers have started coming in. On one side we are bullish, because they are moving from a large player to a specialist player. From factory model, they are now moving to specialist player.
As soon as we win two to three deals, we can sustain our 25 per cent growth number for three years, but we are careful not to over commit on those numbers.
How is the US and Europe market?
There are about 30 opportunities across Europe and America, which is around hub opportunities and these are good entry to large accounts. It may take another nine months to get matured. If we are able to close 30-40 per cent of those, we would have a very good funnel in the US and Europe market.
Any plans to improve your guidance for the FY12?
No, we are just maintaining it. On earning side, we are more confident, but on income side we look at $440 million.
When we translate Indian rupee into dollar terms, we lose our revenue. This may also be because of the translation losses. In dollars, balance sheet looks lower but on rupee side we are exceeding the numbers we forecasted.
How the margins are going to be in the financial year 2013?
Around 30 per cent on product business is a very good margin and we are achieving those numbers. On an annualised basis, we are targeting for similar numbers and it will be 28 per cent on operating margin or gross margin of 45 per cent level. We would prefer to play the gross margin between 40 and 45 per cent.
Your capex was Rs 72 crore as against Rs 25 crore, in the financial year 2012. Any new facility coming up?
We have acquired a land next to our campus that costed us $9 million. It is not related to direct facility addition, it is a non-value added asset, but is strategic in nature from the campus perspective. Going forward in 2013, we may acquire the special economic zone premises.
