Intellect biz to aid Polaris beat industry estimate: Jain

In a interview to CNBC-TV18 after Polaris announced quarterly results, chairman and chief executive Arun Jain explains that the company's intellect business has signed four major deals to make it one of the top nine financial-technology companies in the world which have grown and doubled revenue in the last four years.

He also explained that the fall in operating margins was due to being tracked on a quarter-to-quarter basis, a general traction in business and increased expenditure sales and marketing.

Arun Jain also forecasts the company to beat the industry estimate by posting a 17%-20% growth in revenues in FY13.

Below is an edited transcript of the interview on CNBC-TV18. Also watch the accompanying video.

Q: What are your operating margins? Have they slipped this quarter?

A: There are two points on the margins front. Firstly, the product business is an annual business which has grown close to 43% in the whole year. So last quarter we booked USD 8 million in additional licence revenue with a profit margin which obviously we have not been able to achieve in this quarter.

But if you track the company on an annualised basis, we have grown almost 29% year-on-year on total revenues, the product business has gone up 43% and the service business rose 25%.

The EBITDA, on an annualised basis, has grown over 20%. The quarter-to -quarter numbers are misleading from an investor's perspective.

Secondly, there has been a huge traction in our product business. Close to Rs 8 crore has been additionally spent on sales and marketing and that is another reason for operating margins to be coming down this quarter.

Q: What kind of growth will Polaris achieve in FY13? Do you think you can maintain a revenue growth of about 11% - 14% as estimated by the industry or you think you can do better than that?

A: We forecast to perform better than the industry estimate with a target of 17% - 20% growth in revenue next year. Our products are more robust and there has been a renewal of contracts in out service-product line posting a switch towards specialised players.

We are working almost on six large requests for proposals (RFPs) with various clients planning to shift to specialised vendors.

Q: But the EPS forecast for FY13 is low with an 8.5%- 11% growth. Why is there a reduction? Why is it there no increase in profitability commensurate with revenues planned to grow by 17% - 20%?

A: We have not given an EPS guidance as of now.

Q: And  the PAT figure?

A: We have not given any guidance on PAT because we are not sure about the PAT figures. Our products could give a significant upside on the margins as soon as the licence ratio changes. So we have not given a PAT guidance.

Q: Can you breakup the verticals? How has the intellect business performed this quarter and what kind of growth do you expect it to post?

A: Our intellect business has made us one among the top nine companies in the world in financial technology which have grown and doubled revenue in the last four years.

During the past one year, we signed large four deals- with the Reserve Bank of India, with the Sonali Bank in a Bangladeshi joint venture, with the Asia-Pacific Bank and a 15-year contract with one of the European banks.

Our intellect business has a portfolio of 22 different product lines; two products have crossed Rs 100-crore mark, three products have notched over Rs 50 crore per annum and there are close to 15 products in the pipeline ready for the market.

So each time we pick up a product and take it to the market, it takes us five years to clock in revenue of Rs 100 crore.

Q: What is the expectation on your margins if the contribution of intellect goes up so much? Can we expect an improvement in margins?

A: Yes, definitely. The Indian market understands quarterly behaviour rather than annual behaviour. But a product company is to be tracked annually rather than on a quarterly basis.