Arun Jain, CMD, Polaris: No doubt OrbitTech is just what Polaris needs, but Jain's task No. 1 is to extract value from it

Walk into Govind Singhal's 10x15 sq ft room at Polaris Software Lab's Navalur facility, and the 42-year-old will tell you how a vaastu consultant redesigned his room by eliminating the window behind his seat, changing the location of his table-top aquarium, and by actually seating him in the south-west corner, facing east-apparently, a strategic position befitting his post. Vaastu, as you must have figure out by now, is expected to provide the right environment for the Chennai-based company's business.

Singhal, who is also a board member and next-in-command to Chairman, CEO, and MD Arun Jain, is no great believer in vaastu (neither is Jain, who's been resisting similar facelift to his office), but just the same the Polaris veteran of seven years is willing to play ball. After all, the past 12 months or so have been, what you could call, Polaris' private annus horribilis. It started off with a big bang acquisition of Citigroup's OrbiTech Solutions in May last year, but by October it appeared that Polaris may have overpaid for the deal. The swap ratio is lowered (See Growing Up Pains). Then, in December, the company gets into an unseemly row with Indonesia's Bank Artha Graha that leads to Jain and his colleague, Senior Vice President Rakesh Malhotra, being arrested in Jakarta.

Jain returns to India after 11 days in captivity, only to find that the merger has meant a loss of precious management attention on business. While the combined revenues are up (naturally), the bottomline is less than what Polaris reported individually the previous year. The culprit: a staggering Rs 14 crore write off. Just when it seemed that the worst may have blown over for Polaris, it gets dragged into yet another fracas with two heavy-weight executives-Harpal Duggal and Suren Khirwadkar-it had hired in April 2002 to kick start its BPO venture, Optimus. Jain sacks them for non-performance, while the two retaliate by slapping charges of cheating against him and other senior executives. Meanwhile, the stock has been slithering down and is now quoting at about Rs 100-that's less than half of what it was in July last year.

On his part, the 43-year-old, who split from a code-writing company he set up with three other friends to found Polaris in 1993, is unfazed by the Street's apparent slight. Over the next four years, he wants to turn his Rs 428 crore company into one of the top five BFSI (banking, financial services and insurance) players globally. That would entail hauling the topline over the Rs 1,000-crore mark. ''I want to prove that a single-minded focus on BFSI can allow a company to reach this kind of a size,'' says Jain.

"We have been getting enquiries from American and European markets for OrbiOne since November" Govind Singhal/Executive Director/Polaris Software Lab

Making It Work

To reach his ambitious goal, Jain has one big thing to do: make the merger work. For, the rationale behind the marriage, which makes Citigroup the dominant partner with a 44 per cent stake (with voting rights capped at 29.9 per cent), still holds. And that is to transform Polaris from a company that develops and maintains unbranded applications to one that has branded software, with powerful solutions and services capabilities. Or 3cs-competency, capabilities, and capacities-as Jain brands it.

There are several reasons why such a merger may have become inevitable for Polaris. In fact, as Jain himself explained to analysts last year, the rapid changes in the IT industry were beginning to threaten the existence of smaller vendors. For example, the trend towards complete outsourcing of it services meant that a vendor not just needed strong marketing skills to snag such orders, but also the technical capability to develop and manage complex applications and networks. Of course, the growing pressure on rates meant that a step towards products, where margins are higher, would protect margins. As Jain saw it then, Polaris fitted just four pieces of this new puzzle: It was cost competitive, had good quality, reliability, and speed. But the fifth piece needed to crack big, valuable accounts, namely variety of offerings, was missing. OrbiTech, with its strong Citigroup experience, provided the missing piece.

Few on Dalal Street question Jain's LOGC. But the question that they are asking is, Does Polaris have what it takes to make the next leap? A large part of the apprehension stems from Polaris' own patchy trackrecord. Time and again when it seemed set to move into a higher gear, it has managed to lose traction. For example, in May 2000 Polaris announced, with much fanfare, a $21 million (Rs 96.6 crore) deal to acquire the US-based Data Inc. But in October that year Polaris called off the deal, saying that it would not be in the interest of shareholders. Says a Mumbai-based analyst: ''Polaris seems to have some kind of a nagging management problem.''

