oracle financial services so ftware (iflex ) -...

Firstcall India Equity Advisors Pvt Ltd

Oracle Financial Services Software (IFLEX)

BUY Target Price: Rs.2615.00

CMP: Rs.2286.00 Market Cap.: Rs.191475.3mn.

Date: November 18, 2009

Key Ratios:

Particulars FY09 FY10E FY11E

OPM(%) 27 34 33

NPM(%) 31 32 31

ROE(%) 20 17 15

ROCE(%) 19 19 17

P/BV(x) 5.46 4.53 3.84

P/E(x) 27.52 26.76 25.08

EV/EBDITA(x) 31.55 29.12 31.48

Key Data:

Sector IT

Face Value (Rs.) 5.00

52 wk. High/Low (Rs.) 2300.00/415.00

Volume (2 wk. Avg.) 36868

BSE Code 532466

SYNOPSIS • Oracle Financial Services Software (formerly i-flex

solutions) is a leading provider of applications and

professional services for the financial services

industry.

• Oracle Financial Services portfolio of offerings

includes Oracle FLEXCUBE, a complete banking

product suite for retail, consumer, corporate,

investment, and asset management, and investor

servicing.

• During the quarter company added 12 customers

while 20 customer projects went “live” with

successful deployment of their products.

• A leading global bank licensed Oracle FLEXCUBE

Messaging Hub to create a Trade Services Utility to

enhance services to their customers.

• During the quarter company launches a new release

of Oracle Mantas Fraud to manage financial crime

and fraud.

• A leading multi-national bank signed for Consulting

Services in Japan.

• During the quarter Q2FY10 company unveils new

revenue management suite for banks.

• The topline of the company is expected to grow at a

CAGR of 11% over FY08 to FY11E.

Share Holding Pattern:

V.S.R. Sastry

Vice President

Equity Research Desk

91-22-25276077

[email protected]

Dr. V.V.L.N. Sastry Ph.D.

Chief Research Officer

[email protected]


Table of Content

Content Page No.

1. Investment Highlights 03

2. Company Profile 06

3. Peer Group Comparison 09

4. Financials 10

5. Charts & Graph 12

6. Outlook and Conclusion 13

7. Industry Overview 14


Investment Highlights

• Result Updates (Q2 FY10)

Oracle Financial Services Software, a majority owned subsidiary of Oracle, reported a

phenomenal rise in standalone net profit for the quarter ended September 2009. During

the quarter, the profit of the company rose 54.44% to Rs 1,718.10 million from Rs

1,112.50 million in the same quarter last year.

Net sales declined marginally 1.50% to Rs 5,366 million, while total income for the

quarter fell marginally 1.50% to Rs 5,365.90 million, when compared with the prior year

period. Company posted earnings of Rs 20.51 a share during the quarter, registering

54.44% growth over previous year period. During the quarter, the operating margin of

the company rose to 45.02% compared with 19.89% in the previous year period.

Interest cost decreased 52.90% to Rs 235.50 million while depreciation cost fell 4.35% to

Rs 101.10 million over previous year period.

Quarterly Results - Standalone (Rs in mn)

As at Sep - 09 Sep - 08 %Change

Net Sales 5,365.90 5,447.80 (1.50)

Net Profit 1,718.10 1,112.50 54.44

Basic EPS 20.51 13.28 54.44

• Launches new financial services solution

Oracle Financial Services Software today announced an integrated, enterprise-wide

stress testing solution. The stress testing solution enables institutions to centrally

develop, define and manage scenarios and shocks - and apply them across multiple risk

categories including credit risk and market risk.

• Implements Oracle`s Flexcube solution

International Bank of Azerbaijan, one of the largest banks in the region has gone live

with the company`s Oracle FLEXCUBE Universal Banking System as its core banking

platform. The bank replaced its former banking system called MIDAS with Oracle

FLEXCUBE because it offered a functionally rich, comprehensive and integrated solution

for universal banking.


• National Bank chooses Oracle Flexcube

Oracle Financial Services Software, a majority-owned subsidiary of Oracle, announced

that National Bank of Cambodia has selected Oracle Flexcube as the banking platform

for its operations. As the regulator, National Bank of Cambodia plays an important role

in the design and implementation of the financial sector development program for the

Kingdom of Cambodia.

• Unveils new revenue management

Oracle unveils new revenue management suite for banks. The new software is a

comprehensive, configurable solution that enables banks to streamline and automate

the revenue management process, reduce loss in fee-based income and provide

accurate information to clients on bills, receivables management processes to increase

fee-based income, provide accurate information to clients and reduce revenue leakage.

