HOLD CMP (Rs) 2980.00 Target Price (Rs) 3353.00 ORACLE FINANCIAL SERVICES SOFTWARE LTD Result Update: Q3 FY13 Feb 25 th, 2013 ISIN: INE881D01027 Stock Data Sector IT BSE Code 532466 Face Value 5.00 52wk. High / Low (Rs.) 3414.00/2238.00 Volume (2wk. Avg ) 4209.00 Market Cap ( Rs in mn ) 250379.60 Annual Estimated Results (A*: Actual / E*: Estimated) Years FY12A FY13E FY14E Net Sales 26058.50 29607.08 31975.65 EBITDA 16060.10 16374.41 17746.53 Net Profit 10892.30 10759.10 11736.39 EPS 129.70 128.05 139.69 P/E 22.98 23.27 21.33 Shareholding Pattern (%) 1 Year Comparative Graph BSE SENSEX ORACLE FINANCIAL SERVICES SOFTWARE SYNOPSIS Oracle Financial Services Software (formerly I- flex solutions) is a leading provider of applications and professional services for the financial services industry. Oracle has signed up with a leading banking in South Africa for Oracle Financial Services Analytical Applications Suite. Oracle has acquired with Acme Packet for $29.25 per share or approximately $1.7 billion, net of Acme Packet s cash. During the quarter ended, the robust growth of Net sales is increased by 6.79% to Rs. 7261.60 million. During the quarter, 11 customers signed up for the products. Oracle has signed licenses fees of US$ 13 million in the quarter. Banca Transilvania Romania signed for Oracle FLEXCUBE to replace aging existing application from Misys. Oracle has successfully completed deployment of Oracle FLEXCUBE Investor Services in UK for leading Tier I Global Bank. The company wins new products span for the China, Malaysia, Myanmar, Venezuela, South Africa, Korea, and United States. Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 7% over 2011 to 2014E respectively. Peer Groups CMP Market Cap EPS P/E (x) P/BV(x) Dividend Company Name (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%) Oracle Financial Services Software Ltd 2980.00 250379.60 129.70 22.98 4.01 0.00 HCL Technologies Ltd 728.90 506023.00 35.76 20.37 7.66 600.00 TCS Ltd 1466.70 2868601.00 62.82 23.33 11.59 2500.00 Mindtree Ltd 855.00 35852.80 78.97 10.89 3.74 40.00
Investment Highlights Results updates- Q3 FY13, Oracle Financial Services Software (formerly I-flex solutions) is a leading provider of applications and professional services for the financial services industry in India and across the world, reported its financial results for the quarter ended 31 st Dec, 2012. The third quarter witnesses a healthy increase in overall sales as well as profitability of the company. Months Dec-12 Dec-11 % Change Net Sales 7261.60 6800.10 6.79 PAT 2552.10 2516.80 1.40 EPS 30.37 29.98 1.31 EBITDA 3881.50 4012.90 (3.27) The company s net profit jumps to Rs.2552.10 million against Rs.2516.80 million in the corresponding quarter ending of previous year, an increase of 1.40%. Revenue for the quarter rose 6.79% to Rs.7261.60 million from Rs.6800.10 million, when compared with the prior year period. Reported earnings per share of the company stood at Rs.30.37 a share during the quarter, registering 1.31% increase over previous year period. Profit before interest, depreciation and tax is Rs.3881.50 millions as against Rs.4012.90 millions in the corresponding period of the previous year. Expenditure : During the quarter Total Expenditure increased by 9 per cent mainly on account of increase in Employee Benefit Expenses along with the Depreciation in the rupee impact. Total expenditure in Q3 FY13 was at Rs. 4722.60 million as against Rs. 4318.40 million in Q3FY12. Travel related expenses are Rs. 372.00 millions against Rs. 273.20 millions in the corresponding quarter ending of previous year. Professional fees are Rs. 426.20 millions and Employee Benefit Expenses are Rs. 3606.10 million in Q3 FY13 are the primarily attributable to growth of expenditure.
