ORACLE FINANCIAL SERVICES LTD (OFSL)
PRICE: RS.2060 RECOMMENDATION: ACCUMULATE
TARGET PRICE: RS.2247 FY11E P/E: 16.2X
Results below expectations; Maintain ACCUMULATE
Results for 2QFY10 were below expectations, mainly due to lower-thanestimated
revenues. A further 16% QoQ fall in the license revenues
contributed to the revenue shortfall v/s expectations. We had anticipated
growth after the 70% fall experienced in 1QFY10. Margins fell QoQ largely
due to the lower license revenues and also services revenues. While the
demand scenario has eased QoQ, order flows have remained muted.
Sustainability of annual growth rates and margins is critical, in our opinion.
We tweak FY10 EPS estimate to Rs.107 (Rs.111 earlier). We also introduce
FY11 estimates and expect EPS to rise to Rs.127. We note valuations are not
un-demanding and there can be potential gains from Oracle's offer, if any,
to buy-back shares and de-list the company. We maintain ACCUMULATE
due to the sharp run-up in stock price and the continuing uncertainty on
macro environment (and potential impact on the BFSI segment). Price
target is at 2247 (Rs.1644 based on FY10 earnings) based on FY11 earnings
estimates. A delayed recovery in user economies and a sharper-thanexpected
rupee appreciation are key risks to our earnings estimates.
