Accumulate Oracle Financial; tgt of Rs 2288: Sushil Finance

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Accumulate Oracle Financial; tgt of Rs 2288: Sushil Finance

Sushil Finance is bullish on Oracle Financial Services Software (OFSS) and has recommended accumulate rating on the stock with a target of Rs 2288 in its January 30, 2012 research report.

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Sushil Finance is bullish on Oracle Financial Services Software (OFSS) and has recommended accumulate rating on the stock with a target of Rs 2288 in its January 30, 2012 research report.

"Oracle Financial Services Software (OFSS) has delivered decent performance during 9MFY12 with Revenues & APAT growth of 7.2% & 9.0% respectively. With its best-in-class solutions in core banking & risk analytics and its offerings in consulting, application & technological services, OFSS is well positioned to serve the global financial institutions & banks. Its leadership position in IT product's offerings, Global presence of Oracle, diversified geographical spread with significant presence in fast growing emerging markets and higher contribution (about 72%) from its high margin product business provide further stability to its financial growth."

"During Q3FY12, OFSS's Consolidated Revenues grew by 7.9% QoQ & 10.6% YoY to Rs. 8,159 mn. The Company signed new licenses worth USD 10.5 mn (against USD 14 mn Q3FY11), which was lower than expected. Its EBITDA for Q3FY12 grew by 14.6% QoQ & 0.2% YoY to Rs. 2,847.1 mn and the EBITDA margins stood at 34.9%. Its PBT (including OI of Rs.685 mn, exchange gain of Rs.903.4 mn, Exceptional income of Rs.172.2 mn) grew by 53.5% QoQ & 43.6% YoY to Rs. 4,472.5 mn. Its RPAT grew by 45.2% QoQ & 7.3% YoY to Rs. 3,029.7 mn. However, its APAT (adjusted for Exceptional income) grew by 9.3% QoQ & 3.2% YoY to Rs. 2,914.3 mn."

"During Q3FY12, its Product Revenues grew by 15.3% QoQ & 30.3% YoY to Rs. 6,044.9 mn, ahead of our estimates, mainly on account of currency exchange rate benefit. Its Product's EBIT grew by 25.8% QoQ & 16.8% YoY to Rs. 2,523 mn, driven by strong growth & currency benefit. The growth of Product Revenues depends on components such as license fee, implementation fee & AMC Revenues. The license fee & implementation fee are volatile in nature and are subject to new licenses & discretionary budgets, while its AMC Revenue contributes steady growth to its Product Revenues. Going forward, we expect its product business to deliver decent performance, driven by its strong execution capability, proven track record and decent demand environment. During Q3FY12, its services Revenues declined 7.7% QoQ & 25.2% YoY to Rs. 1,955.7 mn, lower than our estimates. Its services business's EBIT declined by sharp 33.9% QoQ & 49.4% YoY to Rs. 430.1 mn, mainly due to fall in services Revenues and change in effort mix more towards onsite (51% in Q3 vs. 45% in Q2). Its sluggish services business performance was due to OFSS's business transformation strategy to focus more on value added high margin contracts, impacting the services business's Revenues growth. We expect the Revenues of its services business to remain sluggish for 2-3 more quarters before it stabilizes again to grow steadily going forward."

"In view of its 9MFY12 performance, we have slightly increased our FY12E Revenues & APAT estimates, while largely have maintained FY13E Revenues & APAT estimates. We now expect its consolidated Revenues to grow by 7.8% & 13.2% in FY12E & FY13E, respectively and its APAT to decline by 3.2% in FY12E (decline in APAT due to higher tax provisioning), while to grow by 10.5% in FY13E. At CMP of Rs. 1941, the stock is trading at 15.0x & 13.6x its FY12E & FY13E earnings respectively. We maintain our "Accumulate" rating on the stock with a target price of Rs 2288," says Sushil Finance research report.    

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