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Polaris: E= MC^3

Nov 30, 2000

Nothing wrong with the formula, only it is not by Einstein but by Arun Jain. No he is not a physicist, but the Chairman and Managing director of Polaris. According to the company E= MC^3 stands for Energy = Motivation x Commitment x Confidence x Creativity

The reasons for propagating this formula are not hard to find for Polaris. It has grown with a lot of energy over the five years at a compounded annual growth rate of 91%. But what is remarkable is that is topline jumped from Rs 605 m in FY99 to 1603 m in FY00, a growth of 165%.

The major revenue source for Polaris is the banking and financial services vertical. Polaris prefers to call this BFSI – (Banking, Financial Services and Insurance). This particular sector has been the major revenue driver for Polaris. Citibank has been a major client for Polaris with its services being used by 12 groups of Citibank. This is going to be a major revenue driver in the times to come. Due to the Insurance sector opening up there is going to be a large demand for Insurance related software. Also with the consolidation of the financial services industry all the three major offerings (banking, financial services and insurance) will be offered under one roof which means a lot of systems integration opportunities will come up. All this opens up a very big market for the company.

Polaris is also entering the arena the of enterprise knowledge management. This field is still growing and looks to be very promising. As organisations get more knowledge oriented, an important designation in the organisation that is going to be created is CKO (chief knowledge officer). As this field is very nascent, it will translate into higher billing rates for Polaris.

Software components is another area in which Polaris has got into. The idea is to resell its efforts by creating standard components, which can be sold to other software product development companies. This would result into lower development costs for Polaris. In line with this strategy, Polaris developed a component-based, complete ERP (enterprise resource planning) product for a European software firm that offers software solutions for the construction industry. This can be resold to other ERP developers.

Networking & Telecom is another area of Polaris’s interest. It has created a product CygNet, to monitor and control diverse network elements with TeNet Group of IIT, Chennai and their partners. This is an area that is quite niche but has now attracted a lot of attention. This sector is going to be fiercely competitive in the times to come.

Polaris is also getting into products. Some of its successful solutions have been created as products. It has developed a branded outsourcing service - ENTITY - your ExteNded Technology FacilITY. Basically projects done for companies on a 20% onsite and 80% offshore basis.

As we can see Polaris has its hand in many pies, but the real growth for the company will be based on its experience in the BFSI sector in which it has a strong presence. The company is very focused in its growth strategy going by the kind of performance it has shown over the past few years. The outlook for Polaris is positive because it is aware of its strengths and is leveraging on them in a focused manner. Quite often it happens that with such vast opportunities around companies tend to lose focus. Polaris has not, as yet.

Polaris is trading at a P/e multiple of 17x its first half 2001 annualised earnings, which is significantly lower than its peers in the industry.

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