Several Indian IT services companies, including HCL Technologies, MahindraSatyam and Infosys as well as engineering conglomerate L&T, have bid for the services business of Chennai-based software firm Polaris Financial Technologies. However, the bidders are offering a price that is lower than $400 million (Rs 2,190 crore) that Polaris was expecting for it, said two people close to the development.

Early this month, Polaris announced a split of its business into two divisions, services and products, with a separate CEO for the services business and individual CEOs for different product lines, facilitating value unlocking in a business that saw flat growth in the last financial year. The firm, which is ranked as the eleventh-largest Indian software exporter, is focused exclusively on the financial services industry. Its services business earned $330 million (Rs 1,813 crore) in 2012-13.

Wipro and a multinational firm, among those who were approached initially, have not yet bid, said one of the two people mentioned earlier. Axis Bank is advising Polaris on the transaction.

A Polaris spokeswoman said it was “baseless speculation being fanned with malicious intent to misrepresent its restructuring plans”.

“We stay committed to the road map articulated by our chairman and CEO Arun Jain during the announcement of our annual results for FY13,” the spokeswoman wrote in response to an email from ET. Infosys, HCL Technologies, Mahindra Satyam and L&T declined to comment.

In 2012-13, Polaris reported a net profit of 201 crore on revenues of 2,308 crore. At its current stock price, Polaris has a market value of 967 crore. For potential buyers, Polaris’ services business represents the largest asset available in India today to expand their footprint in the financial services industry, which despite a slump continues to be the biggest spender on technology. The deal is being driven by Citi, which is Polaris’ largest client, contributing around 35% to its services revenue. It also holds 20% equity in Polaris through Orbitech.

The potential buyer could get committed business from Citi for a period of 3-7 years, which is typical in such deals. Earlier, when TCS acquired Citigroup’s captive BPO in India in 2008 for $505 million (Rs 2,720 crore), the Mumbai-based company also got $2.5 billion (Rs 13,700 crore) in committed revenues over nine-and-a-half years.

For L&T, this represents an opportunity to scale up its infotech business under its wholly-owned subsidiary L&T Infotech. L&T chairman AM Naik has spoken of taking the infotech business to $2-3 billion in revenues during media interviews as part of a larger strategy to build scale in its numerous businesses and sell the ones that can’t scale up. Earlier, it had bid for scam-hit Satyam Computer four years ago, but lost out to the Mahindra group.

Similarly, MahindraSatyam, as the erstwhile Satyam is now known, has been looking to bounce back by increasing revenue from the financial services clients. The financial services vertical was the worst hit with a large number of financial services clients such as State Farm terminating their contracts with Satyam when the scam perpetuated by its founder first came to light in early 2009.

Citi’s business with Polaris represents one of the last large contracts in the country. Citi’sBPO business is now with TCS, application development and maintenance and infrastructure business with Wipro, and some amount of services with the erstwhile I-flex Solutions (now known as Oracle Financial Services Software), said a banker, requesting anonymity.

HCL also lags peers in the proportion of revenue it gets from financial services clients and has been keen to raise it. As compared to TCS and Infosys, which get between 35% and 45% of revenue from the financial services vertical, HCL’s is around 25%. Historically, HCL evolved as a firm with core strengths in engineering and R&D services and infrastructure management.

Source:http://articles.economictimes.indiatimes.com/2013-05-16/news/39310624_1_polaris-financial-lt-infotech-services-business