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Oracle Fin. Ser.: Muted quarter, better half year - Views on News from Equitymaster

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Oracle Fin. Ser.: Muted quarter, better half year

Oct 31, 2009

Performance summary
  • Oracle Financial Services’ (erstwhile i-flex) topline declines by 4% QoQ during 2QFY10, grows by 4% YoY during 1HFY10. Half-yearly growth mainly aided by stellar performance of the product segment during 1QFY10.
  • Operating margins contract by 4% QoQ during 2QFY10.
  • Net profits grow by 10% QoQ during 2QFY10 on back of higher other income (as compared to a negative figure in 1QFY10). Excluding the other income component, net profits decline by 17% QoQ during the quarter.
  • Adds 20 new customers during the quarter. Employee headcount stands at 10,582 at the end of 2QFY10, reduced by 493 as compared to 1QFY10.

(Rs m) 1QFY10 2QFY10 Change 1HFY09 1HFY10 Change
Sales 7,100 6,790 -4.4% 13,315 13,890 4.3%
Expenditure 4,744 4,796 1.1% 11,430 9,540 -16.5%
Operating Profit 2,356 1,994 -15.4% 1,885 4,350 130.7%
Operating Profit margin (%) 33.2% 29.4%   14.2% 31.3%  
Other income and Interest expense (204) 349   610 145 -76.3%
Depreciation 127 131 2.6% 276 258 -6.5%
Profit before tax 2,024 2,212 9.3% 2,219 4,237 90.9%
Tax 165 167 1.2% 219 332 51.4%
Share of profit in associate - -   (8) -  
Minority Interest 2 -   (2) 2  
Profit after tax/(loss) 1,858 2,046 10.1% 1,990 3,903 96.2%
Net profit margin (%) 26.2% 30.1%   14.9% 28.1%  
No. of shares (m)       83.8 83.8  
Diluted earnings per share (Rs)*         110.8  
P/E ratio (x)*         19.1  
* On a trailing 12-months basis

What has driven performance in 2QFY10?
  • Oracle Financial Services (OFS) recorded a topline decline of 4% QoQ during 2QFY10, which was mainly on account of muted performance of the products and services divisions. The product business that contributed almost 63% of the consolidated revenues declined by 3% QoQ during the quarter. This segment registered a drop of 14% in license fees (8% of product revenue) and 3% in professional services (68% of product revenue). As for the services business, sales declined by 8% QoQ during the quarter. The KPO (Knowledge Process Outsourcing) segment registered a decent growth of 8% QoQ although it contributed to only 4% of total revenues.

  • OFS ramped up its business in the EMEA (Europe, Middle-East and Africa) and North American regions which together contribute around 48% of company’s topline. The company’s revenue from North America and Middle East & Africa grew by 5% QoQ and 22% QoQ respectively during 2QFY10. European business (30% of total revenue) declined by 20% QoQ during 2QFY10.

    Revenue Breakup
    (Rs m) 1QFY10 2QFY10 Change
    Segment wise      
    Products 4,423 4,278 -3.3%
    Services 2,451 2,268 -7.5%
    KPO 226 244 7.9%
    North America 2,201 2,309 5%
    Middle East India & Africa 781 951 22%
    Asia -Pacific 1,420 1,358 -4%
    Europe 2,556 2,037 -20%
    Latin America and Caribbean 142 136 -4%

    Product revenue breakup
    (Rs m) 1QFY10 2QFY10 Change
    License Fees 398 342 -14%
    Professional Services 3,008 2,909 -3%
    Annual Maintenance Charges 1,017 1,027 1%

  • The operating margins of OFS contracted by 4% QoQ during 2QFY10, largely due to decrease in topline and increase in sales and marketing cost. Operating margins improved by 17% for 1HFY10 on back of 17% decrease in expenses for the first half.

  • OFS’ net profits grew by 10% QoQ during 2QFY10. The expansion was largely driven by increase in other income, which grew significantly on account of higher interest income. However, excluding other income, net profits declined by 17% QoQ during the quarter. For 1HFY10, margin improvement boosted bottomline by 96% YoY.

What to expect?
At the current price of Rs 2,118, the stock is trading at a multiple of 30 times our estimated FY11 earnings. At these levels, we believe that the stock is overpriced. We will update this analysis post a management interaction.

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Feb 22, 2019 (Close)


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