Why Oracle Financial Share Price is Falling

In late trading on Tuesday, 9 May 2023, the share price of Oracle Financial Services Software (OFSS) sold off.

Shares of the IT company declined close to 10% to touch a low of Rs 3,418 on the BSE.

OFSS share price was trading in an ever-tight range since a long time, but the stock has now broken out on the downside.

Let's find out why.

Why OFSS Share Price is Falling

#1 Stock trades ex-dividend

The recent fall can be attributed to the stock turning ex-dividend.

The company's board had announced an interim dividend of Rs 225 per share last month. The record date for the dividend payment was set as 9 May 2023.

The ex-dividend date is the day on which shares of the company begin trading without the right to receive the upcoming dividend payment.

On the ex-dividend date, the stock price tends to drop by approximately the amount of the dividend payment.

This happens because investors who purchase the stock on or after the ex-dividend date are not entitled to the upcoming dividend payment, so the stock is worth less to them than it was before the ex-dividend date.

In other words, when a company pays a dividend, its total value is reduced by the amount of the dividend. So, on the ex-dividend date, the stock price adjusts downwards by the amount of the dividend to reflect the lower value of the company.

This drop in stock price is not always exact.

When it comes to dividends, OFSS is considered one of the greatest dividend stocks of all time and it has data that backs this statement.

OFSS - Dividend Per Share Over the Years

Year End/Source Date	Dividend %	Dividend Yield %	Dividend per Share (Rs)
04-May-22	3,800	5.87	190
31-Mar-22	3,800	5.29	190
31-Mar-21	4,000	6.25	200
31-Mar-20	3,600	8.86	180
31-Mar-18	2,600	3.48	130
31-Mar-17	3,400	4.46	170
31-Mar-16	2,000	2.83	100
31-Mar-15	13,300	20.41	665

Data Source: Ace Equity

Interestingly, OFSS has a significantly lower price to dividend ratio as compared to its peers. The price to dividend ratio accounts for cash flows and is a more trustworthy ratio when it comes to comparing dividends as cash is actually being paid out.

This means the company is actually making money. Effectively, this ratio indicates how many years it will take for dividends to yield the original share price.

The road ahead

If we exclude yesterday's 10% decline, it's visible from the chart below that despite having its fair share of ups and downs, OFSS has performed much better compared to its peers.

IT biggies like TCS, Infosys, Wipro and Tech Mahindra have fallen a lot in the past one year.

Performance of Indian IT Stocks

Company	Current Price (Rs m)	1 year (%)	YTD (%)
Coforge Ltd.	4,126	7%	6%
HCL Technologies Ltd.	1,079	0%	4%
Infosys Ltd.	1,271	-19%	-16%
L&T Technology Services Ltd.	3,762	-4%	2%
LTIMindtree Ltd.	4,620	4%	6%
Mphasis Ltd.	1,860	-30%	-6%
Persistent Systems Ltd.	4,696	18%	21%
Tata Consultancy Services Ltd.	3,284	-5%	1%
Tech Mahindra Ltd.	1,048	-17%	3%
Wipro Ltd.	382	-21%	-3%

Source: Equitymaster

In recent years, OFSS has made significant investments in rapidly moving its solutions to cloud and launched solutions for Liquidity Management, Virtual Account Management, and Supply Chain Finance as cloud services, much ahead of its peers.

The company's net margins have consistently improved from 26% in FY18 to 46.5% in FY22. The company is almost debt free.

The reason why OFSS shares have remained range bound this year is due to the slowdown in the overall IT sector.

Indian IT stocks are currently going through a tough phase because of the global macroeconomic slowdown and rising interest rates.

The situation has become even more challenging now owing to the banking crisis in the US and Europe.

Given that the banking and financial services sector is the largest vertical for Indian IT companies, and the US and Europe are the software industry's two most significant markets, the outlook for the industry appears grim.

With very little clarity around the timeline of a turnaround, investors have remained cautious.

Warren Buffett once said that be fearful when others are greedy and greedy when others are fearful. Many IT companies are trading at a discount to their 3-year median price to earnings (PE) multiple and all-time high PEs.

Moreover, high employee costs due to higher attrition rates appear to have peaked and have started to moderate. Things could take a turn for the better.

Compared to its peer group, OFSS has the lowest PE ratio and its price to book value is also below the industry average.

Comparative Analysis

Company	OFSS	Birlasoft	Cyient	Sonata Software	Coforge
ROE (%)	24.2	13.5	14.8	37.6	24.2
ROCE (%)	34.6	18.8	19.7	48.6	30.2
Latest EPS (Rs)	208.8	12.1	46.5	31.3	113.6
TTM PE (x)	16.5	25.6	24.9	27.1	36.3
TTM Price to book (x)	3.9	3.5	3.7	9.3	8.2
Dividend yield (%)	6.5	1.1	2.2	2.5	0.5
Industry PE	24.9
Industry PB	6.7

Data Source: Ace Equity, Equitymaster

About Oracle Financial Services Software

Oracle Financial Services Software, majority owned by Oracle, is a world leader in providing IT solutions to the financial services industry.

The company develops, sells and markets computer software, computer systems, and provides consultancy and other information technology (IT) related activities.

The company offers banking products, business consulting services and knowledge process outsourcing services.

To know more, check out OFSS financial factsheet and its latest quarterly results.

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...