• Launches new fraud detection software

Oracle Financial Services Software has launched a new release of financial software

called New Oracle Mantas Fraud which will strengthen fraud detection and help

financial institutions defend against the increasing and globalised financial chime

schemes.

• Segmental Revenue


• Geographic Revenue

• Revenue Mix- On: Off


• Revenue from Top Clients

• Head Count


• Attrition Rate

• Buys Sun Microsystems

Oracle Corporation parent company of Oracle Financial Services Software (India) and

Sun Microsystems have entered into a definitive agreement under which Oracle will

acquire Sun common stock for USD 9.50 a share in cash.

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

Subsidiaries

• I-flex solutions b.v.

• I-flex solutions Inc.

• I-flex solutions pte ltd

• I-flex Consulting (Asia Pacific) Pte Ltd.

• I-flex Processing Services Inc.

• Equinox Global Services Ltd.

• SuperSolutions Corporation

• Mantas Inc.

• Castek Software Inc.

• Flexcel International Private Limited

Industry 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

Peer Group Comparison

Name of the company CMP

(As on

Nov.18,

2009)

Market

Cap.

(Rs. Mn.)

EPS

(Rs.)

P/E

(x)

P/BV

(x)

Dividend (%)

Oracle Financial 2286.00 191475.3 83.06 27.52 5.46 -

Infosys Technologies Ltd 2433.00 1394896.0 105.86 22.98 7.84 470

HCL Technologies Ltd 338.80 227872.0 15.53 21.82 5.46 450

Wipro Technologies Ltd 642.50 942083.2 27.31 23.53 7.52 200

Key Concerns

• Exposure to various economies.

• Increasing competition.

• Legislative and visa related restrictions

• Foreign exchange rate fluctuations.


Financials 12 Months Ended Profit & Loss Account (Standalone)

Value(Rs.in million) FY08A FY09A FY10E FY11E

12m 12m 12m 12m

Description

Net Sales 17,929.70 22,126.20 22568.72 24374.22

Other Income 0.00 0.00 0.00 0.00

Total Income 17,929.70 22,126.20 22568.72 24374.22

Expenditure -13,497.70 -16,057.70 -15008.20 -16330.73

Operating Profit 4,432.00 6,068.50 7560.52 8043.49

Interest 486.50 1,682.80 484.28 532.71

Gross Profit 4,918.50 7,751.30 8044.80 8576.20

Depreciation -603.10 -428.40 -432.68 -454.32

Profit before Tax 4,315.40 7,322.90 7612.12 8121.88

Tax -206.60 -365.80 -456.73 -487.31

Profit after Tax 4,108.80 6,957.10 7155.39 7634.57

Equity Capital 416.70 418.80 418.80 418.80

Reserves 27,707.50 34,675.30 41,830.69 49,465.26

Face Value 5.00 5.00 5.00 5.00

Total No. of Shares 83.34 83.76 83.76 83.76

EPS 49.30 83.06 85.43 91.15


Quarterly Ended Profit & Loss Account (Standalone)

Value(Rs.in million) 31-Mar-09 30-Jun-09 30-Sep-09 31-Dec-09E

3m 3m 3m 3m

Description

Net Sales 5637.60 5456.20 5365.90 5580.54

Other Income 0.00 0.00 0.00 0.00

Total Income 5637.60 5456.20 5365.90 5580.54

Expenditure -4367.30 -3514.70 -3677.00 -3738.96

Operating Profit 1270.30 1941.50 1688.90 1841.58

Interest 1028.20 -230.70 235.50 240.21

Gross Profit 2298.50 1710.80 1924.40 2081.79

Depreciation -100.20 -97.50 -101.10 -105.14

Profit before Tax 2198.30 1613.30 1823.30 1976.64

Tax -130.40 -91.10 -105.20 -118.60

Profit after Tax 2067.90 1522.20 1718.10 1858.04

Equity Capital 418.80 418.80 418.90 418.90

Total No. of Shares 83.76 83.76 83.78 83.78

EPS 24.69 18.17 20.51 22.18


Charts


1 Year Comparative Graph

Oracle Financial Services Software BSE SENSEX

Outlook and Conclusion

• At the current market price of Rs.2286.00, the stock is trading at a P/E of 26.76x for FY10E

and 25.08x for FY11E.

• The EPS of the company is expected to be at Rs.85.43 and Rs.91.15 for FY10E and FY11E

respectively.