Segment Revenue Latest Updates The company has signed licenses fees of US$ 13 million in the quarter. The company new wins for the products span the China, Malaysia, Myanmar, Venezuela, South Africa, Korea, and United States. Oracle has signed up with a leading banking in South Africa for Oracle Financial Services Analytical Applications Suite. Oracle has entered into an agreement to acquire Acme Packet the leading global provider of session border control technology for $29.25 per share or approximately $1.7 billion, net of Acme Packet s cash. The proposed acquisition of Acme Packet is another important piece in Oracle s overall strategy to deliver integrated best-in-class products that address critical customer requirements in key industries. Banca Transilvania Romania signed for Oracle FLEXCUBE to replace aging existing application from Misys. Banca Transilvania Romania is now live on FLEXCUBE. Leading Tier I Global Bank successfully completed deployment of Oracle FLEXCUBE Investor Services in UK to support the Transfer Agency operations for fund managers. A leading Brazilian bank expanded deployment to add the operations in France & Spain with Oracle FLEXCUBE. The other banks to go live in the quarter are from Cambodia, China and Jamaica. During the quarter, Oracle Financial Services has introduced two complementary products, Oracle Financial Services Governance & Compliance Management and Oracle Financial Services Operational Risk Analytics.
Oracle Financial Services has received the Banking Technology Readers Choice Award for the bect Core Banking Product/ Service in December 2012. Oracle Financial Services has expanded its Oracle Financial Services Enterprise Risk Management suite to include a new model risk management solution, as well as enhanced offerings for regulatory capital management and credit risk management. Oracle Health Sciences has introduced Oracle Health Sciences Mobile Clinical Research Associate, which uses the power of mobile applications to help life sciences organizations compress clinical study cycle times and reduce costs by improving site monitoring efficiency and clinical research associate (CRA) productivity. Company Profile Oracle Financial Services Software Limited (referred to as "Oracle Financial Services Software") is a world leader in providing products and services to the financial services industry and is a majority owned subsidiary of Oracle. Oracle Corporation is the world s largest enterprise software company. Oracle Financial Services Software (formerly i-flex solutions) is a leading provider of applications and professional services for the financial services industry. Its portfolio of offerings includes Oracle FLEXCUBE, a complete banking product suite for retail, consumer, corporate, investment, and asset management, and investor servicing. As a part of Oracle's analytics for the financial services industry Oracle Reveleus offers a suite of analytical applications for capital adequacy, stress testing, multi-jurisdictional Basel II compliance, enterprise performance management, and customer insight, and helps institutions address their enterprise risk and compliance needs. Oracle Mantas is the industry's most comprehensive solution for anti-money laundering, fraud detection, and trade compliance. The company has partnership with the following companies: AMD Apple Cisco Dell EMC Fujitsu HP IBM Intel Microsoft Motorola NetApp Sun Microsystems
