Polaris eyes double digit dollar revenue growth in FY14

A flat revenue growth in FY13 and loss of profitability on the IdenTrust front are the main reasons for Polaris' fall in Q4 numbers says chairman and chief executive office, Arun Jain. The company posted a net profit of Rs 39.3 crore falling from Rs 40.2 crore quarter-on-quarter (Q-o-Q).

Jain says the Iden Trust divestment costed the company a loss of Rs 2 in the earnings per share (EPS). The company had to sell off their investment in Iden Trust, a US based company after receiving an order from US' foreign investment panel. Polaris had acquired 85.3% of IdenTrust in April 2011 for Rs 88 crore. The US government had classified IdenTrust Inc as being critical to its security infrastructure. Read Jain's views on the divestment here.

However, this is not deterring the company from giving positive guidance for FY14. "We are cautiously positive," says Jain in an interview to CNBC-TV18. "We signed eight accounts last year and those eight accounts are ramping up now. It takes around six months to ramp it up. So, we have a good traction around it. Some of the rationalisation of business which we did last year is getting over in this quarter, so this quarter results are not good," adds Jain.

Jain says the company will also be restarting six deals in Europe that will get a revenue growth of 20% in the product business. Jain adds that the company is targeting double digit revenue growth in dollar terms.

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

Q: FY13 wasn't a great year for you? What are you promising your investors for FY14 now? A: FY13 was just a flat year for us. In rupee terms, we made maybe 13 percent but it was a flat year with Iden Trust causing further trouble (erosion) of Rs 2 earnings per share (EPS). So instead of Rs 22 EPS, it fell down to Rs 20 EPS. However, obviously the new accounts which are signed up in last year are more. This means we signed eight accounts last year and those eight accounts are ramping up now. It takes around six months to ramp it up. So, we have a good traction around it. Some of the rationalisation of business which we did last year is getting over in this quarter, so this quarter results are not good. I think next year, we are looking positively and cautiously as well. So, that is how the new dollars in discretionary spend are going to come up and accelerate. It’s a slow acceleration because in value built business, the team sizes are not more than 30’s and 50’s, not 300 and 400. So, that’s the kind of acceleration. But these are the firm accelerations which happen. So, while long-term seems to be very healthy but there could be fluctuations in the quarter to quarter. Q: In dollar terms, your revenues were flat in FY13. There was no growth at all. In FY14, will there be some growth? A: In the product business, we have six deals which have got postponed in Europe. Those deals are signed deals. They will get restarted. So, we should start growing the product business at a healthy rate of 20 percent - that’s what we are looking for. Q: So in a blended basis, what kind of growth? Single digit growth this year on the back of flat last year or can you get it up double digits blended? A: On blended basis, we are looking double digits. Q: In dollar terms? A: Definitely, in dollar terms. _PAGEBREAK_ Q: Let me ask you about your services unit because we spoke last quarter about the possibility of some restructuring. Have you made up your mind on what do you want to do because the street is talking about you trying to sell off your services unit and having approached some large domestic companies as well? A: I think these agendas keep on coming. It is good for restructuring. We set up a task force for last 90 days. They made a presentation in the board meeting on what are the strength of service business, what are the changes we need to bring in service business, what are the changes or opportunities are there in the products business. They came out with a strong recommendation on Saturday. Board has given a mandate to implement and take action on some of the recommendations. We will come out with an action plan. Q: That’s from an internal point of view, assigning responsibilities for leadership of these businesses. What about taking a call on what you want to do with these businesses going forward in terms of either hiving off, selling off, getting in a strategic partner, etc? A: There is nothing on the cards. These are the healthy businesses which are growing which have got 25 years of ability to grow themselves. The recommendation is not around that. The recommendation is around how we strengthen service customer and reduce complexity and improve their operational productivity going forward. Q: Given what you just told me about the products side of the business, do you think you will be able to improve margins in FY14 because the other thing which happened in FY13 is that your overall annual margin slipped to below 12 percent. Is there a scope of getting back to 14-15 percent EBITDA margin? A: Gross margins for products business is 49 percent. Some of the more licensed revenues need to be accrued. We had licensed revenues of close to 15 percent. Last year, it was around 12 percent. I think license revenues are at direct margin levels. That is where we are expecting the margins to improve, but I think we need to expand that margin in marketing. We have won three Asian banker awards for best products in core banking. We are now in that stage where design makes differences visible on the market place. We are core banking. So, this is a large market of core banking so we are now seeing a visible sign of establishing our leadership in this market place globally. We are the only company getting three awards in single event on best implementation. The investments now are showing significant signs in terms of acceptance in the market place. So, we are getting into the stage three of the product business where market is accepting it and analysts are recognising it. Now, it’s a question of expanding that in a more blast manner. So, I think we are looking very positive on the expanding and multiplying and growing our intellect revenue in next three years. Q: Iden Trust has been a drag on your profitability over last couple of quarters. By when can you conclude a sale of Iden Trust? A: By September 30. We are giving ourselves two more quarters to close that out. The process is on, so we are looking for September 30. Q: Even a ballpark sense of how much you can recover or how much you can get for it? A: I don't think that I have a right to communicate anything more than this. The process is on. Let the process take its course.