• On the basis of price to book value, the stock trades at 4.53x and 3.84x for FY10E and FY11E

respectively.

• Company registered notable wins for their newer offerings such as Industry Reference

Model for Banking, FLEXCUBE Messaging Hub apart from Core Banking and Risk

Management solutions.

• During the current quarter, company has seen significant market traction across Asia Pacific

and Middle East & Africa regions.

• During the quarter, the company added 12 customers while 20 customer projects went

“live” with successful deployment of their products.

• Oracle FLEXCUBE makes strong headway in Asia with wins in Cambodia, Vietnam, Nepal and

Bangladesh; and further strengthens position in China with an additional win.


• A mid-size U.S. bank recruited Oracle Financial Services Consulting to assess key risks and

design a Stress Testing Framework at the bank.

• New product releases in the quarter include Oracle FLEXCUBE Direct Banking, Oracle

Reveleus ICAAP, Oracle Reveleus Market Risk and Oracle Mantas.

• A leading multi-national bank signed for Consulting Services in Japan.

• PrimeSourcing Technology Services wins the deal to provide infrastructure support to

production environments based in Singapore.

• A leading European bank selected PrimeSourcing Application Services for migration and

technology streamlining of their private wealth management platform.

• We recommend a “BUY” on the stock with a target price of Rs.2615.00 for medium to long

term.

Industry Overview

Sector structure/Market size

The Indian information technology industry has played a key role in putting India on the global

map. Thanks to the success of the IT industry, India is now a power to reckon with. According

to the National Association of Software and Service Companies (NASSCOM), the apex body for

software services in India, the revenue of the information technology sector has risen from 1.2

per cent of the gross domestic product (GDP) in FY 1997-98 to an estimated 5.8 per cent in FY

2008-09.

India's IT growth in the world is primarily dominated by IT software and services such as

Custom Application Development and Maintenance (CADM), System Integration, IT Consulting,

Application Management, Infrastructure Management Services, Software testing, Service-

oriented architecture and Web services.

As per NASSCOM's latest findings:

• Indian IT-BPO sector grew by 12 per cent in FY 2009 to reach US$ 71.7 billion in aggregate

revenue (including hardware). Of this, the software and services segment accounted for

US$ 59.6 billion.

• IT-BPO exports (including hardware exports) grew by 16 per cent from US$ 40.9 billion in

FY 2007-08 to US$ 47.3 billion in FY 2008-09.


Moreover, according to a study by Springboard Research, the Indian IT services market is

estimated to remain the fastest growing in the Asia-Pacific region with a CAGR of 18.6 per

cent.

Despite the uncertainty in the global economy, the top three IT majors— Infosys, TCS and

Wipro—have seen revenue growth from all important sources of income: from the North

American and European regions, in the financial services vertical and from application

maintenance and development (ADM) offerings between fiscal years 2008 and 2009.

At present, there are 60 million Internet users in the country. According to Manufacturer’s

Association of IT (MAIT), the number of active Internet entities rose to 8.6 million by March

2009 from 7.2 million units in March 2008.

MAIT has outlined 'Goal 511', an ambitious target that talks about 500 million Internet users,

100 million broadband connections, and 100 million connected devices by 2012.

A latest study by MAIT estimated that the total PC sale in India is likely to grow by 7 per cent in

2009-10, with total sales expected to cross 7.3 million units.

Outsourcing

A research by Gartner forecasts India as the undisputed leader in the outsourcing space in the

year 2008. India's most prized resource is its readily available technical work force. India has

the second largest English-speaking scientific professionals in the world, second only to the US.

It is estimated that India has over 4 million technical workers, over 1,832 educational

institutions and polytechnics, which train more than 67,785 computer software professionals

every year. The enormous base of skilled manpower is a major draw for global customers.

According to NASSCOM, software and services exports (including exports of IT services, BPO,

engineering services and R&D and software products) reached US$ 47 billion in FY 2008-09,

contributing nearly 78 per cent to the total software and services revenue of US$ 59.6 billion.

India continues to be the most preferred destination for companies looking to offshore their IT

and back-office functions. It also retains its low-cost advantage and is among the most

financially attractive locations when viewed in combination with the business environment it

offers and the availability of skilled people, according to global management consultancy AT

Kearney.

India has retained its numerous Uno position even as some other well-established outsourcing

hubs dropped in their attractiveness to be replaced by new emerging destinations in AT

Kearney’s latest ranking of the top outsourcing destinations across the globe. The top three

countries in the 2009 Global Services Location Index (GSLI) remain the same — India, China

and Malaysia.