Technology Solutions Big Data Data Warehousing Database Migration High Availability Java Technology Linux Open Source Oracle Optimized Solutions Security Server Consolidation Service-Oriented Architecture Solaris Virtualization Windows and.net Business Solutions Business Analytics Business Process Services Customer Experience Customer Relationship Management Enterprise Content Management Enterprise Management Financial Management Governance, Risk, and Compliance Human Capital Management Master Data Management Database and IT Infrastructure for SAP Oracle for Midsize Companies Procurement Project Portfolio Management Supply Chain Management Sustainability Industries Solutions Aerospace Automotive Chemicals Communications Consumer Products Education and Research Engineering and Construction Financial Services Health Sciences High Technology Industrial Manufacturing Media and Entertainment Natural Resources Oil and Gas Professional Services Public Sector Retail Travel and Transportation Utilities
Subsidiary Companies Oracle Financial Services Software B.V. Netherlands Oracle Financial Services Software SA Greece Oracle Financial Services Software Pte. Ltd. Singapore Oracle Financial Services Consulting Pte. Ltd. Singapore Oracle Financial Services Software America, Inc. USA Oracle Financial Services Software, Inc. SA Mantas Inc. USA Mantas Ltd. UK Sotas Inc. USA Mantas Singapore Pte. Ltd. Singapore Mantas India Private Limited India ISP Internet Mauritius Company Republic of Mauritius Oracle (OFSS) BPO Services Inc. USA Oracle (OFSS) BPO Services Limited India Oracle (OFSS) Processing Services Limited
Financial Highlight Balance sheet as at March 31 st, 2012 (A*- Actual, E* -Estimations & Rs. In Millions) Particulars March (Rs.in.mn) FY12A FY13E FY14E EQUITY AND LIABILITIES: Shareholders Funds: a) Share Capital 419.90 420.10 420.10 b) Reserves and Surplus 62049.31 72808.40 84544.79 1. Net worth (a+b) 62469.21 73228.50 84964.89 2. Share application money pending allotment 1.24 0.00 0.00 Non-Current Liabilities: Other Long Term Liabilities 133.23 138.56 142.72 Long Term Provisions 332.41 345.71 356.08 3. Long term liabilities 465.64 484.27 498.79 Current Liabilities: Trade Payables 181.74 227.18 261.25 Other Current Liabilities 7215.90 8659.08 9871.35 Short Term Provisions 804.45 836.63 861.73 4. Total Current Liabilities 8202.09 9722.88 10994.33 Total Liabilities ( 1+2+3+4 ) 71138.18 83435.65 96458.01 ASSETS: Non-Current Assets: Fixed Assets: Tangible Assets 3555.26 3875.23 4146.50 Capital work-in-progress 544.47 555.36 572.02 a) Total Fixed Assets 4099.73 4430.59 4718.52 b) Deferred tax assets 640.56 608.53 632.87 c) Other non-current assets 142.86 158.57 169.67 d) Non Current Investments 7282.40 7646.52 7952.38 e) Long Term Loans and Advances 5383.45 4575.93 4209.86 1. Total Non-Current Assets 17549.00 17420.15 17683.31 Current Assets: Current Investments 9.98 10.58 11.11 Trade Receivables 11442.93 14646.95 18015.75 Cash and Bank Balances 35109.21 43801.44 52782.48 Short Term Loans and Advances 2887.35 3002.84 3092.93 Other Current Assets 4139.71 4553.68 4872.44 2. Total Current Assets 53589.18 66015.49 78774.71 Total Assets ( 1+2 ) 71138.18 83435.65 96458.01
