Q4 and Annual Results for FY 2004-05

Revenues up 21.7% over previous year to Rs 787 Cr, investments in ‘Intellect’ continues

Chennai, 27 April 2005: Polaris Software Lab Ltd, a leading provider of IT services and solutions in the BFSI (banking, financial services and insurance) domain, has announced fourth quarter and annual results for FY 2004-05.

For the quarter ended 31 Mar 2005, consolidated revenue was Rs 196.42 crore, operating profit (EBITDA) was Rs 15.21 crore, and net profit before extraordinary items was Rs 5.80 crore. Net profit after extraordinary items was Rs 2.34 crore.

For the year ended 31 Mar 2005, consolidated revenue was Rs 787.12 crore, operating profit (EBITDA) was Rs 118.30 crore, and net profit before extraordinary items was Rs 74.26 crore. Net profit after extraordinary items was Rs 58.04 crore.

Financial highlights for quarter ended 31 March 2005

· Consolidated revenue of Rs 196.42 crore, up 15% over previous year
· Products business contributed 14% to overall revenue
· 12 new clients were added
· Revenue contribution from US was 40.3%, Europe 25.1%, APAC 23.2%, India
· Revenue contribution from BFSI vertical was 90%, emerging verticals is 10%
· Revenue contribution from Citigroup business was 61.9%
· Cash and investment reserves of Rs 137 crore
· Quarter-on-quarter revenues declined because the service business remained flat
in dollar terms and the Intellect business faced some order deferrals

Financial highlights for year ended 31 March 2005

· Recommended dividend of 35%
· Consolidated revenue of Rs 787.12 crore, up 21.7% over previous year

Business highlights for the quarter ended 31 Mar 2005

· Intellect has gone live in two large global accounts this quarter. This is a major
step in creating reference sites.
· Man Investments, one of the world's leading alternative investments player and a
FTSE 100 company, has selected Polaris Software Lab for delivering a large
· Intellect Treasury has been chosen as the platform by one of the world's leading
banks for its Risk Treasury business in Europe.
· Lloyds TSB Corporate has engaged expertise from Polaris Software Lab to help
develop its product capability.
· Polaris made an entry into two large banking customers (top 10 wall street banks)
during the quarter.
· Optimus has been awarded a contract to assist a leading Indian private sector bank
with one of the largest card portfolios in managing their regional front-end
· As a part of its business consulting services, Optimus is now partnering a leading Indian bank in designing and implementing a blueprint for deepening
relationships through a customized sales model for cross selling credit cards
leveraging the bank’s existing distribution channels.

Analysis of the result

Polaris has a core service business, and is building two additional businesses for keeping its leadership in BFSI segment. The investments for building the Intellect product suite, the largest in the financial sector, are clearly helping Polaris to position itself in the EXPERTISE outsourcing space.

Polaris is also in the investment phase for creating a world-class platform OPTIMUM, a complete CARD ON DEMAND credit card outsourcing business.

Polaris is funding the investments in both the above businesses without any external funding using cash generated from its healthy and profitable service business.

Says Arun Jain, chairman and managing director, Polaris Software Lab Ltd: "Polaris set up an aggressive transformational agenda two years back to become an integrated solution provider catering to the needs of large global financial and insurance businesses.
Increasingly, I see our reading of the market being validated as our visibility grows in our chosen customer segments.

We are encouraged by the fact that while our consolidated financial results appear under pressure after expensing our investments, these investments—which are required for our transformation—are met from our healthy services business".

Buyback of shares

The board of directors has approved a buyback of equity shares of the company to the extent of Rs 49 crore. The buyback will be executed at a price not exceeding Rs 115 per share.

"The intent to buyback is a signal of the management’s confidence in the company’s business model and continued growth," says Prabal Basu Roy, group chief financial officer and executive vice president, Polaris Software. “We believe the current share price does not reflect the full potential of our business model.”

Product capitalization discontinued

Effective 1 January 2005, there is no capitalization of expenditure on the Intellect Suite of products since they have reached ‘commercial viability’. This is in line with the company’s product capitalization policy, and international accounting practices.

However, investments into Intellect development will continue to keep pace with market changes and to maintain its cutting edge technology leadership platform. In line with conservative accounting practices, this will be charged to the P&L for the present suite of products.

As on 31 Mar 2005, the company had invested Rs 52 crore towards product development. Rs 6.16 crore was amortized during FY05. A balance of Rs 44.5 crore in the balance sheet will be amortized over the next five years.

Change in Board of Directors

The Board of Directors of Polaris Software Lab Ltd has undergone a change. Mr Dipak Rastogi, Head Citigroup Venture Capital International leaves the board. Mr Anil Sachdev and Mr Anil Khanna join the board.

Mr Anil Sachdev is the Founder and Chief Executive Officer of Grow Talent Company Limited, a specialist talent management consultancy that enables organizations to achieve breakthrough performance by realizing the potential of their people and creating a talent advantage.

Mr. Anil Khanna recently joined Citigroup Venture Capital International and is
responsible for cross-border investment opportunities and business services.

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