Domestic Markets

India's domestic market has also become a force to reckon with, as the existing IT

infrastructure evolves both in terms of technology and depth of penetration.

According to NASSCOM, domestic IT market (including hardware) reached US$ 24.3 billion in

FY 2008-09 as against US$ 23.1 billion in FY 2007-08, a growth of 5.3 per cent.

India Inc's demand for IT services and products has bolstered growth in the domestic sector

with deal sizes going up remarkably and contracts worth US$ 50 million-US$ 100 million up for

grabs.

The market for enterprise networking equipment in India is estimated to grow from US$ 1

billion in 2008 to US$ 1.7 billion by 2012, recording a compounded annual growth rate (CAGR)

of 15 per cent during this period, according to a study by Springboard Research.

Investments

• Infosys Technologies Ltd will invest US$ 70 million over the next three quarters of the

current financial year towards increasing its sales and marketing staff overseas, building

new capabilities and hiring local resources for its international centres.

• The Andhra Pradesh Government expects the IT-related SEZs and Software Technology

Parks of India (STPI) in the State to receive about US$ 3.27 billion investments in the next

five years.

• HCL Technologies has entered into a strategic partnership with South Africa’s UCS Group.

As part of the all-cash deal, HCL will acquire UCS’s enterprise solutions SAP practice

focused on the retail sector for US$ 7.7 million.

Rural Penetration

According to a report of the Internet and Mobile Association of India (IAMAI), rural India has

3.3 million active internet users. Since rural India was mapped for the first time, the year-on-

year growth of internet users in rural India could not be estimated.

The research also notes there are 5.5 million people who claim to have used Internet at some

point in time.

Government Initiatives


• The government set up the National Taskforce on Information Technology and Software

Development with the objective of framing a long term National IT Policy for the country.

• Enactment of the Information Technology Act, which provides a legal framework to

facilitate electronic commerce and electronic transactions.

• The government-led National e-Governance Program, has played an important role in

increasing internet penetration in rural India.

Road Ahead

The Indian information technology sector continues to be one of the sunshine sectors of the

Indian economy showing rapid growth and promise.

According to a report prepared by McKinsey for NASSCOM, the exports component of the

Indian industry is expected to reach US$ 175 billion in revenue by 2020. The domestic

component will contribute US$ 50 billion in revenue by 2020. Together, the export and

domestic markets are likely to bring in US$ 225 billion in revenue, as new opportunities

emerge in areas such as public sector and healthcare, and as geographies including BRIC and

Japan opt for greater outsourcing.

___________________________________________________________

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 we 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.


Firstcall India Equity Research: Email – [email protected]

B. Harikrishna Banking

B. Prathap IT

A. Rajesh Babu FMCG

C.V.S.L.Kameswari Pharma

U. Janaki Rao Capital Goods

E. Swethalatha Oil & Gas

D. Ashakirankumar Auto

Rachna Twari Diversified

Kavita Singh Diversified

Nimesh Gada Diversified

Priya Shetty Diversified

Tarang Pawar Diversified

Neelam Dubey Diversified

Firstcall India also provides

Firstcall India Equity Advisors Pvt.Ltd focuses on, IPO’s, QIP’s, F.P.O’s,Takeover

Offers, Offer for Sale and Buy Back Offerings.

Corporate Finance Offerings include Foreign Currency Loan Syndications,

Placement of Equity / Debt with multilateral organizations, Short Term Funds

Management Debt & Equity, Working Capital Limits, Equity & Debt

Syndications and Structured Deals.

Corporate Advisory Offerings include Mergers & Acquisitions(domestic and

cross-border), divestitures, spin-offs, valuation of business, corporate

restructuring-Capital and Debt, Turnkey Corporate Revival – Planning &

Execution, Project Financing, Venture capital, Private Equity and Financial

Joint Ventures

Firstcall India also provides Financial Advisory services with respect to raising

of capital through FCCBs, GDRs, ADRs and listing of the same on International

Stock Exchanges namely AIMs, Luxembourg, Singapore Stock Exchanges and

other international stock exchanges.

For Further Details Contact:

3rd Floor,Sankalp,The Bureau,Dr.R.C.Marg,Chembur,Mumbai 400 071

Tel. : 022-2527 2510/2527 6077/25276089 Telefax : 022-25276089

E-mail: [email protected]

www.firstcallindiaequity.com

oracle financial services so ftware (iflex ) -...

Documents