Polaris Financial Technology Limited, a Chennai-based financial technology service and products company, has announced that the company's board of directors had decided to authorise its management team to explore options like appropriate restructuring to provide an impetus to the company for the next stage of its growth. The company has reported a drop in its third quarter net profit. The management has also said that it saw a challenging period for its cloud and products business. Arun Jain, founder, chairman and chief executive officer of Polaris, said they were looking at restructuring the business. The company is also in the process of selling its entire stake in US-based IdentTrust, a digital identity authentication services provider, owing to the security reasons raised by the US government. In an interview, Jain explains the company’s new restructuring plans. Edited excerpts:
What is the need for restructuring?
We were discussing with the board on why the market was not realising the company’s potential. This is despite the fact that we have a good customer base like Reserve Bank of India, capable complex products and two businesses with intellectual property (IP).
We have looked at why the investor is not paying the right value to Polaris in spite of so much IP and assets sitting there. Based on the board’s recommendations, we have appointed global management consulting firm BCG to look into the value that Polaris has. Their analysis was that the investor/analyst doesn’t understand our model because there are different kinds of investors who invest in a services company and in a product company.
They don't understand a joint model between products and services. BCG has presented its findings to the board and the board has empowered the management team to explore the possibilities of what we can do.
What would be the next course of action?
We will be setting up a task force and it will come out with its recommendations. We will take it up during the next board meeting. It is too early to comment on the possible options. We will be forming the task force in the next one or two weeks and then will work on it.
But you have been saying that the joint model of products and services is the strength of Polaris!
That is the strength of Polaris in the customer’s point of view. But investors, some times, get confused between services and products together. That’s why we have invited an external party to do the validation. As of now, there is no specific recommendation on what the company should do to unlock the value. These are just first-level findings. We have to go back to the board next quarter with the options.
Will BCG be involved in finding out possible options?
They may or may not be. Probably, somebody else may be involved. We have not taken a decision on anything. We have around 90 days to submit the options. There is no decision as of now. This is the first level where the management can look at the opportunities.
What did BCG recommend that will unlock the potential?
BCG has said that this was a high-value company and that there was too much value sitting undiscovered, which needed to be leveraged. If you take the services business alone or products business alone, there is more potential in it. They have said that if the two businesses were operating separately, there should have a multiplied impact on the value. It is good to hear it from them because if there is no value in our company they would have told us that there was no scope for improvement.
Will there be any new (major) investor into the board or into the company with this?
It is too early to comment. They (BCG) have thrown the ball in our court and we need to act on it. Independent validation is what we have done for the last seven years.
The results for the third quarter show a drop of 33 per cent in net profit. What is your take on it?
Products business is anyway a variable business and we keep on explaining that product licences in some quarter will be higher and could be lower in another quarter. Last quarter, we had a $5.5-million licence revenue while we have $2.1 million this quarter. There is a shortfall of $3 million in the licences revenue, which translates to Rs 17-18 crore. IdenTrust is a company on which we don’t have a control on. We would like to take it off as the US government had asked us to move out of the company. That company has shown a Rs 12-crore loss in the third quarter. These are the two reasons for the decline in net profit. The control of IdenTrust is with the local management. We can't participate in the management of IdenTrust.