Oracle Financial Services Software

On the back of forex loss of Rs 87.59 crore against a gain of Rs 26.60 crore in the corresponding quarter previous year and higher tax provisioning up 66%, Oracle Financial Services Software reported 49% slump in net profit at Rs 156.03 crore for the quarter ended March 2010. Operating revenues were down 5% at Rs 757.77 crore on the back of 15% dip in IT services business contributing 28% of revenues and 2% rise in product revenues contributing 69% of revenues. OPM improved 100bps at 40.5%.

For the year ended March 2010, Oracle Financials reported 2% fall in operating revenues at Rs 2873.97 crore with product revenues up 3% at Rs 1870.47 crore, KPO revenues up 18% at Rs 84.58 crore whereas IT services revenues were down 11% at Rs 924.77 crore. OPM improved 930bps at 35.8%, forex losses at Rs 156.87 crore against gain of Rs 104.41 crore in the previous year and effective tax rate up 320bps at 13.4%. The resultant net profit post provisioning of Rs 76 crore in the previous year was up 5% at Rs 773.66 crore.

The headcount at the end of the quarter stood at 10451 employees: Product - 4544, Services - 4069, support - 1073, KPO - 746 and On Demand - 19. For the quarter, on gross basis, the Company added 327 laterals and 530 fresh recruits. Product business saw reduction of 29 employees, Services business saw addition of 249 employees, support was down 50 employees and KPO business saw reduction of 115 employees. Attrition Rate for the year stood at 20% (17% sequential quarter).

Y-o-Y Performance: (Indian GAAP)

On the back of 2% Y-o-Y rise in the product business revenues at Rs 529.57 crore, 15% dip in IT services business revenues at Rs 216.85 crore and 19% dip in KPO business revenues at Rs 17.19 crore, Oracle Financials reported 5% fall in the consolidated operating revenues at Rs 757.77 crore.

Operating margins improved 100bps at 40.5%. OPM for product business improved 400bps at 51.9%, of IT services fell 930bps at 25.7% and of KPO business margins fell 70bps 33.1%. SG&A expenses were up 50bps at 18% of revenues. The margins were benefited by higher offshoring and lower headcount whereas rupee appreciation has a major impact. The resultant operating profit were down 2% at Rs 306.73 crore.

For the quarter, other income (net of interest) was expense of Rs 70.68 crore against profit of Rs 44.11 crore in the corresponding quarter last year. Interest income was down 32% at Rs 15.85 and there was a forex loss of Rs 87.59 crore against forex gain of Rs 26.60 crore in the corresponding quarter previous year. Depreciation & amortization charge decreased 16% at Rs 11.43 crore and the resultant PBT was lower by 35% at Rs 224.63 crore.

Provision for taxation was up 66% at Rs 68.59 crore with effective tax rate at 30.5% up from 12% in the corresponding quarter previous year. Net profit after minority interest and share of associates crashed 49% at Rs 156.03 crore.

FY2010 Performance (Indian GAAP)

For the year ended March 2010, consolidated operating revenues fell 2% at Rs 2873.97 crore on the back of 11% fall in IT services revenues at Rs 924.77 crore whereas product revenues rose 3% at Rs 1870.47 crore and KPO revenues grew 18% at Rs 84.58 crore.

OPM improved 930bps at 35.8% with OPM for product business improving 810bps at 45.8%, IT business up 460bps at 26% and OPM for KPO business improved at 40.2% against 24.1% in the previous year. SG&A expenses as a percentage of revenues were down 530bps at 18.7%. The margins were benefited by higher offshoring up 1300bps at 50%, higher fixed price engagements up 1100bps at 34% and lower headcount.

Operating profits grew 33% at Rs 1028.10 crore. Net other income of the company was expense of Rs 85.62 crore against income of Rs 178.94 crore in the previous year, which includes interest income down 9% at Rs 69.96 crore and forex loss was Rs 156.87 crore against gain of Rs 104.41 crore in the previous year. The resultant PBDT was down 1% at Rs 942.49 crore. Depreciation charge decreased 12% at Rs 48.87 crore, the resultant PBT before EO was down 1% at Rs 893.62 crore.

