Polaris Financial Technology, Chennai-based mid-tier firm, has announced the demerger of its Rs 550 crore loss-making products business into an independent entity.
After the demerger, which is subject to regulatory and shareholder approval, the product company will be known as Intellect Design Arena Ltd and comprise four businesses: global universal banking; risk and treasury management; global transaction banking and insurance.
Polaris Financial Technology Ltd (Polaris) will continue to run the Rs 2,000 crore services business with a strong vertical and solution focus.
Investors who do not wish to hold shares in the product company can opt to get non-convertible debentures with a face value of Rs 42 at 7.75% coupon, redeemable at par after 90 days. The demerger is set to hit Polaris balance sheet by around Rs 200 crore.
Employees have already been divided among the two units last June, with 3,000 employees joining the products business and the rest 9,500 the services business.
Jitin Goyal will continue as chief executive officer (CEO) of the services business, and will be based in London. In the Products entity, Manish Maakan will continue as CEO of the intellect global transaction banking business and operate out of London; Jaideep Billa and Venkatesh Srinivasan will continue to be joint CEOs of intellect global universal banking and intellect risk & treasury business, operating out of Singapore and Mumbai respectively; and Pranav Pasricha will continue to be CEO of the intellect insurance product business, based in New York.
While Polaris's global universal Banking and global transaction banking business have achieved a Rs 100 crore turnover each in the last two years, the other two arms contribute around Rs 40-60 crore to Polaris's products business.
Arun Jain, co-founder and executive chairman of the company told dna that the decision to demerge came about as the products business began to have a clear demarcation from the services business, in terms of business value and different work profiles. The product business had an operating loss of Rs 9.1 crore on revenue of Rs 30 crore during the nine months ended December, and contributed about a fifth to the total revenue. The services business had an operating profit margin of 13.6% for the nine-month period.
Infosys, the number two IT firm, recently decided to spin off its platforms, products and solutions business into a separate entity with $100 million funding to take the business to the next phase of growth.
Polaris, has been in the news frequently over speculation that Jain was trying to sell the company. However, Jain dismissed fresh apprehensions that hiving off the products business into a separate entity was a cue for further restructuring, including possible sale.
Shares of the company closed up 12% at Rs 153.25 on the National Stock Exchange on news of the demerger, valuing the services business at about Rs 111 per share.