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Polaris: Recasting itself - Views on News from Equitymaster
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  • Jun 6, 2001

    Polaris: Recasting itself

    Polaris clocked a topline growth of 81% for FY01 and is looking to grow to a size of Rs 10 bn by FY04. For FY01 the company had grossed revenues of Rs 2.6 bn. Therefore, the CAGR (compounded annual growth rate) required for the company to meet its objective is 56%. Looks quite achievable considering the fact that Polaris, traditionally, has grown at rates far higher than this. The lowest growth rate the company has clocked was for FY01. Also, the company derives almost 70% percent of its revenues from what it calls the BFSI (banking, financial services and insurance) segment. According to the company the market size of the BFSI segment is expected to grow at a CAGR of 23% to be of the size of US$ 209 bn by FY08.

    To meet the challenges of rapid growth the company is undergoing what is describes to be a “sea change” in organizational structure. Earlier the company was organised into eight SBUs (strategic business units) that included retail banking, investment banking, networking and telecom, insurance and ERP (enterprise resource planning) tools. The company has done away with the SBUs. The entity has now been re-structured into the following units — strategic relationship and delivery units (SRDU), strategic practice units (SPU) and global sales organisations (GSO).

    According the company in the last four years, the SBUs of Polaris have grown like independent companies and the knowledge sharing between them was found to be difficult. Therefore, to create synergy amongst the business units the company has proposed a change in organizational structure. The company believes that the new organizational structure will facilitate speedy delivery, domain & technology competence and a strong sales force.

    SRDUs will be a single point of control responsible for the project delivery to the customer i.e. the main job of the SRUs will be implementation. For successful implementation the SRDUs need to have a good understanding of the customers business. The SRDUs will be responsible for building relationships and customer mining. The company is hopeful that the SRDUs understanding of the customer’s business will not only guarantee a better delivery mechanism but will also help Polaris pitch for future contracts by forecasting the customer’s needs. In terms of repeat business, Polaris is way behind others in the software industry like Infosys that have repeat business greater than 80%. The current contribution of repeat business is 30% of the revenues.

      Revenues (Rs m) Growth OPM Revenues per
    employee (Rs m)
    Infosys 19,006 115.4% 40.2% 1.9 39.9
    Polaris 2,656 81.7% 24.6% 1.1 19.1
    Mphasis BFL 1,729 43.2% 19.3% 1.7 15.4

    Polaris has made a very smart move by creating SRDUs. Increasingly software is becoming more and more complex but at the same time it has become more and more mission critical. Therefore, enterprises in the future will look for software companies that understand their business and can deliver solutions that go beyond mere process automation.

    The SPUs will focus on competencies in horizontal (technologies) and vertical (domains) practice areas and disseminate the same to SRDUs. Today the company has 22 SPUs, of which 12 are focusing on vertical areas. The GSO will help the SRDUs and SPUs to access the markets. The company has created three GSOs for BFSI, EIS & Emerging Vertical and Banking products and retail.

    Polaris has adapted a sensible usp (unique selling point). The usp is “faster time to market”. A lot of clients would love to hear this as not only would it be quicker solutions but also mean lesser costs, though not necessarily. The company plans to use pre-fabricated solutions from the components warehouse (CWH). This will be the key to offering accelerated time-to-market to the clients.

    But there are a few concerns. The company major revenues driver is the BFSI vertical in which almost all the software companies have a presence. A few companies that are strongly focused on the segment include Infosys and Mphasis-BFL. Therefore, competition is going to be fierce. Again Polaris is not such a strong brand name as other in the software sector. With market conditions toughening and the uncertainty regarding the US economy stretching on it will be quite a task to get new business. Therefore, it will be a daunting challenge to grow at a pace greater than the industry average (expected to be between 40 to 45% according to Nasscom). Also, the company has a high client concentration about 29% of its revenues come from Citigroup. However, the business is spread across 11 different entities of Citigroup.

    Polaris has made the right moves by restructuring itself and adopting a new strategy to differentiate itself from others. But the point of inflection will be its ability to compete against the best in the industry.



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