Jittery markets, instability in Europe and a probable slowdown in US is causing top banks to postpone decisions on IT projects, endangering future orders and risking growth rates of Indian IT service providers.

An imminent drop in business volumes has already led to some outsourcing providers such as Infosys indicating a near-term blip, said analysts, who are taking a closer look at the kind of services offered by IT firms and re-rating them based on their susceptibility to a demand slowdown.

The banking, financial services and insurance (BFSI) sector is the largest consumer of Indian IT services, contributing almost 50% to the $60 billion IT exports market. Banks and insurance firms were among the earliest users of India’s technology services to cut costs and in the past few years IT has gone from being a tool for greater efficiency to a revenue generator for the sector.

For most of the large US banks, IT now accounts for a substantial part of capital expenditure. Post the 2008 recession, Indian IT companies which had the largest exposure to the BFSI sector witnessed the highest growth in revenue as new regulations as well as integration of mergers and acquisitions pushed significant work to India.

All the top five Indian IT companies get over 25% of their revenue from banking and financial services customers with TCS getting as much as 44%.

Among the top Indian IT firms, Infosys, which gets about 36% of revenues from BFSI clients, and Wipro, which gets about a quarter of its revenues from BFSI clients, are more vulnerable, some said.

Infosys admitted to the first signs of slowdown in business from this vertical over the past few weeks, said Pankaj Kapoor and Apoorva Oza, analysts with Standard Chartered Equity Research, in a report last week.

“There is no spend freeze unlike 2008-09, but Infosys is seeing volume downtrend among BFS clients,” Kapoor and Oza said in the report, pointing that since June 2011 quarter, financial services firms have announced over 75,000 employee cuts. USA’s biggest bank and a top Infosys client, Bank of America announced 30,000 layoffs this month.

Source:http://economictimes.indiatimes.com/tech/ites/us-europe-woes-may-take-toll-on-bfsi-focussed-indian-it-companies-like-infosys-wipro/articleshow/10147085.cms

The Indian IT industry, which is heavily dependent on outsourcing to clients in developed countries, has seen sharp recovery with global economic conditions improving.

The banking, financial services and insurance (BFSI) sector, which was worst hit during global meltdown, is leading the recovery with discretionary IT spends increasing gradually. Polaris Software Lab, a midsized financial technology company, would benefit from this revival in the BFSI sector, from where it derives its major revenues.

usiness:Polaris is one of the leading players in specialty application development for the BFSI segment with its comprehensive portfolio of products, modernisation services and consulting.

The Chennai-based company offers solutions to clients in core banking, corporate banking, wealth & asset management and insurance space.

The business model can be divided into three segments — services, products and BPO, which contribute approximately 20%, 77% and 3%, respectively to the overall revenues.

Under the services business, Polaris provides enterprise solutions, such as SAP, Oracle, Infor BaaN, Siebel; technology services on Microsoft .net and IBM mainframe, infrastructure management services, risk and treasury services; performance engineering services and software testing.

Polaris provides software products under ‘Intellect suite’, a modern and proven enterprise banking platform.
Intellect is based on service oriented architecture and is built with reusable business applications and components, which makes it highly modular and flexible.

Polaris has a strong customer base of more than 200 customers with 80 of them as strategic accounts. Its customers include 10 out of the top 15 global banks and 6 of the 10 top global insurance companies.

It gets around 55% of revenues from its top 10 clients apart from over 42% of business coming from Citigroup, with whom it has been dealing with since last 15 years.

The majority of revenues (around 93%) come from BFSI, while remaining from emerging verticals. Polaris has diversified geographical presence with US/North America contributing around 42% to the revenues while Europe, India and Asia Pacific contributing 29%, 8% and 22%, respectively to consolidated revenues.

Investment rationale: With improving global scenario, increased discretionary IT spends by global financial institutions would help the IT industry to return to double-digit growth. This would directly benefit Polaris as it generates most of its revenues from BFSI segment.

Polaris has a strong client base and a good relationship with them as contracts generally extend five to seven years. The recurring business from Citi Group provides revenue assurance.
Further, the company is trying to cross-sell new products and solutions in existing accounts, apart from tapping newer accounts. Polaris closed 30 new deals in Q3, FY10 which has been the highest in last 2 years. The deal sizes are also increasing successively.

In addition, a geographically diversified customer base helps it de-risk its business from slowdown in any particular region. The company is aggressively targeting growth markets in Africa, Middle East and Southeast Asia for core banking replacement and hopes to get those deals successfully.

Polaris is seeing strong growth in its Intellect product suite, which registered highest sales during the last quarter with 14 wins. The management aims to increase its revenue share from this better-margin segment from the current 20-30% in the next 3 years by reaching out to more than 50 countries.

The products business offers sustainable revenues and better
margins over the long term in the form of AMC revenues apart
from licensing and implementation revenues.

