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Rising costs may see Polaris H2 bottomline drop

Our Bureau

CHENNAI, Oct. 28

POLARIS Software Lab on a stand-alone basis (without the subsidiaries and OrbiTech) may see its bottom line numbers drop for the second half of the year.

The reasons for this include merger-related costs (with OrbiTech Solutions) and the increased selling and market expenses, the company's Chairman and Managing Director, Mr Arun Jain, said in a conference call with analysts here.

According to Mr Jain, in the last two quarters, the company had spent about Rs 1 crore on merger-related expenses, and would spend an equal amount in the next quarter on this count. During the quarter ended September 30, 2002, the company witnessed an exchange loss of Rs 1.08 crore. The sales and marketing costs also increased by Rs 2.53 crore over the previous quarter, he added.

According to Mr Jain, Polaris is looking at 5-8 per cent growth quarter-on-quarter, and also expects OrbiTech to perform in the same level. On Citigroup cutting down its billing rates, 16 to 24 per cent across products, Mr Jain said that it would impact OrbiTech.

However, OrbiTech would sustain the same level of growth compared to the previous quarter. For the half-yearly period ended September 30, Orbitech's profit after tax was $13 million on revenues of $40 million. The projected second half-year revenues for fiscal 2003, post the global outsourcing rationalisation process, will reduce to about $35 million with a profit after tax of about $7.5 million, he added.

While the Citigroup is likely to provide higher business commitment to the merged entity, Polaris would seek a freeze in the billing rates for the next two years, he added. Mr Jain said that at present the combined revenues for Polaris and OrbiTech from Citigroup was about $75 million. "We want this to double in three years," he added. For Polaris, business from Citigroup was about 58 per cent, while the target is to get about 60 per cent of revenues from non-Citigroup clients in a couple of years, he added.

Meanwhile, Polaris was competing in the global markets with companies such as EDS and Accenture in major projects including outsourcing.

``As a strategy, post merger, we are pitching for projects in the size of $20-$50 million. We are in about 30 projects which are in the early RFP (request for proposal) stage, and in about 80 places of building relationships with potential customers," he said.

According to Mr Jain, the change in swap ratio was because OrbiTech, which commanded a higher billing rate as an arm of Citigroup, could no longer do so now being a part of Polaris. Polaris had to be compensated accordingly and hence the renegotiated deal, Mr Jain told reporters on Saturday.

The changed swap ratio failed to cheer the stock market in the Polaris scrip. On the Bombay Stock Exchange, the company's share price closed today at Rs 167.75, down from Friday's closing of Rs 187.

"The September quarter results and the new swap ratio has not cheered the market," said a city-based analyst.

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