Oracle Financial Services Software (Oracle Financial), a products vendor, counts almost all the leading global companies in the banking and financial services (BFSI) space among its clients.

Investors can buy the shares of Oracle Financial in light of its high margins, predictable prospects, strong position in key emerging and developed markets and high cash cushion.

The banking segment continues to be the top spender on software products and services. The company has managed strong growth in product revenues on the back of growth in key markets such as Europe and Middle East and Africa (EMEA) and Japan and a ramp-up by top customers. The net profit margin of the company, at nearly 31 per cent, is among the highest in the industry. This enables the Oracle Financial stock to enjoy higher valuations even compared to top players such as TCS and Infosys.

At Rs 2,756, the share trades at 17 times its likely per share earnings for FY14, which is not cheap. But strong business prospects and a cash per share of over Rs 650, which is more than 23 per cent of its share price, give comfort. In light of the higher valuations, investors with at least a two year horizon can accumulate the stock.

Products drive growth: In FY13, Oracle Financial’s revenues grew 10 per cent over the previous fiscal to Rs 3,474 crore, while the net profits rose 18 per cent to Rs 1,075 crore. Its FLEXCUBE, a banking product, is among the highest revenue earners in the industry. This software product is ahead of similar offerings of peers such as Infosys’ Finacle and TCS’ BaNCS in market share.

The company derives 75 per cent of its revenues from its products business. In FY13, revenues from this segment grew by a healthy 14 per cent, which suggests that the company has been able to tap into discretionary spends of clients. With higher product sales, licence fee, services and maintenance revenues would follow, which increases revenue visibility for the company.

Its top 10 customers have increased contribution from 36 per cent in FY12 to 38 per cent in 2012-13, indicating strong client-mining capabilities. Operationally, the company has been able to increase its offshore component of revenues to reduce costs and has relied more on fixed-price contracts to improve realisations. The only risk is pricing pressure from Infosys and TCS on the products front.

(This article was published on July 13, 2013)
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