The company has made few acquisitions in the recent past. Polaris’ strategic acquisition of SEEC Inc, a leading SOA product line for the insurance segment, has given the company entry into global insurance vertical.

Also with the Laser Soft acquisition last quarter, Polaris has acquired 40 new accounts, majority of them domestic banks. These acquisitions would help the company to grow its reach and revenues.

Polaris has a strong balance-sheet with almost no debt and healthy cash position of over Rs 500 crore. This would enable it to fund its inorganic growth plans easily, thereby helping to increase revenues further.

Concerns: Considering the company’s high dependence on the BFSI segment and select top 10 accounts, any cuts in IT spends or client loss due to economic slowdown, would impact its revenues. Also, it faces currency exchange risks on account of sharp rupee appreciation for long durations.

Valuations: Polaris’s net profit is expected to grow at CAGR of 23% over the period FY09-FY11E. At current market price of Rs 174.50, Polaris trades at a P/E of 11.12x & 8.70x its FY10E & FY11E earnings, respectively.

In view of its expertise in BFSI space, diversified geographical presence, strong customer base, favourable portfolio mix and strong balance-sheet, Polaris can be looked at current levels from a medium term perspective.

Source:http://www.dnaindia.com/money/report_bfsi-revival-good-for-polaris_1338908

TEN years ago, the world’s biggest IT company then, IBM, did the unthinkable: it struck a deal with a company in India (Cadbury ) to take care of its IT needs. It was one of the country’s first domestic IT outsourcing deals. The rest, as they say, is history. More than a dozen such deals later — including the game-changing contract with Bharti Airtel — IBM is the king of the hill in domestic IT outsourcing. Recently,ET NOW’s R Sridharan caught up with Shanker Annaswamy, regional general manager of IBM India & South Asia, to talk about Big Blue’s journey so far and the road ahead. Excerpts from the exclusive interview:

Shanker, it’s been 10 years since IBM bagged its first outsourcing contract in India . It’s been a long journey. How do you look back on it?

1999 was indeed when we signed the first contract, but 2004 marked the biggest turning point for us — the outsourcing deal with Bharti. It was $750-million contract, and 2006 followed with Idea cellular and Vodafone. I think, we’ve done wonderfully well.

If you look at the last year and a half, every Indian IT vendor has been hit by the global downturn, especially in the financial services market. How has IBM in India coped with the downturn?

Given the global market conditions and the fact that large deals were not happening, we were looking at our successes here, and asking ourselves how we can replicate the successes beyond the telecom industry. I am very happy to share with you that we looked at customers beyond telecom, to customers like Amul and media companies like Sun TV.

You have a lot of Indian vendors now competing for domestic outsourcing deals. Wipro, for example, recently bagged the Aircel deal, which IBM was pitching for as well. How do you see the competition from India vendors?

It took some time for other competitors to look at, understand the model and then go and win one or two accounts. But if you look at the real strategy behind it, it’s not simple IT consolidation. It is your capability to bring in tools and asset-based services than labourbased services, and bring research to play.

You also have HP and Dell, which were traditionally hardware firms, getting into services. Are they a bigger threat?

Industry domain knowledge and capabilities are not built overnight. The differentiator for us is very clearly our integration: consulting and system and technology business like the mainframes and big computers, then the software business, which is an integrating business, then we have services end-to-end . Our ability to take a certain portion of the customer business and turn it into a profitable proposition for them is very big and it will take competition time to catch up.

But what are the other sectors apart from telecom and manufacturing that will open up to outsourcing within India?

BFSI area would be a potential opportunity for us to look at. Public sector will take time. Healthcare could be a huge opportunity, but it may take some time as well.

IBM doesn’t disclose its India headcount, but as I understand it’s 90,000 or even one lakh. How does this number split up?

Actually, we are 73,000-plus employees and we are growing. The large proportion of the employee population is in global delivery missions , including the global delivery and then the IBM Daksh BPO outsourcing processes. The rest of the business will be then the domestic business, research labs, software labs and other groups.

At what point would IBM want to de-risk its India strategy or do you think that’s not a concern?

There is no timeline by which we go. This base of 73,000 was built not on a certain number to be achieved or cut off, it depends on our customers, our clients, their projects, and their core competence and domain expertise that comes in. So, India continues to be a key component of this and I would expect it to grow.

Finally, before the global economy slipped into recession, there was a lot of talk about how India had become an expensive place for IT outsourcing. Is India still competitive?

I think so. We will continue to be so. Because India has a unique advantage of being a pioneer here and also it has a large skill base, and the track record. But we have to be careful not to sit on these successes but continue to train and skill our future workforce.

Source : http://economictimes.indiatimes.com/infotech/ites/BFSI-is-the-next-big-thing-in-domestic-outsourcing/articleshow/5339018.cms