Annual Profit & Loss Statement for the period of 2011 to 2014E Value(Rs.in.mn) FY11 FY12 FY13E FY14E Description 12m 12m 12m 12m Net Sales 23605.10 26058.50 29607.08 31975.65 Other Income 1403.00 3750.30 4283.02 4668.49 Total Income 25008.10 29808.80 33890.10 36644.14 Expenditure -14327.70-13748.70-17515.69-18897.61 Operating Profit 10680.40 16060.10 16374.41 17746.53 Interest 0.00 0.00 0.00 0.00 Gross profit 10680.40 16060.10 16374.41 17746.53 Depreciation -336.50-401.20-589.81-737.27 Profit Before Tax 10343.90 15658.90 15784.60 17009.27 Tax -664.10-4766.60-5025.50-5272.87 Net Profit 9679.80 10892.30 10759.10 11736.39 Equity capital 419.50 419.90 420.10 420.10 Reserves 51083.10 62049.30 72808.40 84544.79 Face value 5.00 5.00 5.00 5.00 EPS 115.37 129.70 128.05 139.69 Quarterly Profit & Loss Statement for the period of 30 th June, 2012 to 31 st March, 2013E Value(Rs.in.mn) 30-June-12 30-Sep-12 31-Dec-12 31-Mar-13E Description 3m 3m 3m 3m Net sales 8121.20 6599.60 7261.60 7624.68 Other income 1410.30 758.10 1194.70 919.92 Total Income 9531.50 7357.70 8456.30 8544.60 Expenditure -4551.30-4501.00-4574.80-3888.59 Operating profit 4980.20 2856.70 3881.50 4656.01 Interest 0.00 0.00 0.00 0.00 Gross profit 4980.20 2856.70 3881.50 4656.01 Depreciation -119.00-169.30-147.80-153.71 Profit Before Tax 4861.20 2687.40 3733.70 4502.30 Tax -1578.40-892.30-1181.60-1373.20 Net Profit 3282.80 1795.10 2552.10 3129.10 Equity capital 419.90 420.00 420.10 420.10 Face value 5.00 5.00 5.00 5.00 EPS 39.09 21.37 30.37 37.24
Ratio Analysis Particulars FY11 FY12 FY13E FY14E EPS (Rs.) 115.37 129.70 128.05 139.69 EBITDA Margin (%) 45.25% 61.63% 55.31% 55.50% PBT Margin (%) 43.82% 60.09% 53.31% 53.19% PAT Margin (%) 41.01% 41.80% 36.34% 36.70% P/E Ratio (x) 25.83 22.98 23.27 21.33 ROE (%) 18.79% 17.44% 14.69% 13.81% ROCE (%) 21.39% 26.35% 23.17% 21.75% EV/EBITDA (x) 21.03 13.40 12.62 11.13 Book Value (Rs.) 613.86 743.86 871.56 1011.25 P/BV 4.85 4.01 3.42 2.95 Charts
Outlook and Conclusion At the current market price of Rs.2980.00, the stock P/E ratio is at 23.27 x FY13E and 21.33 x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs.128.05 and Rs.139.69 respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 11% and 7% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at 12.62 x for FY13E and 11.13 x for FY14E. Price to Book Value of the stock is expected to be at 3.42 x and 2.95 x respectively for FY13E and FY14E. We recommend HOLD in this particular scrip with a target price of Rs.3353.00 for Medium to Long term investment. Industry Overview The Information Technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India's economic growth. IT and ITeS sector's contribution to the national GDP has increased from 1.2 per cent in 1997-98 to an estimated 7.5 per cent in 2011-12. IT has evolved as a major contributor to India's GDP and plays a vital role in driving growth of the economy in terms of employment, export promotion, and revenue generation. The IT-BPO sector is responsible for creating significant employment opportunities in the economy. Direct employment within the IT-BPO sector is expected to grow by over 9 per cent to reach 2.77 million, with over 230,000 jobs being added in 2011-12. IT services exports (including Engineering Research and Design (ER&D) and software products) continue to be the largest employer within the industry with nearly 47 per cent share of total direct employment, BPO exports generate about 32 per cent of the total industry employment, and the remaining 22 per cent is accounted for by the domestic IT-BPO sector. The sector is responsible for enabling employment to an additional 8.9 million people in various associated sectors - catering, security, transportation, housekeeping, etc. Market Size As per NASSCOM estimates, IT and ITeS sector (excluding hardware) revenues are estimated at US$ 87.6 billion in FY 2011-12. The industry is expected to grow by 19 per cent during FY 2012-13.