EO for the previous year of Rs 76 crore being Rs 46.89 crore being provision towards settlement of a dispute and Rs 29.11 crore being impairment loss on goodwill arising out of acquisition of i-flex solutions Inc Canada (Castek). PBT after EO was up 7% at Rs 893.62 crore. Provision for taxation was up 43% at Rs 119.77 crore with effective tax rate increasing 320bps at 13.4%. PAT grew 5% at Rs 773.85 crore. Net profit after minority interest and loss of associated companies grew 5% at Rs 773.66 crore.

• Oracle Financial added 15 new customers and 9 customer projects went live.

• Oracle Reveleus and Oracle Mantas, key offerings in the Oracle Financial Services Analytical Applications suite, had customer wins in Austria, Kenya, Kuwait and Malaysia.

• During the quarter, Oracle PrimeSourcing Consulting Services won orders from top tier banks in the US & EMEA regions in the specialized domain areas of Portfolio Management, Payments, and Business Intelligence

• Of the product revenues license fees constituted 29% (27% in corresponding previous quarter), professional services constituted 49% (55% in corresponding previous quarter) and AMC constituted 22% (19% corresponding previous quarter).

• Geographically for the product segment for the quarter, USA contributed 20% (14% corresponding previous quarter), Middle East & Africa 17% (21% corresponding previous quarter), Asia Pacific 26% (18% corresponding previous quarter), Europe 34% (42% corresponding previous quarter) and Latin America & Caribbean was 4% (5% corresponding previous quarter).

• Geographically for the services segment for the quarter, USA contributed 58% (54% corresponding previous quarter), Middle East & Africa 5% (7% corresponding previous quarter), Asia Pacific 21% (22% corresponding previous quarter) and Europe 16% (17% corresponding previous quarter).

• Customer concentration wise for the company as a whole, the top customer contributed 4% (5% corresponding previous quarter) of the operating revenues, top 5 customers 14% (17% corresponding previous quarter), top 10 customers 24% (27% corresponding previous quarter) and Citigroup & its entities 19% (17% corresponding previous quarter).

• Trade Receivables as per days of sales outstanding were 81 days (96 days sequential quarter).

• The onsite & offshore revenue breakup stood at 48:52 (61:39 corresponding previous quarter). Revenues as per contract the ratio of Fixed price and time & material basis stood at 37:63 as against 38:62 in the corresponding previous quarter.

Commenting on the performance, N R K Raman, CEO & Managing Director, said:

In the quarter ended March 2010, we signed new licenses of US$ 31 million, up 14% as compared to the previous quarter ended December 2009. The strong pickup in new license booking continues with our core banking, enterprise risk, financial crime, fraud and compliance solutions signing up 5 top tier banks in various regions. For the full year, we reported operating margins of 34%, up from 25% in the last fiscal year and the net margin for the full year was 27% up from 25% last year. Our investment in mainland China resulted in our signing the largest insurance & banking group for Oracle FLEXCUBE this quarter.

Commenting on the performance, Makarand Padalkar, CFO, said:

On a full year basis, we improved our margins across all segments. The products business posted operating margin of 45%, up from 36% in the last fiscal year, while the services business improved its operating margin to 24%, up from 18% over the same period last year.

Shareholding Pattern

As of March 31, 2010, foreign investors hold 3.79% (3.39% at the end of sequential quarter), Promoters hold 80.47% (80.52% at the end of sequential quarter), MFs/FIs & Banks hold 4.21% (3.92% at the end of sequential quarter), and others hold 11.53% (12.18% at the end of sequential quarter).

Valuation

The shares of Oracle Financial are trading at Rs 2037 which discounts the consolidated FY2010 EPS of Rs 92.3 by 22.1 times.

Oracle Financial Services Software: Consolidated Results