Arun Jain, Chairman & CEO, Polaris Financial Technologies says the company will file an information memorandum for the listing of its products arm- Intellect Design- on October 24.Below is the transcript of Arun Jain’s interview to CNBC-TV18’s Latha Venkatesh and Sonia Shenoy.
Sonia: Can you tell us when the listing of the products or Intellect Design Arena will take place, what could the timeline be?
A: Let me first just clarify this stock down by about 14 percent is a process step of demerger and you must communicate it is not down by 14 percent but it is because of separation of the company.
Share on October 9 was ex-Intellect and that was the money at least accounted for the share which the investor will be getting in Intellect. October 15 is a date when Intellect board will meet and allot shares of Intellect. Then, by October 24 we will be filing our information memorandum for listing which will take appropriate time within SEBI and NSE so next few weeks it should be listed in stock exchange.
Latha: By the end of the month you are saying?
A: We cannot commit a date but we will be filing on or before October 24 our information memorandum to the stock exchange so it will take appropriate time.
Latha: How do you expect the margins to pan out for your services business, could they continue to remain challenged?
A: The major point was to have a demerger kind of clarification to the stock market because quarterly results are just around the corner and I don’t want to trade on the path of anything relative to the numbers or the margins.
Latha: In the longer term if you can make a comment say over the next three-four quarters, is that one of the challenges you will tackle?
A: Yes I think what happened with the services business being separate and product business being separate, clients centricity which is the reason for which we separated the services business since it will be vendor agnostic and services business can choose any product which customer wants to choose will deepen the relationships. So our investment which was happening and continuously service business was incurring the looses in their books as far as service business is concerned. It was investment in products business like last quarter Rs 13-14 crore was the investment which depressed the EPC margin service business that will no more be there. So that is one positive side.
On investment side definitely there will be investment which will be more client focused rather than product focused. So I think it will pan out for the investor improvement in the margins because the losses will not be borne by the services business which they were seeing over the last so many quarters almost seven-eight years, that will go away. So that is one positive news for the investor so margin will be there for the products business. So this is what the service business look like to us.
Sonia: What could the quantum of investments be that are required for the product business going ahead?
A: A new company is getting formed. Hence, I use this platform to update the investors that there are four banking spaces in which growth is happening on the products business. Global banks are investing in a fee based income products which is a global transaction banking and that is a growth business which we are looking for for the dollars which are coming up. So lot of money is coming in digital banking and global transaction banking so that is the space which we call iGTB business.
The second business is the Intellect risk and treasury business where we have great products in risk areas and Basel III areas and treasury areas. That is also the money new dollars are coming for the investments in the banks.
The third and fourth which is Global Consumer Banking (iGCB) and Intellect Insurance Business these are two businesses which are around transforming their legacy platform to the new banks. So in first business we compete with a company called Fun Tech. Second business we compete with Sunguard. In third space IGCB we compete with Finacle and in Intellect Insurance we compete with Guidewire and life claim solution players. So these four businesses are to mitigate the risk of the growth that two businesses we have kept for the new dollars of the investment coming and two are modernisation businesses.
Latha: But the products business breaks even in FY15 itself?
A: If you look at it again product business matrix needs to be recalibrated. So lot of Indian companies are now coming to product business and lot of matrix which is important in product business is what is my operating margins versus what is my EBITDA margins. Normally in all the software services business industry is expecting the cost of sales are between 8 percent to 12 percent while in product business the world benchmarks are close to 25 percent to 35 percent of sales and marketing cost. So what we are controlling in product business is that operating margins are over 50 percent, close to 54-55 percent are our operating margins and our sales cost in 2014-15 will be close to 30-32 percent our sales cost. So, that is the matrix which is there but our R&D costs are now constant, we are investing Rs 100 crore per year on R&D cost which is where we are getting stabilised, some quarters may be higher than 25, some may be lower than 25 percent depending on what R&D projects we are sanctioning. But on an annualised basis close to Rs 100 crore is the number which we are spending for the R&D cost. So looking at it as growth will come in we will be investing into sales and marketing, any dollars going into sales and marketing those are seen differently than the overall business margins.
Sonia: Can you give us the absolute figure of what the exact cash division is between the services and the products business?
A: We have almost divided 50-50 as of March 31 so March 31 consolidated cash in product business of close to Rs 315 crore or Rs 320 crore is the number which was given to product business.
Latha: But then your services business contributed 78 percent, I thought even the cash would be divided according.
A: Two business needs are there for shareholders so the shareholder will get more benefitted because services business will churn out the cash predictably in coming months.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