Additionally, the market size of the industry is expected to rise to US$ 225 billion by 2020 considering India's competitive position, growing demand for exports, Government policy support, and increasing global footprint. According to a study by management advisory firm Zinnov, adoption of IT services in the Indian SME segment is growing at 15 per cent and is expected to reach US$ 15 billion by 2015. The public cloud services market in India is projected to grow to US$ 326.2 million, registering 32.4 per cent growth in 2012, according to a report by Gartner. The Indian software and services exports including BPO exports is estimated at US$ 68.7 billion in 2011-12, as compared to US$ 59 billion in 2010-11, an increase of 16.4 per cent. The IT services exports is estimated to be US$ 39.8 billion in 2011-12 as compared to US$ 33.5 billion in 2010-11, showing a growth of 18.8 per cent. BPO exports is estimated to grow from US $ 14.2 billion in 2010-11 to US$ 15.9 billion in 2011-12, a year-on-year (Yo-Y) growth of about 12 per cent. IT services contributed 58 per cent of total IT-BPO exports in 2011-12, followed by BPO at 23 per cent and software products / engineering at 19 per cent. Investment Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments from major countries. Between April 2000 and May 2012, the computer software and hardware sector attracted cumulative foreign direct investment (FDI) of US$ 11,262 million, according to the Department of Industrial Policy and Promotion (DIPP). More recently, online retailing, cloud computing and e-commerce are the major driving forces behind the rapidly increasing growth in the IT industry. Online shopping has increased with the emergence of internet retailing and e-commerce. India's IT-BPO revenues are also driven by a rapid increase in rural BPO units, which accounted for more than US$ 10 million in the total sector revenues. Some of the major initiatives in Indian IT and ITeS sector are: Intel Capital, Intel Corporation's global investment and M&A organisation, plans to invest up to US$ 40 million in ten innovative Indian technology companies Kakinada Special Economic Zone (SEZ), being developed by GMR Group, has entered into a partnership agreement with Bengaluru-based RuralShores Business Services Pvt Ltd for setting up a BPO centre Tata Consultancy Services (TCS) plans to set up operations in Madhya Pradesh (MP) by building a new integrated campus in Indore, with an initial investment of Rs 550 crore (US$ 99.09 million) in the first phase
MindTree Ltd has opened its first delivery centre outside India in Gainesville, Florida. The company plans to invest US$ 2.93 million and create 400 new jobs over the next five years BPO firm ExlService Holdings has announced the acquisition of US-based Landacorp Inc. The acquisition will provide Exl with an end-to-end solution for the healthcare industry Government Initiatives The 51 software technology parks of India (STPI) centres that have been set up since inception of the programme have given a major boost to IT and ITeS exports. Apart from exemption from customs duty available for capital goods there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax. FDI upto 100 per cent under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing & Analysis services. Some of the major initiatives taken by Government of India to promote IT and ITeS sector in India are: The Cabinet has recently approved the National Policy on Information Technology 2012. The policy aims to increase revenues of IT and ITeS industry from US$ 100 billion to US$ 300 billion by 2020 and expand exports from US$ 69 billion to US$ 200 billion by 2020 The Government of India plans to set up 15 new laboratories for testing hardware and software products under public-private partnership (PPP) model The Ministry of Finance has issued a circular to chairmen of public sector banks and regional rural banks, that all payments to customers, staff, vendors and suppliers as well as disbursement of loans and payments towards investments should be made only through the electronic mode The Government of India plans to announce incentives to promote IT related export hubs in small towns to attract investors towards SEZs. The Government may also allow broadbanding of sectors, which will allow ancillary units to come up in sector-specific SEZs Road Ahead According to 'India Information Technology Report Q1 2011', released by Research and Markets, Indian market for IT services and products is expected to grow from US$ 18.6 billion in 2011 to US$ 40.5 billion in 2015. During the year 2011, government procurement is expected to grow substantially while opportunities in healthcare, education, telecom and financial services would broaden further.
Further, NASSCOM expects software and services exports growth at 16-18 per cent, clocking US$ 68-70 billion of revenues in FY2012 whereas, domestic market is expected to grow by 15-17 per cent with revenues of US$ 20.12-20.56 billion. Newer phenomenon like cloud, analytical services, advanced mobile applications, healthy environment for start-ups and SaaS will drive the industry growth. According to latest projections released by Cybermedia Research, the aggregate market size of domestic IT products and ITeS would reach US$ 52.3 billion crore by 2014, growing 17.3 per cent between 2010 and 2014. Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.
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