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Oracle Fin. Ser.: Products aid the margins
May 11, 2010

Oracle Fin. Ser. announced its FY10 results. The company has reported 2% YoY fall in sales and a 5% growth in net profits. Here is our analysis of the results.

Performance summary
  • Oracle Financial Services' sales grow by 4% QoQ during 4QFY10, fall 2% YoY in FY10. Growth during the quarter driven by the strong surge in product business revenues. Muted performance by the services business results in poorer FY10 performance.
  • Operating margins expand by 1% QoQ during 4QFY10. Expand by 9% YoY in FY10 on the back of effective all-round cost containment, decrease in headcount and greater proportion of revenue from product business (higher margins).
  • Net profit falls by 31% QoQ during 4QFY10 on the back of forex losses due to currency volatility and higher tax outlays. Profits increases by 5% YoY in FY10 as there was no exceptional item in the current fiscal.
  • Employee count stands at 10,450 at the end of FY10, lower by 935 as compared to last year.
  • Adds 15 new customers at the end of 4QFY10 and signs new licenses of US$ 31 m, up 14% QoQ.


(Rs m) 3QFY10 4QFY10 Change FY09 FY10 Change
Sales 7,272 7,578 4.2% 29,276 28,740 -1.8%
Expenditure 4,408 4,510 2.3% 21,521 18,459 -14.2%
Operating Profit 2,864 3,067 7.1% 7,755 10,281 32.6%
Operating Profit margin (%) 39.4% 40.5%   26.5% 35.8%  
Other income and Interest expense (294) (707)   1,498 (856) -157.1%
Depreciation 117 114 -2.0% 558 489 -12.4%
Profit before tax 2,453 2,246 -8.4% 8,695 8,936 2.8%
Exceptional Items - -   (469) -  
Profit before tax 2,453 2,246 -8.4% 8,226 8,936  
Tax 180 686 280.5% 835 1,198 43.4%
Share of profit in associate - -   13 -  
Minority Interest - -   13 2 -85.6%
Profit after tax/(loss) 2,273 1,560 -31.3% 7,365 7,737 5.0%
Net profit margin (%) 31.3% 20.6%   25.2% 26.9%  
No. of shares (m)       83.8 83.8  
Diluted earnings per share (Rs)*         92.3  
P/E ratio (x)*         22.0  
* On a trailing 12-months basis

What has driven performance in FY10?
  • Oracle Financial Services (OFS) recorded a 2% YoY decline in net sales during FY10. This was mainly due to a muted performance of its IT services business (32% of total sales) where sales fell by 12% YoY during FY10. The IT products business (65% of sales) grew by 3% YoY during FY10. Though the product business saw a decline of 16% YoY in terms of license revenues, professional services showed a decent growth of 5% YoY during FY10. A 19% YoY growth in annual maintenance revenues led most of the incremental growth in the product business. The KPO (Knowledge Process Outsourcing) business registered a growth of 18% YoY during the fiscal.

  • OFS managed to maintain its dominance in its APAC (22% of sales) and US (32% of sales) operations with a growth of 9% and 6% respectively. Middle East and Africa (13% of sales) and Europe (32% of sales) however saw declines of 16% and 9% respectively, pulling down overall revenues for the year.

    Revenue Breakup
    (Rs m) FY09 FY10 Change
    Segment wise      
    Products 18,131 18,705 3.2%
    Services 10,426 9,189 -11.9%
    KPO 719 846 17.7%
    Geography-wise      
    North America 8,522 9,055 6.2%
    Middle East & Africa 4,321 3,647 -15.6%
    Asia -Pacific 5,820 6,350 9.1%
    Europe 10,003 9,061 -9.4%
    Latin America and Caribbean 610 628 2.9%

    Product revenue breakup
    (Rs m) FY09 FY10 Change
    License Fees 3,989 3,367 -15.6%
    Professional Services 10,516 11,036 4.9%
    Annual Maintenance Charges 3,626 4,302 18.6%

  • OFS' operating margins expanded by a whopping 9% YoY during FY10. This was largely due to decrease in sales and marketing and general costs. The employee base also reduced versus last fiscal, thereby contributing to a further decline in costs. A higher proportion of product revenues together with a better effort mix in terms of 50:50 onsite-offshore share and a shift towards 'fixed price' deals aided the margin expansion.

  • OFS' net profits grew by 5% YoY during FY10. This was driven by improvement in operating performance. Higher tax outlays and forex losses due to rupee appreciation however brought down the growth to an extent.

What to expect?
At the current price of Rs 2,030, the stock is trading at a multiple of 18.2 times our estimated FY12 earnings. At these levels, we believe the stock is overpriced.

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