Oracle Financial Services Software reported flat revenues y-o-y at Rs 862.51 crore for the quarter ended March 2012. While product revenues grew 6.56% to Rs 672.3 crore comprising 77.95% of revenues, services revenues declined 21.75% to Rs 168.7 crore contributing 19.56% of revenues. OPM was down 250bps to 40.4%. The resulting operating profits de-grew 6% to Rs 348.51 crore. Tax provisioning increased substantially during the quarter with the effective tax rate up from 13% to 49.6%. Net Profit thus de-grew sharp 48% to Rs 193.43 crore.

FY12 revenues grew muted 5% to Rs 3416.68 crore on the back of 14% growth in product revenues to Rs 2282.28 crore despite 16% decline in services revenues to Rs 782.16 crore, contribution being 25% against 73% contributed by product business. OPM took a 250bps downward hit to 35.3% due to increase in employee costs which led to 2% decline in operating profits to Rs 1111.11 crore. While there was good increase in other income, tax rate increased from 10.98% to 35.83% leading to 18% decline in net profits to Rs 909.29 crore.

The headcount at the end of the quarter stood at 9682 employees: Product - 5566, Services - 2723, support - 677, KPO - 716. On q-o-q basis for the quarter, on net basis, the Company's employees increased by 65. Product business saw increase of 141 employees, Services business saw reduction of 66 employees, support was down 6 employees and KPO business saw decline of 4 employees

Y-o-Y Performance: (Indian GAAP)

Oracle Financial reported flat operating revenues at Rs 862.51 crore at the consolidated level for the quarter ended March 2012 as 6.56% y-o-y rise in the product business revenues to Rs 672.3 crore (77.95% of total) was largely negated by 21.75% decline in IT services revenues to Rs 168.7 crore (19.56% of total) while BPO revenues grew 14.36% to Rs 21.5 crore (2.49% of total).

Operating margins were down by 250bps to 40.4%, on the back of 610bps decline in PBIT margins of product business to 49%, IT business margins were down 420bps to 14.2% and for BPO business at 38.1%, down 280bps. The resultant operating profit was down 6% to Rs 348.51 crore. For the quarter, other income (net of interest) fell 28% to Rs 48.56 crore. PBDT thus de-grew 9% to Rs 397.1 crore. Depreciation & amortization charge increased 18% to Rs 13.16 crore. The resultant PBT was lower by 10% to Rs 383.92 crore.

Provision for taxation shot up by more than three times to Rs 190.49 crore at an effective tax rate of 49.62% against 13% in the corresponding quarter previous year. Net profit was thus down 48% to Rs 193.43 crore.

FY2012 Performance (Indian GAAP)

For the year ended March 2012, consolidated operating revenues rose 5% to Rs 3146.68 crore on the back of 14% rise in Product revenues to Rs 2282.28 crore (73% of total) despite 16% fall in IT services Rs 782.16 crore (25% of total) whereas BPO revenues grew 13% to Rs 82.24 crore (3% of total).

OPM worsened by 250bps to 35.3% on the back of 580bps decline in PBIT margins of product business to 42.7%, IT business margins were up 10bps to 25% and for BPO business improved to 34.7%, up 280bps. Employee costs as a percentage of revenues were up 438bps to 48.26%. The margins were also impacted by lower off-shoring down 500bps to 47% and lower fixed price engagements down 1100bps to 25%. Operating profits de-grew 2% to Rs 1111.11 crore. Net other income of the company was Rs 421.75 crore against Rs 166.83 crore in the previous year, which includes interest income of Rs 274.11 crore, up 96% and forex gain of Rs 144.45 crore against Rs 22.72 crore in the previous year. The resultant PBDT was up 18% to Rs 1532.86 crore. Depreciation charge increased 14% to Rs 46.62 crore.

