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This Large Cap IT Stock Has 19% Upside In 6 Months, Buy says HDFC Securities

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The Indian markets are trading steadily amid unpredictability, with metal, FMCG, IT, and pharmaceutical sectors leading the market down. Even India's top brokerage firms are positive on these sectors, predicting a significant increase in the coming 6 to 12 months. In the midst of this, HDFC Securities initiated a buy call on the shares of Oracle Financial Services Software Ltd (OFSS). The brokerage has set a target price of Rs. 4701 and anticipates the stock to rise 19% from its current market price of Rs. 3,933 in the next six months.

 

Q2FY22 result of Oracle Financial Services Software Ltd (OFSS)
 

Q2FY22 result of Oracle Financial Services Software Ltd (OFSS)

According to HDFC Securities "OFSS reported 8.3% QoQ decline and 7% YoY growth in revenue to Rs 1281 crore in Q2FY22. EBIT was down by 14.6% QoQ but up 9.8% YoY to Rs 605 crore. Net profit for the quarter was Rs 448 crore, up 14.2% YoY but declined 14.6% QoQ. EBIT Margin stood at 47.2% in Q2FY22 vs. 46% in Q2FY21 and 50.7% in Q1FY22 and net profit margin declined 260bps QoQ and it was up 220bps YoY to 34.9% in Q2FY22. The Products business posted revenue of Rs 1,144 crore, down 9.2% QoQ and up 8% YoY, and the Services business posted revenue of Rs. 106 Crore, up 5.6% QoQ and 0.6% YoY."

According to the brokerage "OFSS reported another strong quarter of performance with robust license deals in Q2FY22, and signed license deals of $22.1 million in the quarter with customers in 22 countries. 13 customers went live on Oracle Financial Services software products in the quarter. Punjab National Bank, Bank of Valletta PLC, Hampden & Co, Saudi Arabian bank, Infin Bank JSCB and Kuwait's Gulf Bank are among the new customers. The singapore-based bank has extended its technology partnership with Oracle by signing a deal for Oracle Financial Services Analytical Applications. OFSS is witnessing an improved outlook on the deal pipeline and sustained momentum gains in developed economies with sustained demand in the emerging and frontier markets. We believe the broad-based gain in the deal pipeline will enable the proposition for sustained strong growth in new license sales over FY21-24E."

The brokerage’s take on OFSS

The brokerage’s take on OFSS

HDFC Securities has said that "OFSS continues to show customer acquisition momentum across all business areas - Corporate Banking, Retail Banking, Risk and Finance, and Financial Crime. Its total customer base has increased from 1084 as of 31 March 2013 to 1432 as of 31 March 2021. As the Financial Services industry pivoted to digital faster than ever to meet customer and regulatory demands in a new normal, the company responded with continued product innovation to launch more digital and cloud-based solutions. The global footprint and market leadership of Oracle FLEXCUBE continues to expand with wins across the world. Banks across the United Kingdom, Europe, United States, Japan, and the Middle East, are using the OFSS software to drive working capital clarity for their customers and embark upon much-needed digitization of corporate banking. OFSS' new solution for retail banks, Oracle FLEXCUBE Onboarding enables them to deliver seamless cross-channel consistent origination experiences over cloud and on-premise deployments."

In its research report, the brokerage has noted that "OFSS made significant investments in rapidly moving its solutions to cloud and launched solutions for Liquidity Management, Virtual Account Management, and Supply Chain Finance as cloud services, much ahead of the market. Banks can take advantage of these solutions to quickly deploy a wide range of banking services. Besides, the company launched Oracle Financial Crime and Compliance Management Cloud Services - an application suite designed for midsized banks and smaller financial institutions. It offers services for the full anti-money laundering (AML) lifecycle, where organizations can quickly identify abnormal customer behavior and streamline compliance activities. Its diversified product portfolio across various functional areas in BFSI segment could help to gain market share and revenue generation opportunity going forward."

According to the brokerage "OFSS expressed its organic initiatives around product launches, inorganic strategy, implementation revenues, and performance of company across several metrics and its broad outlook on cloud/tech adoption by banks in coming years. Transforming solutions, taking advantage of tech investments by Oracle Inc and introducing new products in the areas where it sees gaps are key strategic thrusts. The company is creating new solutions that essentially work on eliminating the frictions in the commercial aspects of transactions for its clients."

Buy Oracle Financial Services Software Says HDFC Securities

Buy Oracle Financial Services Software Says HDFC Securities

The brokerage claims that "OFSS provides retail banking solutions, corporate banking, payments, and solutions to asset management, life insurance, annuities, and healthcare players. The company is in a good position to respond to market demands, with the right combination of domain expertise, functional depth and a modern set of IT solutions. OFSS is focused on driving growth through investments in product capability which offers customers multiple deployment choices and a competitive edge."

HDFC Securities has further added that "It has a strong balance sheet with net cash at around 14% of market cap and, in the recent years, has been distributing most of its free cash flows as dividends. The stock's current dividend yield is an attractive 5% at the current price and the company has given the best dividend payments over the last five years, except for FY19 when it paid no dividend to conserve cash. We believe the base case fair value of the stock is Rs 4335 (17.5x Dec FY23E EPS) and the bull case fair value of the stock is Rs 4701 (19x Dec FY23E EPS) over the next two quarters. Investors can buy in the Rs 3942-3982 band and add further on dips in the Rs 3570- 3610 band (14.5x Dec FY23E EPS). At the LTP of Rs 3962, the stock is trading at 16x Dec FY23E EPS."

Disclaimer

Disclaimer

The stock has been picked from the brokerage report of HDFC Securities. Investing in equities poses a risk of financial losses. Investors must therefore exercise due caution. Greynium Information Technologies, the author, and the brokerage house are not liable for any losses caused as a result of decisions based on the article.

Story first published: Wednesday, December 29, 2021, 15:59 [IST]
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