Buy Oracle Financial; target Rs 2650: Dolat Capital

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Buy Oracle Financial; target Rs 2650: Dolat Capital

Dolat Capital is bullish on Oracle Financial Services Software (OFSS) and has recommended buy rating on the stock with a target price of Rs 2650 in its October 31, 2011 research report.

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Dolat Capital is bullish on Oracle Financial Services Software (OFSS) and has recommended buy rating on the stock with a target price of Rs 2650 in its October 31, 2011 research report.

"Oracle Financial Services Software (OFSS) declared its Q2 FY12 revenue at Rs 7.56bn (up 6% QoQ), below our estimates of Rs 8.34bn. The performance for the quarter was dragged down by 5% QoQ decline in Services segment (owing to some spill over to OND quarter) and lower than expected growth in the product segment, (which rose 9% QoQ to Rs 5.2bn). It added 12 new clients (added 10 clients in previous quarter) and signed new licence sale bookings worth USD 9 mn (previous quarter: USD 13mn) during the quarter."

"Revenue from services declined 5.3% QoQ to Rs 2.1bn whereas revenues in prime sourcing improved significantly by 90% QoQ at Rs 254mn during the quarter (as the delayed billing in Q1 got normalized in Q2) - added 5 clients. EBIT grew 9% QoQ, driven by a strong product revenue share that supported margin expansion by 72bps QoQ to 31.5%. Product share in the total revenues stood at 69% as compared to 68% in previous quarter, supporting strong profitability (product margin at 38% versus services margins of 31%. PAT grew marginally by 2% QoQ to Rs 2.08bn lower than our estimates of ` 2.5bn on account of Rs 865mn provision made during the quarter as one time contingency for settlement of claims raised by Allied Irish Bank in Q2FY11. The bank has filed a suit in Q2FY11 for Euro 84mn, which OFSS expect to settle down for a maximum outgo of Rs 987mn (about 20% of claim made by Allied Irish Bank)."

"OFSS expects huge opportunities in three geographies - US, China and Latin America - where it is close to monetising its strong sales efforts into robust deal wins (Tier 1 Banks) over coming quarters. Though the expected time of fructifying these efforts may get little elongated due to general slow decision making in the discretionary spending we largely maintain our positive stance on the stock over medium to longer term. We expect 24% growth in licence fees over FY11-FY13E as it is positioned well to capture the potential  opportunity in the improved spend scenario in the BFSI segment (suggested by M&A activity in the segment and stringent regulatory norms). We have cut our EPS estimates by 8%/7% for FY12/FY13E in view of slower and longer decision making cycle on discretionary spending. We remain positive view, with a Buy rating, for a target price of Rs 2,650, valued at 17(x) of FY13E EPS of Rs 156," says Dolat Capital research report.

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To read the full report click on the attachment