Oracle Financial Services Software : PAT Falls 13% In Q3FY14

Oracle Financial Services Software, a majority owned subsidiary of Oracle, announced its third quarter FY14 result on February 12, 2014 after market hours. The company's primary business is providing product licenses and IT solutions & consulting to the financial sector companies. Also it provides business process outsourcing services.

For the December quarter FY14, the company's net sales remained flat whereas on bottomline front it showed a fall by 13% sequentially. With the net sales of Rs 827.4 crore in Q3FY14, its major revenue contributor product license did not showed any improvement (stood at Rs 638.6 crore). Its other business segment comprising of IT solution and consulting services also remained neutral at Rs 188.8 crore on QoQ basis.

Company's other income de-grew sequentially by 5% to Rs 150.91 crore due the reduction in exchange losses (Rs 7.4 crore in Q3FY14 over Rs 43.7 crore in Q2FY14).

However, operating income of the company posted a sharp decline of 13% came in at Rs 284 crore. The reason behind the fall is the increase in headcount which raised the overall employee cost (increased by 14% to Rs 443 crore) for the company. This resulted in an increase in the overall operating expenses by 9% to Rs 543 crore as compared to Rs 497.4 crore in Q2FY14. The PAT of the IT company, also contracted by 13% to Rs 271.5 crore in the same period.

On geographical front, the major revenue driver, North America (revenue contribution 37%), did not show much growth on sequential basis in the product license segment, while its services segment showed a marginal growth in Q3FY14. In addition, it’s other business markets - Asia Pacific, Europe, Middle East and Africa also remained flat during the quarter.

EBITDA margin and PAT margin on sequential basis shrank by 538 basis points and 496 basis points to 34.3% and 32.8% respectively.

The company added new customers for its products business in Canada, Poland, Romania, Russia, Sweden, UAE and Vietnam, which will start generating revenue in the coming period.

Although, the company posted a decline in its financial performance in the quarter under consideration on sequential basis and its margins also contracted, we expect the company to grow in the coming quarters, backed by the revival in the major IT market’s economy (North America and Europe). In addition, North America the major financial services hub also showing uptrend in their spending, which will boost the IT product and services demand in the period going ahead.