Dear Shareholders,

This moment is very special for me. Every year, I go through intense introspection and hours of reliving every moment of the year that has gone by before I reach out to each and every one of you.

At our visioning exercise in 1996, aptly called Lakshya, we came up with two goals for Polaris: to be among the Top 10 IT organizations from India; and to be an expert niche player serving global customers on the basis of quality and relationships.

A decade later, we serve the largest financial institutions in the world in Asia Pacific, Europe, and the US. Last year, NASSCOM ranked Polaris amongst the Top 10 software exporters from India. We have reached this far because of our belief, ‘If you can dream it, you can do it!’

Polaris is now going through another transformation. This transformation is not so much about enhancing our ranking among Indian players. Instead, our goal is to be among the Top 10 most respected global organizations in our area of expertise.

Transformations are exciting, transformations are challenging. They can often be stressful. Yet how we handle a transformation shapes our personality and destiny.

I am sure we can recall our own transformation from teenagers to mature adults.

Polaris picked up the warning signals early, on the challenges confronting mid-tier IT companies. We foresaw that operating margins in the services business would come under competitive pressure, and customers would increasingly look to specialists rather than generalists for value.

We took several steps to address these challenges and transform ourselves:

When we acquired a world class banking product suite, ‘Intellect’, we could have gone to market right away and registered quick wins and profits. Instead, we opted to invest time and money to augment the product and make it even more powerful and comprehensive to fully meet the needs of Tier 1 financial institutions.

We developed a premium first-of-its-kind offering called ‘Smart Build’ that combines our domain expertise, service excellence, and products. Through Smart Build, we offer unparalleled agility and value to customers.

We moved away from the economics of cost arbitrage to the ‘economics of expertise’. We began creating an environment in Polaris to facilitate continuous learning at all levels and to cultivate an expertise mind-set.

We began shifting focus to the customer’s customer. Our singular focus on the banking and financial services space and our association with customers who are leaders in that space, has given us deep domain expertise, a clear understanding of the market, and an insight to the customer’s spoken and unspoken needs.

Building a strong foundation is the first crucial step in building a global corporation. We deployed a team of over 700 engineers and bankers to develop our ‘Intellect’ product suite. This year we launched Intellect in Singapore for the Asia-Pacific region. The response from the banking world has been encouraging, and products like Intellect Treasury, Intellect Cash, Intellect Collections, Intellect Lending, Intellect Origination, and Intellect Cards have generated significant interest.

Our product initiatives have been funded from our own revenues, and what encourages us is that despite these significant investments, we still grew our revenues from Rs 646 crores to Rs 787 crores, and made a healthy profit of Rs 58 crores.

The growth has been accompanied by significant learning. One of the biggest lessons has been setting expectations when the organization is going through a transformation. For several years, Polaris has enjoyed one of the highest cumulative growth rates in the Indian IT industry, and we continued to expect similar growth during a time of intense internal transformation. We learned that preparing an organization for a solid future during a transformation involves as much internal focus as external or market focus. The gestation cycle for go-to-market during transformations is normally 24-36 months. But in our case, going to only Tier 1 banks meant a gestation cycle time of anywhere between 24 and 60 months. In our eagerness to show results, we put undue stretch through multiple initiatives instead of asking for time and your patience.

We believe there are strong indications now that our strategies and service offerings are gaining acceptance in the market:

Polaris has strong relationships with six out of the Top 10 investment banks in the world.

Our expertise in treasury and wealth management is attracting significant interest in advanced markets like the UK.

We are servicing leasing specialists in Germany, and mortgage and insurance specialists in the US.

Polaris is a preferred business partner for leading public sector banks in India.

Customers believe we have moved from the utility space (‘They will do as we say’) to the enhancement space (‘They are also capable of advising us on what best needs to be done’).

We undertook a landmark consulting engagement with Citigroup that integrated our services, Smart Build, and BPO offering in a cross-functional manner.

During the next four to eight quarters, I am confident that we will reap the benefits of this focused go-to-market strategy. We are already making tremendous improvements in our conversion ratio—by working on a focused sales pipeline, we are able to convert more opportunities into relationships. This is a period of investment for the Polaris of the future. This is the period for delivering our ‘Economics of Expertise’. For my 6000 colleagues and me, this is the Polaris Way.

I am tremendously energized by your understanding, support and patience. Your faith in us will be the catalyst to our transformation.

Warm regards,

Arun Jain
CEO, Chairman and Managing Director
Chennai, May 29, 2005