Confident of achieving FY13 guidance: Polaris

IT player Polaris Financial Technology reported a consolidated net profit of Rs 61.2 crore in Q1FY13 against Rs 44.6 crore, year-on-year.

Its consolidated income from operations was up at Rs 569.3 crore versus Rs 450.2 crore, YoY. At 11:26 hrs the share was quoting at Rs 118.35, up Rs 4.15, or 3.63%.

Arun Jain, chairman and chief executive officer, Polaris told CNBC-TV18 that the company is confident of achieving of FY13 guidance. "We are going with 17% rupee revenue growth, Rs 2,400 crore guidance and we are still confident that we can make it possible. We have factored in USD 10 million of acquisition revenue in that guidance," he added.

The company aims to boost its intellect business by 30% in FY13. It has also guided for an earnings per share (EPS) of Rs 25.5 for FY13.

Below is the edited transcript of Jain’s interview with CNBC-TV18.

Q: Can you just explain what you have held out in terms of that 17-20% guidance and what you have said about your revenues?

A: The way first quarter is panning out the angel sourcing and intellect business have grown and our differentiation is playing the marketplace. We are going with 17% growth, Rs 2,400 crore guidance and we are still confident that we can make it possible. We have factored in USD 10 million of acquisition revenue in that guidance. So I am sure we will be able to meet the guidance.

Q: Can you give us some sense of the dollar revenue growth that you are looking at for this year? Rupee dollar has been so disparate and that goes into these projections. What about the dollar number?

A: 17-20% is basically dollar guidance, from USD 428 million to close to USD 490 million plus is a number which we are looking for. So, we are looking at organic and inorganic combined for this USD 490 million.

Q: Of this 17% growth roughly, how much would be the growth in the intellect business versus the growth in the services business as far as you are concerned?

A: For intellect, we should be growing 30% plus. Services should be at the lower end of double digit number.

Q: Can you just give us a sense of how margins will progress, because this quarter there is a trace of disappointment that despite the currency tailwinds you reported a slight depression in margins at a group level?

A: Not really. I think the question is that last quarter we had lot of other income which was sitting there. There is a tax benefit which was at 12% not 22%. If you look at EBITDA level we have a decent growth over the last quarter based on quarter-to-quarter growth in the revenues.

In the last quarter the market had beaten us because of the tax we have taken Optimus. If you look at the EBITDA level margin, it is over Rs 100 crore and those are decent margin in that space.

Q: Would that come with very significant investments in R&D as well? That seems to be one factor, which could depress margins. To grow 30% on the intellect business, would it come with concomitant sacrifice in margins because of high expenditure in R&D?

A: If we need to be leader in this space, R&D is a natural part of it. We are in global transaction banking, where we are established and margins are over 35%. We are establishing CBC with RBI going live and there we are almost at an investment mode. The third space is treasury and capital market, where we are losing money.

So the three businesses are creating a leadership position and creating a multi-leg business model. In a product, if there is only one business line, as soon as something happens to the market, revenue starts fluctuating. We need to create a product business also.

There are four legs to the business: insurance products, capital market products, retail banking products and global transaction banking products. So, one business has been established and proven. We can generate 35% plus margins in that business. Two businesses are in investment mode. Our core banking business should be profitable at 20% plus level. TCM business will be losing 5% at that level in R&D expenses.

Insurance will become profitable by the next quarter. So, now we know how we can bring the product margins to 30% plus levels. That's the whole strategy, which is panning out one-by-one. We will continue with our investment throughout the year. We will not decrease the size of investment, so more growth will get us better margins.

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Q: What kind of margins should we expect for the full year?

A: We are looking Rs 25.5 EPS from current level of Rs 22 last year. So from last three years we are maintaining our EPS guidance. We should be maintaining around 16-17% growth in EPS, which can be better. As of now since there is volatility in the market, this is a good guidance to ensure that investors are protected against Rs 25.5.

Q: Does that build in some kind of wage hikes during the course of the year and can you give us some numbers there?

A: Wage hikes are happening from the current quarter and it’s already in the pipeline. It’s at a subdued level so the industry is looking between 3-10% levels depending on the performance.

Q: The other small concern is the working capital. The DSOs have gone up by about 6 days. When do you expect to bring that under control?

A: That’s right. That is one operation control metrics we would like to bring in. We want to bring the cash back into the significant level. So that significant management focus is on that to bring it back to Rs 500 crore in next two quarters.

Q: Any thoughts on the unlocking value from land or any further discussions on that?

A: Not yet. Not in this year. This year, the focus is go to market. There are big opportunities sitting. So we are participating in many large deals because of our differentiation. We have multiple deals more than USD 50 million size. Those are a few aces where we need to spend a lot of management time.

We are building a production and solution services business as well as a complete solution provider for financial technology. A lot of management attention today is getting into leadership position because other players are faltering and market is looking for differentiation, there is a big opportunity for us to create noise in the market. Our marketing and R&D are key focus for next 12 months.