Polaris expects 20% growth in FY10

Software product and service provider Polaris Software Lab has reported a 32% growth in revenues during the third quarter, on the back of customer wins and a weak rupee. The company logged revenues of Rs 372. 58 crore for the quarter ended 31 December 08, up by 32% compared to Rs 282.14 crore a year back. During the same period, the company’s profit after tax (PAT) grew from Rs 19.12 crore to Rs 37.17 crore. The company reported an increase in profit for six straight quarters after weathering a rough year in 2007, which saw a decline in its profit numbers. "In the current environment, rate cut and client uncertainty have become a reality. All our offerings are anchored on mission critical applications," Polaris chairman and CEO Arun Jain told analysts in an earnings call late on Tuesday. The company’s executive director and COO Arup Gupta added, "The revenue pipeline continues to grow despite uncertainty and the funnel size continues to be healthy." At the end of the quarter, the cash and cash equivalents was Rs 299 crore, as against Rs 225 crore in the previous quarter. "Increasing the cash balance is a dedicated focus and it has been achieved through an increase in actual cash profit and managing costs effectively. The DSO (days sales outstanding) has also come down from 62 days to 52 days," said Polaris CFO R Srikanth. A lower DSO indicates that the company collects its outstanding receivables quickly. Polaris further said it was confident of growing its top line at over 20% in dollar terms, for financial year 2009-2010, by increased growth in its portfolio of products and services. The company guided the same 20% top line growth for 2008-2009. During the third quarter, the company won 13 customers, of which five were its BFSI product, Intellect-led wins. It also completed the acquisition of SEEC Inc, a US-based product company for the insurance vertical. The acquisition was made at Rs 37.08 crore and the new entity contributed Rs 4.11 crore to Polaris’ revenues in the third quarter. On the impact of currency fluctuation, Mr Srikanth said, "The rupee depreciated by 11.19% during the quarter and it helped out top line." The currency volatility also led to a foreign exchange loss of Rs 28.54 crore during the period. Gross margins also improved in the third quarter thanks to focus on operational metrics such as increasing offshore exposure and improving utilisation rate. The company’s gross margins for the third quarter stood at 37.64%, which grew by 290 basis points sequentially quarter on quarter and 391 basis points year on year. The market reacted positively to the results. Polaris shares on the Bombay Stock Exchange rose by 29.07% on Tuesday and closed at Rs 44.40 over the previous close of Rs 34.40. Polaris sees no decline in business from Citi Top officials of Polaris said Citi’s restructuring plans would not impact its business pipeline from the troubled banking giant. Polaris counts Citi as one of its major customers and it accounts for more than 40% of revenues. "Over 95% of the services that we provide to Citi are mission critical application management services. So, we see no impact because of the restructuring," Polaris chairman and CEO Arun Jain said. At the same time, the company’s CFO, R Srikanth added, "Citi will continue to use multiple vendors and we have a long relationship with them. So, we see no decline in business." Earlier, there were concerns that after Citi’s sale of its BPO and IT arms in India to TCS and Wipro respectively, Polaris’ bargaining power would come down in the future, as TCS and Wipro may also compete for IT services contracts. But Mr Srikanth had said that these were independent deals and would not affect the business it gets from Citi. "Our relationship with Citi is 20 years old and strategic. Citi’s business for Polaris continues to grow in terms of volumes," Mr Srikanth had said. Industry observers say, Citi’s 43% stake in Polaris might turn to be a positive, for it might help the company to continue being a strategic vendor.