Accumulate Oracle Financial; target Rs 3075: Dolat Capital
Dolat Capital is bullish on Oracle Financial Services Software (OFSS) and has recommended accumulate rating on the stock with a target price of Rs 3075 in its November 5, 2012 research report.
November 09, 2012 / 14:10 IST
Dolat Capital is bullish on Oracle Financial Services Software (OFSS) and has recommended accumulate rating on the stock with a target price of Rs 3075 in its November 5, 2012 research report.
"Oracle Financial Services Software (OFSS) reported lower than expected License sales, owing to seasonal weak (and Q1 for Oracle US) effect and lower booking from systemic delay in revenue booking than expected. Services revenues were affected from ‘Work at risk’ revenues. New license sales of USD 8.3mn and 14 new client additions in products suggest sustained traction. We maintain our positive outlook on CBS business opportunity and OFSS competitive positioning in the segment. License revenues in the deals that requires product customizations are booked over a period of the tenure and thus the major booking from its key win in US is expected to feature well spread over the tenure of deployment as against our anticipation of large booking in Q2 itself.OFSS remains confident on its robust pipeline and expects H2 to be better than H1 in terms of deal closures driven by typical sales push. It has over 100 member sales team with dedicated new license sale based targets and their fiscal is in sync with Oracle US (financial year ends May). The company expects several key wins in LTM (including few large deals in Australia, Europe) to start contributing meaningfully in coming quarters, which we believe would ensure the product license revenue growth momentum. OFSS got a revenue deferment to the tune of about Rs 180mn during the quarter even though the corresponding cost got booked during the quarter. These revenues should feature back in Q3 numbers and would lift the segment OPM significantly. Adjusted for this deferment the segment OPM stood at 20% as against reported profitability of just 11% in Q2.OFSS declared its Q2 FY13 revenue at Rs 7.9bn (down 16% QoQ; up 5% YoY). Product segment revenues degrew 18% QoQ and up 11% YoY at Rs 5.8bn. Services revenues stood at Rs 2.1bn (in line with est) with a QoQ decline of 11%. EBIT degrew 16% QoQ as OPM slips about 600bps owing to wage hikes (10% for offshore effective Sep) and high depreciation charge (up 90% YoY). We expect the OPM swing to continue with the license revenue growth, owing to lumpiness and erratic product revenue booking. PAT degrew by 25% YoY at Rs 1.6bn owing to higher effective tax rate (38%) and Fx losses of Rs 516mn as against gain of Rs 739mn in the corresponding quarter (translation loss for 8% Rs appreciation on quarterly closing rates).We have revised our FY13/14E EPS estimates down by 16%/9% largely on adjusting for weak quarterly performance but maintain our positive outlook in expectancy of sustained demand in the near to medium term. We maintain our sector Outperformer rating on the stock with a target price of Rs 3075 valued at 18x of its FY14E earnings (inline with 5 yr avg PE multiple). Accumulate the stock," says Dolat Capital research report.Shares held by Mutual Funds/UTI Disclaimer: The views and investment tips expressed by investment experts/broking houses/rating agencies on moneycontrol.com are their own, and not that of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.To read the full report click on the attachment 
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