BUY ORACLE FINANCIAL SERVICES SOFTWARE LTD. Result Update: Q2 FY13. CMP (Rs) Target Price (Rs) JAN 11 th, 2013 SYNOPSIS

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1 BUY CMP (Rs) Target Price (Rs) ORACLE FINANCIAL SERVICES SOFTWARE LTD Result Update: Q2 FY13 JAN 11 th, 2013 ISIN: INE881D01027 Stock Data Sector IT Consulting & Software BSE Code Face Value wk. High / Low (Rs.) / Volume (2wk. Avg ) Market Cap ( Rs in mn ) Annual Estimated Results (A*: Actual / E*: Estimated) Years FY12A FY13E FY14E Net Sales EBITDA Net Profit EPS P/E Shareholding Pattern (%) OTHERS DIIs FIIs PROMOTER As on Dec Year Comparative Graph BSE SENSEX ORACLE FINANCIAL SERVICESS SOFTWARE Source: Company Data, Firstcall Research SYNOPSIS Oracle Financial Services Software (formerly I-flex solutions) is a leading provider of applications and professional services for the financial services industry. Oracle has entered into an agreement to acquire Eloqua, Inc. for approximately $871 million, net of Eloqua s cash. Oracle has entered into an agreement to acquire DataRaker. During the second quarter ended, the robust growth in the Net Profit of the company and it is rose by 8.52% to Rs million. During the quarter, 14 customers signed up for the products and 3 customers for the services business. 7 customers completed deployments in the quarter. Oracle has signed licenses fees of $ 8.3 million in the quarter. Oracle new wins and expansion of customer deployments span the US, Latin America, Asis, Middle East, Africa and Central East Europe. Oracle has launched Oracle Retail Category Management, for grocers, big box retailers, hardlines and department stores to improve sales through a customer-centric planning process. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 13% over 2011 to 2014E respectively. Peer Groups Company Name Oracle Financial Services Software Ltd HCL Technologies Ltd TCS Ltd Mindtree Ltd CMP Market Cap EPS P/E (x) P/BV(x) Dividend (Rs.) Rs. in mn. (Rs.) Ratio Ratio (%)

2 Investment Highlights Results updates- Q2 FY13, Oracle Financial Services Software (formerly I-flex solutions) is a leading provider of applications and professional services for the financial services industry in India and across the world, reported its financial results for the quarter ended 30 th Sep, The second quarter witnessess a healthy increase in overall sales as well as profitability of the company. Months Sep-12 Net Sales PAT EPS EBITDA Sep-11 % Change The company s net profit steers to Rs million against Rs million in the corresponding quarter ending of previous year, an increase of 8.52%. Revenue for the quarter rose 6.73% to Rs million from Rs million, when compared with the prior year period. Reported earnings per share of the company stood at Rs a share during the quarter, registering 8.44% increase over previous year period. Profit before interest, depreciation and tax is Rs millions as against Rs millions in the corresponding period of the previous year. Expenditure : During the quarter Total Expenditure increased by 11 per cent mainly on account of increase in Employee Benefit Expenses along with the Depreciation in the rupee impact. Total expenditure in Q2 FY13 was at Rs million as against Rs million in Q2 FY12. Travel related expenses are Rs millions against Rs millions in the corresponding quarter ending of previous year. Other Expenses are Rs millions and Employee Benefit Expenses are Rs million in Q2 FY13 are the primarily attributable to growth of expenditure.

3 Segment Revenue Latest Updates Oracle has entered into an agreement to acquire Eloqua, Inc. for approximately $871 million, net of Eloqua s cash. Eloqua s modern marketing cloud delivers best-in-class capabilities to ensure every component of marketing works harder and more efficiently to drive revenue. The combination of Oracle and Eloqua is expected to create a comprehensivee Customer Experience Cloud offering to help companies transform the way they market, sell, support and serve their customers. Oracle has entered into an agreement to acquire DataRaker, the combination of Oracle and DataRaker s cloud-based solutions is expected to provide utilities with the most complete solution to harness the benefits of utility Big Data to improve operational performance During the quarter, fourteen customers signed up for the products and three customers for the services business. Seven customers completed deployments in the quarter. The company signed licenses fees of $ 8.3 million in the quarter. The company new wins and expansion of customer deployments span the US, Latin America, Asis, Middle East, Africa and Central East Europe.. Oracle has launched Oracle Retail Category Management, which helps grocers, big box retailers, hardlines and department stores improve sales through a customer-centric planning process that helps to create tailored assortments, pricing and promotions to specific customer segments.

