Kotak maintains Reduce on Oracle Financial Services

We find the stock richly valued. Any de-listing move from the Parent may trigger a further price rise, though.

The overall macro scene is uncertain, especially in the BFSI segment. Oracle's 1QFY13 numbers were above our estimates, both on the revenue and EBIDTA margin front. Product revenues grew by about 48% YoY. Within that, license fees rose by 146%. We note that, this business is very volatile with significant quarterly fluctuations in performance. Even services revenues, which grew by 27% QoQ, have been surprisingly volatile QoQ. The new license signings were at $19mn ($29mn QoQ).

We increase our FY13 earnings estimates largely on the back of the changed exchange rate assumptions. Our FY13E earnings stand at Rs.137 per share (Rs.124 earlier). Consequently, our price target stands at Rs.2693 (Rs.2340) based on FY13E earnings. At our TP, the valuations will be similar to those of TCS. Looking at the potential downside, we maintain REDUCE.

However, there can be potential gains from Oracle's offer, if any, to buy-back shares and de-list the company. A sharp deterioration in user economies and a sharper-thanexpected rupee appreciation are key risks to our earnings estimates.

Source : Equity Bulls

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