A customer has filed a lawsuit against the Company and one of its subsidiaries, claiming damages of upwards of Rs 578.42 crore. While the claims are being rigorously defended by the Company and counter claims raised against the customer (for breach of contract and outstanding fees), a mediation process has been initiated by the parties concerned In respect of this claim, the Company has provided Rs 86.56 crore and Rs 12.20 crore in the three month period ended September 30. 2011 and September 30. 2010 respectively and has disclosed the same as an exceptional item in the financial results for the three month period ended September 30, 2011. During the three month period ended December 31. 2011, the Company has settled the said customer dispute for full release of all alleged claims and accordingly has' recorded the full settlement amount net of insurance claim, and reversed resultant excess provision of Rs 17.22 crore which has been disclosed as the exceptional Item. EO expense jumped from Rs 12.21 crore to Rs 69.33 crore, the resultant PBT was up 14% to Rs 1416.91 crore.

Provision for taxation was up 270% to Rs 507.62 crore from Rs 137 crore and effective tax rate was up form 10.98% to 35.83% as a result of which PAT de-grew 18% to Rs 909.29 crore.

• Oracle Financial added 25 customers in products. The new licenses signed during the quarter were of US$ 29 million.

• Of the product revenues, license fees constituted 21% (10% in sequential quarter and 28% in corresponding previous quarter), professional services constituted 55% (60% in sequential quarter and 50% in corresponding previous quarter) and AMC constituted 24% (29% in sequential quarter and 22% in corresponding previous quarter).

• Geographically for the product segment for the quarter, USA contributed 22% (26% in sequential quarter and 20% in corresponding previous quarter), Middle East & Africa 19% (19% in sequential quarter and 18% in corresponding previous quarter), Asia Pacific 34% (33% in sequential quarter and 21% in corresponding previous quarter), Europe 22% (21% in sequential quarter and 35% in corresponding previous quarter) and Latin America & Caribbean at 3% (2% in sequential quarter and 5% in corresponding previous quarter).

• Geographically for the services segment for the quarter, USA contributed 64% (62% in sequential quarter and 54% corresponding previous quarter), Middle East & Africa 3% (4% in sequential quarter and 5% in corresponding quarter), Asia Pacific 19% (21% in sequential quarter and 23% corresponding previous quarter) and Europe 13% (12% in sequential quarter and 16% corresponding previous quarter) and Latin America and Caribbean 1% against 1% in sequential quarter and 1% in the corresponding quarter..

• Customer concentration wise for the company as a whole, the top customer contributed 9% (13% in sequential quarter and 8% corresponding previous quarter) of the revenues, top 5 customers 23% (31% in sequential quarter and 29% corresponding previous quarter), top 10 customers 37% (40% in sequential quarter and 40% corresponding previous quarter) and Citigroup & its entities 18% (23% in sequential quarter and 21% corresponding previous quarter).

• Trade Receivables as per days of sales outstanding were 93 days (106 days sequential quarter).

• The onsite & offshore revenue breakup stood at 42:42 (51:49 in the sequential quarter and 48:52 in corresponding quarter). Revenues as per contract the ratio of Fixed price and time & material basis stood at 29:71 as against 16:84 in the sequential quarter and 32:68 in the corresponding quarter.

Chet Kamat, CEO & Managing Director, said:

We witnessed strong license signing momentum in the quarter and booked new licenses of US$ 29 million. The customer wins represent a wide spectrum of usage and in particular we are pleased with tier-one customer signings especially in the United States. Overall, I am also pleased with the top line growth of 14% in the products business on a full year basis. We delivered strong business metrics and have a healthy pipeline for next fiscal year.

Makarand Padalkar, CFO, said:

We posted an operating margin of 34% for the full year ended March 2012, representing a drop of 3% principally arising out of higher investments in the Product Business. With a strong operating discipline, we maintained /improved the margins in our services and BPO business. While the income before provision of taxes for the full year ended March 2012 increased 14% over previous year, the net income for the full year ended March 2012 dropped by 18% due to higher provisions for tax.

Shareholding Pattern

As of March 31, 2012, Promoters hold 80.36% (80.39% at the end of sequential quarter), foreign investors hold 3.73% (2.69% at the end of sequential quarter), MFs/FIs & Banks hold 4.28% (5.12% at the end of sequential quarter), and others hold 11.63% (11.89% at the end of sequential quarter).

The shares of the company were trading at Rs 2462 on BSE on 14^th May 2012.

Oracle Financials: Consolidated Results