4 Oracle announced the availability of the Oracle Banking Platform, a comprehensive suite of business applications for large global banks. Oracle Banking Platform complements Oracle s FLEXCUBE core banking product, which will continue to be sold globally to banks seeking a fully integrated banking solution. Oracle announced the availability of the Oracle Financial Services Analytical Applications for Customer Insight includes four key applications: Oracle Financial Services Retail Performance, Oracle Financial Services Retail Customer Analytics, Oracle Financial Services Channel Analytics and Oracle Financial Services institutional Performance. Oracle announced the availability of the Oracle Financial Services Enterprise Stress Testing & Capital Planning Analytics, an enterprise-wide reporting tool that helps financial institutions assess the impact of adverse scenarios on their risk and performance, improve capital management and strategic planning. Gartner, Inc. has named Oracle as a Leader in its latest Magic Quadrant for Data Integration Tools For the fourth consecutive year. The American Red Cross has implemented Oracle s ATG Web Commerce solutions, components of Oracle Commerce, to improve personalization and drive donations in support of its humanitarian services and programs. SIRO Clinpharm Selects Oracle Health Sciences InForm to Increase Clinical Trial Productivity and Support Global Electronic Data Capture. Hangzhou Tigermed Consulting Co., Ltd, China, recently selected Oracle Health Sciences InForm to more efficiently develop, conduct and manage electronic data capture (EDC)-based clinical trials on behalf of its clients. Fiscal 2013 Acquisitions During the first half of fiscal 2013, Oracle Financial Services acquired certain companies and purchased certain technology and development assets to expand its products and services offerings. These acquisitions were not significant individually or in the aggregate. The company has agreed to acquire certain companies for amounts that are not material to its business and expect to close such acquisitions within the next twelve months. Oracle Financial Services Software Ltd has allotted 19,685 equity shares of face value of Rs. 5/- each to the eligible employees of the Company who have exercise of ESOP 2002, ESOP 2010 and ESOP With this allotment, the paid up capital of the Company increased to Rs. 420,130,870/- divided into 84,026,174 equity shares of face value of Rs. 5/- each.

5 Company Profile Oracle Financial Services Software Limited (referred to as "Oracle Financial Services Software") is a world leader in providing products and services to the financial services industry and is a majority owned subsidiary of Oracle. Oracle Corporation is the world s largest enterprise software company. Oracle Financial Services Software (formerly i-flex solutions) is a leading provider of applications and professional services for the financial services industry. Its portfolio of offerings includes Oracle FLEXCUBE, a complete banking product suite for retail, consumer, corporate, investment, and asset management, and investor servicing. As a part of Oracle's analytics for the financial services industry Oracle Reveleus offers a suite of analytical applications for capital adequacy, stress testing, multi-jurisdictional Basel II compliance, enterprise performance management, and customer insight, and helps institutions address their enterprise risk and compliance needs. Oracle Mantas is the industry's most comprehensive solution for anti-money laundering, fraud detection, and trade compliance. The company has partnership with the following companies: AMD Apple Cisco Dell EMC Fujitsu HP IBM Intel Microsoft Motorola NetApp Sun Microsystems Technology Solutions Big Data Data Warehousing Database Migration High Availability Java Technology Linux Open Source Oracle Optimized Solutions Security Server Consolidation Service-Oriented Architecture Solaris Virtualization Windows and.net

6 Business Solutions Business Analytics Business Process Services Customer Experience Customer Relationship Management Enterprise Content Management Enterprise Management Financial Management Governance, Risk, and Compliance Industries Solutions Human Capital Management Master Data Management Database and IT Infrastructure for SAP Oracle for Midsize Companies Procurement Project Portfolio Management Supply Chain Management Sustainability Aerospace Automotive Chemicals Communications Consumer Products Education and Research Engineering and Construction Financial Services Health Sciences High Technology Subsidiary Companies Industrial Manufacturing Media and Entertainment Natural Resources Oil and Gas Professional Services Public Sector Retail Travel and Transportation Utilities Oracle Financial Services Software B.V. Netherlands Oracle Financial Services Software SA Greece Oracle Financial Services Software Pte. Ltd. Singapore Oracle Financial Services Consulting Pte. Ltd. Singapore Oracle Financial Services Software America, Inc. USA Oracle Financial Services Software, Inc. SA Mantas Inc. USA Mantas Ltd. UK Sotas Inc. USA Mantas Singapore Pte. Ltd. Singapore Mantas India Private Limited India ISP Internet Mauritius Company Republic of Mauritius Oracle (OFSS) BPO Services Inc. USA Oracle (OFSS) BPO Services Limited India Oracle (OFSS) Processing Services Limited