Then, again, it set up a BPO venture, Optimus, roping in ex-StanChart head honcho Harpal Duggal, and Suren Khirwadkar. But after a year of trying to launch the Chennai-based operations remotely from Mumbai, the two were cashiered by Polaris amidst a public slanging match. (Duggal and Khirwadkar have filed charges against Jain and other senior executives for cheating-allegedly, Polaris shares promised to the two were not given.) That has, at least temporarily, set back Jain's plans of becoming a full service house for the global BFSI sector. Singhal has since taken over as the CEO of Optimus, and has promised results soon.

Product Play

No doubt, Optimus may take off. But there are several challenges that Jain faces in making the merger pay. For one, OrbiTech's experience at selling products is limited largely to Citigroup. It does not have the kind of relationships it may need to bag big customers. Besides, as Polaris pushes OrbiOne, it will go headlong into battle with i-flex, another Citigroup sibling spun off the same parent company, COSL. Unlike i-flex's Flexcube, OrbiOne does not have the positioning of a universal banking product. While the relative merits of the two products are debatable, i-flex has managed perception superbly. Flattering stories in Time and BusinessWeek, among other business publications, have reinforced its image as an emerging software product powerhouse from India. (Polaris itself had a BFSI product called Bankware, which has been removed from the marketplace and some of its components have been integrated with OrbiOne). Jain, however, says that OrbiOne is the longest existing banking solution framework, well tested across various geographies, although only within Citigroup. ''Its robust features and versatility have hardly any competitors in the country,'' declares Jain.

The other hurdle that the merger faces-a Citigroup parentage-is both a blessing and a curse. One of the reasons why the merger made sense for OrbiTech was the fact that it wanted to do business outside Citigroup, but it did not have the necessary marketing set up or an independent vendor image of, say, Infosys or Tata Consultancy. The irony, however, is that despite the merger, 65 per cent of the revenues still comes from within Citigroup, which spends about $7 billion (Rs 32,200 crore) on technology and almost 40 per cent on software alone. Now, while it's unlikely that Citi will favour Polaris just because it's an investee company (although theoretically if all things are equal in a bid, Polaris and i-flex may stand to gain), other banks may hesitate buying products or services from a company partly owned by their rival.

Jain thinks that's not the case. He points to a clutch of deals that Polaris has been able to strike since the merger as proof of OrbiOne's market potential. One of the big deals that Jain is particularly proud of was struck with ABN Amro in Europe. To start with, the bank bought a couple of OrbiOne products and went live in Belgium within weeks. By the end of this year, ABN Amro plans to get them going in eight or 10 other locations in Europe. Says Jain: ''Orbione has a better chance of inspiring customer confidence than an unknown one.''

Currently, only an estimated 15 per cent of a bank's it system comprises packaged software. The rest is home-grown solutions. But because upgrading old systems is expensive and, often, disaster-prone. Therefore, banks are increasingly switching over to packages. For companies like Polaris and i-flex, this represents a big opportunity.

Small wonder then, Polaris has set aside $10 million (Rs 46 crore) for branding and marketing of OrbiOne, besides which it is roping in domain experts in American and European markets to interface directly with customers. For smaller markets, it plans to tie up with partners. Says Singhal: ''Even without all this, we have been getting enquiries from American and European markets for OrbiOne since November.'' But as Ram Bhagawat, former CEO of OrbiTech and now Executive Director and President at Polaris, who is helping with the restructuring of the merged entity, points out, Polaris is really ''trying to change tyres of a running car''.

As for the merger itself, integration has happened with little cultural clash-usually a big reason why most acquisitions don't pan out. Thank the 15-year association between Polaris and OrbiTech for that. While there are some issues relating to compensation (OrbiTech execs were better paid), a role-based marked-to-market structure was developed. Says a Mumbai-based analyst: ''You need to give the merger some more time.''

Indeed, for there's lots that Jain needs to fix. He has to strengthen his company's global marketing network, he has to build or acquire expertise in the insurance segment, where currently Polaris has little presence, and position OrbiOne as a competitive universal banking product. But most of all Jain needs less of controversies and more of profits to start on his arduous climb up to the top league of global BFSI players. Right now, though, Polaris is flying under the radar of most analysts who matter.