Polaris Q3 net falls 8.8 %

Suresh Seshadri

CHENNAI: Polaris Software Lab Ltd., a mid-sized Indian software services

company, reported on Wednesday a greater-than-expected fall in profit for

October-December from a year ago as the depressed US technology market crimped

revenue.

The Chennai-based company said after market hours third-quarter net profit

fell 8.8 per cent to Rs 152.99 million from a year ago, while total revenue fell

2.5 per cent to Rs 722.11 million.

"The reason for the fall is attributed to the considerable shift in

business from the onsite project model to the offshore projects model," the

company said in a statement, referring to the drop in revenue. Indian software

services companies, including Polaris, typically charge three to four times more

for work done at clients' overseas offices, so-called onsite projects. Offshore

refers to work done in India for overseas clients.

Polaris said an increasing number of existing and new customers were opting

to get work done in India, thereby stunting dollar earnings and total revenue.

Its profit fell below the average of three estimates by analysts polled by

Reuters Rs 157.3 million.

Cautious outlook



Polaris' chairman Arun Jain told Reuters he expected the decline in onsite
revenue to continue in the current quarter.

"I expect that revenue and profit growth will be flattish or marginally

affected by about three or four per cent either way in Q4 as most customer

growth is getting increasingly concentrated into offshore projects."

The company's financial year ends in March.

The slowdown in US technology spending last year has curtailed the flow of

new business, including lucrative onsite projects, hurting most Indian software

exporters, particularly mid-sized and small companies. Polaris said the

proportion of revenue from onsite work had dropped more than 31 per cent to 33.9

per cent in the past quarter from a year ago. Average billing rates for onsite

work too had fallen 10 per cent on year -- to $60 an hour.

By comparison, it charged $19.9 an hour for work done in India in the third

quarter, up 3.1 per cent from a year ago.

Client wins



Jain said Polaris had tied up two key software services relationships in the
past quarter -- with US insurer American Insurance Group (AIG) and Germany's

Commerzbank -- which would yield sizeable revenue over the next three years.

"These are two premium relationships where (revenue) visibility is not

big in the current quarter but are expected to become very large engagements

over the next 18 to 30 months."

Polaris, which began by writing code for Citigroup's Citibank operations in

India and still earns 30 per cent of its revenue from the group, counts among

its other key clients Japan's NEC Corp and Hitachi.

The company said it added a total of nine new clients in the past quarter.

(C) Reuters Limited.