7 Financial Highlight Balance sheet as at March 31 st, 2012 (A*- Actual, E* -Estimations & Rs. In Millions) Particulars March (Rs.in.mn) FY12A FY13E FY14E EQUITY AND LIABILITIES: Shareholders Funds: a) Share Capital b) Reserves and Surplus Net worth (a+b) Share application money pending allotment Non-Current Liabilities: Other Long Term Liabilities Long Term Provisions Long term liabilities Current Liabilities: Trade Payables Other Current Liabilities Short Term Provisions Total Current Liabilities Total Liabilities ( ) ASSETS: Non-Current Assets: Fixed Assets: Tangible Assets Capital work-in-progress a) Total Fixed Assets b) Deferred tax assets c) Other non-current assets d) Non Current Investments e) Long Term Loans and Advances Total Non-Current Assets Current Assets: Current Investments Trade Receivables Cash and Bank Balances Short Term Loans and Advances Other Current Assets Total Current Assets Total Assets ( 1+2 )

8 Annual Profit & Loss Statement for the period of 2011 to 2014E Value(Rs.in.mn) FY11 FY12 FY13E FY14E Description 12m 12m 12m 12m Net Sales Other Income Total Income Expenditure Operating Profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Reserves Face value EPS Quarterly Profit & Loss Statement for the period of 31 st March, 2012 to 31 st Dec, 13E Value(Rs.in.mn) 31-Mar Jun Sep Dec-12E Description 3m 3m 3m 3m Net sales Other income Total Income Expenditure Operating profit Interest Gross profit Depreciation Profit Before Tax Tax Net Profit Equity capital Face value EPS

9 Ratio Analysis Particulars EPS (Rs.) EBITDA Margin (%) PBT Margin (%) PAT Margin (%) P/E Ratio (x) ROE (%) ROCE (%) EV/EBITDA (x) Book Value (Rs.) P/BV FY11 FY12 FY13E % 61.63% 65.42% 43.82% 60.09% 63.84% 41.01% 41.80% 42.78% % 17.44% 16.71% 21.39% 26.35% 26.16% FY14E % 65.38% 44.13% % 24.49% Charts

10 Outlook and Conclusion At the current market price of Rs , the stock P/E ratio is at x FY13E and x FY14E respectively. Earning per share (EPS) of the company for the earnings for FY13E and FY14E is seen at Rs and Rs respectively. Net Sales and PAT of the company are expected to grow at a CAGR of 10% and 13% over 2011 to 2014E respectively. On the basis of EV/EBITDA, the stock trades at x for FY13E and x for FY14E. Price to Book Value of the stock is expected to be at 3.75 x and 3.16 x respectively for FY13E and FY14E. We recommend BUY in this particular scrip with a target price of Rs for Medium to Long term investment. Industry Overview The information technology (IT) and information technology enabled services (ITeS) industry has been one of the key driving forces fuelling India's economic growth. IT and ITeS sector's contribution to the national GDP has increased from 1.2 per cent in to an estimated 7.5 per cent in IT has evolved as a major contributor to India's GDP and plays a vital role in driving growth of the economy in terms of employment, export promotion, and revenue generation. IT-BPO sector is responsible for creating significant employment opportunities in the economy. Direct employment within the IT-BPO sector is expected to grow by over 9 per cent to reach 2.77 million, with over 230,000 jobs being added in IT services exports (including Engineering Research and Design (ER&D) and software products) continue to be the largest employer within the industry with nearly 47 per cent share of total direct employment, BPO exports generate about 32 per cent of the total industry employment, and the remaining 22 per cent is accounted for by the domestic IT-BPO sector. The sector is responsible for enabling employment to an additional 8.9 million people in various associated sectors - catering, security, transportation, housekeeping, etc.

