Oracle Financial
Services Software Limited (OFSS) majority owned by Oracle, is a world leader in
providing IT solutions to the financial services industry. With its experience
of delivering value-based IT solutions to global financial institutions. OFSS dedicated
research and development centers excel in innovation by developing world class
products that strive to be ahead of the market. OFSS offers financial
institutions the world’s most comprehensive and contemporary banking
applications and a technology footprint that addresses their complex IT and
business requirements. It offers a comprehensive suite of offerings
encompassing retail, corporate, and investment banking, funds, cash management,
trade, treasury, payments, lending, asset management, compliance, enterprise
risk and business analytics, anti-financial crime among others.
1. The products
business (89%)(comprising product licensing, consulting and support) is
principal business segment . Oracle
FLEXCUBE is a complete banking solution for retail, corporate and
investment banking, consumer lending, asset management, and investor servicing
including payments. These solutions are built on latest technology and offer
various deployment choices of a cloud / SaaS or an on-premise deployment.
2. Oracle Financial
Services Prime Sourcing (8%)offers a comprehensive suite of consulting and
application services addressing retail, corporate, and investment banking,
funds, cash management, trade, treasury, payments, lending, private wealth
management, asset management, compliance, enterprise risk and business
analytics. PrimeSourcing offerings encompass end-to-end consulting partnership,
providing comprehensive business and technology solutions that enable financial
services enterprises to improve process efficiencies, optimize costs, meet risk
and compliance requirements, define IT architecture, and manage the
transformation process.
3. Oracle Business
Process Outsourcing Services (BPO)(3%) offers cost effective and high quality BPO
services ranging from complex back-office work to contact center services for
the banking, capital markets, insurance and asset management domains
Revenues comprise
three streams –
1. License fees : standard licensing arrangements for products
provide the bank a right to use the product up to a limit on number of users or
sites or such other usage metric upon the payment of a license fee. The license
fee is a function of a variety of quantitative and qualitative factors,
including the number of copies, users, modules and geographical locations
supported. The licenses are perpetual, non-exclusive, personal,
non-transferable and royalty free. In products business, customers can
optionally avail consulting services related to the implementation of products
at their sites, integration with other systems or enhancements to address their
specific requirements
2. Annual maintenance
contract (post contract support – PCS) fees for the products : Annual
maintenance contract (PCS) fees Customers typically sign an Annual Maintenance
Contract with OFSS under which, it provides technical support, maintenance, problem
resolution and upgrades for the licensed products. These support agreements
typically cover a period of twelve months and are renewed every year. The
annual maintenance contracts generate steady revenues and could grow to the
extent that new customers are entering a support agreement
3. Consulting fees in
respective business segments: The customer is typically charged a service
fee on either fixed price basis or a time and material basis based on the
professional efforts incurred and associated out of pocket expenses. Both Prime
Sourcing and BPO businesses comprise only of consulting services. The revenues
generated from license fees and consulting services depends on factors such as the number of new
customers added, milestones achieved, implementation effort, etc. Therefore,
such revenues typically vary from quarter to quarter and year to year.
Investment Rational
customers through digital channels, enhancing self-service,
and reducing time to market for new products and services. Cloud technology is
slowly moving to the forefront in the financial services industry as banks are
beginning to see monetary benefits due to flexibility in business
transformation. OFSS is well placed to help banks move to the cloud. It offers
Software-as-a Service
(SaaS) as also the option to host applications in the customer data center along
with the capability to manage it. They have adopted "build in" Machine
Learning and AI into their applications as a principle. Today, Machine Learning
algorithms can help customers
automatically generate the next best offers based on intelligent customer
insight. Their AI and data science platform can help financial crime
investigators reduce false positives. Conversational AI tools such as chatbots
are now embedded in their digital experience platforms
Key Positives:
1. 1.. MNC Parentage
2. 2.Promoter’s share 73.12%r.
3. 3.Debt Free company
4. 4. ROCE >36%
ROE>26%
5. 5.Current Market cap 29483 crores (approx 6xof
revenue)much lower than peers.
6. 6.A
strong consistent slow growing business model
7. 7.Q-3 Results already delivered EPS of Rs 163
(8% growth over last year)
8. 8. Buy backs, Delisting etc. could be future
triggers.
Ri
Financial Performance:
OFSS has
delivered flat but consistent Q3 results
the EPS for nine months for FY21-22 is Rs 163.33 and full year expected EPS on conservative
estimate could be close to Rs215 .Stock
is availaible at PE multiple of 15.5-15.8 which is very attractive for a MNC .A
forward PE multiple of 20 with estimated EPS FY22-23 of Rs 230-232 stock has
potential to touch Rs 4500 in one year. Company has been rewarding shareholder
with very high dividend last year it was Rs 200 this year it could increase the
dividend payout to Rs 210+ so if we consider dividend + potential appreciation
of Rs 1100 it can deliver 40% returns in one year from CMP of Rs 3350-3400.
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