11 Market Size As per NASSCOM estimates, IT and ITeS sector (excluding hardware) revenues are estimated at US$ 87.6 billion in FY The industry is expected to grow by 19 per cent during FY Additionally, the market size of the industry is expected to rise to US$ 225 billion by 2020 considering India's competitive position, growing demand for exports, Government policy support, and increasing global footprint. According to a study by management advisory firm Zinnov, adoption of IT services in the Indian SME segment is growing at 15 per cent and is expected to reach US$ 15 billion by The public cloud services market in India is projected to grow to US$ million, registering 32.4 per cent growth in 2012, according to a report by Gartner. The Indian software and services exports including BPO exports is estimated at US$ 68.7 billion in , as compared to US$ 59 billion in , an increase of 16.4 per cent. The IT services exports is estimated to be US$ 39.8 billion in as compared to US$ 33.5 billion in , showing a growth of 18.8 per cent. BPO exports is estimated to grow from US $ 14.2 billion in to US$ 15.9 billion in , a year-on-year (Yo-Y) growth of about 12 per cent. IT services contributed 58 per cent of total IT-BPO exports in , followed by BPO at 23 per cent and software products / engineering at 19 per cent. Investment Indian IT's core competencies and strengths have placed it on the international canvas, attracting investments from major countries. Between April 2000 and May 2012, the computer software and hardware sector attracted cumulative foreign direct investment (FDI) of US$ 11,262 million, according to the Department of Industrial Policy and Promotion (DIPP). More recently, online retailing, cloud computing and e-commerce are the major driving forces behind the rapidly increasing growth in the IT industry. Online shopping has increased with the emergence of internet retailing and e-commerce. India's IT-BPO revenues are also driven by a rapid increase in rural BPO units, which accounted for more than US$ 10 million in the total sector revenues.

12 Some of the major initiatives in Indian IT and ITeS sector are: Intel Capital, Intel Corporation's global investment and M&A organisation, plans to invest up to US$ 40 million in ten innovative Indian technology companies Kakinada Special Economic Zone (SEZ), being developed by GMR Group, has entered into a partnership agreement with Bengaluru-based RuralShores Business Services Pvt Ltd for setting up a BPO centre Tata Consultancy Services (TCS) plans to set up operations in Madhya Pradesh (MP) by building a new integrated campus in Indore, with an initial investment of Rs 550 crore (US$ million) in the first phase MindTree Ltd has opened its first delivery centre outside India in Gainesville, Florida. The company plans to invest US$ 2.93 million and create 400 new jobs over the next five years BPO firm ExlService Holdings has announced the acquisition of US-based Landacorp Inc. The acquisition will provide Exl with an end-to-end solution for the healthcare industry Government Initiatives The 51 software technology parks of India (STPI) centres that have been set up since inception of the programme have given a major boost to IT and ITeS exports. Apart from exemption from customs duty available for capital goods there are also exemptions from service tax, excise duty, and rebate for payment of Central Sales Tax. FDI upto 100 per cent under the automatic route is allowed in Data processing, software development and computer consultancy services; Software supply services; Business and management consultancy services, Market Research Services, Technical testing & Analysis services. Some of the major initiatives taken by Government of India to promote IT and ITeS sector in India are: The Cabinet has recently approved the National Policy on Information Technology The policy aims to increase revenues of IT and ITeS industry from US$ 100 billion to US$ 300 billion by 2020 and expand exports from US$ 69 billion to US$ 200 billion by 2020 The Government of India plans to set up 15 new laboratories for testing hardware and software products under public-private partnership (PPP) model The Ministry of Finance has issued a circular to chairmen of public sector banks and regional rural banks, that all payments to customers, staff, vendors and suppliers as well as disbursement of loans and payments towards investments should be made only through the electronic mode The Government of India plans to announce incentives to promote IT related export hubs in small towns to attract investors towards SEZs. The Government may also allow broadbanding of sectors, which will allow ancillary units to come up in sector-specific SEZs

13 Road Ahead According to 'India Information Technology Report Q1 2011', released by Research and Markets, Indian market for IT services and products is expected to grow from US$ 18.6 billion in 2011 to US$ 40.5 billion in During the year 2011, government procurement is expected to grow substantially while opportunities in healthcare, education, telecom and financial services would broaden further. Further, NASSCOM expects software and services exports growth at per cent, clocking US$ billion of revenues in FY2012 whereas, domestic market is expected to grow by per cent with revenues of US$ billion. Newer phenomenon like cloud, analytical services, advanced mobile applications, healthy environment for start-ups and SaaS will drive the industry growth. According to latest projections released by Cybermedia Research, the aggregate market size of domestic IT products and ITeS would reach US$ 52.3 billion crore by 2014, growing 17.3 per cent between 2010 and Disclaimer: This document prepared by our research analysts does not constitute an offer or solicitation for the purchase or sale of any financial instrument or as an official confirmation of any transaction. The information contained herein is from publicly available data or other sources believed to be reliable but do not represent that it is accurate or complete and it should not be relied on as such. Firstcall India Equity Advisors Pvt. Ltd. or any of it s affiliates shall not be in any way responsible for any loss or damage that may arise to any person from any inadvertent error in the information contained in this report. This document is provide for assistance only and is not intended to be and must not alone be taken as the basis for an investment decision.

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